In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
- 1.The foreign currency earnings of India's IT sector
- 2.Increasing the government expenditure
- 3.Remittances from Indians abroad
Select the correct answer using the code given below.
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Answer: B. Item 1 is correct: IT services exports bring in foreign currency. Item 3 is correct: India is the world's largest receiver of remittances, which add to foreign exchange. Item 2 is wrong: higher government spending tends to widen deficits and can raise imports, adding to currency pressure. So 1 and 3 only.
Watch for: Students think spending boosts the economy and so must help, but it can worsen deficits.
Why the other options are wrong
- A. Wrong because remittances also support the rupee.
- C. Wrong because higher government spending does not reduce currency crisis risk.
- D. Wrong because item 2 does not help.
Source to check: RBI Annual Report 2017-18 (external sector); Economic Survey 2018-19, chapter on external sector
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.