Economic liberalization in India is generally considered to have begun with which major policy change introduced at the beginning of the 1990s reform period?

Introduction / Context:
The phrase economic liberalization in India refers to a set of policy reforms that reduced state control, opened the economy to competition, and integrated India more deeply with global markets. Competitive examinations often focus on which specific policy change is regarded as the starting point of this liberalization process in the early 1990s. This question asks you to identify the key reform that symbolized the end of strict industrial controls and the beginning of a more market oriented regime.

Given Data / Assumptions:

• The focus is on the beginning of the liberalization era in the early 1990s.
• India previously followed a heavily regulated system often called the licence raj.
• Reforms included changes to industrial licensing, trade policy, foreign investment, and taxation.
• We need to pick the reform that is widely regarded as the starting point of the liberalization process.

Concept / Approach:
Before the 1990s, industrial activity in India was tightly controlled through a complex system of licences, permits, and quotas. Firms had to obtain government approval for capacity expansion, product diversification, and entry into many industries. The New Industrial Policy announced in 1991 drastically reduced the scope of industrial licensing, delicensed many sectors, and opened the way for private and foreign investment. This shift from a control based regime to a competition based regime is generally taken as the starting point of economic liberalization. Other reforms, such as exchange rate adjustments, foreign investment policies, and tax changes, followed or developed alongside these initial industrial licensing reforms.

Step-by-Step Solution:
Step 1: Recognize that economic liberalization refers to reducing government controls and promoting market forces. Step 2: Recall that the most visible symbol of state control in the pre reform period was the industrial licensing system or licence raj. Step 3: Remember that the 1991 New Industrial Policy substantially reduced licensing requirements and allowed automatic approvals in many sectors. Step 4: Compare the options and note that option A directly mentions substantial changes in the industrial licensing policy, which aligns with the historical sequence. Step 5: Confirm that other options refer to reforms which were important but either came later or were not the initial trigger for liberalization.

Verification / Alternative check:
One way to verify is to think of how textbooks and official documents describe the 1991 reforms. They usually highlight the New Industrial Policy and the dismantling of the licence raj as the core of early liberalization. While foreign investment and exchange rate reforms were also crucial, they are often discussed as part of a broader package rather than the very first defining step. This supports the choice that substantial changes in industrial licensing policy marked the beginning of economic liberalization in India.

Why Other Options Are Wrong:
Full convertibility of the Indian rupee on the capital account: India still does not have complete capital account convertibility; reforms mainly increased current account convertibility and eased some capital flows later on.
Doing away with all procedural formalities for foreign direct investment: Foreign investment procedures were simplified over time, but this was not the single earliest or defining step of liberalization.
Significant reduction in tax rates: Tax reforms were an important component of the broader reform agenda but did not constitute the initial and central trigger of the liberalization process.

Common Pitfalls:
Learners sometimes treat liberalization as a single event and assume that every reform happened at once. Another common mistake is to focus on foreign investment or exchange rates and overlook the significance of domestic industrial policy changes. It is important to remember that the removal and relaxation of industrial licensing, which had constrained private enterprise for decades, is widely regarded as the landmark starting point of India's liberalization era.

Final Answer:
Economic liberalization in India is generally considered to have started with substantial changes in the industrial licensing policy that reduced the licence raj.