What major economic policy shift did Manmohan Singh introduce in his 1991…

India's response to the 1991 balance-of-payments crisis is known as the New Economic Policy: a shift away from state control under the licensing-based regulatory regime and toward Liberalisation, Privatisation and Globalisation (LPG) — reducing licensing and tariff barriers, encouraging private and foreign investment, and integrating the economy with global trade and capital flows.

In the 1991-92 Union Budget speech, Finance Minister Manmohan Singh proposed dismantling industrial licensing for most sectors, cutting import tariffs and easing import controls, devaluing the rupee, and opening the door to greater foreign investment. These measures collectively liberalised and opened up the Indian economy, matching the option describing liberalisation and opening up of the economy.

Checking the remaining options against this same direction of reform:

• Increase in government subsidies and expenditure would have widened the fiscal deficit that was itself a root cause of the crisis, the opposite of the corrective measures actually taken.

• Nationalisation of major industries would have expanded state ownership and control, moving further from market-oriented reform rather than toward it.

• Tightening of license controls and import restrictions would have reinforced the pre-1991 regulatory regime that the reforms specifically dismantled.

Therefore, the major policy shift introduced in the 1991 Budget was liberalisation and opening up of the Indian economy.