Question map
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
The correct answer is option B (statements 2, 3, and 4 only).
**Statement 1 is incorrect**: The share of agriculture in national GDP has been declining from over 50% in 1950-51 to 16% in 2019-20.[1] In the last 73 years after independence, Indian economy has moved from a dominant agricultural sector to the services sector constituting 54% share in India's GDP.[2] This clearly shows agriculture's share decreased, not increased.
**Statement 2 is correct**: While the documents mention India's declining share in global exports in certain contexts, the post-1991 liberalization period saw increased integration with world trade and expansion of India's export capabilities, particularly in services and manufacturing sectors.
**Statement 3 is correct**: Before the 1991 economic reforms, India's FDI inflows as a percentage of GDP were low and volatile, fluctuating around low single-digit percentages due to restrictive policies and regulatory barriers.[3] After 1991, the new policy was much more actively supportive of foreign investment in a wide range of activities. Permission is automatically granted for foreign equity investment up to 51% in a large list of 34 industries.[4]
**Statement 4 is correct**: India's Forex Reserves increased from $5.8 billion in 1991-92 to $407 billion by end of March 2018 and $505.7 billion by end of June 2020. India's forex reserves have increased to a great extent over the years from 1991-92 onwards.[5]
Sources- [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > 10.2 Agriculture in India: A brief history > p. 302
- [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 6: Indian Economy [1947 – 2014] > 6.5 Economy Jumped from Agriculture to Services > p. 220
- [3] https://www.jetir.org/papers/JETIR2501646.pdf
- [4] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 6: Indian Economy [1947 – 2014] > Following lists down the details of the major reforms carried out in June-July 1991: > p. 216
- [5] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > RESERVE ADEQUACY FEW MONTHS OF IMPORTS RULE VERSUS GUIDOTTI-GREENSPAN RULE > p. 497
PROVENANCE & STUDY PATTERN
Full viewThis is a foundational 'Macroeconomic Trends' question. It tests your grasp of the '1991 vs Now' story. It is considered a 'Sitter' because it relies on the most basic outcome of development economics: as an economy grows, the agricultural share in GDP falls, not rises. If you know the 1991 crisis was about Forex, you know it increased enormously later.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: How did the share of agriculture in India's GDP change after the 1991 economic liberalization? Provide the trend and percentage-point change.
- Statement 2: How did India's share of world merchandise exports change after the 1991 economic liberalization? Provide the trend and percentage-point change.
- Statement 3: How did foreign direct investment (FDI) inflows to India change after the 1991 economic liberalization? Provide annual inflow figures and trends.
- Statement 4: How did India's foreign exchange reserves change after the 1991 economic liberalization? Provide figures showing the magnitude of the increase.
- Gives a post‑liberalization observation (1993/94) for agriculture's share of GDP: 14%.
- Provides earlier benchmark shares (e.g., 28% for 1980/81) showing a decline by the early 1990s period captured in the chart.
- States that agriculture's share was about 30% in the early 1990s and explicitly notes India embraced a new Economic Policy in 1991.
- Combining this early‑1990s level (~30%) with the 1993/94 value (14%) yields the percentage‑point change after liberalization.
Gives a long-term pattern: the share of agriculture in GDP fell from over 50% in 1950–51 to 16% in 2019–20.
A student can use this end-point (2019–20 = 16%) and look up or recall the agriculture share around 1991 to compute the post-1991 percentage-point change and infer the declining trend.
Describes structural shift: economy moved from agriculture-dominated (55% at independence) to services-dominated (54% more recently), signalling a persistent decline in agriculture's GDP share.
Use this pattern (shift to services) to infer that after 1991 liberalisation the agricultural share likely continued to fall as services grew; combine with specific pre/post-1991 data to quantify change.
States that after 1991 the services sector was among the fastest growing parts of the economy, implying agriculture's share would fall as services expanded.
Treat the post-1991 services surge as a causal clue; a student can compare agriculture's share before and after 1991 to estimate the percentage-point decline attributable to this shift.
An exam-style item explicitly lists 'Share of agriculture in GDP increase enormously' as a proposed post-1991 outcome, implying this is a contested/common misconception to be evaluated.
A student should reject that option by checking actual series for agriculture's share (pre- and post-1991) — the exam framing directs attention to verify rather than assume an increase.
This MCQ item explicitly lists as a consequence of 1991 liberalisation that 'Share of India's exports in world trade increased' — it shows that textbooks present an increase in export share as an expected effect of liberalisation.
A student could look up pre- and post-1991 series for India's share in world merchandise exports (World Bank/UN COMTRADE) to quantify the trend and percentage‑point change.
A similar practice-question repeats the proposition that India's share in world trade rose after 1991, reinforcing that this is a widely taught conclusion about liberalisation's impact.
Use this pedagogical claim as a hypothesis and compare it with actual time‑series export-share data across 1980s–2000s to test direction and magnitude.
States that liberal policies and diversification of markets were reasons for a 'sharp rise in overseas trade' — gives a causal pattern linking liberalisation to rising export volumes.
Translate 'sharp rise in overseas trade' into measurable indicators (export value or share of world exports) and check their changes around 1991 using international trade statistics.
Notes changes in composition of exports and refers to Economic Survey and commerce ministry tables — points to official data sources that track export trends over time.
A student could consult the cited Economic Survey/commerce publications to extract India's merchandise export data and compute the world‑share trend and percentage‑point change.
Describes the 1991 liberalisation as removing controls and making India more attractive to investment and trade — establishes the policy shift that plausibly affected export performance.
Combine this policy-timing clue with external time-series trade data to attribute changes in export share to the post‑1991 period (compare pre‑1991 trend vs post‑1991 trend).
Explicit MCQ-style assertion in the source that 'FDI inflows increased' after 1991 — a direct summary claim about the post‑liberalisation trend.
A student could treat this as a hypothesis and look up yearly FDI statistics (e.g., RBI/DPIIT annual data) to verify the magnitude and year‑by‑year trend.
Another teaching/exam item repeating that 'FDI flows increased' after liberalisation, reinforcing the pattern as a standard textbook conclusion.
Use this repeated textbook claim to justify collecting annual FDI inflow series (pre‑ and post‑1991) and plotting them to observe changes.
Describes 1991 policy changes that relaxed foreign ownership limits (automatic permission up to 51% in many industries), a concrete rule likely to encourage higher FDI.
Combine this policy change with annual data to test whether inflows rose following the regulatory liberalisation dates and in the industries newly opened.
States that under the New Economic Policy foreign inflows under FDI and FII were encouraged — a stated policy objective that explains a mechanism for rising inflows.
Use this as justification to compare pre‑1991 vs post‑1991 inflow levels and to check timing of any acceleration in annual FDI receipts.
Notes institutional/regulatory changes (DPIIT sets FDI rules; FEMA 1999 removed prior RBI approvals for inbound FDI reporting), indicating procedural easing that can increase inflows.
A student could correlate the timing of these regulatory easings (1990s) with year‑by‑year FDI data to assess whether inflows rose after procedural reforms.
- Gives a clear baseline figure for 1991-92 (US$ 5.8 billion) and later magnitudes (End Mar 2018: US$ 407 billion; End Jun 2020: US$ 505.7 billion).
- Directly states that forex reserves 'have increased to a great extent over the years from 1991-92 onwards', linking the post-1991 period to the rise.
- Provides a later-point magnitude (US$ 583.94 billion as on 5 Feb 2021), allowing calculation of the overall increase from 1991-92 levels.
- Lists components of reserves (FCAs, gold, SDRs, RTP), supporting understanding of what constitutes the reported totals.
- Explicitly links liberalisation since 1991 to a 'substantial increase in foreign exchange reserves', giving qualitative causal context.
- Explains concurrent policy changes (e.g., move from FERA to FEMA) that framed later reserve accumulation.
- [THE VERDICT]: Sitter. Directly solvable from NCERT Class XI (Indian Economic Development) or any standard text (Vivek Singh/Singhania).
- [THE CONCEPTUAL TRIGGER]: The 'Impact of LPG Reforms' theme. Specifically, the structural transformation of the Indian economy over the last 30 years.
- [THE HORIZONTAL EXPANSION]: Memorize the '1991 vs Now' dashboard: 1. Agri GDP Share: ~30% → ~15-18% (Decreased). 2. Forex: ~$5.8 Bn → ~$600+ Bn (Enormous Increase). 3. Export Share: ~0.5% → ~1.8% (Merchandise) / ~3.5% (Services) (Increased). 4. FDI: <$100 Mn → ~$80 Bn/year (Increased). 5. Tax-to-GDP: ~10% → ~11% (Stagnant/Marginal - often a trap).
- [THE STRATEGIC METACOGNITION]: Do not just read definitions of Liberalization. You must map the *outcomes*. Create a simple table with columns: 'Indicator', '1991 Level', 'Current Level', 'Trend Direction'. UPSC asks for the *trend* (Steady increase, Fluctuating, Enormous increase).
References describe a post‑1991 acceleration of services and a long‑term move away from agriculture as the dominant GDP contributor.
High‑yield for UPSC: explains sectoral composition changes, links economic liberalisation to structural transformation, and is often asked in questions on growth, employment and policy impact. Master by comparing sectoral GDP shares over time and relating to policy events.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 7: Indian Economy after 2014 > 7.2 Manufacturing > p. 228
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 6: Indian Economy [1947 – 2014] > 6.5 Economy Jumped from Agriculture to Services > p. 220
Evidence provides numeric endpoints (e.g., >50% in 1950–51 to 16% in 2019–20) useful for calculating changes in sectoral share.
Essential skill for UPSC: calculate percentage‑point changes, recognise trends vs short‑term variability, and avoid conflating relative shares with absolute output. Enables answering data‑based questions on sectoral shifts and their magnitudes.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > 10.2 Agriculture in India: A brief history > p. 302
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 7: Indian Economy after 2014 > 7.2 Manufacturing > p. 228
Evidence notes both declining GDP share and falling employment share in agriculture, highlighting differing implications.
Important for questions on inclusive growth and rural livelihoods: helps connect GDP composition with employment, poverty alleviation and policy needs. Useful for essays and policy‑impact questions requiring nuanced interpretation.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > 10.2 Agriculture in India: A brief history > p. 302
Several references link the 1991 policy shift to liberal trade policies and a sharp rise in overseas trade, making this concept central to the statement about export share.
High-yield for UPSC: explains policy causation between liberalisation and external sector outcomes. Connects to economic reforms, trade policy and growth chapters; useful for questions asking effects of 1991 reforms or trends in trade volumes. Prepare by linking policy changes to observable trade outcomes and citing source tables/Surveys.
- INDIA PEOPLE AND ECONOMY, TEXTBOOK IN GEOGRAPHY FOR CLASS XII (NCERT 2025 ed.) > Chapter 8: International Trade > INTERNATIONAL TRADE > p. 86
- History , class XII (Tamilnadu state board 2024 ed.) > Chapter 9: Envisioning a New Socio-Economic Order > d) Liberalization: Industrial Policy Statement 1991 > p. 124
Evidence highlights shifts in commodity composition (manufactured goods, agriculture, crude petroleum, minerals) which affect export performance and global share.
Important for answering why export performance changed (not just that it did). Helps in analysing structural drivers behind share shifts and in framing answers on trade diversification and competitiveness. Connects to industry, agriculture and external sector topics; practice using Economic Survey/commerce data.
- INDIA PEOPLE AND ECONOMY, TEXTBOOK IN GEOGRAPHY FOR CLASS XII (NCERT 2025 ed.) > Chapter 8: International Trade > Changing Pattern of ttern ofttern of the Composition of India's Expor s Exports > p. 87
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > CURRENT SCENARIO OF INDIAN AGRICULTURE (as per Economic Survey 2020-21) > p. 289
References note that merchandise exports remain less than imports and that India has experienced trade/current account deficits — relevant when assessing export share impact on overall external position.
Useful for balanced answers: even if exports grew, trade deficits may persist. Links external sector analysis with balance of payments questions and policy implications (tariffs, competitiveness). Enables comparative questions on export growth versus import demand.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > 2020 > p. 487
- INDIA PEOPLE AND ECONOMY, TEXTBOOK IN GEOGRAPHY FOR CLASS XII (NCERT 2025 ed.) > Chapter 8: International Trade > INTERNATIONAL TRADE > p. 86
References describe the 1991 shift from restrictive to actively supportive foreign investment policy, central to changes in FDI inflows.
High-yield for UPSC: connects economic reforms to capital flows, balance of payments and industrial policy. Useful for questions on reform impacts, policy evolution and comparative pre/post-1991 analyses. Learn the policy change logic and supporting institutional outcomes rather than isolated numbers.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 6: Indian Economy [1947 – 2014] > Following lists down the details of the major reforms carried out in June-July 1991: > p. 216
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 6: Economic Planning in India > 2. Planning in Post-1991 or Post-Reforms Phase > p. 135
The 'Tax-to-GDP Ratio' Trap. While Forex and GDP grew enormously, India's Tax-to-GDP ratio has largely stagnated (hovering around 10-11% for Centre, ~17% combined) post-1991. If a statement says 'Tax-to-GDP increased enormously', it is FALSE.
Apply the 'Clark-Fisher Hypothesis' (Development Economics 101): As an economy develops, it shifts from Primary → Secondary → Tertiary. Therefore, Agriculture's share in GDP *must* fall. Statement 1 says it 'increased enormously'. This is economically impossible for a developing nation like India. Eliminate 1 → Options A and D are gone. Between B and C, Statement 4 (Forex) is the defining success story of 1991. Mark B.
Mains GS3 (Inclusive Growth): The disconnect between Statement 1 (Agri GDP share dropped to ~15%) and the reality that Agri *employment* share remained high (~45%) explains the 'Rural Distress' and 'Jobless Growth' topics.