Question : Statement 1: External sector reforms focused on promoting foreign trade and investments.
Statement 2: Liberalization of the external sector led to a decrease in imports and an increase in exports.
Option 1: Both statements are true.
Option 2: Both statements are false.
Option 3: Statement 1 is true, and statement 2 is false.
Option 4: Statement 1 is false, and statement 2 is true.
Correct Answer: Both statements are true.
Solution : The correct answer is (a) Both statements are true.
Statement 1 is true. The 1991 economic policy in India aimed to liberalize the external sector by reducing trade barriers, promoting foreign trade, and attracting foreign investments. It introduced measures such as trade liberalization, exchange rate reforms, and facilitation of foreign direct investment (FDI).
Statement 2 is also true. As a result of the liberalization measures, there was an increase in competition, efficiency, and access to global markets, which led to a boost in exports. Simultaneously, the liberalization allowed for a greater inflow of foreign investment, which could contribute to an increase in imports. However, the overall impact on imports and exports would depend on various factors such as exchange rates, domestic production capabilities, and global market conditions.
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