Economic Reforms 1991 — Set 9
Economy Advanced · 1991 के आर्थिक सुधार · Questions 81–90 of 120
The 1991 reforms transferred power from the 'Inspector Raj' to markets. 'Inspector Raj' refers to:
Correct Answer: B. Excessive bureaucratic inspection and harassment of businesses
'Inspector Raj' refers to the system of excessive bureaucratic inspection, licensing requirements, and harassment of businesses by government inspectors that characterized India's pre-reform economy. Hundreds of inspectors from various departments (factory, labour, tax, pollution control etc.) could inspect and potentially shut down businesses, creating opportunities for corruption. The 1991 reforms and subsequent simplification of regulations reduced Inspector Raj significantly. 'Ease of Doing Business' reforms have continued this process.
The 1991 reforms were preceded by a political crisis. Which Prime Minister served the shortest term just before Narasimha Rao?
Correct Answer: B. Chandra Shekhar
Chandra Shekhar served as Prime Minister for only about 7 months (November 1990 to June 1991) before P.V. Narasimha Rao. His minority government was supported by Congress from outside but collapsed when Congress withdrew support. The political instability of 1989-91 (three Prime Ministers in less than two years: Rajiv Gandhi, V.P. Singh, Chandra Shekhar) contributed to the economic crisis by delaying necessary adjustments. Rao's government then had to undertake emergency reforms.
Which Indian city is called the 'Manchester of the East' and is associated with textile industry liberalization post-1991?
Correct Answer: C. Ahmedabad
Ahmedabad is called the 'Manchester of the East' due to its historical dominance in textile manufacturing. Post-1991 liberalization affected the textile industry significantly — the removal of 'reservation' for small-scale industries allowed larger mills to modernize. However, Ahmedabad's textile mills faced severe challenges from cheaper imports and competition. The Ahmedabad textile mill closures in the 1990s-2000s are often cited as a negative consequence of liberalization for traditional manufacturing workers.
The 1991 trade policy reforms included reduction of import licenses. What was the coverage of 'Quantitative Restrictions (QRs)' before reform?
Correct Answer: C. About 90%+ of imports
Before the 1991 reforms, Quantitative Restrictions (QRs) covered approximately 90%+ of India's imports through import licensing. Almost all consumer goods and many intermediate goods required import licenses. The 1991 reforms began dismantling QRs. India removed QRs on most items under WTO obligations by 2001. QRs on consumer goods were removed only after India lost a WTO dispute panel ruling in 1999. This opening of trade dramatically changed India's consumer market.
The '1991 New Economic Policy' was formally announced by which Union Budget?
Correct Answer: B. 1991-92 Budget
The New Economic Policy (NEP) of 1991 was formally announced through the 1991-92 Union Budget presented by Finance Minister Dr. Manmohan Singh on July 24, 1991. This budget also announced the devaluation of the rupee, reduction in fiscal deficit, and structural reforms. The Industrial Policy Statement of 1991 was also released alongside the budget. Together, these documents outlined the comprehensive reform agenda that transformed India's economy from a state-directed to a market-oriented one.
The 1991 BOP crisis was also driven by external debt accumulation. India's external debt as a percentage of GDP in 1991 was approximately:
Correct Answer: C. 28%
India's external debt was approximately 28-30% of GDP in 1991, which was very high. The debt service ratio (debt servicing as % of export earnings) was about 35%, meaning that almost 35 paise of every rupee earned from exports went to repay external debt. This unsustainable debt burden was a key factor in the crisis. The 1991 reforms, devaluation, and subsequent export growth helped improve the debt metrics significantly over the following decade.
The 'Partial Convertibility' of the rupee introduced in 1992 is also called:
Correct Answer: A. LERMS
The 'Partial Convertibility' of the rupee introduced in March 1992 was called LERMS (Liberalized Exchange Rate Management System). Under LERMS, 60% of forex earnings could be converted at market rate and 40% at the official rate. This was a transitional arrangement toward full current account convertibility. In March 1993, LERMS was replaced by a unified market-determined exchange rate, achieving full current account convertibility. India still maintains restrictions on capital account convertibility.
The 'India Shining' campaign of the BJP government (2004) was associated with the positive economic outcomes of which phase?
Correct Answer: B. Second generation reforms of the late 1990s and 2000s
The 'India Shining' campaign of the BJP/NDA government in 2004 was associated with the positive economic outcomes of the second generation reforms of the late 1990s and early 2000s under Atal Bihari Vajpayee's government. These reforms included telecom liberalization, national highway development (NHDP), IT sector growth, and insurance sector opening. However, the campaign backfired as the rural population felt left behind by urban/IT-centric growth, contributing to the BJP's election defeat in 2004.
Which of these describes the 'Capital Account' in the Balance of Payments?
Correct Answer: B. Recording of short-term and long-term capital flows including FDI, FII, and loans
The Capital Account (also called Financial Account in modern BOP terminology) in the Balance of Payments records all financial transactions between India and the rest of the world: Foreign Direct Investment (FDI), Foreign Portfolio Investment/FII, external commercial borrowings (ECBs), NRI deposits, and official reserves. India maintains partial convertibility on the capital account — FDI flows are relatively free, but short-term capital flows are regulated by RBI. Full capital account convertibility would mean no restrictions.
The 1991 reforms occurred under unique political circumstances. The Congress government under Rao was:
Correct Answer: C. A minority government relying on outside support
The Congress government under P.V. Narasimha Rao was a minority government that relied on outside support from various parties to survive. This made the political context for pushing through major reforms particularly challenging. Rao's political skill in managing coalition dynamics while implementing economic liberalization is considered remarkable. The minority status also meant that the opposition could have defeated the government, but Rao used political acumen to maintain stability while implementing transformational reforms.