| Direction: Q 1 to 5 |
| Read the following case study and answer the given questions. |
In the late 1980s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable. Prices of many essential goods rose sharply. Imports grew at a very high rate without matching growth of exports. Foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to pay the interest that needs to be paid to international lenders. Also no country or international funder was willing to lend to India. India approached the World Bank and the International Monetary Fund (IMF) and received  7 billion as loan to manage the crisis. India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP). This new set of policy measures changed the direction of our development strategies. |
A) A high level of fiscal deficit
B) Inflationary pressures
C) Persistent level of unemployment and poverty
D) Depletion of the foreign exchange reserves
Correct Answer: C
Solution :
The chief casual factors that led to the introduction of economic reforms in India were: mounting fiscal and BoP deficit, inflationary pressures, underperformance of the public sector and depletion of foreign exchange reserves.
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