In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? 1) The foreign currency earnings of India’s IT sector 2) Increasing the government expenditure 3) Remittances from Indians abroad Select the correct answer using the code given below.

The correct answer is B (1 and 3 only). A currency crisis usually follows a shortage of foreign exchange, so anything that adds steady dollar inflows or reduces outflows lowers the risk.

• Statement 1 is correct. IT and business services exports bring in large, relatively stable forex earnings, which cushion the current account and help build reserves.
• Statement 2 is wrong. Higher government expenditure, unless financed by revenue, widens the fiscal deficit, raises import dependence and can push up inflation and the current account deficit. That increases the crisis risk rather than reducing it.
• Statement 3 is correct. Remittances from Indians abroad are a major and sticky source of foreign exchange, and India has been among the largest recipients in the world according to World Bank data.

The core concept is the balance of payments and the adequacy of forex reserves. It links to Mains GS-III on external sector management and to the 1991 BoP crisis, when reserves fell to barely a few weeks of imports, the classic picture of a currency crisis.

Trap: candidates see government expenditure and assume stimulus is always stabilising. In a currency context, what matters is how spending is financed and whether it widens the deficit and imports.