The Foreign Exchange Regulation Act was replaced by which law, and in which year?

The correct answer is A, P. V. Narasimha Rao. He became Prime Minister in June 1991, in the middle of the balance of payments crisis, and his government devalued the rupee, borrowed from the International Monetary Fund and announced the New Economic Policy of liberalisation, privatisation and globalisation, with the Statement on Industrial Policy issued on 24 July 1991. Option C is the trap that catches most candidates: Manmohan Singh was the Finance Minister who presented the reform budget of 1991 and is rightly linked with the reforms, but he became Prime Minister only in 2004. Option B is wrong because Atal Bihari Vajpayee headed governments later, in 1996 and from 1998, when the second generation of reforms and much of the disinvestment took place. Option D is wrong because option A names the right person.

The correct answer is B, liberalisation. Liberalisation means freeing economic activity from government controls: industrial licences, import licences and quantitative restrictions, ceilings on investment and administered interest rates. In India this was the first strand of the reforms of 1991. Option A is wrong because globalisation is the wider integration of a country's economy with the world through trade, investment, technology and movement of people; removing trade barriers helps globalisation but the act itself is liberalisation. Option C is wrong because privatisation is a transfer of ownership or management from the state to private hands, which is a question of who owns a firm rather than of what rules it must follow. Option D is wrong because arbitration is a method of settling disputes outside the courts and has nothing to do with trade policy.

The correct answer is B, 24 July 1991. The Statement on Industrial Policy of that date ended licensing for all industries except a short reserved list, cut back the industries kept for the public sector, removed the requirement of prior government approval for expansion by large firms under the monopolies law, and allowed foreign direct investment up to fifty-one per cent automatically in a list of high priority industries. Option A is wrong because 1 April is the beginning of the financial year and no such policy was issued that day. Option C is wrong because 1 January 1995 is the date on which India became a founder member of the World Trade Organisation. Option D is wrong because it moves the right day into the wrong year, a common form of trap in date questions.

The correct answer is A, LPG, standing for liberalisation, privatisation and globalisation. Liberalisation removed licensing and other controls on industry and trade, privatisation reduced the ownership and the role of the public sector through disinvestment and strategic sales, and globalisation opened the economy to foreign trade, investment and technology. Option B is wrong because GST is the goods and services tax, an indirect tax reform of a much later period. Option C is wrong because MRTP refers to the Monopolies and Restrictive Trade Practices Act of 1969, a law of the pre-reform era which the reforms first amended and which was later replaced by the Competition Act of 2002. Option D is wrong because FEMA is the Foreign Exchange Management Act of 1999, one measure within the reforms rather than a name for the whole policy.

The correct answer is B, Manmohan Singh. As Finance Minister in the government of P. V. Narasimha Rao he presented the budget of July 1991, which cut subsidies, reduced the fiscal deficit, lowered tariffs and set out the framework of the reforms, following the devaluation of the rupee earlier that month. Option A is wrong because Yashwant Sinha was Finance Minister later, in the governments of the late 1990s, and is associated with the second generation of reforms. Option C is wrong because Pranab Mukherjee had been Finance Minister in the 1980s and returned to the office only in 2009. Option D is wrong because C. Rangarajan was a central banker and economist who chaired committees on the balance of payments and on disinvestment, but he did not present a budget.