Prelims 2019 · Economy · Question 15
In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
- The foreign currency earnings of India's IT sector
- Increasing the government expenditure
- Remittances from Indians abroad
Select the correct answer using the code given below.
Answer
1 and 3 only
1. Foreign currency earnings of India's IT sector — Correct. IT exports bring in substantial foreign exchange, improving the current account and forex availability; this helps reduce currency-crisis risk.
2. Increasing the government expenditure — Incorrect. Higher government spending, if not matched by revenues/productivity gains, can widen fiscal and external imbalances and may increase pressure on the currency rather than reduce it.
3. Remittances from Indians abroad — Correct. Remittances are a stable source of foreign exchange inflows and support the balance of payments, lowering vulnerability to a currency crisis.
Hence, 1 and 3 only are correct.