Consider the following statements about the debate on India’s policies of 1950-1990:
(A) A big industrialist would sometimes get a licence not to start a new firm but to prevent competitors from starting new firms.
(B) Due to restrictions on imports, producers had a captive market and so little incentive to improve quality.
(C) A few economists hold that public sector firms should be judged by the profits they earn, not by their contribution to welfare.
(D) Some economists hold that India should protect its producers from foreign competition as long as rich nations do so.
(E) Like a public sector firm, a loss-making private firm is usually kept running despite its losses.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (B) and (D) only
(A) A big industrialist would sometimes get a licence not to start a new firm but to prevent competitors from starting new firms. — Correct. This was how licences were misused.
(B) Due to restrictions on imports, producers had a captive market and so little incentive to improve quality. — Correct. Consumers had to buy whatever Indian producers made.
(C) A few economists hold that public sector firms should be judged by the profits they earn, not by their contribution to welfare. — Incorrect. It is the reverse: they should be judged by their contribution to welfare, not by profits.
(D) Some economists hold that India should protect its producers from foreign competition as long as rich nations do so. — Correct. This is one view in the debate on protection.
(E) Like a public sector firm, a loss-making private firm is usually kept running despite its losses. — Incorrect. A loss-making private firm will not waste resources by being kept running.
NCERT (2026-27): “2.5 Trade Policy: Import Substitution … However, a loss-making private firm will not waste resources by being kept running despite the losses. 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. The protection from foreign competition was also being criticised on the ground that it continued even after it proved to do more harm than good. Due to restrictions on imports, the Indian consumers had to purchase whatever the Indian producers produced. The producers were aware that they had a captive market; so they had no incentive to improve the quality of their goods. … Competition from imports forces our producers to be more efficient. A few economists also point out that the public sector is not meant for earning profits but to promote the welfare of the nation. The public sector firms, on this view, should be evaluated on the basis of the extent to which they contribute to the welfare of people and not on the profits they earn. Regarding protection, some economists hold that we should protect our producers from foreign competition as long as the rich nations continue to do so. …” |