If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India? 1. Not depending on short-term foreign borrowings 2. Opening up to more foreign banks 3. Maintaining full capital account convertibility Select the correct answer using the code given below:

Question

YESPYQ · Accepted Answer

Correct answer: 1 only. Statement 1 is correct : Short-term foreign debt is a major vulnerability during a financial crisis. When glob- al confidence deteriorates, investors can pull their short-term funds out of emerging markets very quickly. This sudden outflow of capital can cause a currency crisis, sharp interest rate increas- es, and severe economic disruption. A lower reliance on such borrowings provides greater resilience. Statement 2 is incorrect : Opening up to more foreign banks would lead to enhanced exposure to the global economy. While foreign banks can introduce advanced practices and en- hance capital availability, they also increase India’s exposure to global financial shocks. During crises these banks often prioritize their home markets, reducing support to Indian operations and exacerbating credit shortages. Greater foreign bank presence may foster interconnectedness but does not guarantee immunity, po- tentially heightening India’s vulnerability to external disruptions. Statement 3 is incorrect : Capital account conver-tibility means no restriction on the amount on

Practice more Economy PYQs

More UPSC Economy PYQs