Detailed Explanation:

Answer: Option 2 — 1 and 3 only

A currency crisis occurs when a country faces rapid depletion of foreign exchange reserves, making it unable to meet its international payment obligations. Factors that increase foreign currency inflows help build reserves and reduce such risks.

✅ Statement 1 – Correct: India's IT sector earns substantial foreign exchange through service exports, directly strengthening forex reserves and providing a cushion against currency volatility.

❌ Statement 2 – Incorrect: Increasing government expenditure, especially if financed through borrowing, can widen fiscal deficits and potentially weaken investor confidence, thereby increasing rather than reducing currency crisis risk.

✅ Statement 3 – Correct: Remittances from Indians working abroad constitute a steady inflow of foreign currency, which bolsters forex reserves and acts as a buffer against external shocks.

📝 Short Notes: Factors Reducing Currency Crisis Risk

• Foreign Exchange Reserves: Act as a cushion to meet import bills and external debt obligations during times of stress.
• Current Account Balance: Export earnings (goods and services) and remittances improve the current account, reducing dependency on foreign capital.
• IT & Service Exports: India's IT sector is a major net foreign exchange earner, contributing significantly to invisible receipts.
• Remittances: India is the largest recipient of remittances globally, providing a stable source of foreign currency inflows.
• Fiscal Discipline: Excessive government expenditure leading to high fiscal deficits can trigger capital outflows and currency depreciation if financed unsustainably.
• Capital Controls: Prudent management of capital flows helps prevent sudden stops and reversals that trigger currency crises.