ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Causes and conscious. The crisis was caused by currency overvaluation; the current account deficit, and investor confidence played significant role in the sharp exchange rate depreciation. The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s.

Detailed explanation-2: -India faced the Balance of Payment crisis in 1991 due to huge macroeconomic imbalance. Balance of Payment (BoP) Crisis is also called currency crisis. It occurs when a nation is unable to pay for essential imports or service its external debt payments.

Detailed explanation-3: -A massive foreign debt, with a debt-to-exports ratio and high debt-service ratio, which resulted in the state’s credit rating being downgraded and major repayment issues. Low levels of productivity across the economy, resulting in immense resource waste.

Detailed explanation-4: -Measures Taken by Government to Overcome Balance of Payment Crisis 1991. The Government took certain special measures and steps to overcome the BOP crisis in India. They were: Monetary measures, reforms in the industrial policy, and reforms in the trade policy.

Detailed explanation-5: -Economic Crisis of 1991 was a culminated outcome of the policy failure in the preceding years. It was in that year the Indian government was experiencing huge fiscal deficits, large balance of payment deficits, high inflation level and an acute fall in the foreign exchange reserves.