CUET UG Business Studies Booster Test 2 Economic Reforms and Government Policies

�� Assertion (A) is true as the New Industrial Policy of 1991 aimed to liberate Indian business from unnecessary controls, effectively ending the "Licence-Permit-Quota Raj." However, Reason (R) is false because liberalisation actually involved the removal of restrictions on the movement of goods and services, rather than placing "severe new restrictions." One of the key objectives was to make the movement of goods across borders and states easier to enhance market efficiency.

�� Under the liberalisation measures of 1991, firms were granted the "freedom in deciding the scale of business activities." This means there are no longer administrative restrictions on the expansion or contraction of business activities. ABC Manufacturing can respond to market demand by increasing its capacity without seeking a government licence or being bound by a state-assigned production quota.

�� The logical and historical sequence is 1. Severe fiscal crisis (3): The internal deficit reached 6.6% of GDP, creating an unsustainable economic environment. 2. Fall of reserves (1): This external crisis (forex falling to two weeks of imports) forced the government to act. 3. Introduction of Policy (2): The New Industrial Policy was announced in July 1991 to address these crises. 4. Abolition of licensing (4): This was a specific reform measure contained within the New Industrial Policy.

�� Liberalisation focused on deregulating the economy. Facets included removing licensing (B), allowing free movement of goods (A), and giving firms the freedom to fix their own prices (C). Option D is the "NOT" correct facet because liberalisation actually involved the removal of mandatory price controls, allowing market forces to determine the prices of consumer goods.

�� Statement 1 is incorrect because, prior to 1991, the public sector (not private) was given the lead role in developing infrastructure and core industries. Statement 2 is correct; as per the 1991 reforms, the number of industries reserved exclusively for the public sector was drastically reduced to industries of strategic importance (originally 8, later reduced further toward 4, and now even fewer).

�� As part of the privatisation and public sector reforms initiated in 1991, the government decided to refer loss-making and sick public sector enterprises to the Board of Industrial and Financial Reconstruction (BIFR). The objective was to have a specialized body determine if these units could be restructured and revived or if they should be closed down to prevent further drain on the national budget.

�� The passage explicitly states: "If there is dilution of Government ownership beyond 51 percent, it would result in transfer of ownership and management of the enterprise to the private sector." In corporate terms, the majority shareholder (over 50%) holds the power to appoint management. Once the private sector owns the majority, the government's role becomes that of a minority shareholder.

�� According to the passage, the government "decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction." This was the procedural mechanism designed to handle industrial "sickness" through professional evaluation rather than political subsidies.

�� Serving international clients seamlessly is the hallmark of Globalisation. This is made possible by two factors: (1) Technology, specifically the internet and communication tech, which allows "weightless" services like IT to travel instantly, and (2) Liberal trade policies, which removed the legal and political "boundary restrictions" that previously hindered cross-border business.

�� Statement 1 is correct; the 1991 reforms moved away from high tariffs and toward a "rationalised" structure to promote exports and international trade. Statement 2 is incorrect; the very essence of Globalisation and Liberalisation is to integrate the country with the global economy, which is the exact opposite of keeping it "isolated."

�� Globalisation aims to create a borderless world for economic activities. This includes the free flow of goods (C), the movement of labor (D), and a legal framework to handle international trade conflicts (B). Option A is the "NOT" correct feature because a globalised economy requires the free flow of capital (FDI and FII) across nations; "strict restrictions" are protectionist measures that belong to a closed economy.

�� Assertion (A) is true; as part of the 1991 Liberalisation, automatic permission was indeed granted for high-priority technology agreements to help Indian firms become globally competitive. Reason (R) is false because the motive was to promote and facilitate the inflow of foreign technology and information, rather than "strictly regulate" it. The government moved from being a "Regulator" to a "Facilitator."

�� The 1991 reforms broke the public sector monopolies in various fields. Airlines, telecommunications, and banking are all parts of the Service Industry (C). The entry of private domestic and foreign players in these sectors led to a massive increase in competition, resulting in better consumer choices and technological advancement.

�� The mapping reflects the specific impacts of LPG reforms on Indian industry 1. Increased competition (1-C): Primarily caused by the entry of foreign MNCs. 2. Market orientation (2-B): A shift where firms "study the market first" instead of just producing and selling. 3. More demanding customers (3-D): Resulting from a "wider choice" and better information. 4. Necessity for change (4-A): In a "turbulent" market, firms must modify operations to survive.

�� This follows the historical and logical flow of the 1991 reforms 1. Liberalisation (1): The government changes the rules to open the market. 2. Entry of Competitors (3): Because rules are open, new foreign and local firms enter. 3. Wider choice (2): These new firms produce a variety of products. 4. More demanding customers (4): Because they have so many options (Choice), customers now demand better quality and service.

�� New technologies (computers, robotics, IT) require specialized knowledge. In the post-reform era, the "Need for developing human resources" (D) became critical because firms realized that hardware alone isn't enough; they need employees with "higher competence and greater commitment" to manage the rapidly changing technological environment.

�� Statement 1 is correct; the demonetised ₹500 and ₹1000 notes accounted for approximately 86 percent of the total currency in circulation. Statement 2 is incorrect; the whole point of demonetisation is that the currency ceases to be legal tender. It cannot be used for transactions permanently; it had to be deposited in banks within a specific window to be replaced.

�� One of the major non-financial impacts of demonetisation was its role as a Tax Administration Measure. By forcing people to deposit high-value notes, the government sent a clear signal that tax evasion will no longer be tolerated (A). It was a move to formalize the economy and increase the tax base by making "hiding cash" difficult and risky.

�� This mapping explains the varying levels of digital adoption 1. The poor (1-D): Initially remained "largely outside" due to lack of access. 2. The less affluent (2-C): Were brought in via government schemes like Jan Dhan and RuPay. 3. The affluent (3-A): Were already "fully conversant" with digital banking and cards. 4. Merchants (4-B): The sellers who "require Point-of-Sale (PoS) machines" to facilitate the cashless economy.

�� The process of financial inclusion works in this logical order 1. Opening of Jan Dhan Accounts (2): This is the entry point into the banking system. 2. Using RuPay cards (3): This allows the account holder to perform digital transactions. 3. Becoming part of the digital economy (1): The cumulative result of the first two steps. 4. Channeling savings into the formal system (4): The ultimate economic goal where "under-the-mattress" cash is now part of the formal banking system.