In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
1. The foreign currency earnings of India’s IT sector
2. Increasing the government expenditure
3. Remittances from Indians abroad.

Select the correct answer using the code given below. (UPSC CSP 2019, GS Paper I)A.1, 2 and 3B.1 and 3 onlyC.1 onlyD.2 only

Question

In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? 1. The foreign currency earnings of India's IT sector 2. Increasing the government expenditure 3. Remittances from Indians abroad. Select the correct answer using the code given below. (UPSC CSP 2019, GS Paper I)

Accepted Answer

1 and 3 only. The correct answer is 1 and 3 only. IT-sector export earnings and remittances from Indians abroad are stable foreign-currency inflows. They build up reserves and reduce the chances of a currency crisis. Higher government expenditure does the opposite. It tends to widen the fiscal deficit and the current account deficit together, a pattern called the twin-deficits problem. That raises, rather than reduces, the risk of a currency crisis. Read more: Economy0008 — International Trade and Balance of Payments.

Which of the following factors reduce the risk of a currency crisis in India? (UPSC CSP 2019)

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