ECONOMIC REFORMS IN INDIA

Comprehensive Notes with Depth Analysis

UPSC CSE • JKPSC (KAS) • JKSSB Finance Assistant / Accounts Assistant (FAA)

Coverage: Background of 1991 crisis, LPG Reforms (Liberalization, Privatization, Globalization), Industrial Policy 1991, Financial & Banking Sector Reforms, Fiscal & Tax Reforms (GST), External Sector Reforms, Disinvestment & PSU Reforms, Planning Commission to NITI Aayog, Recent Reforms (IBC, PLI, Labour Codes), Jammu & Kashmir Economic Dimension, and a dedicated Practice Section with Previous Year Questions (PYQs) and Statement-Based / Assertion-Reason MCQs with detailed answers.

TABLE OF CONTENTS

1. Introduction — What are 'Economic Reforms'?

2. Background: The 1991 Balance of Payments Crisis

3. LPG Reforms — Liberalization

4. LPG Reforms — Privatization & Disinvestment

5. LPG Reforms — Globalization

6. Industrial Policy Resolution/Statement 1991

7. Financial Sector & Banking Reforms

8. Fiscal Reforms & Tax Reforms (incl. GST)

9. External Sector Reforms (Trade, FDI, FEMA)

10. Planning Commission to NITI Aayog

11. Second Generation & Recent Reforms (IBC, PLI, Labour Codes, Startup India)

12. Jammu & Kashmir: Economic Reforms Dimension

13. Key Committees & Their Contributions

14. Important Terms & Static GK Boosters

15. Practice Zone A — UPSC/JKPSC Previous Year-Style MCQs

16. Practice Zone B — Statement-Based & Assertion-Reason MCQs

17. Practice Zone C — JKSSB FAA Focused MCQs

1. INTRODUCTION — WHAT ARE 'ECONOMIC REFORMS'?

Economic reforms refer to a set of policy measures undertaken by a government to change the structure, functioning and orientation of an economy — usually shifting it from excessive state control towards greater market orientation, efficiency and global integration. In India, the term is used almost synonymously with the reforms initiated in July 1991 under Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh, although sporadic liberalization attempts (e.g., under Rajiv Gandhi in the mid-1980s) had occurred earlier.

Before 1991, India followed a mixed economy model influenced by Nehruvian socialism, characterised by:

• Extensive Industrial Licensing (License-Permit-Quota Raj) under the Industries (Development & Regulation) Act, 1951.
• Public sector dominance in core/strategic sectors (the 'commanding heights' approach).
• High import tariffs and quantitative restrictions (import substitution strategy).
• Strict control on foreign investment and foreign exchange (FERA, 1973).
• Centralized planning through the Planning Commission (Five-Year Plans).

2. BACKGROUND: THE 1991 BALANCE OF PAYMENTS (BoP) CRISIS

By 1990-91, India faced its worst economic crisis since independence, caused by a combination of domestic mismanagement and external shocks:

Causes of the Crisis

• Gulf War (1990-91): Sharp rise in global oil prices increased India's import bill; remittances from Indian workers in the Gulf also declined.
• Fiscal Profligacy: Large fiscal deficits through the 1980s (averaging over 8% of GDP) financed by borrowing, leading to a debt trap.
• Depleting Foreign Exchange Reserves: By June 1991, forex reserves fell to about USD 1.2 billion — barely enough to cover 2-3 weeks of essential imports.
• Credit Rating Downgrade: International credit agencies downgraded India, making external commercial borrowing costlier and harder.
• Political Instability: Frequent changes in government (Chandra Shekhar's minority government) shook investor confidence.
• High Inflation: Inflation crossed 13%, and internal debt was mounting rapidly.

Immediate Government Response (1991)

• India pledged 47 tonnes of gold (with the Reserve Bank of India shipping gold to the Bank of England and Union Bank of Switzerland) to raise emergency foreign exchange — a hugely symbolic event.
• India approached the IMF and World Bank for a structural adjustment loan, which came with conditionalities requiring liberalization of the economy.
• The New Economic Policy (NEP), 1991 was announced on 24 July 1991, combining Stabilization measures (short-term, to correct BoP and fiscal deficit) with Structural Reforms (long-term, LPG).

3. LPG REFORMS — LIBERALIZATION

Liberalization refers to reducing government control and regulation over economic activities, giving greater freedom to private enterprises and market forces.

Key Measures

• Abolition of Industrial Licensing: Industrial licensing was abolished for all industries except 18 (later reduced further) reserved for strategic/security/environmental reasons.
• MRTP Act Diluted: The Monopolies and Restrictive Trade Practices (MRTP) Act's asset-size threshold restrictions on large firms were removed, encouraging expansion; later replaced by the Competition Act, 2002 and Competition Commission of India (CCI).
• De-reservation for Small Scale Industries: Many items earlier reserved exclusively for the small-scale sector were opened to larger players over time.
• Reduction in the number of industries reserved for the Public Sector: From 17 (1956 Industrial Policy) to just a handful (atomic energy, railways, etc.) after 1991.
• Simplification of the Foreign Investment approval procedure and delicensing of most sectors.

4. LPG REFORMS — PRIVATIZATION & DISINVESTMENT

Privatization involves transferring ownership/management of public sector undertakings (PSUs) from government to the private sector, either partially (disinvestment) or fully (strategic sale).

Forms of Privatization

• Disinvestment: Sale of a part of government equity in a PSU to the public/private investors, while government retains majority control.
• Strategic Disinvestment: Sale of a substantial portion (usually 50% or more) of government shareholding in a PSU along with transfer of management control to a private/strategic buyer.
• Token/Minority Disinvestment: Small stake sale through the stock market without change in management.

Institutional Framework

• Department of Disinvestment (1999), later renamed DIPAM — Department of Investment and Public Asset Management (2016), under the Ministry of Finance, handles disinvestment policy.
• National Investment Fund (NIF), 2005: Proceeds from disinvestment were to be channelled here (later modified so proceeds could also be used for fiscal deficit management/social sector schemes).
• Landmark strategic sales: Air India (sold back to Tata Group, completed January 2022), BPCL (disinvestment attempted), Hindustan Zinc, VSNL, Modern Foods (early 2000s NDA-I era strategic sales).

Navratna, Maharatna, Miniratna Scheme

To give greater autonomy to well-performing PSUs, the government created special categories:

• Maharatna (introduced 2010): Highest category — large PSUs with strong track record, e.g., ONGC, IOC, NTPC, SAIL, Coal India, BHEL. Financial autonomy to invest up to ₹5,000 crore in a single project without prior government approval.
• Navratna (1997): Second tier — autonomy to invest up to ₹1,000 crore per project (or a defined % of net worth).
• Miniratna (Category I & II): Smaller autonomous PSUs with lower investment ceilings.

5. LPG REFORMS — GLOBALIZATION

Globalization refers to the increasing integration of the Indian economy with the world economy through trade, investment, technology and finance.

Key Measures

• Trade Liberalization: Sharp reduction in import tariffs (peak customs duty cut from over 300% in 1990-91 to much lower single/double digits over subsequent decades); removal of quantitative restrictions on most imports by 2001 (in line with WTO commitments).
• Foreign Direct Investment (FDI) Liberalization: Automatic route FDI introduced in various sectors; FDI caps progressively raised (e.g., insurance from 26% → 49% → 74%; defence, telecom, retail liberalized in phases).
• Convertibility of the Rupee: Rupee made fully convertible on the Current Account (1994) as per IMF Article VIII; Capital Account convertibility remains only partial (based on the Tarapore Committee recommendations, 1997 and 2006).
• Replacement of FERA by FEMA: The Foreign Exchange Regulation Act (1973), which was regulatory/punitive in nature, was replaced by the Foreign Exchange Management Act (FEMA), 1999 — a more liberal, facilitative law.
• WTO Membership: India became a founding member of the World Trade Organization (1 January 1995), committing to trade liberalization, TRIPS, TRIMS and GATS obligations.

6. INDUSTRIAL POLICY STATEMENT, 1991

Announced on 24 July 1991 alongside the New Economic Policy, this was the single most important policy document restructuring Indian industry.

• Industrial licensing abolished except for 18 industries (list has been reduced over the years to a handful such as defence equipment, cigarettes, alcohol, and hazardous chemicals).
• Automatic approval for foreign technology agreements and FDI up to 51% equity in select high-priority industries (a landmark shift from the earlier restrictive FERA regime).
• Public sector's role restricted to core, strategic and infrastructure sectors; PSUs facing chronic losses referred to the Board for Industrial and Financial Reconstruction (BIFR).
• MRTP Act threshold limits for pre-entry scrutiny of investment decisions removed.

7. FINANCIAL SECTOR & BANKING REFORMS

Narasimham Committee I (1991) & II (1998)

• Recommended reduction in Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) to release more funds for productive lending.
• Introduction of prudential norms: Income Recognition, Asset Classification, and Provisioning norms (basis for today's NPA classification framework).
• Recommended capital adequacy norms in line with Basel Committee standards.
• Suggested reduction of government's stake in Public Sector Banks and greater operational autonomy for banks.
• Narasimham-II (1998) pushed for stronger regulatory framework, mergers of weak banks with strong ones, and narrow banking for very weak banks.

Capital Market Reforms

• SEBI (established 1988, given statutory powers in 1992) replaced the Controller of Capital Issues (CCI) as the capital market regulator — free pricing of shares (earlier prices were administratively fixed).
• National Stock Exchange (NSE) established in 1992, introducing electronic/screen-based trading, ending the open-outcry system dominance of BSE.
• Depositories Act, 1996 — enabled dematerialization (Demat) of shares through NSDL (1996) and CDSL (1999).

Banking Sector Milestones

• Entry of New Private Sector Banks permitted from 1993 (e.g., ICICI Bank, HDFC Bank, Axis Bank were early entrants).
• Insurance Sector opened up — IRDA Act, 1999 ended LIC/GIC monopoly, allowing private and foreign participation (FDI cap raised over time to 74%).
• Bank Nationalization background (pre-reform context): 14 banks nationalized in 1969, 6 more in 1980 — important for contrast with post-1991 liberalization of entry norms.
• Insolvency and Bankruptcy Code (IBC), 2016 — created a time-bound resolution mechanism for stressed assets/NPAs (National Company Law Tribunal as adjudicating authority).
• Merger of Public Sector Banks (2017-2020): Number of PSBs reduced from 27 (2017) to 12 through consolidation (e.g., SBI merged with associate banks in 2017; Bank of Baroda-Dena Bank-Vijaya Bank in 2019; 10 banks merged into 4 in 2020).

8. FISCAL REFORMS & TAX REFORMS (INCLUDING GST)

Fiscal Consolidation

• FRBM Act, 2003 (Fiscal Responsibility and Budget Management Act) — mandated targets for reducing fiscal and revenue deficits; amended multiple times (2018 amendment set fiscal deficit target of 3% of GDP with an escape clause).
• N.K. Singh Committee (FRBM Review Committee, 2016-17) recommended a debt-to-GDP anchor of 60% (40% for Centre, 20% for States) and a fiscal deficit range/glide path.

Direct Tax Reforms

• Reduction in personal and corporate income tax rates; simplification through periodic 'New Tax Regime' options.
• Widening of tax base via TDS/TCS expansion and PAN-Aadhaar linkage.
• Faceless Assessment and Faceless Appeal Schemes (2020) introduced to reduce discretion and increase transparency in tax administration.

Indirect Tax Reforms — Goods and Services Tax (GST)

GST is the single biggest indirect tax reform since independence, subsuming most central and state indirect taxes into 'One Nation, One Tax'.

• 101st Constitutional Amendment Act, 2016 enabled GST; GST rolled out from 1 July 2017.
• GST Council (Article 279A) — chaired by the Union Finance Minister, includes State Finance Ministers; decisions historically by consensus (originally required 3/4th weighted majority: Centre 1/3rd weightage, States 2/3rd weightage).
• Dual GST model: CGST (Central GST) + SGST (State GST) for intra-state supply; IGST (Integrated GST) for inter-state supply and imports.
• GST subsumed: Central Excise Duty, Service Tax, VAT, Central Sales Tax, Octroi/Entry Tax, Luxury Tax, Entertainment Tax (state-level), Purchase Tax, etc.
• Items outside GST: Alcohol for human consumption (state excise), Petroleum products (petrol, diesel, ATF, natural gas, crude oil — kept outside GST for now, taxed under earlier VAT/excise regime), electricity duty.
• GST rate slabs (as commonly tested): 0%, 5%, 12%, 18%, 28% + Compensation Cess on luxury/sin goods (this structure is periodically 'rationalised' — always check latest GST Council decisions before an exam).
• GSTN (Goods and Services Tax Network) — a Section 8 (not-for-profit) company providing the IT backbone for GST implementation.

9. EXTERNAL SECTOR REFORMS (TRADE, FDI, FEMA)

• Exim Policy/Foreign Trade Policy liberalized progressively; import licensing for capital goods and intermediates removed in phases through the 1990s.
• Rupee Devaluation (1991): Rupee devalued by about 18-19% in two stages (July 1-3, 1991) to boost export competitiveness and correct the overvalued exchange rate.
• Liberalized Exchange Rate Management System (LERMS), 1992: Introduced a dual exchange rate (partial convertibility), replaced by unified market-determined exchange rate in 1993.
• Full Current Account Convertibility (1994) under IMF Article VIII obligations.
• Special Economic Zones (SEZ) Act, 2005 — created export-hubs with tax/duty benefits, single-window clearance.
• FDI liberalization in phases: Insurance, Defence, Retail (single & multi-brand), Telecom, Civil Aviation, Construction, and most recently space sector (2023) and other strategic sectors.

10. PLANNING COMMISSION TO NITI AAYOG

• Planning Commission — set up in 1950 by a Cabinet Resolution (not a constitutional or statutory body); formulated Five-Year Plans; dissolved in 2014.
• Replaced by NITI Aayog (National Institution for Transforming India) on 1 January 2015, also by a Cabinet Resolution.
• NITI Aayog is a think tank / advisory body with no power to allocate funds to states (unlike the Planning Commission which controlled Plan fund allocation) — shifts focus to 'cooperative and competitive federalism' and Bottom-Up planning.
• Structure: PM as Chairperson; a Governing Council of all State CMs and UT Lt. Governors; a Vice-Chairperson; full-time members and a CEO (fixed tenure, rank of Secretary to GoI).
• Key initiatives associated with NITI Aayog: SDG India Index, Aspirational Districts Programme, Atal Innovation Mission.

11. SECOND-GENERATION & RECENT REFORMS

• Insolvency and Bankruptcy Code (IBC), 2016: Time-bound (330-day) resolution of insolvency; shifted control from debtor to creditors ('creditor in control' model).
• Make in India (2014): Aims to boost domestic manufacturing, ease of doing business, and FDI inflows across 25+ sectors.
• Startup India (2016): Tax holidays, easier compliance, Fund of Funds for Startups (FFS) managed via SIDBI.
• Production Linked Incentive (PLI) Schemes (2020 onwards): Financial incentives linked to incremental sales/production for sectors like electronics, pharma, textiles, solar PV, automobiles.
• Labour Codes: Existing 29 central labour laws consolidated into 4 Labour Codes — Code on Wages (2019), Industrial Relations Code, Code on Social Security, Occupational Safety, Health and Working Conditions Code (all passed 2019-2020; implementation rolled out in phases).
• Agricultural Reform laws (2020): Three farm laws were passed and later repealed in November 2021 following prolonged farmer protests.
• National Monetisation Pipeline (2021): Monetising brownfield public infrastructure assets (roads, railways, power) without selling ownership.
• Privatization push: Air India strategic sale to Tata Sons (completed January 2022) — first major privatization of a large PSU in nearly two decades.

12. JAMMU & KASHMIR: ECONOMIC REFORMS DIMENSION

This section is specifically relevant for JKPSC and JKSSB exams, connecting national reforms to the J&K context.

• Reorganisation (2019): The Jammu and Kashmir Reorganisation Act, 2019 abrogated Article 370's special provisions and bifurcated the state into two Union Territories — J&K (with legislature) and Ladakh — effective 31 October 2019. This extended all central economic laws/reforms (GST, Companies Act, IBC, labour codes, land reforms) directly to J&K.
• J&K Industrial Development Scheme / New Industrial Policy 2021-2037: Central-sector scheme with capital investment incentives, GST-linked incentives, and interest subvention to attract industries to J&K.
• Extension of GST to J&K: Following the special SGST Act for J&K, GST was implemented in the UT from 8 July 2017 (with a short delay after the rest of India due to legislative process).
• Land Reforms/Land Laws: Post-2019, central land laws were extended, and outside investors were permitted to purchase non-agricultural land in J&K — a major structural change relevant to 'liberalization' in the region.
• UT Industrial Development Corporations (e.g., JKIDFC/JKIDC) and single-window clearance systems modelled on the national 'Ease of Doing Business' framework.
• Back to Village & DDC (District Development Council) elections (2020) — decentralization reforms linked to grassroots economic planning (73rd/74th Amendment spirit extended administratively).

13. KEY COMMITTEES & THEIR CONTRIBUTIONS

14. IMPORTANT TERMS & STATIC GK BOOSTERS

15. PRACTICE ZONE A — UPSC / JKPSC PREVIOUS YEAR-STYLE MCQs

Q1. The New Economic Policy of 1991 was announced under the Prime Ministership of:

(a) Rajiv Gandhi

(b) V.P. Singh

(c) P.V. Narasimha Rao

(d) Chandra Shekhar

Answer: (c) P.V. Narasimha Rao — Announced on 24 July 1991, with Dr. Manmohan Singh as Finance Minister.

Q2. India's foreign exchange reserves fell to a level sufficient for only about how many weeks of imports in 1991?

(a) 1 week

(b) 2-3 weeks

(c) 6 weeks

(d) 12 weeks

Answer: (b) 2-3 weeks — Reserves fell to around USD 1.2 billion, triggering the crisis and the gold pledge episode.

Q3. FERA, 1973 was replaced by which Act?

(a) SEBI Act, 1992

(b) Companies Act, 1956

(c) FEMA, 1999

(d) Competition Act, 2002

Answer: (c) FEMA, 1999 — FEMA came into force from 1 June 2000, replacing the more restrictive FERA.

Q4. The Planning Commission was replaced by NITI Aayog with effect from:

(a) 1 January 2014

(b) 1 January 2015

(c) 26 January 2015

(d) 1 April 2015

Answer: (b) 1 January 2015

Q5. Which committee's recommendations led to the introduction of prudential norms (Income Recognition and Asset Classification) in Indian banking?

(a) Chelliah Committee

(b) Narasimham Committee

(c) Tarapore Committee

(d) Kelkar Committee

Answer: (b) Narasimham Committee — Narasimham Committee I (1991) introduced prudential norms; Narasimham II (1998) strengthened them further.

Q6. GST in India is levied on the basis of which principle?

(a) Origin-based taxation

(b) Destination-based taxation

(c) Production-based taxation

(d) Progressive taxation only

Answer: (b) Destination-based taxation — Tax revenue accrues to the state of consumption, not production — a major shift from the earlier CST regime.

Q7. Which of the following is NOT subsumed under GST?

(a) Central Excise Duty

(b) Service Tax

(c) Petroleum products (crude, petrol, diesel, ATF, natural gas)

(d) VAT on manufactured goods

Answer: (c) Petroleum products — Petroleum products and alcohol for human consumption remain outside GST currently.

Q8. India became a founding member of the WTO in which year?

(a) 1991

(b) 1994

(c) 1995

(d) 2001

Answer: (c) 1995 — WTO was established on 1 January 1995, replacing GATT.

Q9. The 'Maharatna' status for Central Public Sector Enterprises was introduced in:

(a) 1997

(b) 2005

(c) 2010

(d) 2014

Answer: (c) 2010

Q10. The Insolvency and Bankruptcy Code prescribes a resolution timeline of approximately:

(a) 90 days

(b) 180 days

(c) 270 days

(d) 330 days

Answer: (d) 330 days — Originally 180 days (+90 days extension); later amendments capped the outer limit at 330 days including litigation time.

16. PRACTICE ZONE B — STATEMENT-BASED & ASSERTION-REASON MCQs

Q11. Consider the following statements regarding the 1991 economic reforms: 1. The Industrial Policy Statement, 1991 abolished industrial licensing for all industries without exception. 2. The Rupee was devalued in two stages in July 1991. 3. India approached the IMF for a structural adjustment loan in 1991. Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1, 2 and 3

(d) 3 only

Answer: (b) 2 and 3 only — Statement 1 is incorrect — licensing was abolished except for 18 industries (list reduced over time), not 'all without exception'. Statements 2 and 3 are factually correct.

Q12. Consider the following statements about GST in India: 1. GST Council is constituted under Article 279A of the Constitution. 2. The Union Finance Minister is the ex-officio Chairperson of the GST Council. 3. GST is applicable uniformly on all goods and services including alcohol for human consumption. Which of the statements given above is/are correct?

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

Answer: (b) 1 and 2 only — Statement 3 is incorrect — alcohol for human consumption is kept outside GST and taxed by states separately.

Q13. Consider the following statements regarding NITI Aayog: 1. It was established through an Act of Parliament. 2. It has the power to allocate plan funds to states, similar to the erstwhile Planning Commission. 3. The Prime Minister is the ex-officio Chairperson of NITI Aayog. Which of the statements given above is/are correct?

(a) 3 only

(b) 1 and 3 only

(c) 2 and 3 only

(d) 1, 2 and 3

Answer: (a) 3 only — NITI Aayog was set up by a Cabinet Resolution (not an Act of Parliament) and, unlike the Planning Commission, has no fund-allocating power. Only statement 3 is correct.

Q14. Consider the following statements: 1. Capital Account convertibility of the Rupee is complete in India. 2. Current Account convertibility of the Rupee was achieved in 1994. 3. The Tarapore Committee gave recommendations on Capital Account Convertibility. Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (b) 2 and 3 only — Capital Account convertibility remains only partial in India, not complete — Statement 1 is incorrect.

Q15. Assertion (A): Disinvestment always implies complete privatization of a Public Sector Undertaking. Reason (R): In strategic disinvestment, both ownership and management control are transferred to a private entity. Select the correct answer:

(a) Both A and R are true, and R is the correct explanation of A

(b) Both A and R are true, but R is NOT the correct explanation of A

(c) A is false, but R is true

(d) A is true, but R is false

Answer: (c) A is false, but R is true — Disinvestment can be partial (minority stake sale, government retains control) or strategic (majority stake + management transfer). It does not 'always' mean complete privatization, so A is false; R correctly describes strategic disinvestment.

Q16. With reference to the extension of economic reforms to Jammu & Kashmir, consider the following statements: 1. The J&K Reorganisation Act, 2019 became effective from 31 October 2019. 2. GST was extended to Jammu & Kashmir on the same date as the rest of India, i.e., 1 July 2017. 3. Following the reorganisation, outside investors were permitted to purchase non-agricultural land in J&K. Which of the statements given above is/are correct?

(a) 1 and 3 only

(b) 2 and 3 only

(c) 1 and 2 only

(d) 1, 2 and 3

Answer: (a) 1 and 3 only — GST was extended to J&K with a short delay via a special SGST Act, effective from 8 July 2017, not 1 July 2017 — Statement 2 is incorrect.

17. PRACTICE ZONE C — JKSSB FAA FOCUSED MCQs

Q17. Which body regulates the capital markets in India, replacing the Controller of Capital Issues?

(a) RBI

(b) SEBI

(c) IRDAI

(d) NABARD

Answer: (b) SEBI — SEBI was given statutory status in 1992 and took over capital market regulation from the CCI, enabling free/market-based pricing of securities.

Q18. The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in:

(a) 2000

(b) 2003

(c) 2008

(d) 2016

Answer: (b) 2003 — The FRBM Act, 2003 institutionalized fiscal discipline targets; it has since been amended (notably in 2018 based on the N.K. Singh Committee recommendations).

Q19. In the context of banking, 'NPA' stands for:

(a) Net Profit Account

(b) Non-Performing Asset

(c) National Pension Authority

(d) Non-Priority Advance

Answer: (b) Non-Performing Asset — A loan/advance is classified NPA when interest or principal remains overdue for more than 90 days.

Q20. Which of the following correctly represents the formula for Fiscal Deficit?

(a) Revenue Expenditure − Revenue Receipts

(b) Total Expenditure − Total Receipts (excluding borrowings)

(c) Fiscal Deficit − Interest Payments

(d) Capital Expenditure − Capital Receipts

Answer: (b) Total Expenditure − Total Receipts (excluding borrowings)

Q21. J&K Bank's majority ownership currently rests with:

(a) A private business house

(b) The Government of Jammu & Kashmir (UT)

(c) Reserve Bank of India directly

(d) State Bank of India

Answer: (b) The Government of Jammu & Kashmir (UT) — J&K Bank functions as a government-owned bank with majority UT government shareholding and was reclassified as a Government Company; verify the latest shareholding/status update before your exam as such details are periodically revised.

Q22. Which of the following taxes is a State subject and NOT subsumed under GST?

(a) Value Added Tax on manufactured goods

(b) Excise Duty on manufacture (goods except specified items)

(c) State Excise Duty on alcohol for human consumption

(d) Central Sales Tax

Answer: (c) State Excise Duty on alcohol for human consumption

Q23. The 'escape clause' in the FRBM framework allows the government to:

(a) Permanently exceed the fiscal deficit target

(b) Deviate from the fiscal deficit target temporarily under specified conditions (e.g., national security, calamity)

(c) Avoid presenting the Union Budget

(d) Bypass Parliamentary approval for taxation

Answer: (b) Deviate from the fiscal deficit target temporarily under specified conditions

Q24. Repo Rate is best defined as:

(a) The rate at which RBI borrows from commercial banks

(b) The rate at which commercial banks lend to each other

(c) The rate at which RBI lends short-term funds to commercial banks against securities

(d) The interest rate on savings bank accounts

Answer: (c) The rate at which RBI lends short-term funds to commercial banks against securities

QUICK REVISION SUMMARY (LAST-MINUTE READ)

• 1991 Reforms → NEP announced 24 July 1991 → Narasimha Rao (PM) & Manmohan Singh (FM).
• LPG = Liberalization + Privatization + Globalization.
• FERA (1973) → FEMA (1999, enforced 2000).

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