UPSC Prelims 2020 · Question 9 of 100
UPSC Prelims 2020 question on Global Financial Crisis Immunity
- ExamUPSC CSE
- Year2020
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicExternal Sector of India
- DifficultyMedium
- TypeStatement
If another global financial crisis happens in the near future, which of the following action/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:
Show answer
Answer: A. 1 only
Verdict
Correct statement: 1 only → Option (a).
Statement by statement
Statement 1 – CORRECT: Short-term borrowings would lead to the burden of paying back the debt and could result in stressful conditions for the borrowing economy. Not depending on short-term foreign borrowings gives India some immunity. Hence option 1 is correct.
Statement 2 – INCORRECT: Opening up to more foreign banks would lead to an enhanced exposure to the global economy and hence an increased risk. It would not provide immunity. Hence option 2 is not correct.
Statement 3 – INCORRECT: Full capital account convertibility is the freedom to convert domestic currency into a foreign currency and vice versa without any government intervention. This is more risky as foreign investors can withdraw all their money at once (capital flight), increasing vulnerability to external economic shocks. Hence option 3 is not correct.