What was the primary impact of the 'License Raj' system on industrial growth in India before 1991?
Show answer & explanation
Correct answer: A
Explanation
Answer: It created entry barriers, hindered expansion, and fostered inefficiency.
Explanation: The License Raj system in India (before the 1991 economic reforms) required businesses to obtain multiple government licenses and approvals to start or expand industries. This created excessive bureaucracy, delays, and restrictions on private enterprise. As a result, it led to entry barriers for new firms, limited industrial expansion, and low efficiency due to lack of competition.
Additional Key Facts:
License Raj was part of India’s command-and-control economic model.
It discouraged private investment and innovation.
It led to corruption due to excessive regulatory control.
Major reforms in 1991 (LPG reforms: Liberalization, Privatization, Globalization) dismantled this system.
After 1991, industrial licensing was largely removed except for a few strategic sectors.
Potential Exam-Oriented Questions & Answers:
Question: What was a major drawback of License Raj?
Answer: It caused bureaucratic delays and restricted industrial growth.
Question: Which system replaced License Raj?
Answer: Liberalized economic policy after 1991 reforms.