UPSC CSE Prelims
Question 14
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?
- Not depending on short-term foreign borrowings
- Opening up to more foreign banks
- Maintaining full capital account convertibility
Select the correct answer using the code given below:
View correct answer and explanation
Correct answer: A
Correct Option: A (1 only)
Explanation: Avoiding short-maturity foreign debt reduces rollover and currency-liquidity risk during a global financial crisis; greater dependence on cross-border finance or unrestricted capital flows can increase vulnerability.
Statement / Pair / Item-wise Analysis:
1. Correct - Less short-term external borrowing lowers refinancing pressure when global funding dries up.
2. Incorrect - More foreign-bank exposure can transmit international credit shocks into India.
3. Incorrect - Full capital-account convertibility can magnify volatile capital outflows during crises.
Option-wise Analysis:
A. Correct-includes all and only valid statements/items 1.
B. Incorrect-includes incorrect item 2 (More foreign-bank exposure can transmit international credit shocks into India).
C. Incorrect-includes incorrect item 3 (Full capital-account convertibility can magnify volatile capital outflows during crises); omits correct item 1 (Less short-term external borrowing lowers refinancing pressure when global funding dries up).
D. Incorrect-includes incorrect item 2 (More foreign-bank exposure can transmit international credit shocks into India); includes incorrect item 3 (Full capital-account convertibility can magnify volatile capital outflows during crises).