Read the following statements carefully and choose the correct option regarding Assertion (A) and Reason (R). Assertion (A): Devaluation of the rupee in 1991 improved export competitiveness. Reason (R): A weaker rupee made Indian goods cheaper in global markets.
Both A and R are true and R is the correct explanation of A.
Assertion (A) is true: during the 1991 balance of payments crisis, the RBI devalued the rupee in two steps (1 and 3 July 1991) by about 18-19% against major currencies, as part of the economic reforms. This made Indian exports more competitive.
Reason (R) is true: after devaluation, a foreign buyer needs fewer dollars to buy the same rupee-priced Indian goods, so Indian goods become cheaper in global markets (while imports become costlier).
R directly explains A: it is precisely because a weaker rupee lowers the foreign-currency price of Indian goods that export competitiveness improves.
Hence, both A and R are true and R is the correct explanation of A.
Similar Questions
Why must an Indian buyer convert rupees to dollars when purchasing from the U.S.?
Trade policy prior to 1991 was characterized by
Important Questions from External Sector
Which of the following best describes the term 'import cover', sometimes seen in the news?
With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?
(1) Balance of trade
(2) Foreign assets
(3) Balance of Invisibles
(4) Special Drawing Rights
Select the correct answer using the code given below.
Consider the following actions which the Government can take:
1) Devaluing the domestic currency.
2) Reduction in the export subsidy.
3) Adopting suitable policies which attract greater FDI and more funds from FIIs.
Which of the above action/actions can help in reducing the current account deficit?
Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two?
Which one of the following groups of items is included in India’s foreign-exchange reserves?
