UPSC Prelims 2020— Question 9

This question tests global financial crisis and external vulnerability. The key concept is: Reducing dependence on short-term foreign borrowing lowers rollover and sudden-stop vulnerability during an international financial crisis. Greater dependence on foreign banks or full capital-account convertibility can increase external exposure rather than provide immunity. India therefore benefits from maintaining adequate reserves and prudent external liabilities. The verified answer for the uploaded Set-B paper is option A. Option A — 1 only: This is the correct option. It matches the verified conclusion because Reducing dependence on short-term foreign borrowing lowers rollover and sudden-stop vulnerability during an international financial crisis. Greater dependence on foreign banks or full capital-account convertibility can increase external exposure rather than provide immunity. India therefore benefits from maintaining adequate reserves and prudent external liabilities. The wording of the option is consistent with the governing concept tested by the question. Option B — 1 and 2 only: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: Reducing dependence on short-term foreign borrowing lowers rollover and sudden-stop vulnerability during an international financial crisis. Greater dependence on foreign banks or full capital-account convertibility can increase external exposure rather than provide immunity. India therefore benefits from maintaining adequate reserves and prudent external liabilities. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. Option C — 3 only: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: Reducing dependence on short-term foreign borrowing lowers rollover and sudden-stop vulnerability during an international financial crisis. Greater dependence on foreign banks or full capital-account convertibility can increase external exposure rather than provide immunity. India therefore benefits from maintaining adequate reserves and prudent external liabilities. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. Option D — 1, 2 and 3: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: Reducing dependence on short-term foreign borrowing lowers rollover and sudden-stop vulnerability during an international financial crisis. Greater dependence on foreign banks or full capital-account convertibility can increase external exposure rather than provide immunity. India therefore benefits from maintaining adequate reserves and prudent external liabilities. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. For UPSC-style elimination, first identify the exact proposition being tested, then evaluate each statement independently before comparing the answer codes. Avoid treating a broad or absolute statement as correct merely because its general theme is familiar. The precise qualifiers in the question—such as 'all', 'only', 'cannot', 'largest', 'always' or a specific institutional role—often determine the answer. On that basis, option A is the verified answer.