UPSC Prelims 2000 Q17: Indian Economy – Infrastructure & Industry
- (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
Explanation
What economic liberalisation in India began with
| Reform | When |
|---|---|
| Changes in industrial licensing | New Industrial Policy, 24 July 1991 — licensing scrapped for all but 18 industries |
| Convertibility of the rupee | Partial in 1992-93; full on current account in August 1994 |
| Easier FDI procedures | Part of the 1991 package (automatic approval up to 51% in priority industries) |
| Tax rate cuts | Followed later, after the Chelliah Committee (1991-93) |
Liberalisation in 1991 began with the New Industrial Policy of 24 July 1991, which ended the licence raj by abolishing industrial licensing for all but 18 industries.
Rupee convertibility came step by step, reaching full current-account convertibility only in 1994, and tax cuts followed the Chelliah Committee reports.
So substantial changes in industrial licensing policy came first.
Answer: (a) substantial changes in industrial licensing policy.
Why each option is right or wrong
- (a) CORRECT. Liberalisation began with the 1991 overhaul of industrial licensing.
- (b) Incorrect. Rupee convertibility came in stages after 1992 and is still not full on the capital account.
- (c) Incorrect. FDI changes were part of the package but not its starting point.
- (d) Incorrect. Major tax cuts came later.
Key point
LPG reforms of 1991: Narasimha Rao government, Finance Minister Manmohan Singh; licensing now applies to only a handful of industries.
Remember
Liberalisation began with the 1991 industrial licensing reform.
Common mistakes
- Choosing rupee convertibility, which came gradually after 1992.
- Thinking tax cuts opened the economy first.
- Forgetting that the licence raj was the main target of 1991.
Exam tip
First crack in the licence raj = start of liberalisation.
Sources
- NCERT Class XI — Indian Economic Development, chapter 'Liberalisation, Privatisation and Globalisation: An Appraisal'
- Ministry of Industry — Statement on Industrial Policy, 24 July 1991