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?
- 1.Not depending on short-term foreign borrowings
- 2.Opening up to more foreign banks
- 3.Maintaining full capital account convertibility
Select the correct answer using the code given below:
Answer & explanation
Answer: (a) 1 only
UPSC's key accepts only staying away from short-term foreign borrowing: such loans must be repaid or rolled over within a year, and lenders stop rolling them over when panic hits. UPSC's key does not count statements 2 and 3 as protection.
- ✓ 1. Short-term debt (original maturity of one year or less) is a key indicator of debt sustainability in volatile conditions. In 2008-09 short-term trade credit reversed to a net outflow, so low dependence on such funds leaves less to be pulled out.
- ✗ 2. UPSC's official key does not count this as protection; we could not confirm the reasoning from an official source, so we do not explain it here. The Economic Survey records that banking capital, including NRI deposits, was among the flows that turned into net outflows in 2008-09.
- ✗ 3. UPSC's official key does not count this as protection; we could not confirm the reasoning from an official source, so we do not explain it here. The Economic Survey records that reversal of capital flows was the main route through which the 2008 shock reached emerging economies, with portfolio outflows alone at US$ 14 billion.
Remember · In a global crisis, short-term foreign money runs first. Less short-term borrowing leaves less to be pulled out.
Sources
- Ministry of Finance, Economic Survey 2009-10, Ch 6 (Balance of Payments) ↗ “short-term debt with original maturity of one year or less are important indicators of debt sustainability in volatile financial market conditions. … The impact on the emerging world was through reversal of capital flows, fall in stock markets, depreciation of local currency, decline in exports and general risk aversion, which affected consumption and investment. … The decline was mainly due to net outflows under portfolio investment including foreign institutional investments (FIIs), American depository receipts (ADRs)/ global depository receipts (GDRs) (US$ 14.0 billion), banking capital including NRI deposits (US$ 3.2 billion) and short-term trade credit (US$ 1.9 billion).”
Question and answer: UPSC's official GS Paper I (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). ·