NCERT Class 11 Economics — Chapter 2: Indian Economy (1950-1990)

mcqmedium

Which of the following was a negative outcome of the 'Permit License Raj'?

Official previous-year question

Verified 1 Aug 2026.

Options

AIt completely eliminated the public sector.
BIt resulted in the rapid modernization of all industries.
CIndustrialists spent more time lobbying for licenses than improving products.
DIt led to excessive competition among domestic firms.

Did you get this right?

Solution

The correct option is Industrialists spent more time lobbying for licenses than improving products..

Explanation

The 'Permit License Raj' refers to the rigid system of government controls, regulations, and licensing requirements that dominated the Indian economy from the 1950s until the liberalization reforms of 1991. Governed primarily by the Industries (Development and Regulation) Act, 1951, this system mandated that private businesses obtain government permission to start, operate, or expand industrial units.

Analysis of Options:

It led to excessive competition among domestic firms. is incorrect: The licensing regime restricted the entry of new players into the market. This limited competition rather than creating "excessive competition," often resulting in monopolistic or oligopolistic market structures where a few firms dominated.
Industrialists spent more time lobbying for licenses than improving products. is correct: Since licenses were essential for business operations and were often scarce or discretionary, industrialists were compelled to focus on rent-seeking behavior. Significant time and resources were spent lobbying bureaucrats and politicians to secure permits or block competitors, rather than on research, development, or improving product quality.
It resulted in the rapid modernization of all industries. is incorrect: The protection from foreign competition (via high tariffs and import restrictions) and the lack of domestic competition meant that firms had little incentive to upgrade technology. This led to technological stagnation rather than modernization.
It completely eliminated the public sector. is incorrect: The economic policy of this era was characterized by the dominance of the public sector, which was intended to occupy the "commanding heights" of the economy. The private sector was the one subject to strict elimination and control, not the public sector.

Key Takeaway: The Permit License Raj created a high-cost, low-quality industrial environment by incentivizing lobbying and rent-seeking over innovation and efficiency, while simultaneously restricting market competition.

Your note

More from Chapter 2: Indian Economy (1950-1990)

Consider the following statements regarding 'Modernisation' as a planning goal: 1. It implies the adoption of new technology to increase output. 2. It strictly excludes changes in social outlook. 3. It does not strictly prohibit the use of traditional methods if they are efficient. Which of the statements given above is/are correct?

medium

What was the primary effect of the 'inward looking trade strategy' on the Indian consumer?

medium

Which of the following statements about the 'First Five Year Plan' is correct?

medium

Which of the following was a major loophole in the 'Land Ceiling' legislation? 1. Big landlords voluntarily surrendered their excess land without legal challenge. 2. Landlords registered lands in the names of close relatives to escape the ceiling. 3. The legislation faced hurdles in implementation across many states.

medium

With reference to the 'Green Revolution', why was the first phase restricted to affluent states?

medium

Keep practising Chapter 2: Indian Economy (1950-1990)

Work through every question from this NCERT chapter.

Browse all NCERT Class 11 Economics chapters

The correct option is Industrialists spent more time lobbying for licenses than improving products..

Explanation

Analysis of Options:

It led to excessive competition among domestic firms. is incorrect: The licensing regime restricted the entry of new players into the market. This limited competition rather than creating "excessive competition," often resulting in monopolistic or oligopolistic market structures where a few firms dominated.
Industrialists spent more time lobbying for licenses than improving products. is correct: Since licenses were essential for business operations and were often scarce or discretionary, industrialists were compelled to focus on rent-seeking behavior. Significant time and resources were spent lobbying bureaucrats and politicians to secure permits or block competitors, rather than on research, development, or improving product quality.
It resulted in the rapid modernization of all industries. is incorrect: The protection from foreign competition (via high tariffs and import restrictions) and the lack of domestic competition meant that firms had little incentive to upgrade technology. This led to technological stagnation rather than modernization.
It completely eliminated the public sector. is incorrect: The economic policy of this era was characterized by the dominance of the public sector, which was intended to occupy the "commanding heights" of the economy. The private sector was the one subject to strict elimination and control, not the public sector.