Economic Reforms 1991 — Set 8

Correct Answer: B. SEZ Act 2005

The Export Processing Zones (EPZs) that existed before the 1991 reforms were eventually transformed into Special Economic Zones (SEZs) under the SEZ Act, 2005. The SEZ policy was announced in 2000 to encourage export-led growth. The SEZ Act 2005 provided a comprehensive framework with fiscal incentives, simplified regulations, and world-class infrastructure for SEZs. India's first EPZ was set up in Kandla (1965), and under the new SEZ policy, hundreds of SEZs were approved.

Correct Answer: B. Explicit inflation targeting mandate

A major function given to RBI in 2016 was an explicit inflation targeting mandate through the Monetary Policy Framework Agreement (MPFA) and the Finance Act 2016. The RBI is now mandated to maintain CPI inflation at 4% with a band of ±2%. This was a culmination of the financial sector reforms that had been ongoing since 1991. The Monetary Policy Committee (MPC) was constituted under this framework. Earlier, RBI had a more diffuse mandate covering multiple objectives.

Correct Answer: C. 38.5%

The Statutory Liquidity Ratio (SLR) was as high as 38.5% before the 1991 reforms, which meant banks had to invest 38.5% of their deposits in government securities. Combined with CRR of 15%, banks had to park over 50% of deposits with the government, leaving little for commercial lending. Narasimham Committee I recommended reducing SLR to 25% (statutory minimum) and CRR. The reductions freed bank resources for productive lending and market-determined interest rates replaced administered rates.

Correct Answer: B. Across IT, Pharma, Telecom, and manufacturing

The 1991 reforms led to the emergence of globally competitive Indian companies across multiple sectors: IT (Infosys, Wipro, TCS), Pharmaceuticals (Sun Pharma, Dr. Reddy's, Cipla), Telecom (Airtel, Reliance Jio), and manufacturing (Tata Motors, Mahindra, Bharat Forge). The removal of MRTP restrictions allowed companies to grow without government approval. Access to foreign capital, technology, and markets enabled Indian companies to expand globally. These companies became global brands and employers.

Correct Answer: B. No force on earth can stop an idea whose time has come

Dr. Manmohan Singh's landmark 1991 budget speech quoted Victor Hugo: 'No power on earth can stop an idea whose time has come.' Singh used this quote to signal that India's economic liberalization was inevitable and necessary. The budget speech also acknowledged the severity of the crisis and outlined the reform roadmap. This quote became iconic in the history of Indian economic policy. The budget was presented on July 24, 1991 and marked the beginning of India's transformation into an emerging market powerhouse.

Correct Answer: B. India had not integrated into global financial markets and restricted capital flows

The East Asian Financial Crisis of 1997 affected India less severely than countries like Thailand, Indonesia, Malaysia, and South Korea because India had maintained restrictions on capital account convertibility. India had not allowed short-term speculative capital flows to the extent that other Asian economies had. When the crisis hit, there were fewer short-term capital flows to reverse. The Tarapore Committee's (1997) caution against premature capital account convertibility proved prescient in this context.

Correct Answer: B. Trade in goods, services, income, and current transfers

The 'current account' in the Balance of Payments covers: trade in goods (merchandise trade balance), trade in services (invisibles — software, tourism, financial services), primary income (investment income, compensation of employees), and secondary income (remittances, grants). India typically runs a current account deficit due to merchandise trade deficit, partly offset by services surplus and large remittances. India's IT sector contributes significantly to the services surplus.

Correct Answer: B. Department for Promotion of Industry and Internal Trade

DPIIT stands for Department for Promotion of Industry and Internal Trade (formerly DIPP — Department of Industrial Policy and Promotion). It is under the Ministry of Commerce and Industry. DPIIT is the nodal ministry for FDI policy, industrial policy, and ease of doing business. It notifies the Consolidated FDI Policy and maintains the DIPP database on FDI inflows. It was renamed from DIPP to DPIIT in January 2019 to reflect its expanded mandate including internal trade.

Correct Answer: C. Market economy with government regulation

After the 1991 reforms, India is best described as a market economy with government regulation — or a 'regulated market economy'. While the economy is predominantly market-driven with prices determined by supply and demand, the government continues to regulate key sectors, maintain social safety nets, and intervene in strategic industries. India is not a pure free market — there are price controls (petroleum, fertilizers), public sector banks, and extensive social programs. The reforms shifted the balance from state-led to market-led, but didn't eliminate the state's role.

Correct Answer: C. Ratan Tata

Ratan Tata, who was taking over leadership of Tata Group in 1991, was among the industrialists who recognized that the 1991 reforms were necessary for Indian industry to compete globally. While many industrialists were initially protective of their positions under the 'licence raj' (Rahul Bajaj famously said foreign companies should compete but on Indian terms), Tata saw the global perspective. Post-1991, Tata Group significantly expanded globally through acquisitions like Tetley, Corus, Land Rover-Jaguar, and Air India.