Read the below statements:
1. Trade Policy Reforms removed import licensing for most items.
2. Devaluation of the rupee made imports cheaper.
3. FDI was encouraged post-1991 through automatic approval routes.
Which of the above statements is/are correct?
Show answer & explanation
Correct answer: B
Explanation
Solution: The correct answer is Only 1 and 3 are correct.
Explanation:
☛ Statement 1 is correct: The Economic Reforms of 1991 dismantled the quantitative restrictions on imports. Import licensing was abolished for almost all goods, except for environmentally sensitive and hazardous items.
☛ Statement 2 is incorrect: In July 1991, the Indian Rupee was devalued by around 18–19% in two steps against major foreign currencies. Devaluation makes imports more expensive and domestic exports cheaper and more competitive in global markets.
☛ Statement 3 is correct: To boost foreign capital inflow, the government opened up Foreign Direct Investment (FDI) through an automatic approval route for up to 51% foreign equity in high-priority industries.
Extra Exam-Relevant Facts:
☛ The New Economic Policy (NEP) was launched in July 1991 under Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.
☛ The reforms are popularly known as the LPG Model, standing for Liberalisation, Privatisation, and Globalisation.
☛ The Foreign Investment Promotion Board (FIPB) was constituted in 1991 to negotiate and facilitate FDI approvals.
☛ The LERMS (Liberalised Exchange Rate Management System), a dual exchange rate system, was introduced in 1992, leading to full convertibility on the current account in August 1994.
Important One-Liners for Upcoming Exams:
☛ In which year was the New Industrial Policy announced in India? → 1991
☛ Who presented the historic Union Budget of 1991? → Dr. Manmohan Singh
☛ What effect does domestic currency devaluation have on exports? → It makes exports cheaper and more competitive
☛ In which year was the Foreign Exchange Management Act (FEMA) passed to replace FERA? → 1999
☛ Which account of the Balance of Payments was made fully convertible in India in 1994? → Current Account