The regulatory framework adopted by India between 1947 and 1990, often referred to as the “License Raj,” aimed to direct economic activity. While it had certain intended benefits, what was a significant unintended negative consequence often associated with this system?

Correct option is C

The correct answer is (c) The creation of barriers to entry for new businesses, stifling innovation and leading to inefficiencies.
• The License Raj (1947–1990) involved complex approval systems that hindered entrepreneurship and discouraged competition.
• Excessive control created a bureaucratic bottleneck, increasing corruption and inefficiency.
Information Booster:
• Introduced through Industrial (Development and Regulation) Act, 1951.
• Private firms needed multiple licenses for production and expansion.
• Limited competition led to low productivity and innovation.
• Dismantled post-1991 under Liberalization, Privatization, and Globalization (LPG) reforms.
• Replaced by a market-driven economy focused on deregulation.
Additional Knowledge:
• Economists criticized the system for “Inspector Raj” bureaucracy.
• The 1991 reforms were driven by Dr. Manmohan Singh under PM P.V. Narasimha Rao.
• End of License Raj marked the rise of entrepreneurship and FDI inflow.
• Boosted India’s GDP growth and competitiveness globally.