The correct option is 1 and 3 only.
Explanation
In 1991, India faced a severe Balance of Payments (BoP) crisis. To manage the crisis, the government approached the International Bank for Reconstruction and Development (IBRD), commonly known as the World Bank, and the International Monetary Fund (IMF) for financial assistance. In exchange for a $7 billion loan, these international agencies expected India to liberalize and open up its economy through the New Economic Policy (NEP).
Statement-wise Analysis:
- Statement 1 is Correct: The conditionalities imposed by the World Bank and IMF required India to reduce the role of the government in many areas. This involved deregulation and reducing the number of industries reserved exclusively for the public sector, thereby shrinking the state's dominance in the industrial sector.
- Statement 2 is Incorrect: The reforms aimed to integrate the Indian economy with the global economy. Consequently, India agreed to remove trade restrictions rather than increase them. This included eliminating import quotas and reducing tariff rates to facilitate international trade.
- Statement 3 is Correct: A core component of the reforms was Liberalization, which meant removing restrictions on the private sector. The government agreed to dismantle the "License Raj," remove bureaucratic hurdles, and allow the private sector to operate more freely in sectors previously controlled or regulated by the state.
Key Takeaway:
The 1991 economic reforms, driven by World Bank and IMF conditionalities, shifted India's economic policy towards Liberalization, Privatization, and Globalization (LPG), fundamentally reducing state control and opening the economy to international trade.