Question

“After 1991, reforms in external sector led to an increase in foreign exchange inflows”.

Justify the given statement with valid argument.

Answer 1

The following arguments, supported by economic policies and results, justify the statement “After 1991, reforms in the external sector led to an increase in foreign exchange inflows”:

• Liberalisation of Foreign Investment (FDI & FPI)
• Current Account Convertibility
• Export Promotion Measures

Key Evidence of Increased Forex Inflows
Indicator	Pre-1991 (1990-91)	Post-Reforms (2020-21)
Forex Reserves	$ 1.2 billion	$ 642 billion
FDI Inflows	$ 0.1 billion	$ 81.7 billion
Exports	$ 18 billion	$ 330 billion

The 1991 reforms (LPG-Liberalisation, Privatization, and Globalisation) eliminated restrictive regulations, drew international investment, increased exports, and increased currency reserves. Therefore, the statement is empirically justified.

Example: IT industry expansion (post-reforms) generated $ 194 billion in currency earnings in 2021, compared with negligible earnings in the pre-1991 period.