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:

Answer: A. Only statement 1 (not depending on short-term foreign borrowings) is likely to give India immunity against another global financial crisis. The 2008 GLOBAL FINANCIAL CRISIS and various emerging market crises (1997 Asian Crisis, 2013 Taper Tantrum, 2018 Argentina/Turkey episodes) have highlighted what factors make economies vulnerable to external shocks. Statement 1 is CORRECT. NOT DEPENDING ON SHORT-TERM FOREIGN BORROWING IS PROTECTIVE. Short-term external debt (maturity below 1 year) creates rollover risk: when global risk aversion rises, foreign lenders may decline to renew loans, forcing sudden capital outflows and a balance of payments crisis. India's experience after the 2013 Taper Tantrum drove a sustained policy shift: stronger forex reserves (currently above USD 600 billion), longer maturity profile of external debt, lower share of short-term debt in total external debt, and reduced current account deficit. This makes India more resilient. Statement 2 is WRONG. OPENING UP TO MORE FOREIGN BANKS does NOT necessarily protect against a global financial crisis; in fact it can INCREASE vulnerability through contagion. Foreign bank presence transmits shocks across borders: when their parent banks face stress (as in 2008), they may withdraw capital from emerging market subsidiaries, triggering domestic credit squeezes. RBI policy has been cautious about excessive foreign bank presence, requiring foreign banks to operate as WHOLLY OWNED SUBSIDIARIES (WOS) with separate capital, rather than branches, partly to insulate India from such contagion. Statement 3 is WRONG. MAINTAINING FULL CAPITAL ACCOUNT CONVERTIBILITY (CAC) actually INCREASES vulnerability to crises, not immunity. Full CAC allows unrestricted cross-border movement of capital, which means that when global sentiment turns negative, large sudden capital outflows can crash the currency, the stock market, bond yields, and the balance of payments. India has maintained PARTIAL CAPITAL ACCOUNT CONVERTIBILITY (the Tarapore Committees recommended gradual liberalisation), retaining controls on short-term debt flows and certain capital flows. This protects against sudden stops. The 1997 Asian Crisis is a textbook lesson: countries that had liberalised the capital account most (Thailand, Indonesia, Korea) suffered the worst crashes. So only statement 1 actually protects against a global financial crisis. Source: RBI Annual Reports on Financial Stability; Tarapore Committee Reports on Capital Account Convertibility; Reinhart and Rogoff 'This Time Is Different'; IMF Article IV Consultation Reports for India.