Which of the following was a primary objective of 'Liberalization' within the New Economic Policy (NEP) of 1991?

Question

Which of the following was a primary objective of 'Liberalization' within the New Economic Policy (NEP) of 1991?

1. A. Expanding the list of industries reserved exclusively for the public sector.
2. B. Abolishing industrial licensing for most industries to encourage private entry. (Correct answer)
3. C. Strengthening the MRTP Act to restrict the expansion of large business houses.
4. D. Increasing the peak customs duty on imports to protect domestic industries.

Correct Answer

Option B — Abolishing industrial licensing for most industries to encourage private entry.

Detailed Solution & Explanation

The correct answer is Abolishing industrial licensing.

Key Points

• Liberalisation under the New Economic Policy of 1991 meant removing state controls over private enterprise, and its central act was dismantling the industrial licensing system — the "Licence Raj".
• Licensing was abolished for all but a short list of industries, freeing firms to establish and expand without prior government permission.
• The distractors describe the opposite of liberalisation: expanding reserved lists, strengthening the MRTP Act, or raising customs duties.

Additional Information

• The 1991 reforms rest on three pillars, often abbreviated LPG: Liberalisation (freeing domestic industry), Privatisation (reducing the public sector's role) and Globalisation (opening to world markets).
• The reforms followed a severe balance of payments crisis in 1991, when foreign reserves covered only a few weeks of imports.
• The MRTP Act was diluted and eventually replaced by the Competition Act, 2002, establishing the Competition Commission of India.
• The architects usually named are Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.