Economic Reforms 1991 — Set 2
Economy Advanced · 1991 के आर्थिक सुधार · Questions 11–20 of 120
FERA, which was replaced by FEMA as part of economic reforms, stands for:
Correct Answer: A. Foreign Exchange Regulation Act
FERA stands for Foreign Exchange Regulation Act, 1973. FERA was a strict law that treated violation of foreign exchange regulations as a criminal offence. As part of economic liberalization, FERA was replaced by FEMA (Foreign Exchange Management Act), 1999. FEMA treats forex violations as civil offences (not criminal), reflecting a more liberalized approach. FEMA is administered by the Enforcement Directorate (ED) under the Finance Ministry.
SEBI was given statutory status in which year?
Correct Answer: C. 1992
The Securities and Exchange Board of India (SEBI) was established as a non-statutory body in 1988, but was given statutory status through the SEBI Act, 1992. This was part of the financial sector reforms following the 1991 liberalization. SEBI was established to regulate the securities market and protect investors. The Harshad Mehta stock scam of 1992 underscored the need for strong market regulation, further strengthening SEBI's mandate.
The National Stock Exchange (NSE) was established in which year?
Correct Answer: B. 1992
The National Stock Exchange (NSE) was established in 1992 on the recommendations of the Pherwani Committee. It began trading operations in 1994. NSE introduced electronic trading in India, replacing the open outcry system. It created transparency and efficiency in capital markets. NSE's benchmark index is the Nifty 50. The establishment of NSE alongside BSE strengthened India's capital markets significantly.
The Harshad Mehta stock scam of 1992 involved fraudulent diversion of funds from which source?
Correct Answer: B. Bank receipts (BR) in the banking system
The Harshad Mehta scam of 1992 involved fraudulent diversion of funds from the banking system using Bank Receipts (BRs). BRs were supposed to be backed by government securities but Mehta used them without actual securities. He diverted approximately ₹4,000-5,000 crore from banks to the stock market, artificially inflating stock prices. The scam exposed weaknesses in banking regulation and accelerated the strengthening of SEBI. Several banking reforms followed.
The Narasimham Committee I (1991) was set up to recommend reforms in:
Correct Answer: B. Financial and banking sector
The Narasimham Committee I (Committee on the Financial System) was set up in 1991 under M. Narasimham, former RBI Governor, to recommend reforms in the financial and banking sector. Key recommendations included establishing a four-tier banking structure, reducing CRR and SLR to free resources, allowing banks to set their own interest rates, setting up Asset Reconstruction Companies (ARCs), and improving prudential norms. Its recommendations laid the foundation for modern Indian banking.
Narasimham Committee II was set up in:
Correct Answer: B. 1997
Narasimham Committee II was set up in 1997, again under M. Narasimham, to review the progress of banking reforms since the first committee's recommendations. It focused on strengthening the banking system to make it globally competitive. It recommended recapitalization of weak banks, merger of banks to create strong entities, reducing NPAs, and further reduction of SLR. It also addressed the issue of non-performing assets (NPAs) that had become a major challenge.
The WTO (World Trade Organization) replaced GATT in which year?
Correct Answer: C. 1995
The World Trade Organization (WTO) was established on January 1, 1995, replacing the General Agreement on Tariffs and Trade (GATT) which had been in existence since 1948. India is a founding member of both GATT and WTO. WTO has a more comprehensive mandate covering trade in goods, services (GATS), and intellectual property (TRIPS) compared to GATT which focused only on goods. WTO's dispute settlement mechanism is binding, unlike GATT's.
India's exchange rate system shifted to market-determined exchange rate in:
Correct Answer: C. 1993
India moved to a market-determined exchange rate (Liberalized Exchange Rate Management System or LERMS) in March 1993. This was a two-step process: LERMS was introduced in 1992 (60% of forex earnings at market rate, 40% at official rate), followed by full current account convertibility in 1993. The rupee became fully convertible on current account. Capital account convertibility remains restricted. The Tarapore Committee (1997) recommended conditions for full capital account convertibility.
Which committee recommended the abolition of the Controller of Capital Issues (CCI) and the creation of SEBI?
Correct Answer: B. Pherwani Committee
The Pherwani Committee recommended the abolition of the Controller of Capital Issues (CCI) and the creation of SEBI (Securities and Exchange Board of India). CCI used to approve public issues and regulate capital markets. With liberalization, its functions were transferred to the newly empowered SEBI. Abolition of CCI allowed companies to freely price their public issues (IPOs) at market rates, ending the era of government-controlled pricing.
The 1991 reforms included partial privatization of PSUs. What percentage of equity was initially proposed to be disinvested?
Correct Answer: C. 20%
The 1991 reforms initially proposed disinvestment of up to 20% equity in selected Public Sector Undertakings (PSUs). The proceeds were to be used for social welfare programs and to reduce fiscal deficit. This was the beginning of India's disinvestment policy. The government retained majority ownership (51%+) while allowing public participation. Over the years, disinvestment targets have varied and some PSUs have been privatized completely (like Air India in 2022).