Question

“The trade and investment policy initiated by the Indian Government during 1991 economic reforms involved some major decision-making with respect to local industries.” Elaborate any two major decisions and their respective impacts on the Indian economy.

Hint:

Deindustrialization during the British colonial era was a deliberate process aimed at securing economic control over India while hindering its industrial development.

Answer 1

The 1991 economic reforms in India marked a significant shift in the country’s trade and investment policies, which had profound impacts on local industries. Two key decisions are: 1. Liberalization of Trade Policy:
The government significantly reduced tariffs, restrictions, and licensing requirements for imports and exports. This was aimed at opening up the Indian economy to the global market, encouraging competition, and improving the efficiency of domestic industries.
- Impact: Local industries had to modernize and improve productivity to compete with foreign products. While it caused some short-term challenges, it also spurred growth in sectors like information technology, telecommunications, and automotive industries due to increased competition and access to global markets.
2. Encouragement of Foreign Direct Investment (FDI):
The Indian government allowed more foreign investments in domestic industries by reducing restrictions and offering incentives to foreign investors.
- Impact: This led to an influx of capital, technology, and managerial expertise into Indian industries. It helped modernize local industries, created jobs, and improved the quality of products. The IT and automotive industries were among the biggest beneficiaries of FDI, resulting in exponential growth.