Unit 12: Economic Reforms - Practice Quiz

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1 In which year did India launch its major economic reforms, often referred to as the New Economic Policy?

introduction to reforms Easy
A. 1991
B. 1981
C. 2001
D. 1975

2 The economic reforms of 1991 are commonly summarised by the acronym LPG. What does LPG stand for?

introduction to reforms Easy
A. Liberalisation, Privatisation, Globalisation
B. Loans, Prices, Growth
C. Land, Property, Grants
D. Labour, Production, Goods

3 Which of the following best describes liberalisation in the context of economic reforms?

introduction to reforms Easy
A. Banning all foreign trade
B. Nationalising private companies
C. Increasing the number of licences required for business
D. Reducing government controls and restrictions on economic activity

4 The dismantling of the industrial licensing system in India is popularly known by which term?

introduction to reforms Easy
A. White Revolution
B. Nationalisation drive
C. Green Revolution
D. End of the Licence Raj

5 What does globalisation primarily refer to in economic reforms?

introduction to reforms Easy
A. Integrating the domestic economy with the world economy
B. Reducing exports
C. Increasing subsidies to farmers
D. Closing borders to imports

6 Which crisis is widely regarded as the immediate trigger for India's 1991 economic reforms?

introduction to reforms Easy
A. Agricultural surplus
B. World War
C. Stock market boom
D. Balance of payments crisis

7 Which institution is the central bank of India that regulates the financial sector?

economic reforms for financial sector performance Easy
A. International Monetary Fund (IMF)
B. State Bank of India (SBI)
C. Reserve Bank of India (RBI)
D. World Bank

8 Which body regulates the securities and stock markets in India as part of financial sector reforms?

economic reforms for financial sector performance Easy
A. SEBI
B. IRDAI
C. TRAI
D. FSSAI

9 Financial sector reforms allowed the entry of which type of banks to increase competition?

economic reforms for financial sector performance Easy
A. No new banks at all
B. Private and foreign banks
C. Only government-owned banks
D. Only cooperative banks

10 The minimum percentage of deposits that banks must maintain with the RBI as cash reserves is known as which ratio?

economic reforms for financial sector performance Easy
A. Export Credit Ratio
B. Fixed Deposit Ratio
C. Cash Reserve Ratio (CRR)
D. Gross Domestic Ratio

11 A key objective of financial sector reforms was to reduce which type of loans that were not being repaid?

economic reforms for financial sector performance Easy
A. Non-Performing Assets (NPAs)
B. Fixed deposits
C. Working capital
D. Overdrafts

12 Which technological shift dramatically increased Indian foodgrain production and is linked to agricultural progress?

agriculture Easy
A. Green Revolution
B. Blue Revolution
C. Industrial Revolution
D. Digital Revolution

13 The price at which the government purchases crops from farmers to protect them is called the:

agriculture Easy
A. Market Clearing Price
B. Maximum Retail Price (MRP)
C. Minimum Support Price (MSP)
D. Wholesale Price

14 Which of the following is a major reform-related goal for the agriculture sector?

agriculture Easy
A. Improving irrigation and market access for farmers
B. Prohibiting the use of fertilisers
C. Reducing farm output deliberately
D. Banning all crop sales

15 Financial support given to farmers to reduce the cost of inputs like fertilisers is called a:

agriculture Easy
A. Subsidy
B. Tariff
C. Tax
D. Duty

16 The policy of selling government-owned enterprises to private ownership is known as:

industry Easy
A. Nationalisation
B. Standardisation
C. Rationalisation
D. Privatisation

17 The sale of a part of the government's shareholding in a public sector unit is referred to as:

industry Easy
A. Amalgamation
B. Disinvestment
C. Investment
D. Depreciation

18 Industrial reforms after 1991 reduced the requirement of obtaining a licence to start a business. This process involved abolishing industrial licensing for most industries, opening several sectors previously reserved for the public sector to private players, and easing rules on foreign investment. What is this broad reform best described as?

industry Easy
A. Complete government takeover of industries
B. Increased licensing of industries
C. Ban on private industries
D. De-licensing of industries

19 Which type of investment where foreign companies invest directly in Indian businesses is abbreviated as FDI?

industry Easy
A. Fixed Domestic Income
B. Financial Debt Instrument
C. Formal Development Index
D. Foreign Direct Investment

20 Which service sector activity became a major driver of India's economic growth after the reforms, especially due to software and BPO exports?

services Easy
A. Ship building
B. Coal mining
C. Textile weaving
D. Information Technology (IT) services

21 India launched its major economic reforms in 1991 primarily as a response to which immediate trigger?

introduction to reforms Medium
A. A prolonged famine across the northern states
B. A sudden surge in foreign direct investment inflows
C. A collapse of the domestic stock market indices
D. A severe balance of payments crisis with very low foreign exchange reserves

22 The 1991 reforms are often summarised as the LPG model. What does LPG stand for?

introduction to reforms Medium
A. Licensing, Production and Growth
B. Lending, Pricing and Governance
C. Liquidity, Profit and Gross output
D. Liberalisation, Privatisation and Globalisation

23 Abolishing the industrial licensing system (except for a few industries) under the 1991 reforms is best described as an example of which policy?

introduction to reforms Medium
A. Privatisation of state enterprises
B. Liberalisation of the domestic economy
C. Nationalisation of key sectors
D. Globalisation of trade

24 The Narasimham Committee (1991) was primarily set up to recommend reforms for which sector?

economic reforms for financial sector performance Medium
A. The foreign trade sector
B. The public distribution system
C. The agricultural credit sector only
D. The banking and financial sector

25 If the RBI reduces the Statutory Liquidity Ratio (SLR), what is the most likely direct effect on commercial banks?

economic reforms for financial sector performance Medium
A. Cash reserves with the RBI rise automatically
B. Deposits with the central bank increase sharply
C. More funds become available for lending to the public
D. Banks must hold more government securities

26 The introduction of prudential norms such as capital adequacy and income recognition after 1991 was aimed mainly at achieving what?

economic reforms for financial sector performance Medium
A. Nationalising the remaining private banks
B. Reducing the interest rate on savings deposits
C. Improving the financial soundness and transparency of banks
D. Increasing the number of bank branches in rural areas

27 The establishment of SEBI as a statutory body in 1992 improved financial sector performance chiefly by:

economic reforms for financial sector performance Medium
A. Regulating and protecting investors in the securities market
B. Managing the country's foreign exchange reserves
C. Fixing minimum support prices for crops
D. Setting interest rates for commercial banks

28 Allowing banks to determine most of their lending and deposit interest rates rather than the RBI fixing them is known as:

economic reforms for financial sector performance Medium
A. Priority sector lending
B. Statutory liquidity control
C. Deregulation of interest rates
D. Capital account convertibility

29 Reducing subsidies on fertilisers and power as part of reforms is expected to have which likely effect on farmers in the short run?

agriculture Medium
A. An increase in their input costs of cultivation
B. A reduction in dependence on the monsoon
C. An immediate fall in food grain prices
D. A guaranteed rise in crop yields

30 Which reform in the agricultural sector aims to let farmers sell produce outside regulated APMC mandis to a wider set of buyers?

agriculture Medium
A. Raising the minimum support price
B. Expanding the public distribution system
C. Liberalising agricultural marketing
D. Increasing import duties on food grains

31 A frequent criticism is that post-1991 reforms neglected public investment in agriculture. What is the most likely consequence of this neglect?

agriculture Medium
A. An automatic increase in rural bank deposits
B. A permanent surplus in the fiscal budget
C. Slower growth in agricultural productivity and infrastructure
D. A sharp rise in industrial exports

32 Contract farming, promoted under reforms, primarily benefits farmers by:

agriculture Medium
A. Guaranteeing government ownership of the land
B. Removing the need for any agricultural inputs
C. Eliminating all weather-related production risk
D. Assuring a market and price before the crop is harvested

33 Before 1991, industrial licensing under the Industries (Development and Regulation) Act mainly resulted in:

industry Medium
A. Rapid technological upgradation across sectors
B. Free flow of foreign investment into all industries
C. Restricted entry and limited competition among firms
D. Automatic approval for capacity expansion

34 The 1991 industrial policy reduced the number of industries reserved exclusively for the public sector to a small list. This reflects which aspect of reform?

industry Medium
A. Complete nationalisation of heavy industries
B. Expansion of the small-scale reservation list
C. Higher tariff protection for domestic firms
D. Greater scope for private and foreign participation

35 Disinvestment of public sector undertakings refers to:

industry Medium
A. Setting up new government-owned factories
B. Selling part of the government's equity in PSUs
C. Raising import tariffs to protect PSUs
D. Providing more budgetary subsidies to PSUs

36 Lowering import tariffs on industrial goods after 1991 was expected to pressure domestic firms to:

industry Medium
A. Stop exporting to foreign markets
B. Improve efficiency and quality to face foreign competition
C. Raise prices well above world levels
D. Reduce their total output permanently

37 Since the 1990s reforms, the services sector in India has been notable for:

services Medium
A. Being fully reserved for the public sector
B. Declining steadily as a share of output
C. Contributing the smallest share to GDP
D. Becoming the largest contributor to GDP

38 The rapid growth of India's IT and software services exports after reforms was supported mainly by:

services Medium
A. Nationalisation of software companies
B. High tariffs on service exports
C. Heavy import restrictions on all technology
D. Liberalisation and a skilled English-speaking workforce

39 Reforms in the telecom sector, including allowing private operators, most directly led to:

services Medium
A. A ban on foreign investment in telecom
B. Higher call charges for all consumers
C. Lower tariffs and wider access to communication services
D. A monopoly of a single state-owned provider

40 A concern about India's services-led growth after reforms is that it:

services Medium
A. Has generated fewer jobs relative to its share in output
B. Contributes almost nothing to export earnings
C. Depends entirely on government employment
D. Has completely replaced the agricultural sector

41 The Indian economic reforms of 1991 are often described as a shift from a 'command-and-control' regime. Which combination of immediate triggers most directly precipitated the reforms rather than being merely underlying structural weaknesses?

introduction to reforms Hard
A. Balance of payments crisis with foreign exchange reserves covering barely two weeks of imports, combined with a downgrade by international credit agencies
B. High population growth combined with declining agricultural yields
C. Chronic disguised unemployment in agriculture coupled with low industrial productivity
D. Persistent low literacy rates combined with weak infrastructure investment

42 The reform framework is commonly summarized as 'LPG' — Liberalisation, Privatisation, and Globalisation. Which statement best distinguishes 'stabilisation' measures from 'structural adjustment' measures within this framework?

introduction to reforms Hard
A. Stabilisation expands public spending, while structural adjustment restricts foreign investment
B. Stabilisation targets short-term correction of BoP and inflation, while structural adjustment aims at long-run efficiency and competitiveness
C. Stabilisation focuses on privatising PSUs, while structural adjustment focuses on devaluing the currency
D. Stabilisation raises tariffs to protect industry, while structural adjustment lowers interest rates

43 The Narasimham Committee (1991) recommended reducing the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). What is the primary intended economic consequence of lowering these ratios for banks?

economic reforms for financial sector performance Hard
A. Increased lendable resources with banks, enhancing credit availability and profitability
B. Mandatory increase in government securities held by banks
C. Reduced money supply, thereby curbing inflation directly
D. Higher preemption of bank funds by the government

44 Prudential norms introduced post-1991 required banks to classify assets and provision against Non-Performing Assets (NPAs). Why did the introduction of income recognition norms initially cause reported bank profits to fall?

economic reforms for financial sector performance Hard
A. Interest on NPAs could no longer be booked as income on accrual, and provisioning had to be charged against profits
B. Capital adequacy requirements eliminated all interest income
C. Banks were forced to write off all loans immediately upon disbursement
D. Deposit rates were raised above lending rates by regulation

45 The Capital to Risk-weighted Assets Ratio (CRAR) under Basel norms was adopted in Indian banking reforms. If a bank has capital of crore and risk-weighted assets of crore, does it meet a CRAR requirement?

economic reforms for financial sector performance Hard
A. Yes, because its CRAR is exactly
B. No, because its CRAR is about , below the threshold
C. No, because CRAR is measured against total deposits, not risk-weighted assets
D. Yes, because its CRAR is about

46 Interest rate deregulation was a key financial-sector reform. Which of the following best explains why full deregulation of deposit and lending rates can improve allocative efficiency yet raise systemic risk?

economic reforms for financial sector performance Hard
A. Market-determined rates channel funds to their most productive uses but may encourage excessive risk-taking and rate volatility
B. It removes the central bank's ability to influence liquidity entirely
C. Deregulated rates guarantee lower interest costs for all borrowers permanently
D. Deregulation fixes rates administratively, eliminating competition among banks

47 SEBI was granted statutory powers in 1992 as part of capital market reforms. Which reform most directly addressed the problem of information asymmetry between issuers and investors in the primary market?

economic reforms for financial sector performance Hard
A. Fixing of share issue prices administratively by the government
B. Mandatory disclosure norms and abolition of the office of the Controller of Capital Issues (CCI) allowing free but disclosure-based pricing
C. Introduction of the Cash Reserve Ratio for stock brokers
D. Restriction of foreign institutional investors from all equity markets

48 Despite broad liberalisation, agriculture reforms lagged behind industry. Which structural feature best explains why removing subsidies in agriculture proved politically and economically harder than in industry?

agriculture Hard
A. A large share of the workforce depends on agriculture with low incomes, making subsidy withdrawal socially and politically costly
B. Farmers face no price volatility, so subsidies are purely symbolic
C. Agriculture contributes the largest share to GDP, making subsidies fiscally trivial
D. Industrial subsidies were legally protected while agricultural ones were not

49 Minimum Support Prices (MSP) and open market liberalisation can pull in opposite directions. What is the core economic tension when MSP is set well above the equilibrium market price for a crop?

agriculture Hard
A. It lowers the market price below equilibrium and creates shortages
B. It immediately raises farmer exports and reduces government fiscal burden
C. It creates surplus procurement, mounting storage costs, and distorted cropping patterns favouring MSP-backed crops
D. It eliminates the need for public distribution entirely

50 Post-reform, agricultural growth remained volatile. Which explanation best accounts for the persistence of low private investment in agriculture despite liberalisation?

agriculture Hard
A. Fragmented landholdings, weak marketing infrastructure, and regulated markets limited returns and deterred investment
B. Foreign investment was fully permitted, crowding out domestic investment
C. Complete removal of all APMC regulations flooded farmers with capital
D. Guaranteed high returns removed any need for private investment

51 Trade liberalisation exposed Indian agriculture to global price fluctuations. Which outcome represents an 'edge case' where reducing import tariffs on an agricultural commodity could hurt domestic producers most severely?

agriculture Hard
A. When world prices are depressed by subsidies in exporting countries, cheap imports undercut domestic farmers
B. When domestic demand is perfectly inelastic to price changes
C. When world prices are far above domestic costs, encouraging exports
D. When domestic production is fully self-sufficient and export-oriented

52 The 1991 industrial policy abolished industrial licensing for most industries. Which statement best captures why de-licensing was expected to improve productive efficiency?

industry Hard
A. It fixed output quotas for all firms, ensuring stable production
B. It removed entry barriers and capacity restrictions, allowing competition to reallocate resources toward efficient firms
C. It mandated public-sector expansion into all industries
D. It guaranteed monopoly status to incumbent firms, raising their scale

53 The list of industries reserved exclusively for the public sector was drastically shortened in 1991. What was the deeper economic rationale beyond mere ideology?

industry Hard
A. Public-sector units were the most profitable and needed protection from private competition
B. Reserved sectors had no strategic importance and were purely administrative
C. Private firms were legally barred from all manufacturing before 1991
D. Many reserved sectors suffered from low returns and inefficiency, so opening them to private capital could improve performance and reduce fiscal drain

54 The MRTP Act was amended to remove the requirement of prior approval for expansion of large firms. Why did this shift the regulatory focus from 'size' to 'conduct'?

industry Hard
A. Large size alone was no longer treated as harmful; regulation targeted anti-competitive practices instead
B. It made firm size the sole criterion for regulatory penalties
C. It banned all large firms from expanding under any circumstances
D. It removed all competition regulation permanently

55 Disinvestment of public-sector undertakings is a privatisation tool. Which scenario represents a case where disinvestment can improve efficiency yet raise valid distributional concerns?

industry Hard
A. Retaining a monopoly PSU guarantees both efficiency and fair distribution
B. Disinvestment can never affect efficiency or distribution
C. Selling a loss-making PSU always fully compensates the public and improves equity
D. Selling a profitable PSU below fair value transfers public wealth to private buyers even as management may improve

56 Tariff reductions and removal of quantitative restrictions exposed domestic industry to import competition. Which concept best explains why some 'infant industries' argued for continued protection post-1991?

industry Hard
A. They needed time to achieve economies of scale and learning before competing with established foreign firms
B. They faced no fixed costs and could compete immediately
C. Protection reduces their productivity permanently
D. They had already achieved global cost leadership and needed no time

57 The services sector became the fastest-growing part of India's economy after reforms. Which reform-linked factor most directly enabled the rapid expansion of IT and IT-enabled services?

services Hard
A. High import tariffs on computer hardware boosted domestic demand
B. Complete government monopoly over telecommunications services
C. Liberalised telecom and technology imports plus openness to foreign markets and investment lowered costs and expanded demand
D. Strict licensing of software firms guaranteed limited competition

58 India's growth is often called 'services-led' rather than following the classic manufacturing-led path. What is the key structural anomaly this creates for employment?

services Hard
A. Services growth eliminates the need for any labour reforms
B. Services absorb the entire agricultural workforce instantly
C. High-productivity services generate strong output growth but limited mass employment, leaving surplus labour in low-productivity sectors
D. Manufacturing expands faster than services in employment terms

59 FDI liberalisation in services like insurance and banking was gradual and capped. Which reasoning best explains the phased, cautious approach to opening the financial-services segment?

services Hard
A. Financial services carry systemic risk, so gradual opening allows regulation to develop and protects stability
B. Caps on FDI reduce the quality of domestic regulation
C. Rapid opening guarantees zero volatility in capital flows
D. Financial services have no linkages to the rest of the economy

60 Consider a reform that fully deregulates a service utility (e.g., electricity distribution) without establishing an independent regulator first. Which outcome is the most likely edge-case failure?

services Hard
A. The government retains full control over all pricing decisions
B. Consumers gain guaranteed low tariffs without any oversight
C. Perfect competition emerges automatically, driving prices to marginal cost
D. Private monopolies exploit market power through high prices, since no regulator checks anti-competitive conduct