UPSC Prelims 2001 Q31: Indian Economy – External Sector & Balance Of Payments
Assertion (A): Ceiling on foreign exchange for a host of current account transaction heads
was lowered in the year 2000. Reason (R): There was a fall in foreign currency assets also.
- (a) Both A and R are individually true, and R is the correct explanation of A
- (b) Both A and R are individually true, but R is NOT a correct explanation of A
- (c) A is true, but R is false
- (d) A is false, but R is true
Answer: (c) A is true, but R is false
Explanation
Assertion-Reason: ceilings on foreign exchange for current account transactions in 2000
| Statement | Verdict |
|---|---|
| A. Ceilings on foreign exchange for many current account heads were lowered in 2000 | True (as per the key) — under the new FEMA rules of 2000 the RBI fixed fresh limits for several heads |
| R. There was a fall in foreign currency assets also | False — foreign currency assets rose in 2000, to about US$ 35 billion by March 2000 |
| FEMA, 1999 | Came into force on 1 June 2000, replacing FERA |
| Current account rules | Foreign Exchange Management (Current Account Transactions) Rules, 2000 |
With FEMA in force from June 2000, the Foreign Exchange Management (Current Account Transactions) Rules, 2000 laid down fresh limits for a number of heads, which the key accepts as A. Reserves were rising, not falling, so R is false.
Answer: (c) A is true, but R is false.
Why each option is right or wrong
- (a) Incorrect. R is false; foreign currency assets were rising.
- (b) Incorrect. R is false, so both cannot be true.
- (c) CORRECT. Ceilings were revised under FEMA rules, but reserves had not fallen.
- (d) Incorrect. The key takes A as true.
Key point
FERA (1973) was replaced by FEMA (1999, in force 1 June 2000); FEMA made foreign exchange offences civil, not criminal.
Remember
FEMA in force from 1 June 2000; reserves were rising.
Common mistakes
- Thinking reserves fell in 2000; they kept rising.
- Not knowing that FEMA came into force in June 2000.
- Linking any change in limits to a reserve crisis.
Exam tip
Check the Reason against a known data point — here, the level of reserves.
Sources
- Foreign Exchange Management (Current Account Transactions) Rules, 2000
- Reserve Bank of India — Annual Report 1999-2000, chapter 'External Sector'