If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India ?
- 1.Not depending on short-term foreign borrowings
- 2.Opening up to more foreign banks
- 3.Maintaining full capital account convertibility
Select the correct answer using the code given below :
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Answer: A. Not depending on short-term foreign borrowings reduces the risk of a sudden outflow in a crisis. Opening up to more foreign banks and full capital account convertibility would make India more exposed to global shocks, as capital could leave quickly. So only 1.
Watch for: Openness sounds modern and strong, but in a crisis it increases contagion.
Why the other options are wrong
- B. Wrong because more foreign banks can bring global crises into India faster.
- C. Wrong because full capital account convertibility increases exposure to capital flight.
- D. Wrong because statements 2 and 3 increase risk.
Source to check: RBI Report of the Committee on Fuller Capital Account Convertibility (Tarapore, 2006); Economic Survey of India
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.