Economic Reforms 1991 — Set 10

Correct Answer: B. Rapid industrialization with state support

The 'Bombay Plan' (or Tata-Birla Plan) of 1944 was proposed by eight prominent industrialists including J.R.D. Tata and G.D. Birla. Interestingly, it advocated for rapid industrialization with significant state support and planning, rather than a pure free market. It accepted state intervention and even nationalization in certain strategic sectors. The plan influenced early Indian economic thinking. Despite being written by private industrialists, it recognised the need for government direction in economic development.

Correct Answer: B. New Direct Tax Code

The Kelkar Task Force on Direct Taxes (2002) recommended a comprehensive simplification of direct taxes, eventually leading to the drafting of the New Direct Tax Code (DTC). While the DTC was drafted and circulated, it was not fully implemented. However, many individual recommendations of the task force were incorporated through budget amendments over subsequent years — including rationalization of tax slabs, reducing exemptions, and simplification. The task force's work on indirect taxes eventually fed into the GST design.

Correct Answer: B. Bilateral trade settled in domestic currencies at agreed exchange rates

The Rupee-Ruble trade was a bilateral trade arrangement between India and the Soviet Union where trade was settled in domestic currencies (rupees and rubles) at agreed exchange rates, bypassing the dollar. This arrangement began in the 1960s. With the collapse of the Soviet Union in 1991 and the shift to market economies, this arrangement ended. India held a large ruble balance that became problematic after Soviet collapse. The end of this arrangement exposed India to more market-based trade.

Correct Answer: B. FDI in the automobile sector

The Maruti-Suzuki joint venture (established 1982, between Suzuki Motor Corporation of Japan and the Government of India) was one of the early examples of FDI in India's automobile sector, even before the 1991 reforms. It demonstrated that foreign collaboration could succeed in India. Post-1991 reforms, Suzuki progressively increased its stake and eventually became the majority shareholder. Maruti Suzuki became India's largest car manufacturer. The Maruti model helped pave the way for further FDI liberalization in the auto sector.

Correct Answer: B. Services exports (especially IT), remittances, and foreign investment income

Post-1991, India's current account deficit is partially offset by large services exports (especially IT/software services worth $250+ billion annually), huge remittances from Indians abroad ($100+ billion annually, making India the largest recipient globally), and portfolio investment income. Before 1991, India's external earnings were largely from merchandise exports and relatively small remittances. The IT sector and diaspora remittances have fundamentally changed India's BOP structure, making it more resilient.

Correct Answer: C. 2007

India crossed the $1 trillion GDP mark (at current market prices) in approximately 2007. This milestone reflected the cumulative impact of the 1991 reforms — it took India 60 years after independence to reach the first trillion, but subsequent growth has been faster. India crossed $2 trillion around 2015 and $3 trillion around 2019. With projected growth, India is targeting $5 trillion by around 2027-28 and $30 trillion by 2047.

Correct Answer: B. Long-term systemic changes to improve efficiency and growth

The stabilization component of 1991 reforms addressed immediate crisis management: devaluing the rupee, securing IMF loan, cutting fiscal deficit, and controlling inflation. The structural reforms component aimed at long-term systemic changes: removing licensing, opening trade, inviting FDI, financial sector reforms, and privatization. Stabilization was necessary to stop the crisis, while structural reforms were needed to ensure India could grow on a sustainable basis. The combination of both is considered the model for successful economic transformation.

Correct Answer: C. Telecommunications

The 1991 reforms and subsequent telecom liberalization allowed private entry in telecommunications for the first time, creating companies like Bharti Airtel (1995). The National Telecom Policy (NTP) 1994 opened telecommunications to private operators for basic and cellular services. The number of telecom subscribers grew from a few million in 1991 to over 1.2 billion today, one of the largest mobile networks in the world. Airtel, Vodafone, Reliance Jio and others transformed Indian telecom. The New Telecom Policy 1999 further liberalized the sector.

Correct Answer: B. It declined significantly from about 45% to below 20% over 30 years

India's poverty ratio (measured by various methodologies) declined significantly after 1991 reforms. The Tendulkar Committee poverty line showed decline from about 45% in 1993-94 to about 22% in 2011-12. The World Bank's $1.90/day measure shows even steeper decline. NITI Aayog's MPI data (2023) showed that 415 million Indians escaped multidimensional poverty between 2005-21. The growth generated by liberalization contributed to poverty reduction, though inequality also increased simultaneously. The debate continues on whether the benefits were sufficiently inclusive.

Correct Answer: B. $18 billion

India's merchandise export value in 1991 was approximately $18 billion. This has grown dramatically to over $450-500 billion in merchandise exports by 2022-23, alongside over $250 billion in services exports. The 1991 reforms, by making the rupee competitive (through devaluation) and removing export controls, helped boost exports significantly. India's total goods and services exports now exceed $750 billion annually. The target is to reach $2 trillion in exports by 2030 as part of the National Export Policy.