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.
Answer & explanation
Answer: (b) 1 and 3 only
IT export earnings and remittances from Indians abroad both bring foreign currency into India, which helps pay for imports and supports the rupee, so they lower the risk of a currency crisis. Higher government spending does not earn any foreign exchange and tends to push up demand and prices, so it does not reduce that risk.
- ✓ 1. NCERT notes that India is earning large foreign exchange through the export of information technology. RBI's balance of payments releases likewise credit software services exports for rising services receipts.
- ✓ 3. Private transfer receipts, mainly remittances by Indians employed overseas, are a large steady inflow of foreign currency in the balance of payments (US$ 27.4 billion in July-September 2022).
- ✗ 2. Extra government spending raises aggregate demand and is criticised as inflationary (NCERT). It adds no foreign-currency receipts, so it is not a factor that reduces currency-crisis risk.
Remember · Stable foreign-exchange inflows, such as IT and services exports and remittances, protect the currency; expansionary government spending brings no such inflow.
📘 Read it in NCERT: Class 10 Contemporary India – II, Ch 7 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter)
Sources
- NCERT Class 10 · Contemporary India – II, Chapter 7 “India has emerged as a software giant at the international level and it is earning large foreign exchange through the export of information technology.”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “One of the main criticisms of deficits is that they are inflationary. This is because when government increases spending or cuts taxes, aggregate demand increases.”
- RBI press release: Developments in India's Balance of Payments, Q2 (July-September) 2022-23 ↗ “Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to US$ 27.4 billion”
Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·