With reference to the foreign investment in India post-1991, consider the following statements: 1. There has been a decline in foreign exchange reserves since 1991 due to profit repatriation. 2. Foreign investment includes both Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). 3. India has one of the lowest foreign exchange reserves in the world. Which of the statements given above is/are correct?

The correct option is 2 only Explanation Foreign investment constitutes a major part of the Capital Account in a country's Balance of Payments (BoP). Since the economic liberalization of 1991, India has actively sought foreign capital to bridge the domestic savings-investment gap and manage its external sector stability. Statement-wise Analysis: - Statement 1 is Incorrect: Foreign investment is broadly categorized into Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), which includes Foreign Institutional Investment (FII). FDI involves a long-term interest and control in a resident enterprise, while FII involves investment in financial assets like stocks and bonds. Both are integral components of foreign investment inflows. - Statement 2 is Correct: Since 1991, India has witnessed a massive increase in foreign exchange reserves, not a decline. While profit repatriation is an outflow item, the net inflows from FDI, FII, and invisibles (such as remittances and software services) have far exceeded these outflows. Reserves grew from a critical low of roughly USD 5.8 billion in 1991 to over USD 600 billion in recent years. - Statement 3 is Incorrect: India holds one of the largest foreign exchange reserves in the world, consistently ranking among the top global holders (typically in the top 5 or 6, alongside countries like China, Japan, and Switzerland). Key Takeaway: The post-1991 reforms transformed India's external sector, leading to robust capital inflows (FDI and FII) that significantly accumulated foreign exchange reserves, placing India among the top reserve-holding nations globally.

NCERT Class 11 Economics — Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal

mcqmedium

With reference to the foreign investment in India post-1991, consider the following statements:

There has been a decline in foreign exchange reserves since 1991 due to profit repatriation.
Foreign investment includes both Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII).
India has one of the lowest foreign exchange reserves in the world.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A1 and 3 only
B1, 2 and 3
C2 only
D1 only

Did you get this right?

Solution

The correct option is

2 only

Explanation

Foreign investment constitutes a major part of the Capital Account in a country's Balance of Payments (BoP). Since the economic liberalization of 1991, India has actively sought foreign capital to bridge the domestic savings-investment gap and manage its external sector stability.

Statement-wise Analysis:

Statement 1 is Incorrect: Foreign investment is broadly categorized into Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), which includes Foreign Institutional Investment (FII). FDI involves a long-term interest and control in a resident enterprise, while FII involves investment in financial assets like stocks and bonds. Both are integral components of foreign investment inflows.
Statement 2 is Correct: Since 1991, India has witnessed a massive increase in foreign exchange reserves, not a decline. While profit repatriation is an outflow item, the net inflows from FDI, FII, and invisibles (such as remittances and software services) have far exceeded these outflows. Reserves grew from a critical low of roughly USD 5.8 billion in 1991 to over USD 600 billion in recent years.
Statement 3 is Incorrect: India holds one of the largest foreign exchange reserves in the world, consistently ranking among the top global holders (typically in the top 5 or 6, alongside countries like China, Japan, and Switzerland).

Key Takeaway:
The post-1991 reforms transformed India's external sector, leading to robust capital inflows (FDI and FII) that significantly accumulated foreign exchange reserves, placing India among the top reserve-holding nations globally.

Your note

More from Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal

With reference to the economic crisis of 1991 in India, consider the following statements: 1. The crisis was triggered because the government was unable to make repayments on its borrowings from abroad. 2. Foreign exchange reserves were sufficient for more than a year of imports. 3. The crisis was compounded by rising prices of essential goods. Which of the statements given above is/are correct?

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Consider the following statements regarding the deregulation of the industrial sector under the 1991 reforms: 1. Industrial licensing was abolished for all product categories without exception. 2. Industries reserved for the public sector were reduced to only a part of atomic energy generation and some core activities in railway transport. 3. The market was allowed to determine prices in most industries. Which of the statements given above is/are correct?

medium

With reference to the 'Outsourcing' phenomenon under globalisation, consider the following statements: 1. It involves a company hiring regular services from external sources which were previously provided internally. 2. The growth of outsourcing is primarily driven by the stagnation of the manufacturing sector in developed countries. 3. India has become a destination for outsourcing due to low wage rates and the availability of skilled manpower. Which of the statements given above is/are correct?

medium

With reference to the trade policy reforms initiated in 1991, consider the following statements: 1. Quantitative restrictions on imports of manufactured consumer goods were fully removed immediately in 1991. 2. Export duties were removed to increase the competitive position of Indian goods in international markets. 3. Import licensing was abolished except for hazardous and environmentally sensitive industries. Which of the statements given above is/are correct?

hard

Consider the following statements regarding the performance of the agriculture sector during the reform period: 1. Public investment in the agriculture sector has declined in the reform period. 2. The removal of fertiliser subsidy has decreased the cost of production for farmers. 3. There has been a shift from export market production to domestic market production. Which of the statements given above is/are correct?

medium

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The correct option is

2 only

Explanation

Statement-wise Analysis:

Statement 1 is Incorrect: Foreign investment is broadly categorized into Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), which includes Foreign Institutional Investment (FII). FDI involves a long-term interest and control in a resident enterprise, while FII involves investment in financial assets like stocks and bonds. Both are integral components of foreign investment inflows.
Statement 2 is Correct: Since 1991, India has witnessed a massive increase in foreign exchange reserves, not a decline. While profit repatriation is an outflow item, the net inflows from FDI, FII, and invisibles (such as remittances and software services) have far exceeded these outflows. Reserves grew from a critical low of roughly USD 5.8 billion in 1991 to over USD 600 billion in recent years.
Statement 3 is Incorrect: India holds one of the largest foreign exchange reserves in the world, consistently ranking among the top global holders (typically in the top 5 or 6, alongside countries like China, Japan, and Switzerland).