What change in policy did the government introduce in 1991?

Privatization and liberalization

The correct answer is Option 3: Privatization and liberalization

In 1991, India faced a severe Balance of Payments (BoP) crisis, leading the government to introduce the New Economic Policy (NEP), often referred to as the LPG Reforms.

Why the other options are incorrect:

• Option 1 (Import Substitution): This was actually the pre-1991 strategy (from 1950–1990). The government tried to protect domestic industries by replacing imports with domestic production through high tariffs and quotas.

• Option 2 (Export-led growth): While the 1991 reforms did encourage exports, the policy was a fundamental structural shift (LPG) rather than just an export strategy.

NCERT: The conflicts and problems led the government to introduce a new economic policy in 1991, which included measures of privatization and liberalization to address the challenges faced by the industrial sector. This marked a significant shift from the earlier import substitution strategy to policies that encouraged foreign investment, deregulation, and opening up of the economy to global markets. The changes aimed to reduce government control over the economy and promote private sector growth and competition.