Read the passage carefully and answer the following questions from
The Economic Policy of Liberalisation
Globalisation involves a stretching of social and economic relationships throughout the world. This stretching is pushed by certain economic policies. Very broadly, this process in India is termed as liberalisation. The term liberalisation refers to a range of policy decisions that the Indian state took since 1991 to open up the Indian economy to the world market. This marked a break with an earlier stated policy of the government to have a greater control over the economy. The state after independence had put in place a large number of laws that ensured that the Indian market and Indian indigenous business were protected from competition of the wider world. The underlying assumption of such a policy was that an erstwhile colonial country would be at a disadvantage in a free market situation.
Liberalisation of the economy meant the steady removal of the rules that regulated Indian trade and finance regulations. These measures are also described as economic reforms. What are these reforms? Since July 1991, the Indian economy has witnessed a series of reforms in all major sectors of the economy (agriculture, industry, trade, foreign investment and technology, public sector, financial institutions, etc). The basic assumption was that greater integration into the global market would be beneficial to the Indian economy.
Which of the following best describes liberalisation of the economy?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Removal of restrictions on trade and financial flow.
Option (1) Creation of new government-owned industries. — Incorrect. Liberalisation means the state steps back from controlling the economy: rules on trade and finance are removed and private and foreign business get more room; the government is even selling its share in public sector companies (disinvestment). Setting up new government-owned industries would increase state control, the very policy liberalisation broke with.
Option (2) Expansion of rural employment guarantees. — Incorrect. An employment guarantee is a welfare scheme of the state to tackle hunger and poverty in rural areas. It gives work and income to the poor, but it removes no rule on trade or finance, so it is not what liberalising the economy means.
Option (3) Removal of restrictions on trade and financial flow. — Correct. Liberalisation of the economy meant the steady removal of the rules that regulated Indian trade and finance, so that the economy opened up to the world market.
Option (4) Increasing taxation on foreign companies. — Incorrect. Liberalisation removes restrictions so that the economy can join the world market, and foreign investment is one of the sectors opened up. A higher tax on foreign companies would raise their cost of doing business in India, so fewer would come or stay; that is a new restriction, the opposite of liberalisation.
Note: The passage of Q41-Q45 is taken from the NCERT chapter ‘Globalisation and Social Change’, the section ‘The Economic Policy of Liberalisation’, almost word for word. A careful reading of these two paragraphs before the exam was worth five questions here.
NCERT (2025-26): “a. The Economic Policy of Liberalisation Globalisation involves a stretching of social and economic relationships throughout the world. This stretching is pushed by certain economic policies. Very broadly this process in India is termed as liberalisation. The term liberalisation refers to a range of policy decisions that the Indian state took since 1991 to open up the Indian economy to the world market. This marked a break with an earlier stated policy of the government to have a greater control over the economy. The state after independence had put in place a large number of laws that ensured that the Indian market and Indian indigenous business were protected from competition of the wider world. The underlying assumption of such a policy was that an erstwhile colonial country would be at disadvantage in a free market situation.… …Liberalisation of the economy meant the steady removal of the rules that regulated Indian trade and finance regulations. These measures are also described as economic reforms. What are these reforms? Since July 1991, the Indian economy has witnessed a series of reforms in all major sectors of the economy (agriculture, industry, trade, foreign investment and technology, public sector, financial institutions, etc). The basic assumption was that greater integration into the global market would be beneficial to Indian economy.…” |