Economic Reforms 1991 — Set 6

Correct Answer: C. It provided industry inputs for reform design

The Confederation of Indian Industry (CII), established in 1895 as the Engineering Association of India, was one of the key bodies that provided industry inputs for the design of economic reforms. CII, along with FICCI (Federation of Indian Chambers of Commerce and Industry) and ASSOCHAM, has consistently advocated for market-friendly policies. Post-1991, CII has been a prominent voice for deepening reforms, improving ease of doing business, and enhancing India's competitiveness globally.

Correct Answer: C. Attracting investment and manufacturing in India

The 'Make in India' campaign launched by PM Modi in September 2014 can be seen as a continuation of the liberalization agenda, focused on attracting investment (domestic and foreign) and promoting manufacturing in India. The campaign targets 25 sectors for manufacturing growth. It aims to increase manufacturing's share of GDP from about 16% to 25%, creating millions of jobs. Make in India combines ease of doing business improvements with infrastructure development and policy reforms.

Correct Answer: B. Finance its current account deficit with capital inflows

A BOP crisis occurs when a country cannot finance its current account deficit (imports exceeding exports + services + remittances) with capital inflows (FDI, portfolio investment, borrowings). In India's 1991 case, rising oil prices inflated imports while the Gulf War reduced remittances, creating a current account deficit. Capital inflows had dried up due to political uncertainty. With no financing available, India faced potential default on external obligations.

Correct Answer: C. 150%+

Before 1991, India's peak import tariffs were extremely high — approximately 150-300%+ for many items. These high tariffs were meant to protect domestic industry under the Import Substitution Industrialization strategy. The 1991 reforms began a process of systematic tariff reduction. Over the 1990s and 2000s, peak tariffs were reduced to around 40% and then further to around 10-20% for most products. This tariff reduction improved efficiency and consumer welfare.

Correct Answer: B. A list of industries that still required industrial licensing

The 'Negative List' in the context of 1991 industrial reforms refers to the list of industries that still required industrial licensing even after widespread delicensing. Initially this list had 18 industries; it was subsequently reduced further to 6 industries. Industries on the negative list typically had environmental, security, health, or strategic concerns. The concept of a negative list (with only exceptions listed) represented a fundamental change from the earlier system where all industries needed licensing (positive list approach).

Correct Answer: D. Bengaluru (Bangalore)

Bengaluru (Bangalore) became known as the 'Silicon Valley of India' due to its emergence as the country's technology and IT hub following the 1991 reforms. Companies like Infosys (founded 1981), Wipro (pivoted to IT), and later many MNCs established operations in Bengaluru. The liberalization allowed import of computers and software tools, and the opening to global markets created export opportunities. By the early 2000s, India's IT exports had grown dramatically.

Correct Answer: B. India avoided default by pledging gold and IMF assistance

India avoided formal default on its international obligations by pledging gold with the Bank of England and Bank of Japan, and securing IMF assistance. India did NOT formally default. The actions taken (gold pledge, IMF loan, devaluation, reforms) were part of a comprehensive package to stabilize the economy. While the actions were embarrassing, they are credited with saving India from a full-blown debt crisis and setting the stage for strong growth in the subsequent decades.

Correct Answer: C. 1996

The Disinvestment Commission was set up in 1996 under the chairmanship of G.V. Ramakrishna to recommend a systematic approach to disinvestment of PSUs. The commission reviewed individual PSUs and recommended the method and extent of disinvestment. It produced several reports over the years. A Ministry of Disinvestment was also created in 1999 (later merged into Ministry of Finance). India's disinvestment process has been gradual and sometimes contentious.

Correct Answer: B. A situation where resource boom leads to manufacturing decline

'Dutch Disease' refers to an economic phenomenon where a resource boom (like natural gas or oil discovery) leads to appreciation of the currency and decline of the manufacturing sector. The term originated from the Netherlands' experience after natural gas discovery in 1959. In the context of India's 1991 reforms, avoiding Dutch Disease effects was relevant as remittances and later IT exports grew significantly. India manages this through sterilization interventions by RBI.

Correct Answer: B. License-Permit-Quota Raj, fiscal deficits, and trade restrictiveness

The 1991 reforms primarily addressed three major structural problems: the License-Permit-Quota Raj (excessive regulation and controls), fiscal deficits (government spending beyond revenues), and trade restrictiveness (high tariffs and import controls). These three problems had been constraining India's growth potential for decades. The reforms created a more market-friendly environment, opened trade, and attempted to restore fiscal balance. The LPG reforms transformed India from a heavily regulated, inward-looking economy to a more open, market-oriented one.