Major Economic Reforms

SSC stands for Staff Selection Commission. Through this examination, the selection is being done for Group B and C in the Ministries of Central Government and other Central Departments. For this task, the commission conducts various examinations, such as CGL, CHSL, Stenographer, JE, GD, MTS, CPO, etc. However, SSC CGL and CHSL exams are the most popular among youths. Learning about the Indian Economic importance is very important. Various questions from this section are being asked as this stage was a watershed event in the Indian Economic reforms.

                   Economic reforms simply denote the process in which a government prescribes less role for the state and expanding role for the private sector.

Major Economic Reforms in India:

Due to the fiscal and balance of payment (BoP) crisis, India launched a process of Economic Reforms on July 23, 1991, During the Narasimha Rao government. The economic crisis of 1991 was the simultaneous accumulation of a large number of events. Though liberal policies were announced by the government during the 1980s with the slogan of economic reforms it didn’t materialize much, thus economic reforms were launched with full conviction in the early 1990s.

Reasons for Major Economic Reforms:

• Collapse of Soviet Union
• The Gulf War
• Political Uncertainty
• Rising Fiscal Deficit
• Grave External Payment Crises (Balance of Payment)
• Gulf Crisis
However, the crisis was converted into an opportunity to bring about fundamental changes in the approach and conduct of economic policy.

NEW ECONOMIC POLICY

New Economic Policy was based on LPG or Liberalisation, Privatisation and Globalisation model. This model refers to economic liberalisation or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes to expand the economic wings of the country.  The reforms taken under this became part of structural reforms.

STEPS TAKEN UNDER LIBERALISATION

Deregulation / Delicensing of the Industrial Sector:

1. Industrial licensing was abolished for almost all the products. But product categories — alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs and pharmaceuticals were regulated.
2. Industries being reserved for the general public sector are defence equipment, nuclear energy generation and railway transport.
3. Goods produced by small-scale industries have now been deserved. 

Financial Sector Reforms: 

1. Financial sector includes financial institutions like commercial banks, investment banks, stock market operations and exchange markets.
2. One of the main aims of monetary sector reforms is to scale back the role of RBI from the regulator to facilitator of the monetary sector.
3. The reform policies led to the establishment of private sector banks (Indian as well as foreign. )
4. Foreign investment limit in banks was raised to around 50 per cent.
5. Foreign Institutional Investors (FII) like merchant bankers, mutual funds and pension funds are now allowed to invest in Indian financial markets. 

Tax Reforms:

1. It is concerned with the reforms in the government’s taxation and public expenditure policies which are collectively known as its fiscal policy.
2. The rate of corporation tax, which was very high earlier, has been gradually reduced. Efforts have also been made to reform the indirect taxes.
3. In order to encourage better compliance on the part of taxpayers many procedures have been simplified and the rates also substantially lowered.

Foreign Exchange Reforms (External Sector Reforms):

To resolve the balance of payments crisis, the rupee was devalued (depreciated) against foreign currencies

Trade and Investment Policy Reforms:

1. Quantitative restrictions on imports and exports were dismantled.
2. Reduction of tariff rates and 
3. Removal of licensing procedures for imports
4. Import licensing was abolished except in the case of hazardous and environmentally sensitive industries.
5. Export duties have been removed to increase the competitive position of Indian goods in the international markets.

PRIVATIZATION

1. It refers to the transfer of ownership of a property from a government to private players.
2. Privatisation basically means selling up the shares of public sector undertakings to private players. It was transferring of ownership or management to private companies, either partially or entirely.
3. Privatisation was different from disinvestment in the sense that, selling off part of the equity of PSEs to the public is known as disinvestment. The purpose of disinvestment, according to the government, was mainly to improve financial discipline and facilitate modernization.
4. Privatisation resulted in the opening of the public sector to industries that were previously reserved for the government sector. 

GLOBALISATION

1. Globalisation means, generally, the integration of the economy of the country with the world economy.
2. Outsourcing was one of the important outcomes of the globalisation process.
3. Under outsourcing, a company hires regular service from external sources, mostly from other countries, which was previously provided internally or from within the country.

Important Questions:

1. What were the reasons for introducing the economic reforms in 1991?
a) Gulf Crisis
b) Political Uncertainty
c) Rising fiscal deficit
d) All of the above
Answer: d

2. Which of the following policy helps in integrating a domestic economy with the world economy?
a) Liberalisation
b) Globalisation
c) Privatisation
d) All of the above.
Answer: b

3. After the industrial sector was deregulated in 1991, many products from small-scale industries were ________ 
a) De-reserved
b) Reserved
c) Both a and b 
d) Neither a nor b 
Answer: a

4. Indian Rupee was ——–after the balance of payment crisis in 1991. 
a) Appreciated
b) Depreciated
c) Revalued
d) Regulated
Answer: d

5. Which of the following covers the financial sector of the economy?
a) Foreign exchange market
b) Banking and non-banking financial institutions
c) Stock exchange market
d) All of the above
Answer: d

6. Under 1991 reforms the industrial license was not abolished for which of the following?
a) Steel
b) Food processing
c) Cigarettes
d) All of the above
Answer: c

7. The transferring of control of a public sector partially/entirely to the private sector is called: 
a) Globalisation
b) Liberalisation
c) Privatisation
d) Regulation
Answer: c

8. Which of the following forms the part of structural reforms?
a) Tax Reforms
b) Fiscal policy reforms
c) Privatisation
d) All of the above
Answer: b

9. Which of the following is/are the outcome of globalisation?
a) Outsourcing
b) Privatisation
c) Liberalisation
d) None of the above
Answer: a

10. What was the result of the Privatisation when the New education policy in 1991 took place in?
a) Reviving sick public sector units
b) Creates a competitive environment for businesses
c) Protects the sovereignty of a consumer
d) All of the above  
Answer: d

11. Who was the Finance Minister during the time of the economic reforms of 1991?
a) Lalu Prasad Yadav
b) Pranab Mukherjee
c) Manmohan Singh
d) P. Chidambaram 
Answer: c

12. Which of the following was not the part of New Economic Policy (NEP) 1991?
a) Centralisation
b) Liberalisation
c) Globalisation
d) Privatisation
Answer: a

13. What was the result of the New education policy in 1991 when Liberalisation took place).
a) India’s foreign exchange reserves increased
b) Foreign direct investment increased
c) In India’s GDP share of agriculture was increased:
d) Exports from India in world trade increased
Answer: c

14. Under the Economic reforms of 1991, how many industries were reserved for the public sector? 
a) 3
b) 11
c) 8
d) 12
Answer: c

15. Which of the following was/were the goal of the New Economic Policy of 1991?
a) Market forces would drive the economy toward development and growth
b) The government would drive the economy towards development and growth
c) Agriculture would drive the economy towards development and growth
d) None of the above
Answer: a

16. Reduction in the role of the RBI was the part of which of the following?
a) Monetary reforms
b) Fiscal reforms
c) Financial Sector Reforms
d) Public sector reforms
Answer: c

17. When does the Economic Reforms of 1991 were formally introduced in India?
a) July 1990
b) June 1990
c) June 1991
d) July 1991
Answer: d