Change set

Pick exam & year, then Go.

Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q86 (IAS/2019) Economy › Money, Banking & Inflation › Exchange rate management Official Key

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

Result
Your answer: —  ·  Correct: D
Explanation

The correct answer is option D because an expansionary monetary policy is not a measure RBI would take to stop the rupee's slide; in fact, it would likely worsen depreciation.

To overcome BOP imbalances and prevent rupee depreciation, the Government/RBI takes measures like devaluation management, export promotion and import control through incentives, subsidies, and import restrictions[1]. Issue of Masala Bonds creates demand for rupee and thus helps in preventing depreciation of currency[2]. Factors contributing to improved BOP situation include increase in software exports, private remittances, Foreign Investment (both FDI and portfolio investment), and rise in Net External Commercial Borrowings[3], showing that easing ECB conditions can help.

However, an expansionary monetary policy increases the economy's money supply through reduced key interest rates and increased market liquidity[4]. This would increase rupee supply in the market, reducing its value and accelerating depreciation rather than stopping it. Credit control measures to decrease money supply help reduce purchasing power and aggregate demand[1], which is the opposite approach to expansionary policy. Therefore, expansionary monetary policy contradicts the objective of stopping rupee depreciation.

Sources
  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > Measures taken by the Government/RBI to overcome BOP Imbalance > p. 484
  2. [2] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MASALA BOND > p. 266
  3. [3] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > BOP Situation in Post-Reform Period (1991-92 Onwards) > p. 484
  4. [4] https://universalinstitutions.com/rbi-and-monetary-policy-in-india/
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
49%
got it right
PROVENANCE & STUDY PATTERN
Guest preview
Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Which one of the following is not the most likely measure the Government/ RBI takes to stop the slide of Indian rupee? [A] Curbing impor…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 7.5/10 · 2.5/10
You're seeing a guest preview. The Verdict and first statement analysis are open. Login with Google to unlock all tabs.

This is a classic 'Conceptual Application' question. While standard books define Masala Bonds and ECBs, the answer relies on understanding the inverse relationship between money supply and currency value. It tests if you can connect 'Expansionary Policy' (Internal) to 'Currency Depreciation' (External).

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Are measures to curb imports of non-essential goods and promote exports used by the Government or RBI to stop the slide of the Indian rupee?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > Measures taken by the Government/RBI to overcome BOP Imbalance > p. 484
Presence: 5/5
“• Credit control measures to decrease money supply in the economy, which helps to reduce a. the purchasing power and thereby results in decrease in aggregate demand. • Devaluation of domestic currency (not always) which stimulates exports and reduces b. demand for imports. • Export promotion and import control measures such as more of export incentives and c. subsidies and restriction on imports through licensing, import quota, etc. • d. Structural reforms to put the economy on a competitive path.”
Why this source?
  • Explicitly lists export promotion and import control (export incentives, restrictions through licensing/quota) as measures the Government/RBI uses to overcome BoP imbalance.
  • Frames these measures as tools to alter external demand flows, which directly affect foreign exchange availability and exchange-rate pressure.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > STERILISATION AS A POLICY TOOL OF RBI > p. 498
Presence: 4/5
“RBI has intervened excessively in recent years to prevent the rupee from appreciating too fast. This has helped to bring in more Dollars into the Indian economy. Moreover, with the help of sluggish imports and capital controls in recent years, we find a continuous rise in India's forex reserves. RBI has mainly intervened through the policy of sterilisation. Under sterilisation, RBI purchases Dollars from the market and releases Indian rupee in return, and then again sucks the excessive rupee from the economy through sale of Government Securities (G-Secs). This process of sterilisation has been the RBI's important exchange rate management tool in recent years.”
Why this source?
  • Describes how sluggish imports and capital controls have helped raise forex reserves, linking import suppression to improved external balances.
  • Explains RBI intervention (sterilisation) in forex markets alongside these external-sector measures to manage exchange-rate outcomes.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Currency Swap Agreement between two countries: > p. 102
Presence: 4/5
“This currency swap arrangement will allow the Indian central bank to draw up to $75 billion worth of yen or dollars as a loan from the Japanese government whenever it needs this money. The RBI can either sell these dollars (or yen) to importers to settle their bills or to borrowers to pay off their foreign loans. The RBI can just keep these dollars with itself also to shore up its own foreign exchange reserves and defend the rupee. Actually, the rupee was falling against the dollar because of its widening current account deficit. This led to importers upping their demand for dollars far beyond what exporters bring into the country leading to further depreciation of rupee.”
Why this source?
  • Explains RBI can use foreign exchange (including swap lines) to sell dollars to importers or to build reserves and defend the rupee.
  • Connects high importer demand for dollars (from large imports) to rupee depreciation, implying reducing import demand eases depreciation pressure.
How to study

This tab shows concrete study steps: what to underline in books, how to map current affairs, and how to prepare for similar questions.

Login with Google to unlock study guidance.

Micro-concepts

Discover the small, exam-centric ideas hidden in this question and where they appear in your books and notes.

Login with Google to unlock micro-concepts.

The Vault

Access hidden traps, elimination shortcuts, and Mains connections that give you an edge on every question.

Login with Google to unlock The Vault.

✓ Thank you! We'll review this.

SIMILAR QUESTIONS

5 Cross-Linked PYQs

UPSC repeats concepts across years. Login to see how this question connects to 5 others.

Login with Google