Question

(b)(i) "After 1991, reforms in the external sector led to an increase in foreign exchange inflows". Justify the given statement with a valid argument.

Hint:

Economic liberalization, particularly in the external sector, helps increase foreign exchange reserves, strengthens the currency, and boosts international trade.

Answer 1

The 1991 economic reforms, focusing on the external sector, aimed to liberalize trade, attract foreign investment, and stabilize the Indian economy. Key reforms contributing to increased foreign exchange inflows include:
1. Rupee Devaluation: This enhanced the competitiveness of Indian exports internationally, thereby increasing export revenues and foreign exchange inflows.
2. Easing of Foreign Direct Investment (FDI) Norms: Increased foreign investment opportunities led to substantial FDI, bolstering foreign exchange reserves.
3. Trade Liberalization: Lowered tariffs and import barriers facilitated foreign business investment in India, resulting in greater foreign currency inflows.