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    Question

    1991 reforms are said to be the watershed moment for the Indian Economy. How was the banking system supported after the 1991 reforms in India?

    A Through an increase in interest rates and nationalisation of private banks Correct Answer Incorrect Answer
    B Through deregulation of interest rates and enactment of the SARFAESI Act 2002 Correct Answer Incorrect Answer
    C Through an increase in interest rates and enactment of the Banking Regulation Act 1949 Correct Answer Incorrect Answer
    D Through nationalisation of private banks and enactment of the Banking Regulation Act 1949 Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The macroeconomic imbalances of the late 1980s and early 1990s pushed the government towards introducing the structural reforms of 1991. The high combined deficit of the central and state governments, elevated inflationary pressures, and large and unsustainable current account deficit (CAD) led to a balance of payments crisis in the Indian economy. In response to the situation, trade and investments were liberalised in 1991. The banking system, which had accumulated bad debts during the period of economic resurgence after the 1991 reforms, was supported through the deregulation of interest rates and the enactment of the SARFAESI Act 2002.

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