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B.B.A. LL.B. (Five Years) Sem 2 Economic Development in India 2015 Dec (100 marks) Question Paper with Solutions

KSLU Solved Question Papers

Economic Development in India

Previous Year Question Paper with Solution

B.B.A. LL.B. (Five Years) · Sem 2

2015 Dec (100 marks) Examination

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Mumbai

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First published on munotes.in on 21 October 2026.

Published by munotes.in, Mumbai.

Model answers written and edited by the munotes.in editorial desk.

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The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.

The question paper reproduced here is the paper as set by Karnataka State Law University at the 2015 Dec (100 marks) examination.

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Contents

The questions below are the paper as Karnataka State Law University set it at the 2015 Dec (100 marks) examination, in the order it was set.

MarksPage

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The Paper as Set

The questions in this volume are the questions asked at the 2015 Dec (100 marks) examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.

Duration 3 hours  ·  Total marks 100  ·  13 questions answered

How to use this volume

Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.

Read the original question paper

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Q1Explain the main features of New Industrial Policy, 1991.[16]

Answer

For full marks, cover: the date and background of the policy (the earlier system of controls and the crisis of 1991); its stated objectives in the Statement's own words; its main features, area by area, with the exact decisions (industrial licensing and procedures, location, public sector, foreign investment, foreign technology, MRTP Act, and other measures), naming the annexes; how far each has since been carried; a short assessment; and a conclusion.

Background

The Statement on Industrial Policy was placed before Parliament on 24 July 1991. It is known as the New Industrial Policy, 1991.

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  1. The old system. Since the Industrial Policy Resolution of 1956, industry had grown under heavy controls. Investment needed an industrial licence under the Industries (Development and Regulation) Act, 1951. Large firms also needed approval under the Monopolies and Restrictive Trade Practices Act, in force from June 1970. Many industries were reserved for the public sector, and foreign investment and technology were tightly restricted.
  2. The crisis. In 1991 India faced a severe balance of payments crisis. Foreign exchange reserves had nearly run out. The rupee was devalued on 1 and 3 July 1991, and help was sought from the International Monetary Fund.
  3. The response. The Statement aimed "to unshackle the Indian industrial economy from the cobwebs of unnecessary bureaucratic control". It formed part of wider reforms of trade, the exchange rate, public finance and the financial sector.

Problems of the old system

  1. Delays and corruption. Licences, approvals and clearances took months or years and invited favouritism.
  2. Protected inefficiency. Firms shielded from competition had little reason to improve quality or cut costs.
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  1. Limits on size. Capacity licensing and MRTP approvals stopped firms from reaching economies of scale.
  2. Technological backwardness. Restrictions on foreign technology left much of Indian industry behind world standards.
  3. A weak public sector. The Statement itself noted low productivity, poor project management, over-manning and a very low return on capital in many public enterprises.

Objectives

The Statement said the major objectives were "to build on the gains already made, correct the distortions or weaknesses that may have crept in, maintain a sustained growth in productivity and gainful employment and attain international competitiveness". It also promised to:

  1. let entrepreneurs make investment decisions on their own commercial judgement;
  2. welcome foreign investment and technology "to obtain higher technology, to increase exports and to expand the production base";
  3. end the monopoly of any sector or enterprise in manufacture, except for strategic or military reasons;
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  1. give enhanced support to small industry;
  2. protect the interests of labour and make workers "an equal partner in progress and prosperity".

Main features

A. Industrial licensing and procedures

  1. Licensing abolished. Industrial licensing was abolished for all projects, whatever the size of investment, except a short list in Annex II. The list covered industries kept under licence for security and strategic reasons, social reasons, safety, hazardous chemicals, overriding environmental reasons and items of elitist consumption. It named 18 industries. Among them were coal and lignite, petroleum products, alcoholic drinks, sugar, cigarettes, motor cars and paper. Defence equipment, industrial explosives, hazardous chemicals, drugs, entertainment electronics and white goods were also on the list.
  2. Expansion freed. Exemption from licensing applied to all substantial expansions of existing units. Units got a new broad-banding facility to produce any article without extra investment.
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  1. Simpler procedures. Existing registration schemes were abolished. Entrepreneurs had only to file an information memorandum on new projects and substantial expansions.
  2. Imported capital goods. Clearance became automatic where foreign equity covered the foreign exchange needed. From April 1992 it was also automatic where imported capital goods were small. The limit was 25 per cent of the value of plant and equipment, up to Rs. 2 crore.
  3. Small industry. Items reserved for the small scale sector stayed reserved. A separate package for small and tiny industries was announced.

B. Location policy

Outside cities of more than 10 lakh people, no central approval was needed except for licensed industries. In larger cities, polluting industries had to be located at least 25 km from the periphery, except in designated industrial areas. Non-polluting industries such as electronics, computer software and printing were exempt.

C. Public sector

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  1. Fewer reserved areas. Only areas of security and strategic concern stayed reserved for the public sector (Annex I). The copy of the Statement lists arms and ammunition and defence equipment, coal and lignite, and mineral oils. It also lists the mining of listed metals and minerals, atomic minerals, and railway transport. Even these could be opened to private firms selectively.
  2. Focus. The public sector's portfolio was to be reviewed and focused on strategic, high-technology and essential infrastructure.
  3. Sick units. Chronically sick public enterprises were to be referred to the Board for Industrial and Financial Reconstruction, with a social security mechanism for workers.
  4. Disinvestment. Part of the Government's shareholding was to be offered to mutual funds, financial institutions, the general public and workers.
  5. Autonomy and accountability. Boards were to be more professional, and performance was to be judged through memoranda of understanding placed before Parliament.

D. Foreign investment

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  1. Automatic approval was given for foreign direct investment up to 51 per cent equity in high-priority industries listed in Annex III, such as metallurgical industries. The condition was that foreign equity covered the import of capital goods.
  2. Dividend payments were to be watched by the RBI, so that they were balanced by export earnings over time.
  3. Trading companies engaged mainly in exports could also have up to 51 per cent foreign equity.
  4. A special Empowered Board was to negotiate with large international firms for investment in selected areas.

E. Foreign technology agreements

  1. Automatic permission was given for technology agreements in Annex III industries, within limits. These were a lump sum of Rs. 1 crore, and royalty of 5 per cent on domestic sales and 8 per cent on exports. Total payments were capped at 8 per cent of sales over ten years.
  2. Similar permission for other industries if no free foreign exchange was needed.
  3. No permission was needed to hire foreign technicians or to test Indian technologies abroad.

F. MRTP Act

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  1. The pre-entry scrutiny of investment by large "MRTP companies" was removed. Prior Government approval was no longer needed for expansion, new undertakings, mergers, amalgamations and takeovers.
  2. The focus shifted to controlling monopolistic, restrictive and unfair trade practices. The MRTP Commission was to be strengthened, with power to investigate on its own and to award punitive and compensatory relief.

G. Other measures

The mandatory convertibility clause, under which financial institutions could convert term loans into equity, was dropped for new projects.

Expected benefits

  1. Faster investment, since entrepreneurs no longer waited for licences.
  2. More competition, which would raise quality and lower prices for consumers.
  3. Access to modern technology and world markets through foreign investment and technology agreements.
  4. A leaner and more efficient public sector, focused on strategic areas.
  5. More exports, which would ease the foreign exchange shortage that had caused the crisis.
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How far the features have been carried

  1. Only five industries now need a compulsory licence (DPIIT).
  2. Only atomic energy and railway transport remain reserved for the public sector.
  3. Foreign investment up to 100 per cent is allowed under the automatic route in most manufacturing.
  4. The MRTP Act was replaced by the Competition Act, 2002, from 1 September 2009.
  5. The small-scale reservation list was ended on 10 April 2015.

Assessment

The policy moved India from control to competition, and from a permit system to one based on the commercial judgement of entrepreneurs. It freed investment, opened the economy to foreign capital and technology, and made the public sector more accountable. Critics point out that manufacturing did not grow as fast as services and that small firms faced strong competition. They add that labour and land reforms lagged behind.

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Conclusion. The New Industrial Policy of 24 July 1991 abolished licensing for all but 18 industries. It cut the public sector's reserved areas to a short strategic list. It also allowed 51 per cent foreign equity and automatic technology agreements in priority industries, and removed the MRTP Act's pre-entry controls. It was the foundation of India's liberalisation, and later reforms have carried each of its features further.

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