External Sector of India: UPSC Previous Year Questions (Indian Economy)

Explanation

Assertion (A) is true: According to the annual report of the Reserve Bank of India, 2000, India further liberalized foreign exchange regulations by lowering restrictions on current account transactions under the Foreign Exchange Management Act (FEMA), allowing individuals and businesses greater access to foreign currency for trade, education, medical expenses, and travel. This move was part of India’s economic liberalization process aimed at integrating the country into global markets. Reason (R) is false: During the same period, India’s foreign currency assets were actually increasing due to a steady inflow of foreign direct investment (FDI), robust export growth, and rising remittances from overseas Indians. Hence, the relaxation of current account transaction limits was not due to a fall in foreign currency assets, but rather to boost economic activity and international trade. As per the Reserve Bank of India (RBI) Annual Report 2000, the liberalization of foreign exchange transactions under FEMA was undertaken to enhance India’s trade competitiveness, while foreign exchange reserves continued to rise.