Question

Read the following passage carefully and answer the question. India adopted a new economic policy in 1991 in response to a severe balance of payments crisis. The reforms were based on Liberalisation, Privatisation and Globalisation (LPG). Liberalisation aimed at reducing government controls and restrictions on economic activities. Privatisation encouraged greater participation of the private sector in economic activities. Globalisation integrated the Indian economy with the world economy through trade, foreign investment and technology transfer. These reforms increased competition, improved efficiency and accelerated economic growth. Which of the following statements best explains the objective of Liberalisation under the New Economic Policy?

• A. To increase government control over industries
• B. To reduce restrictions and allow market forces greater freedom
• C. To nationalise private enterprises
• D. To prohibit foreign investment in India

Hint:

Remember the LPG Reforms: L = Liberalisation = Removal of unnecessary restrictions P = Privatisation = Greater role of private sector G = Globalisation = Integration with the world economy CUET frequently asks direct and passage-based questions from these three concepts.

Answer 1

The Correct Option is B

Concept: Passage-based questions have become an important part of CUET Economics. Although the answer may appear direct, students often make mistakes because multiple options seem partially correct. The key strategy is to identify the exact economic concept being tested and then match it with the relevant statement. This passage focuses on: \[ \text{LPG Reforms} \] introduced in: \[ 1991 \] The question specifically asks about: \[ \text{Liberalisation} \] Therefore, we must understand the meaning and objectives of Liberalisation.

Step 1: Understand the meaning of Liberalisation. Liberalisation refers to the process of reducing unnecessary government controls and restrictions on economic activities. Before 1991, many industries required government approval for expansion, production and investment. This system was commonly known as: \[ \text{License Raj} \] Liberalisation sought to reduce these restrictions. Thus: \[ \boxed{\text{Liberalisation means giving greater economic freedom}} \]

Step 2: Analyze Option (A). Option (A) states: To increase government control over industries. This is exactly opposite to the objective of Liberalisation. Liberalisation reduces excessive government intervention. Therefore: \[ \boxed{\text{Option (A) is incorrect}} \]

Step 3: Analyze Option (B). Option (B) states: To reduce restrictions and allow market forces greater freedom. This is the precise definition and objective of Liberalisation. The passage itself mentions reducing controls and restrictions. Therefore: \[ \boxed{\text{Option (B) is correct}} \]

Step 4: Analyze Option (C). Option (C) states: To nationalise private enterprises. Nationalisation means transferring ownership to the government. This is contrary to Liberalisation and Privatisation. Hence: \[ \boxed{\text{Option (C) is incorrect}} \]

Step 5: Analyze Option (D). Option (D) states: To prohibit foreign investment in India. Globalisation and Liberalisation actually encouraged foreign investment. The reforms aimed to attract international capital and technology. Therefore: \[ \boxed{\text{Option (D) is incorrect}} \]

Step 6: Connect Liberalisation with economic outcomes. Liberalisation resulted in:
• Greater competition
• Improved efficiency
• Reduction of licensing requirements
• Easier entry for firms
• Better allocation of resources
• Higher economic growth These outcomes were expected because firms were allowed to operate with fewer restrictions.

Step 7: Final conclusion. The objective of Liberalisation was: \[ \boxed{\text{To reduce restrictions and allow market forces greater freedom}} \] Therefore, \[ \boxed{\text{Option (B)}} \]