The regulatory framework adopted by India between 1947 and 1990, often referred to as the "License Raj," aimed to direct economic activity. While it had certain intended benefits, what was a significant unintended negative consequence often associated with this system?
Show answer & explanation
Correct answer: C
Explanation
Answer: The creation of barriers to entry for new businesses potentially stifling innovation and leading to inefficiencies.
Explanation: The “License Raj” was India’s heavily controlled economic system from 1947 to 1990, where businesses needed multiple government approvals to start or expand operations. While it aimed to regulate and protect the economy, a major unintended negative consequence was the creation of excessive bureaucratic controls and entry barriers.
This led to slow economic growth, lack of competition, inefficiency, and reduced innovation in industries.
Additional Key Points:
The system increased red tape and delays in approvals.
It discouraged private entrepreneurship and foreign investment.
It often led to corruption due to excessive licensing requirements.
The system was dismantled after the 1991 economic liberalization reforms.
1991 Economic Reforms of India marked the end of most License Raj restrictions.
Potential Exam-Oriented Questions & Answers:
Question: Which reform ended the License Raj system in India?
Answer: 1991 Economic Reforms
Question: What economic issue was common under License Raj?
Answer: Bureaucratic delays and inefficiency