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SSC CPO 2025 PYQ — Question 95

SSC CPO - 9 Dec 2025 - Shift 2 • General Awareness • Q95

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Trade policy prior to 1991 was characterized by

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Correct answer: C

Explanation

High tariffs and quotas.
Explanation:

  • Prior to the economic reforms of 1991 (LPG), India's trade policy was 'inward-looking,' a strategy known as Import Substitution. Its primary objective was to protect domestic industries from foreign competition. It was characterized by two key features:
  • High Tariffs: Very high customs duties were imposed on imported goods to make them expensive in the domestic market, thereby encouraging people to prioritize indigenous products.
  • Quotas: The government fixed a maximum limit on the quantity of specific goods that could be imported. This system was also referred to as the 'License-Permit Raj,' under which government permission was mandatory for the import of any commodity.
  • While this policy aimed to make India self-reliant, it resulted in a lack of competition within Indian industries and caused the country to lag behind technologically. Following the Balance of Payments crisis of 1991, India removed these barriers and adopted Liberalization, Privatization, and Globalization (LPG).

Additional Points:

  • Import Substitution: The domestic production of goods that are similar to, and serve as substitutes for, foreign goods.
  • The 1991 Crisis: India was left with foreign exchange reserves sufficient to cover imports for only two weeks; subsequently, the then Finance Minister, Dr. Manmohan Singh, announced the New Economic Policy.
  • The Shift: After 1991, average tariff rates were drastically reduced, and import quotas and licensing requirements were abolished for most commodities.

Potential Exam Questions and Answers:
Question: What were the three main pillars of the New Economic Policy (NEP) of 1991?
Answer: Liberalization, Privatization, and Globalization.
Question: What was the primary objective of the 'Import Substitution' policy in India?
Answer: To protect domestic industries from foreign competition and to achieve self-reliance.
Question: In which year did the Balance of Payments (BOP) crisis occur that paved the way for economic reforms?
Answer: In the year 1991.