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    Question

    Which of the following reasons prompted India to liberalize its economy?

    I- high combined deficit of the central and state governments

    II- elevated inflationary pressures

    III- large and unsustainable current account deficit (CAD)

    IV- External aggression from neighbouring countries

    A I & II Correct Answer Incorrect Answer
    B II & III Correct Answer Incorrect Answer
    C I, II, & III Correct Answer Incorrect Answer
    D II, III, & IV Correct Answer Incorrect Answer
    E I, II, III, & IV 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.

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