Economic Reforms 1991 — Set 11

Correct Answer: B. IRDA (Insurance Regulatory and Development Authority)

The establishment of IRDA (Insurance Regulatory and Development Authority) in 1999 was a direct outcome of the financial sector liberalization post-1991. The Malhotra Committee (1994), chaired by former RBI Governor R.N. Malhotra, recommended opening the insurance sector to private companies. IRDA was established to regulate insurance companies and protect policyholders. Private insurance companies were allowed to operate from 2000, ending LIC's monopoly in life insurance and the public sector monopoly in general insurance.

Correct Answer: C. Export-led growth with state guidance

The 'East Asian Miracle' economies (South Korea, Taiwan, Singapore, Hong Kong — the 'Four Tigers') were characterized by export-led growth combined with state guidance and strategic industrial policy. India's planners were influenced by the East Asian model, though India's approach was more inward-looking. Post-1991, India partially adopted export promotion alongside domestic deregulation. However, critics argue India didn't fully adopt the East Asian model of strategic industrial policy combined with export orientation.

Correct Answer: B. Defence, subsidies, capital expenditure and social spending

The fiscal adjustment as part of the 1991 stabilization involved cuts across multiple areas: reduction in subsidies (food, fertilizers, petroleum), cuts in capital expenditure (infrastructure spending), cuts in social spending, and some compression in defence spending. These cuts were politically difficult but necessary to reduce the fiscal deficit. Critics argued that cuts in capital expenditure affected long-term growth potential, while cuts in social spending increased inequality. The fiscal consolidation reduced the deficit from 8.5% to around 5% of GDP within a few years.

Correct Answer: C. Labour market reforms

Labour market reforms are the classic example of 'second generation reforms' that were recommended but only partially implemented after the first generation reforms of 1991. India's labour laws, including rigid hire-and-fire restrictions and complex compliance requirements for organized sector firms, were identified as constraints on manufacturing growth. Despite multiple reform attempts, comprehensive labour reform remained politically difficult until the four Labour Codes of 2019-20. Labour market inflexibility is often cited as a reason for India's slow manufacturing growth post-1991.

Correct Answer: C. Finance Secretary

S. Venkitaramanan served as the Finance Secretary who coordinated the secret operation to pledge India's gold with the Bank of England and Bank of Japan in 1991. This politically sensitive operation involved transporting gold by aircraft under tight security. Venkitaramanan later became the RBI Governor (1992-97). His role in the 1991 crisis management has been documented in several accounts of the period. The gold was successfully pledged and later redeemed as India's reserves recovered.

Correct Answer: B. SEBI regulations establishing FII/FPI framework

The Foreign Portfolio Investment (FPI) route was established through SEBI regulations creating the Foreign Institutional Investor (FII) framework from 1993. This allowed registered foreign institutional investors to buy Indian stocks and bonds. The FII framework was a key part of capital market liberalization post-1991. In 2019, FIIs were reconstituted as FPIs (Foreign Portfolio Investors) under a consolidated SEBI framework. FPI inflows have been a significant source of capital for Indian markets.

Correct Answer: C. 0.5%

India's share of world trade was approximately 0.5% in 1991, reflecting its extremely restricted and protected economy. This compares poorly with China's share and other Asian economies at the time. Post-1991 reforms, India's share of world merchandise exports has grown to about 1.8-2% by 2023. India's share of global services exports is higher at about 4%. While significant improvement, India's trade share is still much below its potential given its size. The National Export Policy targets significant expansion of India's global trade share.

Correct Answer: C. 50+ approvals and permits

Before the 1991 reforms, starting a business in India typically required 50+ approvals and permits from various government agencies — industrial license, import license, capacity approvals, foreign exchange permissions, labour approvals, environment clearances, and dozens of other permits. This complex regulatory maze created enormous barriers to entry and opportunities for corruption. The 1991 reforms began dismantling this system. Today, DPIIT's 'Ease of Doing Business' initiative has reduced many of these requirements.

Correct Answer: B. They proactively used the crisis as an opportunity for long-needed reforms

P.V. Narasimha Rao's government proactively used the 1991 crisis as an opportunity to implement long-needed economic reforms. Rao himself had previously served as Commerce Minister and understood the structural problems. The crisis created a 'window of opportunity' to push through politically difficult reforms. The phrase 'Never waste a good crisis' aptly describes the Rao government's approach. Rao provided political cover for the technocratic reforms designed by Manmohan Singh and the team.

Correct Answer: B. Arun Shourie

Arun Shourie, a former journalist and intellectual, was appointed as the Minister of Disinvestment under PM Atal Bihari Vajpayee's NDA government. He was a prominent advocate of privatization and pushed through several strategic sales including VSNL, CMC, Hindustan Zinc, Balco, and IPCL. His tenure (1999-2004) saw the most aggressive disinvestment in Indian history. However, some sales were controversial and faced legal challenges. After UPA came to power in 2004, the disinvestment pace slowed significantly.