Karnataka 1st PUC Economics Question Bank Chapter 3 Liberalisation, Privatisation and Globalisation – An Appraisal
1st PUC Economics Liberalisation, Privatisation and Globalisation – An Appraisal Textbook Questions and Answers
I. Fill in the blanks (each question carries 1 mark)
Question 1.
Reforms were introduced during_____________
Answer:
1991
Question 2.
RBI regulates the ____ sector
Answer:
Financial
Question 3.
WTO was founded in_________
Answer:
1995
Question 4.
Tax on the incomes of individuals is called______
Answer:
Direct tax
II. Answer the following questions in a word/sentence (each question carries 1 mark)
Question 1.
What is liberalization?
Answer:
Liberalization refers to the removal of restrictions and opening up various sectors of the economy by giving freedom to invest.
Question 2.
Give the meaning of privatization.
Answer:
Privatization implies the shedding of the ownership or management of a government-owned enterprise. Here, government companies are converted into private companies.
Question 3.
What is globalization?
Answer:
Globalization refers to the integration of the economy of the country with the world economy. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration.
Question 4.
Expand IBRD.
Answer:
International Bank for Reconstruction and Development.
Question 5.
Expand GATT.
Answer:
General Agreement on Trade and Tariff.
Question 6.
Give the meaning of Direct Tax.
Answer:
Direct tax is that tax where the incidence and impact of taxation falls on the same person. The ‘ burden of tax cannot be transferred. For example, income tax.
Question 7.
What do you mean by outsourcing?
Answer:
It is a process where a company hires regular service from external sources, mostly from other countries, which was previously provided internally or from within the country.
Question 8.
Who regulates the financial sector?
Answer:
The financial sector is regulated b the Reserve Bank of India,
III. Answer the following question in four sentences (each question carries two marks)
Question 1.
Give the meaning of industrial licensing.
Answer:
Industrial licensing is a system in which every entrepreneur had to get permission from Government officials to start a firm, close a firm, or decide the number of goods that could be produced.
Question 2.
Mention four objectives of trade policy.
Answer:
The four objectives of trade policy are as follows:
- To dismantle quantitative restrictions on imports and exports
- To reduce tariff rates
- Removal of licensing procedures for imports
- Removal of export duties.
Question 3.
What is fiscal policy?
Answer:
Fiscal policy is the policy of the government in respect of taxation and public expenditure. Tax reforms are concerned with the reforms in government’s taxation which we term generally public revenue which also includes non-tax revenue, the fiscal policy includes public revenue and public expenditure. The tax revenue consists of direct tax and indirect tax.
Question 4.
What are the services of outsourcing?
Answer:
The major services of outsourcing are legal advice, computer service, advertisement, medical services, online teaching.
Question 5.
What do you mean by disinvestment? (N-2018’
Answer:
Disinvestment refers to the sale of part of the equity shares of public sector enterprises to the general public. In other words, privatization of the public sector enterprises by selling off part of the equity of public sector undertakings to the public, in general, is called disinvestment. The main purpose of disinvestment is to improve the financial condition and facilitate modernization.
IV. Answer the following question in twelve sentences (each question carries 4 marks)
Question 1.
Briefly explain the background of economic reforms in India.
Answer:
There was a financial crisis that persisted since 1980. We know that to introduce various policies, the government has to generate funds from various sources like taxation, running public sector enterprises, etc. When the expenditure is more than the income, the government takes loans to balance the deficit from banks and also from people within the country and from international banks,
The various development policies require huge finance. But there was a scarcity of funds. Even though the revenues were very low, the government had to overshoot its revenue to meet the challenges like unemployment, poverty, and population explosion. The continued spending on development programs of the government did not generate additional revenue. At the same time, the government could not generate funds internally. When the government was spending a large share of its income on areas that do not provide immediate returns, there was a need to use the rest of its revenue in a highly efficient manner. The income from public sector undertakings was also not very high to meet the growing expenditure.
Further, the foreign exchange, borrowed from other countries and international banks was spent on meeting consumption needs. No sincere efforts were made to reduce expenditure and to increase our exports.
During the late 1980’s government expenditure exceeded its income. Prices of many essential goods increased. Imports grew to a very large extent. Foreign exchange reserves declined considerably and the same fall short to finance our imports for more than two weeks. There was a shortage of funds even to pay interest to international lenders and at the same time, no country or international bank was ready to lend any more to India.
In this situation, India approached the International Bank for Reconstruction and Development and International Monetary Fund and received seven billion dollars as a loan to manage the crisis. To avail loans, these international banks expected India to liberalize and open up its economy by removing restrictions on the private sector, reduce the role of government in many areas and remove trade restrictions between India and other countries.
India had to agree to these conditions of IBRD and IMF and announced the new economic policy which included liberalization, privatization, and globalization.
Question 2.
Write a note on WTO.
Answer:
The World Trade Organisation was founded in 1995 as the successor organization to the General Agreement on Trade and Tariff which was established in 1948.
The main objectives of WTO are as follows:
- To establish a rule-based trading system in which nations cannot place arbitrary restrictions on trade
- To enlarge production and trade of services
- To ensure optimum utilization of world resources
- To protect the environment.
The various WTO agreements cover trade in goods and services to facilitate international trade i.e., both bilateral and multilateral, through the removal of tariff and non-tariff barriers and providing greater market access to all the member countries.
India, being a founder member, has been in the mainframe in framing fair global rules, regulations, and safeguards and advocating the interests of the developing world. India has kept its commitments towards liberalization of trade, made in the WTO, by removing quantitative restrictions on imports and reducing tariff rates.
But, some economists argue that the usefulness of WTO to India is not much when compared to developed countries. The major portions of benefits are enjoyed by the rich countries. They also say that while developed countries file complaints about agricultural subsidies given in their countries, developing countries feel cheated as they are forced to open up their markets for developed countries but are not allowed to access the markets of developed countries, which is totally unfair to Indian producers.
Question 3.
Write a note on Trade and Investment Policy reforms.
Answer:
A new trade and investment policy under liberalization strategy was made to increase the international competitiveness of industrial production and foreign investments and technology into the economy. The aim was also to promote the efficiency of the local industries and the adoption of modem technologies.
To protect Indian industries, the government was following quantitative restrictions on imports which encouraged tight control over imports. At the same time tariffs were very high. These policies reduced efficiency and competitiveness which led to slower growth in the manufacturing sector.
The main objectives of trade and investment policy were:
- To remove quantitative restrictions on imports
- To reduce quantitative restrictions in exports
- Reducing tariff rates
- Removal of the licensing system.
Import licensing was abolished except in the case of hazardous and environmentally sensitive industries. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed.
Export duties have been removed to increase the competitive position of Indian goods in the international markets.
A process of disinvestment was also initiated by selling part of the equity shares of public sector enterprises to the public.
Question 4.
Briefly explain the financial sector reforms.
Answer:
The financial sector consists of financial institutions like commercial banks, investment banks, stock exchange operations, and foreign exchange markets.
The financial sector in India is regulated by the Reserve Bank of India. The RBI decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors, etc.
The major objective of financial sector reforms is to reduce the role of RBI from the regulator to facilitator of the financial sector. That means the financial sector may be allowed to take decisions on many matters independent of RBI.
The financial sector reform policies led to the establishment of private sector banks both Indian and foreign. The foreign investment limit in banks was raised to around 50%. The banks which fulfill certain conditions have been given the freedom to set up new branches without the approval of the RBI. Foreign institutional investors (FII) like merchant bankers, mutual funds, and pension funds are now allowed to invest in Indian financial markets.
Question 5.
Write a short note on outsourcing. (S-2018)
Answer:
Outsourcing is a process in which a company hires regular service from external sources, usually from other countries, which was previously provided internally. It includes legal advice, computer service, advertisement, security, etc.
As a form of economic activity, outsourcing has intensified in recent years due to the fast mode of the communication network. Many services like voice-based business processes, record keeping, accountancy, banking services, music recording, film editing, book transcription, clinical advice, or even teaching are being outsourced by companies in developed countries to India. The modem telecommunication links like the internet, the text, voice, and visual data in respect of these services are digitized and transmitted throughout the world. Most of the multinational corporations and small companies are outsourcing their services to India where they can be availed at a cheaper cost. The low wage rates and availability of skilled labor in India have made it a favorite destination for global outsourcing.
V. Answer the following questions in twenty sentences. (each question carries four marks)
Question 1.
Briefly explain the important areas of liberalization. (S-2018)(Board Paper)
Answer:
Liberalization was one of the reforms of the New Economic Policy of 1991. It was introduced to put an end to the restrictions and open up various sectors of the economy.
The following are the important areas of liberalization:
(a) Deregulation of the industrial sector: The liberalization policy removed many restrictions enforced on the industrial sector. Industrial licensing was abolished for almost all but product categories like alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs, and pharmaceuticals. The only industries which are not reserved for the public sector are defense equipment, atomic energy generation, and railway transport. Many goods produced by the small-scale industries have now been deserved.
(b) Financial sector reforms: The financial sector consists of financial institutions like commercial banks, investment banks, stock exchange operations, and the foreign exchange market.
The financial sector in India is regulated by the Reserve Bank of India. The RBI decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors, etc.
The major objective of financial sector reforms is to reduce the role of RBI from the regulator to facilitator of the financial sector. That means the financial sector may be allowed to take decisions on many matters independent of RBI.
The financial sector reform policies led to the establishment of private sector banks both Indian and foreign. The foreign investment limit in banks was raised to around 50%. The banks which fulfill certain conditions have been given the freedom to set up new branches without the approval of the RBI. Foreign institutional investors (FII) like merchant bankers, mutual funds, and pension funds are now allowed to invest in Indian financial markets.
(c) Tax reforms: These are the reforms that are concerned with the government’s taxation and public expenditure policies which are collectively known as its fiscal policy. There are two types of taxes, direct and indirect.
Since 1991, there has been a continuous reduction in the taxes on individual incomes as it was felt that high rates of income tax were an important reason for tax evasion. It is now widely accepted that moderate rates of income tax encourage savings and voluntary disclosure of income.
The rate of corporation tax (tax on income of companies) which was very high earlier has been gradually reduced. A new tax called Goods and Services Tax (GST) has been introduced from 1.7.2017 to bring uniformity in indirect taxes.
In order to encourage better compliance on the part of taxpayers, many procedures have been simplified and the rates also substantially lowered.
(d) Foreign exchange reforms: During 1991, the Government took an immediate measure to resolve the balance of payments crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange. It also set the tone to free the determination of rupee value in the foreign exchange market from government control. At present, the market forces i.e., demand and supply, determine the exchange rates.
(e) Trade and investment policy reforms: A new trade and investment policy under liberalization strategy were made to increase the international competitiveness of industrial production and foreign investments and technology into the economy. The aim was also to promote the efficiency of the local industries and the adoption of modem technologies.
To protect Indian industries, the government was following quantitative restrictions on imports which encouraged tight control over imports. At the same time, tariffs were very high. These policies reduced efficiency and competitiveness which led to slower growth of the manufacturing sector.
The main objectives of the Trade and Investment Policy were:
- To remove quantitative restrictions on imports
- To reduce quantitative restrictions in exports
- Reducing tariff rates
- Removal of the licensing system.
Import licensing was abolished except in the case of hazardous and environmentally sensitive industries. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed.
Export duties have been removed to increase the competitive position of Indian goods in the international markets.
A process of disinvestment was also initiated by selling part of equity shares of public sector enterprises to the public.
Question 2.
Briefly explain the effects of reforms on the agricultural sector. (N-2018) (Board Paper)
Answer:
The economic reforms of 1991 have not been able to benefit agriculture, where the growth rate is not up to the expected level.
The public sector investment in the agricultural sector, particularly in infrastructural development like irrigation, power, roads, market linkages, and research and extension has fallen during the reform period.
The removal of fertilizer subsidies has led to an increase in the cost of production, which has severely affected the small and marginal farmers.
This sector has been experiencing a number of policy changes such as reduction in import duties on agricultural products, removal of minimum support price, and lifting of quantitative restrictions on agricultural products.
These have adversely affected Indian farmers as they now have to face increased international competition.
Further, due to export-oriented policy strategies in agriculture, there has been a shift from production for the domestic market towards production for the export market focusing on cash crops in steel of production of food grains. This has resulted in an increase in the prices of food grains.
VI. Project-oriented question (5 Marks)
Question 1.
Give appropriate examples for the following.
| Nature of the product | Name of foreign company |
| Biscuits | |
| Shoes | |
| Computers | |
| Cars | |
| TV and Refrigerators | |
| Stationery |
Now find out if these companies which are mentioned above existed in India before 1991 or came after the new economic policy.
Answer:
| Nature of the product | Name of foreign company |
| Biscuits | Hide and Seek |
| Shoes | Nike/Liberty |
| Computers | Dell |
| Cars | Toyota |
| TV and Refrigerators | Samsung |
| Stationery (pen) | GM Pens Pvt. Ltd |
The above-mentioned companies have come to India after the 1991 new economic policy.