Read the following chain of events of the licence system with one step missing:
(A) No new industry was allowed unless a licence was obtained from the government.
(B) ____________
(C) Competitors found it hard to start new firms.
(D) Excessive regulation prevented certain firms from becoming more efficient.
Which of the following is the missing step (B)?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Big industrialists obtained licences not to start new firms but to stop competitors from starting them.
The licence system was misused by industrial houses. A big industrialist took licences only to block competitors. With less competition, firms had little push to become efficient.
Option (1) Industrialists spent more time lobbying the ministries than improving their products. — Incorrect. This was another ill effect of the permit license raj, but it does not keep competitors out.
Option (2) Big industrialists obtained licences not to start new firms but to stop competitors from starting them. — Correct. Licences used to block rivals lead straight to step (C).
Option (3) The government nationalised a number of private firms that were on the verge of closure due to losses. — Incorrect. Some loss-making private firms were nationalised to protect jobs, but this does not stop new competitors.
Option (4) Imports of competing foreign goods were restricted by the government through tariffs and quotas. — Incorrect. Tariffs and quotas kept out foreign goods, not new Indian firms.
NCERT (2026-27): “2.5 Trade Policy: Import Substitution … 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.” |