Assertion: The need to obtain a license to start an industry in India during first seven plans was misused by industrial houses.

Reasoning: More time was spent by industrialists in trying to obtain a license or lobby with the concerned ministries rather than on thinking about how to improve their products. 

Both Assertion (A) and reasoning (R) are correct and but R is not the correct explanation of A.

The correct answer is option 2: Both Assertion (A) and reasoning (R) are correct and but R is not the correct explanation of A.

The assertion is true as the licensing system was indeed misused by industrial houses. However, the reasoning provided (that more time was spent lobbying rather than improving products) is not the direct explanation for why the licensing system was misused.

"The need to obtain a license to start an industry was misused by industrial houses; a big industrialist would get a license not for starting a new firm but to prevent competitors from starting new firms. The excessive regulation of what came to be called the permit license raj prevented certain firms from becoming more efficient. More time was spent by industrialists in trying to obtain a license or lobby with the concerned ministries rather than on thinking about how to improve their products."