Question

What characterized the Indian economy before the LPG reforms?

1. A predominantly closed economic system with limited international trade
2. A state-dominated economic landscape with a centralized planning approach
3. A highly protectionist economic environment with extensive industrial licensing and regulation
4. A tightly controlled currency regime with stringent restrictions on convertibility

• A. ii only
• B. iii, iv
• C. All of these
• D. iii only

Answer 1

Answer:

C. All of these

Characteristics of the Indian economy before the LPG (Liberalisation, Privatisation, and Globalisation) reforms:

• A predominantly closed economic system with limited international trade:
  • Before the LPG reforms, India followed a policy of import substitution, aiming to produce goods domestically rather than relying on imports.
  • This approach resulted in limited international trade, making the Indian economy relatively isolated from the global market. 
    
    
• A state-dominated economic landscape with a centralized planning approach:
  • The Indian economy was characterized by a strong presence of the state in various sectors, with centralized planning and public sector enterprises playing a dominant role.
  • This setup often led to bureaucratic inefficiencies and a lack of innovation, as private enterprises faced numerous regulatory hurdles, discouraging their participation in the economy.
  • Consequently, the economy lacked the dynamism and competitiveness seen in more market-oriented systems.
    
    
• A highly protectionist environment with extensive industrial licensing and regulation:
  • The Indian economy, before the LPG reforms, had a highly protectionist stance, with stringent industrial licensing and regulations in place.
  • This environment fostered monopolistic tendencies, as a limited number of companies were granted licenses to operate in specific industries, restricting fair market competition.
  • As a result, there was a lack of diversity and innovation, which hindered the growth potential of smaller industries and enterprises.
    
    
• A tightly controlled currency regime with stringent restrictions on convertibility:
  • The Indian rupee was largely inconvertible, and there were stringent controls on its convertibility in the global market.
  • This policy limited India's integration with the global financial markets, leading to constraints on international trade and hindering the country's ability to adapt to external market forces.
  • The strict currency controls also limited the flexibility of the Indian economy, making it less responsive to global economic changes and developments.