• 1991 Balance of Payments (BoP) Crisis and Gold Pledging: In mid-1991, India's foreign exchange reserves plummeted to a precarious level of approximately $1.2 billion, barely sufficient to finance three weeks of essential imports. To avert an unprecedented sovereign default, the Chandrashekhar government and the Reserve Bank of India pledged India's gold reserves as collateral:
• The RBI air-lifted 46.91 tonnes of gold bullion to the Bank of England and 20 tonnes to the Union Bank of Switzerland (UBS) to secure a emergency bridge loan of approximately $405 million.
• This collateralization restored short-term credibility, enabling India to negotiate a comprehensive structural adjustment loan package with the International Monetary Fund (IMF) and International Bank for Reconstruction and Development (World Bank).
• Subsequent LPG Reforms: The collateral pledging set the stage for the landmark New Economic Policy (NEP) announced in July 1991 under Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh, ushering in Liberalization, Privatization, and Globalization (LPG).

Correct option: (2) Gave India’s gold reserves as collateral