Economic Reforms since 1991 MCQ Quiz - Objective Question with Answer for Economic Reforms since 1991 - Download Free PDF

The correct answer is 1991.

Key Points

• The New Economic Policy, often referred to as the Economic Liberalisation in India, was introduced in 1991.
• Faced with a major economic crisis, the government of India, led by then Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh, decided to introduce radical changes in India's economic policy.
• The policy aimed at making the Indian economy market-oriented and expanding the role of private and foreign investment.
• Specific changes included reducing import tariffs, decreasing taxes, opening up to foreign investment, and deregulating markets within the country to promote competition.

Additional Information

• 1992: The Securities and Exchange Board of India (SEBI) was given statutory recognition in this year.
• 1992: The Harshad Mehta scam which led to major changes in Indian Stock Market took place this year.
• 1990: The economy was under socialist-inspired policies, regulatory restrictions, and extensive protectionism, which was soon to change in the next year with the introduction of the New Economic Policies.

The correct answer is  Dr. Manmohan Singh.

Key Points

• LPG model of development was introduced in 1991.
• The Finance minister from 1991-1996 was Dr. Manmohan Singh.
• Hence the correct answer is Dr. Manmohan Singh.

Important Points

• LPG Model:
  • India’s New Economic Policy was announced on July 24, 1991, which is popularly known as the LPG reforms.
  • LPG means Liberalisation, Privatisation, and Globalisation model. 
  • Liberalization- It refers to the process of making policies that are less constraining economic activity.
  • Privatization- It refers to the transfer of ownership of property or business from a government to a privately owned entity.
  • Globalization- It refers to the expansion of economic activities across political boundaries of nation-states.

Additional Information

• Salient features of LPG Policy:
  • Abolition of Industrial licensing/ Permit Raj.
  • Diluted role of the public sector enterprises.
  • Beginning of privatization.
  • Free entry to foreign investment and technology.
  • Reduction in import tariffs.
  • Deregulation of markets.
  • Reduction of taxes.

The correct answer is Balance of Payment Crisis.

Key Points

• Though economic liberalization in India can be traced back to the late 1970s, economic reforms began in earnest only in July 1991.
• A balance of payments crisis at the time opened the way for an International Monetary Fund (IMF) program that led to the adoption of a major reform package.
• Though the foreign-exchange reserve recovered quickly and ended effectively the temporary clout of the IMF and World Bank, reforms continued in a stop-go fashion. 
• Economic liberalization in India refers to the economic liberalization of the country's economic policies with the goal of making the economy more market and service-oriented and expanding the role of private and foreign investment.
• Indian economic liberalization was part of a general pattern of economic liberalization and modernization occurring across the world in the late 20th century.
• Although unsuccessful attempts at liberalization were made in 1966 and the early 1980s, a more thorough liberalization was initiated in 1991.
• The reform was prompted by a balance of payments crisis that had led to a severe recession.

The correct answer is Chelliah Committee.

Key Points

• The Chelliah Committee was constituted in 1991 to suggest reforms in the tax structure of India.
• It is formally known as the Tax Reforms Committee, headed by Raja J. Chelliah, a renowned economist.
• The committee's recommendations focused on simplifying the tax system, broadening the tax base, and improving tax administration.
• It emphasized reducing tax evasion and ensuring equity in taxation.
• The Chelliah Committee's suggestions laid the foundation for many of the tax reforms implemented during the economic liberalization period in India.

Additional Information

• Tax Reforms in India
  • Tax reforms are aimed at improving revenue generation, reducing complexity, and promoting compliance.
  • India’s tax reform journey includes GST implementation, direct tax code simplification, and digitization of tax administration.
  • Reforms such as lowering corporate tax rates and introducing e-filing systems have improved ease of doing business.
• Economic Liberalization in 1991
  • The economic liberalization of 1991 marked a shift towards market-oriented policies.
  • Key changes included reducing trade barriers, deregulation, and attracting foreign investments.
  • Tax reforms under liberalization were crucial for supporting fiscal stability and economic growth.
• Direct and Indirect Taxes
  • Direct taxes are levied on income or wealth (e.g., Income Tax, Corporate Tax).
  • Indirect taxes are levied on goods and services (e.g., GST, Customs Duty).
  • The Chelliah Committee recommended rationalizing both direct and indirect taxes to improve efficiency.
• Raja J. Chelliah
  • Raja J. Chelliah was an eminent Indian economist and policymaker.
  • He is widely recognized as the architect of India’s modern tax system.
  • His contributions include pioneering tax reforms and advising on economic policies during India's liberalization phase.

Key Points

• Liberalisation: It refers to reducing government restrictions on industries and allowing private players to operate freely in markets. This policy was aimed at improving the efficiency of the economy by encouraging competition.
• Privatisation: It involves transferring ownership of businesses or enterprises from the public (government) sector to the private sector. The goal was to reduce the fiscal burden on the government and increase productivity.
• Globalisation: It is the process of integrating the Indian economy with the global economy by encouraging foreign trade, investment, and technology exchange. This policy aimed to make India competitive in the global market.
• The New Economic Policy (NEP) of India, introduced in 1991, focused on these three pillars: Liberalisation, Privatisation, and Globalisation (LPG), to overcome the economic crisis and promote sustainable growth

The correct answer is July 1991.

Important Points

• Prime Minister P.V. Narsimha Rao and Finance Minister Manmohan Singh began the economic reform process in July 1991.
• It was termed as 'liberalization' by the media.
• The goal of the reforms was to make the economy more market and service-oriented and expand the role of private and foreign investment.
• There was significant opposition to the reforms, but both Rao and Singh continued the reforms.

Key Points

• Following the reforms, India's GDP rose from $266 billion to $3 trillion and its purchasing power parity rose from $1 trillion in 1991 to $1.2 trillion in 2019 respectively.
• Liberalization: The aim of liberalization was to end the 'license raj' and end the restrictions which were a hindrance in the development and growth of the nation. It also allowed private players to expand their business.
• Privatization: Privatization was to reduce the monopoly of public sector companies and increase the role of private sector companies.
• Globalization: The aim of globalization was to integrate the Indian economy with the global one.

The correct answer is P.V. Narsimha Rao.

Key Points

• Economic reforms were launched in 1991 as the structural adjustment program and it was started by the then Prime Minister Narasimha Rao.
  • India’s New Economic Policy was launched by the then Finance Minister Dr. Manmohan Singh.
  • The economic changes first became visible in 1991 and radically changed the direction that the Indian Economy had pursued since independence towards a liberalized and open economy.

The correct answer is 8^th November 2016.

Key Points

• On 8 November 2016, the Government of India announced the demonetization of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series.
• It also announced the issuance of new ₹500 and ₹2,000 banknotes in exchange for the demonetized banknotes.
• The main objective of this demonetization is to curb black money.
• Demonetisation has been implemented twice -1946 and 1978 – in the past.
• The first currency ban: In 1946, the currency note of Rs 1,000 and Rs 10,000 were removed from circulation. 

Additional Information

• The motif on the new currency of India:
  • 10 Rupee note - Sun Temple
  • 20 Rupee note - Ellora Caves
  • 50 Rupee note - Hampi
  • 100 Rupee note - Rani ki vav
  • 200 Rupee note - Sanchi Stupa
  • 500 Rupee note - Red Fort
  • 2000 Rupee note -  Mangalyaan

The correct answer is Centralization.

Key Points

• Indian economy experienced an economic crisis in 1991.
• The foreign currency assets declined to such an extent that it was barely enough to finance two weeks of imports.
• The annual rate of inflation reached 16.7% in August 1991.
• The government expenditure was greater than its revenue due to defence expenditure, subsidies, interest on loans, etc.
  • The positive effects of the socialistic pattern of society were on the verge of decline.
  • On this ground, it was necessary to bring new changes to the economy. Hence, the Government of India adopted a New Economic Policy (NEP) in 1991.
  • It is also known as LPG i.e.
    1. Liberalization
    2. Privatization
    3. Globalization.
• The process of new economic policy which started in 1985 got momentum in 1991.

Additional Information

• Liberalization:
  • Liberalization refers to 'economic freedom' or 'freedom for economic decision'.
  • It means producers, consumers, and owners of factors of production, are free to take the decision to promote their self-interest.
  • Indian government accepted policies suggested by the IMF for economic liberalization.
    • Macroeconomic Stabilisation :
      • Inflation control
      • Balance of Payment adjustment
      • Currency devaluation
    • Structural Adjustment Programs :
      • Trade and capital inflow reforms
      • Industrial reforms
      • Tax reforms
      • Fiscal reforms
      • Monetary and financial reforms
      • Privatization
• Privatization: 
  • Privatization means the transfer of ownership from the public to the private sector.
  • It refers to a process that reduces the involvement of the public sector and increases that of the private sector in economic activities.
  • Measures :
    • Disinvestment
    • Dereservation policy
    • Establishment of BIFR (Board of Industrial and Financial Reconstruction)
    • Creation of National Renewal Board (NRB)
    • Navratna Status
• Globalization:
  • Globalization means integrating the economy of a country with the world economy.
  • Measures : 
    • Removal of quantitative restrictions
    • Encouragement to Foreign Capital
    • Convertibility of Rupee
    • Foreign collaboration
    • Long term trade Policy
    • Encouragement to Exports

The correct answer is Manmohan Singh.

Important Points

• Manmohan Singh served as the finance minister during the 1991 economic reforms.
• He was the finance minister in the PV Narasimha Rao government.
• Manmohan Singh is the 13th Prime Minister of India (2004 to 2014).
  • He is the first Prime Minister from the Sikh community.
  • First Prime Minister from the minority community.
  • Only governor of RBI who became the prime minister of India.
  • He was the deputy chairman of the planning commission during the period 1985 to 1987.
  • He is the first prime minister to visit the Siachin glacier.
  • Notable works: Changing India, The Quest for Equity in Development.

Additional Information

• R. Venkataraman served as the finance minister from 1980 to 1982.
• PV Narasimha Rao served as the 9th Prime Minister of India (1991 to 1996).
• R. K. Shanmukham Chetty served as the first finance minister of India from 1947 to 1949.

The correct answer is Balance of Payment Crisis.

Key Points

• Though economic liberalization in India can be traced back to the late 1970s, economic reforms began in earnest only in July 1991.
• A balance of payments crisis at the time opened the way for an International Monetary Fund (IMF) program that led to the adoption of a major reform package.
• Though the foreign-exchange reserve recovered quickly and ended effectively the temporary clout of the IMF and World Bank, reforms continued in a stop-go fashion. 
• Economic liberalization in India refers to the economic liberalization of the country's economic policies with the goal of making the economy more market and service-oriented and expanding the role of private and foreign investment.
• Indian economic liberalization was part of a general pattern of economic liberalization and modernization occurring across the world in the late 20th century.
• Although unsuccessful attempts at liberalization were made in 1966 and the early 1980s, a more thorough liberalization was initiated in 1991.
• The reform was prompted by a balance of payments crisis that had led to a severe recession.

The correct answer is 1991.

Key Points

• The New Economic Policy, often referred to as the Economic Liberalisation in India, was introduced in 1991.
• Faced with a major economic crisis, the government of India, led by then Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh, decided to introduce radical changes in India's economic policy.
• The policy aimed at making the Indian economy market-oriented and expanding the role of private and foreign investment.
• Specific changes included reducing import tariffs, decreasing taxes, opening up to foreign investment, and deregulating markets within the country to promote competition.

Additional Information

• 1992: The Securities and Exchange Board of India (SEBI) was given statutory recognition in this year.
• 1992: The Harshad Mehta scam which led to major changes in Indian Stock Market took place this year.
• 1990: The economy was under socialist-inspired policies, regulatory restrictions, and extensive protectionism, which was soon to change in the next year with the introduction of the New Economic Policies.

The correct answer is Dr. Manmohan Singh.

• Dr. Manmohan Singh:
  • He was the 22nd Finance minister of India under the prime ministership of P. V. Narasimha Rao from 1991 to 1996.
  • He was also served as Prime minister of India two times i.e 2004 to 2009 and 2009 to 2014.

   Key Points

• Liberalization:
  • India's new Economic policy or Liberalization of India was announced and accepted in 1991.
  • It is a model of Liberalization, Privatization, and Globalization of the Indian economy.
  • It was done during the Prime minister of P. V. Narasimha Rao.
• Main objectives of Liberalization policy:
  • The role of the public sector in the economy is diluted.
  • To achieve a higher economic growth rate and economic stabilization.
  • It aimed at increasing the participation of private sectors in all sectors of the Indian economy.
  • It aims to promote foreign trade and to reduce the debt of the country.
  • Some of the reforms are also carried out to achieve the development and growth of the Indian economy like foreign trade policies, tax reforms, foreign exchange reforms, trade and investment policy reforms, financial sector reforms, reforms in regulations of the industrial sector.

Additional Information

• P. V. Narasimha Rao:
  • He was the 12^th Prime minister of India from 1991 to 1996.
  • The liberalization policy of India (1991) came into action during his tenure.
• Morarji Desai:
  • He was the 6^th Prime minister of India from 1977 to 1979.
  • He was the 2^nd Deputy Prime minister of India from 1967 to 1969.
  • He was also served as the 6th and 9th Finance minister of India during 1959 - 1964 and 1967 - 1970 respectively.
• P. Chidambaram:
  • He held the office of Finance minister of India three times as follows:
  • 23rd Finance minister from 1996 - 1998.
  • 26th Finance minister from 2004 - 2008.
  • 28th Finance minister from 2012 - 2014.

The correct answer is 1994.

• In India, the service tax was introduced for the first time in 1994.

Key Points

• Service tax is imposed on the services provided to the customers.
• It was introduced in India for the first time in the year 1994.
• It was introduced on the recommendations of Dr. Raja Chelliah Committee on tax reforms.
• It is an indirect tax, which means, the burden of tax can be shifted to other people.
• Initially, the service tax was introduced on 3 services only:
  • Telephone Services,
  • Non-Life Insurance Services
  • Stock Brokers’ Services

The correct answer is Telangana.

• In LPG (Liberalisation, Privatization, and Globalization) the black episode- ''Sircilla' tragedy is associated with Telangana.
• Liberalization - It refers to a relaxation of government restrictions in the areas of social, political, and economic policies.
• Privatization - Privatization is the transfer of publicly owned or publicly operated means of production to private ownership or operation.
• Globalization - It is the process of interaction and integration among people, companies, and governments worldwide.

Additional Information

About Telangana:

• Chief Minister - K. Chandrashekar Rao.
• State Animal - Chital.
• Literacy rate - 66.54 %.
• Sex Ratio - 988.