SSC CGL 2025 PYQ — Question 50

Correct Answer

A is false but R is true.

Explanation

The assertion (A) is false because the Industrial Licensing Policy (often associated with the 'License Raj' era in India prior to 1991) did not promote innovation in small-scale industries. Instead, it created an environment characterized by bureaucratic red tape and rigid regulations, which often stifled competition and innovation, as firms were more focused on securing licenses than improving production efficiency or technology.

The reason (R) is true. The restrictive licensing system created high entry barriers for new firms, limiting competition and allowing established players to maintain market dominance without much pressure to innovate. This fostered 'rent-seeking' behavior, where companies expended resources on political lobbying and bureaucratic maneuvering to secure or protect licenses, rather than investing in productive or innovative activities.

Important Questions and Answers

Question: What was the primary impact of the 1991 Liberalization policy on industrial licensing?

Answer: The 1991 reforms significantly dismantled the Industrial Licensing system, drastically reducing the number of industries requiring government approval, which promoted competitive efficiency and innovation.

Question: Why is rent-seeking behavior considered harmful to economic growth?

Answer: It is harmful because resources are diverted from productive, value-creating activities (like R&D or expansion) toward non-productive activities aimed solely at manipulating the regulatory environment for private gain.