UPSC Prelims 2019 GS Paper I · Q86 of 100 Economy medium

Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?

  1. (a) Curbing imports of non-essential goods and promoting exports
  2. (b) Encouraging Indian borrowers to issue rupee denominated Masala Bonds
  3. (c) Easing conditions relating to external commercial borrowing
  4. (d) Following an expansionary monetary policy ✓ UPSC's answer

Why the answer is (d)

• When the rupee slides, the Government/RBI try to increase dollar supply or reduce dollar demand.

• Curbing non-essential imports and pushing exports (a), encouraging Masala Bonds that bring in foreign money without currency risk (b), and easing external commercial borrowing norms (c) were all steps announced in 2018 to attract inflows.

• An expansionary monetary policy (d) — cutting rates and adding liquidity — lowers returns on rupee assets and drives capital out, weakening the rupee further; it is the opposite of what is done.

• Hence option (d).

Why the other options are wrong

(a) Curbing imports of non-essential goods and promoting exports
Import curbs and export push are standard responses.
(b) Encouraging Indian borrowers to issue rupee denominated Masala Bonds
Masala Bonds bring in dollars without currency risk.
(c) Easing conditions relating to external commercial borrowing
Easing ECB norms attracts foreign capital.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2019, held on 2 June 2019. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

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