Economic Reforms 1991 — Set 4

Correct Answer: B. Competition Commission of India

The Competition Act, 2002 replaced the MRTP Act, 1969 and established the Competition Commission of India (CCI). CCI is the regulatory body that promotes competition and prevents anti-competitive practices, abuse of dominant position, and harmful mergers. It became fully operational in 2009. Unlike MRTP which focused on 'size' of firms, CCI focuses on 'conduct' and market behaviour. CCI is modelled on competition regulatory agencies of developed countries.

Correct Answer: B. Industries related to defence, hazardous chemicals, and strategic sectors

After the 1991 reforms, industrial licensing was retained only for industries with specific concerns: defence equipment, explosives and ammunition, industrial explosives, hazardous chemicals, pharmaceuticals, tobacco and cigarettes, and alcohol (distilled spirits). These industries had security, health, safety, or environmental implications that justified continued regulation. The list was subsequently reduced to just six industries and has been further modified.

Correct Answer: B. Devalue currency, reduce fiscal deficit, and liberalize trade

The Structural Adjustment Programme (SAP) attached to the 1991 IMF loan required India to: devalue the rupee, reduce the fiscal deficit, liberalize trade (reduce tariffs and remove import licenses), privatize PSUs, and remove industrial controls. These conditionalities were controversial as critics felt they compromised India's economic sovereignty. However, proponents argue that the reforms accelerated India's integration into the global economy and unleashed growth.

Correct Answer: C. 1992

Harshad Mehta's stock market scam occurred in 1992. Mehta exploited weaknesses in the banking system, particularly in transactions involving government securities through Bankers' Receipts (BRs). He diverted approximately ₹4,000-5,000 crore from banks to the stock market, causing stock indices to rise dramatically. When the scam was exposed (by journalist Sucheta Dalal in April 1992), the market crashed. The scam led to major reforms in banking regulation and stock market oversight.

Correct Answer: B. 1991 LPG reforms

The Phased Manufacturing Programme (PMP) for the automobile sector was wound up as part of the 1991 LPG reforms. PMP required automobile manufacturers to progressively increase local content in their vehicles. It was a form of industrial policy that protected the domestic auto component industry. The 1991 reforms removed such protectionist measures as India moved toward free trade. The liberalization allowed global automobile companies to enter India, transforming the sector.

Correct Answer: B. Finance Minister

Dr. Manmohan Singh served as Finance Minister from 1991-1996 under PM P.V. Narasimha Rao — forming the 'Rao-Singh duo' that implemented India's liberalization. Singh brought his expertise as former RBI Governor (1982-85) and Deputy Chairman of Planning Commission (1985-87) to the task. His July 24, 1991 budget speech is considered one of the most consequential in Indian economic history. Singh later became Prime Minister (2004-2014).

Correct Answer: C. Atomic Energy

The New Industrial Policy 1991 retained government monopoly specifically in Atomic Energy (and Railway transport). Defence production was also kept in the government domain though later opened partially. Telecommunications, banking, insurance, aviation, and other sectors were gradually opened to private competition after 1991. The government monopoly in atomic energy is constitutional under the Atomic Energy Act and remains even today.

Correct Answer: B. Rajiv Gandhi

Rajiv Gandhi initiated limited economic liberalization in the mid-1980s, which some call 'liberalization by stealth'. He reduced licensing requirements for some industries, allowed import of capital goods and technology, deregulated some sectors, and introduced computers in government and industry. However, his reforms were partial and didn't address fundamental structural issues. The massive fiscal deficits accumulated during his tenure (1984-89) contributed to the 1991 crisis.

Correct Answer: C. 1999

FEMA (Foreign Exchange Management Act) was enacted in 1999 and replaced FERA (Foreign Exchange Regulation Act, 1973) with effect from June 2000. FEMA treats forex violations as civil offences with monetary penalties, unlike FERA which treated them as criminal offences with imprisonment. FEMA also redefined the concept of 'resident' and changed the regulatory framework to facilitate India's integration with global financial markets. The Enforcement Directorate (ED) enforces FEMA.

Correct Answer: B. Transfer of management control to a strategic partner

'Strategic sale' of PSUs refers to transfer of management control to a strategic partner (buyer), accompanied by transfer of a significant percentage of equity. This is different from mere disinvestment where government sells some shares but retains control. Strategic sales result in actual privatization as management moves to private hands. Examples include the sale of VSNL (2002) to Tata Group, Hindustan Zinc (2002), Balco (2001), and Air India (2022) to Tata Group. The Disinvestment Commission recommends strategic sales.