The BOP crisis of 1991 involved a shortage of?

Correct — C. A balance of payments crisis is a shortage of foreign exchange: the country cannot pay for its imports or service its foreign debt.

NCERT's account of 1991: the government could not repay its borrowings from abroad, and reserves 'dropped to levels that were not sufficient for even a fortnight' of imports. That is option (c).

Why the others are wrong

• (a)
  Water — BOP means external payments, not natural resources. The balance of payments records transactions with the rest of the world, and in 1991 India could not pay for them.
• (b)
  Electricity — Electricity is a domestic supply question. The 1991 crisis was external: the reserves used to import petroleum and other essentials had nearly run out.
• (d)
  Labour — Labour was not the shortage. A BOP crisis concerns payments abroad, and in 1991 India lacked the foreign currency to meet them, not the workers.

The balance of payments records a country's transactions in goods, services and assets with the rest of the world. Imports and debt service are paid in foreign currency.

NCERT traces the 1991 crisis to the 1980s. Government spending ran so far beyond revenue that borrowing became unsustainable, and imports grew much faster than exports. Reserves fell too low to cover imports or the interest owed to lenders.

Key facts

• In 1991 India's foreign exchange reserves were not sufficient for even a fortnight of imports (NCERT).
• India approached the World Bank and the IMF and received $7 billion as loan to manage the crisis (NCERT).
• The rupee was devalued in 1991 as an immediate measure to resolve the balance of payments crisis.
• India accepted the World Bank and IMF conditions and announced the New Economic Policy (NEP).

Common traps

• Reading 'shortage' as a domestic supply problem: a BOP crisis is about paying other countries.
• Thinking the crisis began in 1991: NCERT traces its origin to the management of the economy in the 1980s.

No directly related past PYQ was found.