What were the main reforms undertaken under the New Economic Policy of the early 1990s? 1. Trade liberalization 2. Public Sector Disinvestment 3. Poverty Alleviation 4. Rapid industrialization Select the answer using the code given below:
- (a)1 only
- (b)3 and 4
- (c)1 and 2
- (d)2 and 4
Correct — C, 1 and 2. The reforms of July 1991 are usually grouped as liberalisation, privatisation and globalisation. Trade liberalisation belongs to the globalisation strand — the rupee was devalued, quantitative restrictions on imports were dismantled, peak tariffs were cut sharply and the export-import regime was simplified. Disinvestment of public sector equity belongs to the privatisation strand and began in the same year, with minority stakes in selected central enterprises sold to financial institutions and mutual funds. Poverty alleviation is a development objective pursued through separate programmes and is not itself a reform measure of the New Economic Policy. Rapid industrialisation through state-led heavy industry belongs to the Mahalanobis strategy of the Second Five Year Plan, which is the model 1991 moved away from.
- (a)1 only — It leaves out disinvestment, which began in 1991-92 itself and is the clearest privatisation measure of the package.
- (b)3 and 4 — It takes the two items that are not reform measures at all. Poverty alleviation is an objective served by separate schemes, and state-driven rapid industrialisation is the earlier strategy the reforms were reversing.
- (d)2 and 4 — It keeps disinvestment but pairs it with rapid industrialisation. The New Industrial Policy of 1991 abolished licensing for most industries and reserved only a short list for the public sector, which is deregulation rather than a drive for industrialisation by the state.
The 1991 package had a stabilisation half and a structural reform half. Stabilisation meant devaluation, fiscal correction and an International Monetary Fund arrangement to meet a balance of payments crisis in which reserves had fallen to about a fortnight of imports. Structural reform meant the New Industrial Policy of 24 July 1991, which abolished industrial licensing except for a short negative list, ended the asset threshold under the monopolies legislation, opened many sectors to foreign equity and cut the list of industries reserved for the public sector from seventeen to eight.
Sorting objectives from instruments is the whole exercise here. Every government wants less poverty and more industry; the question is which of the four items names something the 1991 policy actually did. Trade liberalisation and disinvestment are measures with dates attached. The other two are goals, and one of them names the strategy the reforms replaced. That reading gives the answer without any need to recall the sequence of tariff cuts.
- The New Industrial Policy was announced on 24 July 1991.
- Industrial licensing was abolished for all but a short list of industries, and public sector reservation was cut from seventeen industries to eight.
- Disinvestment of minority stakes in central public sector enterprises began in 1991-92.
- The rupee was devalued in two steps in July 1991 amid a balance of payments crisis.
- The reforms are conventionally summarised as liberalisation, privatisation and globalisation.
Two of the four name policy instruments; the other two name goals.
- Reading a stated national objective as a reform measure.
- Assuming rapid industrialisation belongs to 1991; it belongs to the 1956 strategy.
- Placing the start of disinvestment in the late 1990s rather than in 1991-92.
A four-item select-the-measures question that turns on separating instruments from objectives.
Economic liberalisation in India started with
- (a) substantial changes in industrial licensing policy
- (b) the convertibility of Indian rupee
- (c) doing away with procedural formalities for foreign direct investment
- (d) significant reduction in tax rates
Answer(a) substantial changes in industrial licensing policy
The starting point of the same package. Dismantling industrial licensing is the measure the New Industrial Policy of July 1991 led with, and trade liberalisation and disinvestment followed within the same year.
Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)? 1. The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt. 2. The Government no longer intends to retain the management control of the CPSEs. Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer(d) Neither 1 nor 2
The second measure listed here, examined for what it is and is not. Disinvestment began as minority stake sales in which the government kept management control, which is why both of that question's statements fail.
- practice — not a real PYQ
Economic liberalisation in India began with
- (a)Substantial changes in industrial licensing policy
- (b)Full convertibility of the rupee
- (c)Abolition of the Planning Commission
- (d)Introduction of the goods and services tax
Answer(a) Substantial changes in industrial licensing policy — the New Industrial Policy of July 1991.
- practice — not a real PYQ
The number of industries reserved for the public sector was reduced in 1991 from seventeen to
- (a)Two
- (b)Six
- (c)Eight
- (d)Twelve
Answer(c) Eight — the list was cut further in later years.