UPSC Prelims 2017 Question:

Which of the following has/have occurred in India after its liberalization of economic policies in 1991?

1. Share of agriculture in GDP increased enormously. 
2. Share of India’s exports in world trade increased. 
3. FDI inflows increased. 
4. India’s foreign exchange reserves increased enormously.
   
   

Select the correct answer using the codes given below:

Explanation:

Outcomes of the LPG reforms:

• Positive outcomes:

• India’s GDP growth rate increased. During 1990-91 India’s GDP growth rate was only 1.1% but after the 1991 reforms GDP growth rate increased year by year and in 2015-16 it was estimated to be 7.5% by the IMF.
• India's share in global merchandise exports has risen from 0.6 percent in early 1990s to 1.7 percent in 2016, and similarly, the share of imports has risen from 0.6 percent to 2.4 percent during the same period. So, statement 2 is correct.
• While only 29 countries invested in India in 1991, today India has more than 130 Foreign Direct Income (FDI) source countries. In 2015, India moved ahead of the USA and China to become the top destination for FDI worldwide from the fifth position in 2014. So, statement 3 is correct.
• So due to increase in exports and FDI equity inflows, India’s foreign exchange reserves increased enormously. So, statement 4 is correct.
• In 1991 the unemployment rate was high but after India adopted a new LPG policy more employment got generated as new foreign companies came to India and due to liberalization many new entrepreneurs started companies.
• Per Capita income increased due to an increase in employment.

•  Negative outcomes:

• In 1991, agriculture provided employment to 72 percent of the population and contributed 29.02 percent of the GDP.  Now the share of agriculture in the GDP has gone down drastically to 18 percent. This has resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness. So, statement  1 is not correct.
• Due to the opening up of the Indian economy to foreign competition, more MNCs are competing with local businesses and companies which are facing problems due to financial constraints, lack of advanced technology and production inefficiencies.
• Globalization has also contributed to the destruction of the environment through pollution by emissions from manufacturing plants and the clearing of vegetation cover. It further affects the health of people.
• LPG policies have led to widening income gaps within the country. The higher growth rate is achieved by an economy at the expense of the declining incomes of people who may be rendered redundant.
  
  

Therefore, option (2) is the correct answer.

Subject: Economics | Economic Reforms