If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India? 1. Not depending on short-term foreign borrowings 2. Opening up to more foreign banks 3. Maintaining full capital account convertibility Select the correct answer using the code given below:

The prior exam question explicitly lists 'opening up to more foreign banks' alongside 'not depending on short-term foreign borrowings' as possible policies to give India some immunity to a global financial crisis, indicating this is a recognized policy candidate.

A student could treat this as a policy hypothesis and compare historical episodes or cross-country evidence on whether greater foreign-bank presence correlated with crisis resilience.

Describes the typical activities of foreign banks in India (trade finance, ECBs, wholesale lending, investment banking, treasury), showing they bring cross-border funding and specialized services.

One could extend this by assessing whether these activities diversify funding sources and services during global stress, using data on foreign-bank market share and funding stability.

States that all Scheduled Commercial Banks and Foreign Private Banks with sizeable presence must meet priority-sector lending targets, implying foreign banks are regulated to support domestic credit needs.

A student could examine whether such regulatory integration means foreign banks' behavior during crises aligns with domestic stability goals or instead constrains their crisis responses.

Explains that larger consolidated banks can compete with global banks and support larger lending and financial capacity, suggesting scale and integration affect crisis resilience.

One could compare whether increased foreign-bank presence or larger domestic banks better provides scale and cushioning in crises, using balance-sheet size and lending data.

Notes that more foreign investment in government securities affects government external debt and liquidity of Indian government bonds, linking foreign capital flows to domestic financial conditions.

A student could explore whether opening banks to foreigners increases cross-border portfolio flows and whether that raises vulnerability to sudden stops in a crisis.

Explains that full capital account convertibility can destabilize an economy via massive capital flows and is introduced only when macro parameters are stable and reserves can absorb outflows.

A student could check India's current fiscal/external metrics and reserve buffers to judge whether full convertibility would likely increase or reduce shock-absorption capacity.

Lists specific risks from capital account convertibility — exposure to global vulnerabilities, sudden capital flight, speculative attacks and contagion.

A student could compare past crisis episodes (e.g., sudden stops) and timelines of capital flight to assess if convertibility would have amplified those episodes for India.

Notes that attracting foreign currency flows (e.g., via global bond indices) increases exchange rate risk and can cause rupee volatility when external conditions turn adverse.

Using basic facts about India's import dependence and forex exposure, a student could estimate how exchange rate volatility under full convertibility might affect macro stability during a global shock.

Shows the accounting link: current account + capital account = change in forex reserves, so capital flows directly alter reserve dynamics.

A student could simulate how an abrupt reversal in capital account (e.g., capital outflow) would deplete reserves and affect resilience under full convertibility.

Describes Liberalised Remittance Scheme as 'baby steps' toward dismantling capital controls and notes the normative view that capital controls don't fit a liberalised economy.

A student could use India's incremental liberalisation experience to evaluate whether gradual moves or full convertibility are likely to improve resilience in crises.