CA Foundation P4 · Chapter 10
Indian Economy MCQs with Answers
15 multiple-choice questions on Indian Economy for CA Foundation P4 Business Economics. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
The economic reforms introduced in India in 1991 are popularly summarised as:
- A) Nationalisation, Planning and Protection
- B) Licensing, Reservation and Import Substitution
- C) Collectivisation, Rationing and Control
- D) Liberalisation, Privatisation and Globalisation
Show answer & explanation
Answer: D) Liberalisation, Privatisation and Globalisation
The New Economic Policy of 1991 aimed at liberalising controls, increasing the role of the private sector (privatisation) and integrating the Indian economy with the world economy (globalisation). Licensing and import substitution characterised the pre-1991 regime.
Question 2
The immediate trigger for the economic reforms of 1991 was:
- A) A sudden surplus in the government budget
- B) Excessive inflow of foreign direct investment
- C) Over-production in the agricultural sector
- D) A severe balance of payments crisis with very low foreign exchange reserves
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Answer: D) A severe balance of payments crisis with very low foreign exchange reserves
In 1991 India faced a serious balance of payments crisis: foreign exchange reserves had fallen to a level barely sufficient for a few weeks of imports, fiscal deficits were high and inflation was elevated. This led to stabilisation and structural reform measures.
Question 3
Within the 1991 reform package, which of the following is a 'stabilisation' measure rather than a 'structural reform' measure?
- A) Abolishing industrial licensing for most industries
- B) Opening up sectors to foreign direct investment
- C) Reforming the financial sector to improve efficiency
- D) Reducing the fiscal deficit to control inflation and the balance of payments deficit
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Answer: D) Reducing the fiscal deficit to control inflation and the balance of payments deficit
Stabilisation measures are short-term demand-management steps to correct macro imbalances such as high inflation, fiscal deficit and BoP deficit. Structural reforms are longer-term supply-side changes aimed at improving efficiency and competitiveness, such as de-licensing, trade and FDI liberalisation and financial sector reform.
Question 4
NITI Aayog replaced which of the following bodies?
- A) Finance Commission
- B) National Development Council
- C) Reserve Bank of India
- D) Planning Commission
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Answer: D) Planning Commission
NITI Aayog (National Institution for Transforming India) was set up by a resolution of the Union Cabinet in January 2015, replacing the Planning Commission that had existed since 1950. The Finance Commission is a constitutional body that continues to exist.
Question 5
Which of the following best describes the role of NITI Aayog?
- A) A policy think tank that promotes cooperative federalism by involving states in policy-making
- B) A constitutional body that allocates central tax revenues to states
- C) The body that sets the policy repo rate
- D) A statutory regulator of the securities market
Show answer & explanation
Answer: A) A policy think tank that promotes cooperative federalism by involving states in policy-making
NITI Aayog serves as the government's premier policy think tank, providing strategic and technical advice and fostering cooperative and competitive federalism. Unlike the former Planning Commission it does not allocate funds to states; tax devolution is recommended by the Finance Commission.
Question 6
India's First Five-Year Plan (1951-56) gave the highest priority to:
- A) Agriculture, including irrigation and power projects
- B) Heavy and basic industries
- C) Export promotion
- D) Information technology
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Answer: A) Agriculture, including irrigation and power projects
The First Plan, based broadly on the Harrod-Domar model, focused on agriculture, irrigation and power, given food shortages and the effects of Partition. The Second Plan shifted emphasis to heavy industry.
Question 7
The Second Five-Year Plan, which emphasised rapid industrialisation with a focus on heavy and basic industries, was based on the model developed by:
- A) Dadabhai Naoroji
- B) V. K. R. V. Rao
- C) P. C. Mahalanobis
- D) M. S. Swaminathan
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Answer: C) P. C. Mahalanobis
The Second Plan (1956-61) was based on the Mahalanobis model, which stressed investment in capital goods (heavy) industries to achieve long-term growth.
Question 8
The Green Revolution in India, which began in the mid-1960s, was based mainly on:
- A) Expansion of milk production through cooperatives
- B) Land reforms abolishing intermediaries
- C) Mechanisation of fisheries
- D) High-yielding variety seeds, chemical fertilisers and assured irrigation
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Answer: D) High-yielding variety seeds, chemical fertilisers and assured irrigation
The Green Revolution introduced HYV seeds (especially of wheat and later rice), along with fertilisers, pesticides and irrigation, leading to a large increase in foodgrain output. The expansion of dairy cooperatives is associated with the White Revolution (Operation Flood).
Question 9
In 1969, the Government of India nationalised:
- A) The Reserve Bank of India
- B) All insurance companies
- C) 14 major commercial banks
- D) 6 private sector banks only
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Answer: C) 14 major commercial banks
In July 1969, 14 major commercial banks were nationalised to extend banking to rural areas and priority sectors. A further 6 banks were nationalised in 1980. The RBI itself was nationalised in 1949, and life insurance in 1956.
Question 10
Which of the following was a feature of the New Industrial Policy of 1991?
- A) Reservation of most industries exclusively for the public sector
- B) Introduction of the MRTP Act to restrict large business houses
- C) Prohibition of foreign direct investment
- D) Abolition of industrial licensing for all but a short list of industries
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Answer: D) Abolition of industrial licensing for all but a short list of industries
The 1991 Industrial Policy removed licensing requirements for most industries, reduced the number of industries reserved for the public sector, removed MRTP restrictions on asset size and liberalised foreign investment. The MRTP Act dates from 1969.
Question 11
In the period since the 1991 economic reforms, which sector has accounted for the largest share of India's GDP?
- A) Primary sector
- B) Tertiary (services) sector
- C) Secondary sector
- D) Mining and quarrying
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Answer: B) Tertiary (services) sector
India's growth pattern has been services-led: the tertiary sector (trade, hotels, transport, communication, finance, real estate, IT and other services) has accounted for the largest share of GDP throughout the post-reform period, while the share of the primary (agriculture and allied) sector has declined. Mining and quarrying is only a small part of the primary sector.
Question 12
The 'drain theory', which argued that British rule transferred India's wealth to Britain, was propounded by:
- A) Mahatma Gandhi
- B) Jawaharlal Nehru
- C) Dadabhai Naoroji
- D) P. C. Mahalanobis
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Answer: C) Dadabhai Naoroji
Dadabhai Naoroji, in 'Poverty and Un-British Rule in India', argued that a large portion of India's wealth was drained to Britain through home charges, salaries, pensions and profits, without any corresponding return.
Question 13
Which of the following was a consequence of British colonial policy for the Indian economy?
- A) Rapid growth of heavy industries across India
- B) Significant rise in agricultural productivity due to modern techniques
- C) Decline of traditional handicrafts (de-industrialisation)
- D) A large and sustained trade deficit for India
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Answer: C) Decline of traditional handicrafts (de-industrialisation)
Cheap machine-made British goods and discriminatory tariffs led to the decline of Indian handicrafts. Agricultural productivity stagnated, heavy industry was very limited, and India typically ran an export surplus that financed the drain.
Question 14
The Goods and Services Tax (GST), a destination-based indirect tax, was introduced in India with effect from:
- A) 1 April 1991
- B) 1 January 1995
- C) 1 July 2017
- D) 1 April 2005
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Answer: C) 1 July 2017
GST was introduced on 1 July 2017 following the Constitution (One Hundred and First Amendment) Act, 2016, subsuming several central and state indirect taxes. 1 April 2005 marks the introduction of state-level VAT in many states.
Question 15
The Industrial Policy Resolution of 1956 is significant because it:
- A) Classified industries into three schedules and gave the public sector the leading role in key industries
- B) Abolished industrial licensing altogether
- C) Opened all industries to foreign investment without limits
- D) Replaced the Planning Commission with NITI Aayog
Show answer & explanation
Answer: A) Classified industries into three schedules and gave the public sector the leading role in key industries
The 1956 Resolution, in line with the Second Plan's emphasis on heavy industry, divided industries into Schedule A (exclusive responsibility of the State), Schedule B (progressively State-owned, with private participation) and Schedule C (left to the private sector). It shaped India's mixed economy until 1991.