CBSE Class 11 Economics Topic Economic Reforms Since 1991 Worksheet

INTRODUCTION
• Since independence, India followed the mixed economic system, by combining the advantages of capitalist economy with those of the socialist economy.
• But, in reality, the public sector dominated the control and regulation of our economy and private sector was ignored.
• There was a huge investment in the public sector and very low investment in the private sector.
• The dominance of public sector for about 4 decades led to establishment of various rules and laws, which hampered the process of growth and development.

REASONS FOR ECONOMIC REFORMS (SIDE)

1. Shortage of foreign exchange reserves
• Imports grew at a very high rate without matching growth of exports
• As a result foreign exchange reserves fell to the lowest level there were not sufficient reserves for even a fortnight to finance imports

2. Inefficient Management
• The constant spending on development programmes of the government did not generate additional revenue
• The government was not able to generate sufficient revenue from internal sources such as taxation, revenue from public sector enterprises, etc.

3. Debts burden
• To meet its consumption expenditure government borrows from other country and international financial institutions.
• Due financial crisis foreign exchange reserve was not sufficient to pay the interest to international lenders.
• Further no country or international funder was willing to lend to India

4. Effect of Inflationary Pressure
• Prices of many essential goods rose sharply
• The rise in prices was mainly due to increase in money supply and shortage of essential goods.

Economic Reforms
• To manage the crisis, Indian Government borrowed a loan of $7 billion from World Bank and International Monetary Fund (IMF).
• To avail this loan, Indian Government also agreed to the conditions of World Bank and IMF and announced the New Economic Policy by creating a more competitive environment in the economy an removing the barriers to entry and growth of firms
• Removing trader restrictions between India and other countries.
• Eliminate restrictions on the private sector
• Decrease the role of the government in many areas

THIS SET OF POLICIES CAN BROADLY BE CLASSIFIED INTO TWO GROUPS:
1. Stabilization measures:- Short term measures, to correct to
• Correct the weaknesses in the balance of payments
• Bring inflation under control by maintaining sufficient foreign exchange reserves.
2. Structural reform policies are long-term measures, aimed at
• Improving the efficiency of the economy
• Increasing its international competitiveness by removing the rigidity in various sectors.

LIBERALISATION
• The term 'liberalisation' means removal of entry and growth restrictions on the private sector enterprise..
• The purpose was to unlock the economic potential of the country by encouraging private sector and multinational corporations, to invest and expand.

ECONOMIC REFORMS UNDER LIBERALIZATION INCLUDES (FFITT)
1. Financial Sector Reforms
2. Foreign Exchange Reforms
3. Industrial Sector Reforms
4. Tax Reforms
5. Trade and Investment Policy Reforms

FINANCIAL SECTOR REFORMS (FARE)
Includes financial institutions, such as commercial banks, investment banks, stock exchange operations and foreign exchange market. The financial sector in India is regulated by the Reserve Bank of India (RBI) The reforms introduced under financial sector are:
1. Foreign investment limit in banks was raised to around 51 per cent. Foreign Institutional Investors (FII) such as merchant bankers, mutual funds and pension funds were now allowed to invest in Indian financial markets
2. Autonomy to Bank to set up new branches (after fulfillment of certain conditions) without the approval of the RBI.
3. Role of RBI. Central bank reduced from regulator to facilitator of financial sector. As a result, financial sector was allowed to take decisions on many matters, without consulting the RBI.
4. Establishment of private sector banks in India like ICICI Bank or HDFC Bank. This increased the competition and benefitted the consumers through lower interest rates and better services.

FOREIGN EXCHANGE REFORMS
In 1991, as an immediate measure to solve the balance of payments crisis Foreign exchange reforms were made

1. Devaluation of Rupee: Devaluation refers to reduction in the value of domestic currency by the government. To overcome Balance of Payments crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange.

2. Market Determination of Exchange Rate: The Government allowed rupee value to be free from its control. As a result, market forces of demand and supply determine the exchange value of the Indian rupee in terms of foreign currency.

INDUSTRIAL SECTOR REFORMS (DRIP)
In order to make necessary reforms in the industrial sector, the Government introduced is new industrial policy on July 24, 1991
1. De-reservation under small-scale industries Many goods produced by small scale industries have now been dereserved.
2. Reduction in role of Public Sector: Reduction in the role of the public sector in the future industrial development of the country (reduced from 17 to 3).(i) Defense equipments; (ii) Atomic energy generation; (iii) Railway Transport
3. Industrial Licensing Abolishing No licenses were needed to set up new units, expand or diversify, except in certain are like Defense equipments;, Atomic energy generation, Railway Transport.
4. Price regulation:- In many industries, the market has been allowed to determine the prices through forces of the market
TAX REFORMS
Tax reforms refer to reforms in government’s taxation and public expenditure policies, which are collectively known as its ‘Fiscal Policy

Taxes are of two types:
• Direct Taxes consist of taxes on income of individuals as well as profits of business enterprises. For example, Income tax and corporate tax.
• Indirect Taxes refer to those which affect the income and property of persons. Indirect taxes are generally imposed on goods and services. For example, GST

THE MAJOR TAX REFORM (SIR)
1. Simplification of Process: In order to encourage better compliance on the part of taxpayers, many procedures have been simplified.
2. Indirect Taxes Reform: huge reform has been made in indirect taxes to facilitate establishment of common national market for goods and commodities.
3. Reduction in Taxes: Since 1991, there has been a continuous reduction in income and corporate tax as high tax rates 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.

TRADE AND INVESTMENT POLICY REFORMS (FIRE)
Liberalization of trade and investment management was initiated to increase international competitiveness of industrial production and to promote foreign investments and technology into the economy.
1. Fast Removal of Quantitative restrictions on Imports and Exports: Under the New Economic Policy, quantitative restrictions on imports and exports were greatly reduced. For example, quantitative restrictions on imports of manufactured consumer goods and agricultural products were fully removed from April 2001.
2. Import Duties Reduction: Import duties were reduced to improve the position of domestic goods in the foreign market.
3. Relaxation in Import Licensing System: The Import licensing was abolished, except in case of hazardous and environmentally sensitive industries. This encouraged domestic industries to import raw materials at better prices, which raised their efficiency and made them more competitive
4. Export Duties Removal Export duties were removed to increase the competitive position of Indian goods in the international markets.

PRIVATISATION
• Transfer of ownership, management and control of public sector enterprises to the private sector.
Privatisation can be done in two ways;
1. Transfer of ownership and management of public sector companies from the government to the Private Sector.
2. Privatisation of the public sector undertakings (PSU) by selling off part of the equity of PSUs to the public. This process is known as disinvestment.

Objective: -
• Performance improvement of the PSUs though private management
• Encourage Inflow of FDI: - The government predicts that privatisation could lead to inflow of FDI.
• Autonomy:-To improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.
• Key To improve financial discipline and facilitate modernization.

GLOBALIZATION
• Globalisation means integrating the national economy with the world economy through removal of barriers on international trade and capital movements.
• Globalisation offers opportunity for an organization to expand globally, i.e., in worldwide market. Improving technologies, better transportation and communication have enabled companies to expand into worldwide markets.
• Purpose is to Turn the world into one whole or creating a borderless world.

• Outsourcing:
• This is one of the important outcomes of the globalization process. In outsourcing, a company hires regular service from external sources, mostly from other countries, which was previously provided internally or from within the country (like legal advice, computer service, advertisement)
• Most multinational corporations, and even small companies, are outsourcing their services to India where they can be availed at a cheaper cost with reasonable degree of skill and accuracy.
World Trade Organisation (WTO): The WTO was founded in 1995 as the successor organisation to the General Agreement on Trade and Tariff (GATT). GATT was established in 1948 with 23 countries as the global trade organization.

Objective
• The WTO agreements cover trade in goods as well as services to facilitate international trade (bilateral and multilateral) through removal of tariff as well as non-tariff barriers and providing greater market access to all member countries.
• Administer all multilateral trade agreements by providing equal opportunities to all countries in the international market for trading purposes.
• Enlarge production and trade of services, to ensure optimum utilization of world resources and to protect the environment.
• Move to establish a rule-based trading regime in which nations cannot place restrictions on trade.

DEMONITIZATION AND GST

What is Goods and Services Tax (GST)? State its aim and features. (4)
Ans. The Parliament passed a law, Goods and Services Tax Act, 2016, to simplify and introduce a unified indirect tax system in India. This law came into effect from 1 July 2017.It aims to generate additional revenue for the government; to reduce tax evasion; and to create 'one nation, one tax and one market’. Features: 1. Single comprehensive indirect tax on supply of goods and services, right from the manufacturer/service provider to the consumer. 2. Applicable throughout the country with one rate for one type of goods/service. Under GST, there are 5 (five) standard rates applied, i.e. 0%, 5%, 12%, 18% and 28% on supply of all goods and services across the country. 3. It has replaced large number of taxes on goods and services levied on production/sale of goods or provision of service, e.g. Central Excise Duty, Service Tax, VAT/Sales Tax, Entertainment Tax, etc. 4. Some of the major taxes levied by the Central Government which have been subsumed in GST are: Central Excise Duty, Service Tax, Central Sales Tax, etc.

State the benefits of Goods and Services Tax (GST) on the Indian economy. (4) Benefits of GST on the Indian Economy:
1. Boost in GDP: - It has resulted into higher economic growth as GDP is expected to rise by about 2%.
2. Ease in filing:- Compliance will also be easier as all tax payment related services like registration, returns, and payments are available online 3. Advantages to consumers It has facilitated the freedom of movement of goods and services and created a common market in the country. It is aimed at reducing cascading effect of various taxes on consumers
4. Transparency: - It has expanded the tax base, introduced higher transparency in the taxation system, reduced human interface between Taxpayer and Government and as increase ease of doing business.

Write a short on demonetization
• The Government of India, made an announcement on November 8, 2016 with thoughtful implications for the Indian economy.
• The two largest denomination notes, Rs 500 Rs 1,000, were ‘demonetized’ with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills.
• This led to 86%% of the money in circulation invalid
• The people of India had to deposit the invalid currency in the banks which came along with the restrictions placed on cash withdrawals.

“The demonetisation of currency undertaken by the Government of India on November 8, 2016 had an adverse impact on the economic activities. ”Do you agree with the statement? Give reason in support of your answer. (4)
1. Form a less-cash or cash-lite economy: - Channeling more savings through the formal financial system and improving tax compliance.
2. Adding savings into the formal financial system. Though, much of the cash that has been deposited in the banking system is bound to be withdrawn but some of the new deposits schemes offered by the banks will continue to provide a base loan, at lower interest rates.
3. Check on tax evasion: -Government indicating that tax evasion will no longer be tolerated or accepted.
4. Tax administration measure. Cash holdings arising from declared income was deposited in banks and exchanged for new notes. But those with black money had to declare their unaccounted wealth and pay taxes at a penalty rate.
5. Solving corruption:- the problem of corruption was solved due to demonetization

Question. Import Licensing was abolished except in case of :
a) Hazardous items
b) Environmentally sensitive industries
c) both (a) and (b)
d) none
Answer : C

Question. GST was not introduced for the following purpose
a) Generate additional revenue for the government,
b) Reduce tax evasion
c) To increase direct taxes
d) Create ‘one nation, one tax and one market
Answer : C

Question. Which of the following is not a feature of Privatisation:
a) Contraction of public sector
b) Policy of disinvestment
c) policy of memorandum of understanding
d) Tax rates have been reduced
Answer : D

Question. Liberalisation implies:
(a) greater role of public sector
(b) reduction in governments control over the private sector
(c) free economy with no controls
(d) none of these
Answer : B

Question. Which of the following is an example of indirect tax?
(a) Income tax
(b) Wealth tax
(c) Goods and services tax
(d) None of these
Answer : C

Question. Which of the following is not an element of fiscal reforms?
(a) Taxation reforms
(b) Public expenditure reforms
(c) Change in interest rate
(d) Control on public debt
Answer : C

Question. Which of the following is an element of financial sector of the economy?
(a) Banking and non-banking financial institutions
(b) Stock exchange market
(c) Foreign exchange market
(d) All of these
Answer : D

Question. Industrial sector reforms under the New Economic Policy (NEP) comprised which of the following?
(a) Abolition of industrial licencing
(b) De-reservation of production areas
(c) Contraction of public sector
(d) All of these
Answer : D

Question. Which of the following is the strategy to promote globalisation of the India economy?
(a) Partially convertibility
(b) Reduction in tariffs
(c) Increase in equity limit of foreign investment
(d) All of these
Answer : D

Question. Liberalisation of the economy under the new economic policy changed the role of RBI in the economy:
(a) from a 'regulator' to 'facilitator' of the financial sector
(b) from a 'controller' to 'manager' of the government debt
(c) both (a) and (b)
(d) none of these
Answer : A

Question. External sector reforms under NEP included:
(a) foreign exchange reforms
(b) foreign trade pol icy reforms
(c) both (a) and (b)
(d) none of these
Answer : C

Question. Economic reforms in India were initiated in the year:
(a) 1990
(b) 1991
(c) 1992
(d) 1993
Answer : B

Question. Which of the following are the components of globalisation under the new economic policy?
(a) Partial convertibility of the Indian rupee
(b) Increase in equity limit of foreign investment
(c) Reduction in tariffs
(d) All of these
Answer : D

Question. Which of the following is not a component of privatisation?
(a) Contraction of public sector
(b) Disinvestment in public sector enterprises
(c) Sale of public sector's share
(d) Purchase of industrial shares by the government
Answer : D

Question. The parameters of economic reforms undertaken in an economy are:
(a) macroeconomic stabilisation
(b) macroeconomic structural adjustments
(c) both (a) and (b)
(d) none of these
Answer : C

Question. The programme of economic reforms in India was started on ………………… .
(a) 26 th July 1990
(b) 23th July 1992
(c) 21th July 1991
(d) 24th July 1991
Answer : D

Question. Licensing (as in case of liquor) is necessary for the ………………………… .
(a) regulation of business
(b) regulation of the industry
(c) regulation of taxes
(d) none of these
Answer : B

Question. In the context of Indian experience, controls were imposed by the government with a view to:
(a) checking the growth of private monopolies
(b) minimising the hold of large industrial houses on the financial resources of the country
(c) both (a) and (b)
(d) none of these
Answer : C

Question. Which of the following is not a component of fiscal reforms?
a) Taxation reforms
b) Public expenditure reforms
c) Change in interest rate
d) Control of public debt
Answer : C

Question. IMF stands for:
a) International Monetary Foundation
b) Internal Monetary Fund
c) International Monetary Fund
d) International Money Foundation
Answer : C

Question. ___________refers to relaxation of Government restrictions.
a) Privatisation
b) Globalisation
c) Disinvestment
d) Liberlisation
Answer : D

Question. Which of the following industries are reserved for the public sector?
a) Cement
b) Defense equipment
c) Atomic energy generation
d) both (b) and (c)
Answer : C

Question. Financial sector reforms does not include
a) Foreign investment limit in banks was raised to around 50 per cent
b) Foreign Institutional Investors (FII), allowed to invest in Indian financial markets
c) Reduce the role of RBI from regulator to facilitator
d) Removal of licensing procedures for imports
Answer : D

Question. Which of the organization replaced General Agreement on Trade and Tariff
b) International Monetary Fund
c) United Nations Organization
d) World Trade Organization
e) World Health Organization
Answer. C

Question. When was the New Economic Policy announced?
a) June 1991
b) July 1991
c) May 1991
d) None of these
Answer. B

Question. ----- refers to disposal of equity of public sector units in the market
a) Globalization
b) Privatization
c) Liberalization
d) Disinvestment
Answer. D

Question. Which of the following is not a policy initiated under New Economic Policy?
a) Liberalization
b) Privatization
c) Globalization
d) Licensing
Answer. D

Question. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed from
a) 1980
b) 1991
c) 2001
d) 1995
Answer. C

Question. On which date did PM Narendra Modi address the Indian people announcing the demonetization of RS 5OO AND RS 1000
a) 8 Oct 2017
b) 8 Nov 2016
c) 8 Nov 2017
d) 8 Oct 2016
Answer. B

Question. The highest GST rate applicable now is
a) 28%
b) 12%
c) 18%
d) None of these
Answer. A

Question. GST was introduced in India with effect from
a) 1/7/2017
b) 1/7/2016
c) 1/7/2018
d) 1/7/2019
Answer. A

Question. What is the other name of World Bank?
a) World Health Organization
b) World Trade Organization
c) International Monetary Fund
d) International Bank for Reconstruction and Development
Answer. D

Question. At present how many industries are exclusively reserved for the public sector in India?
a) 2
b) 3
c) 4
d) 5
Answer. B

Question. When was WTO founded?
a) 1948
b) 1951
c) 1991
d) 1995
Answer. D

Question. Which Act has been enacted in place of MRTP Act ?
a) Competition Act
b) Monopoly Act
c) Licensing Act
d) Foreign Exchange Act
Answer. A

Question. At present how many member countries WTO has?
a) 150
b) 164
c) 159
d) 190
Answer. B

Question. ---refers to the transfer of assets or services function from public to private ownership?
a) Globalization
b) Privatization
c) Disinvestment
d) Liberalization
Answer. B

Question. Outsourcing is good for India because
a) It provides employment to large number of unemployed
b) It provides excellence in a particular field
c) Both a and b
d) Neither a nor b
Answer. C

Question. It refers to contracting out some of its activities to a third party which were earlier performed by the organization
a) Globalization
b) Outsourcing
c) Privatization
d) Liberalization
Answer. B

Question. Trade between two countries is known as
a) Bilateral Trade
b) Multi lateral Trade
c) Both a and b
d) Neither a nor b
Answer. A

Question. GATT was established in the year:
a) 1958
b) 1948
c) 1968
d) 1995
Answer. B

Question. Financial sector reforms mainly relate to :
a) Banking sector
b) Foreign Exchange Market
c) Both a and b
d) Insurance sector
Answer. C

Question. Reforms have not been able to benefit agriculture because of
a) Public investment in agriculture sector especially in infrastructure has fallen
b) Rise in subsidy
c) Rise in import duties on agriculture products
d) Shift from production of cash crops to food crops
Answer. A

CASE STUDY BASED QUESTIONS

I. Read the following article and Answer the question given below:

We now look at some trends in the post-reform period. Data from Sri Lanka which started on a programme of economic reform in 1977 indicates that an increasing awareness on health issues is coupled with the growing incidence of diseases associated with stress, particularly those of the cardio-respiratory kind (Gunawardena 1995). A similar pattern is emerging in India with the advent of tropical diseases like falciparum malaria and Japanese B encephalitis, stress-and environment related cardiovascular complaints, respiratory and endemic intestinal problems as well as nervous disorders (Ghosh 1996). It is likely that with continued rural-urban migration, the mushrooming of unhealthy towns and cities and the degradation of the natural environment combined with jobs which increasingly concentrate workers in industries, Export Promotion Zones (EPZ)and sweat shops, the range of diseases and illnesses will increase. Women and their health will be adversely affected as they form the basis of the pool of cheap labour, essential for the growth of EPZs.

Question. Sri Lanka which started on a programme of economic reform in…………. (Choose the correct option)
A. 1978
B. 1977
C. 1990
D. 1992
Answer: B

Question. A similar pattern is emerging in India with the growing incidence of diseases with stress, particularly those of the ………………………… kind. (Choose the correct option) (cardio respiratory/ heart diseases)
Answer: cardio-respiratory

Question. State whether the given statement is true or false
It is likely that with continued rural-urban migration, the mushrooming of unhealthy towns and cities and the degradation of the natural environment combined with jobs which increasingly concentrate workers in industries. (Choose the correct option)
True / False
Answer: True

Question. Read the following statements: Assertion (A) and Reason (R) Assertion (A) Women and their health will be adversely affected
Reason (R): As they form the basis of the pool of cheap labour, essential for the growth of Export Promotion Zones.
A. Both Assertion (A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A).
B. Both Assertion (A) and Reason(R) are true and Reason(R) is not the correct explanation of Assertion (A).
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason(R) are is true.
Answer: A

II. Read the following graph and Answer: the question given below:

Question. What do you observe from the above graph?
A. Contribution of agriculture constantly decreased, service sector increased whereas industrial sector initially increased and later decreased
B. Industrial sector constantly increased, services remain the same and tertiary increased
C. No change in agriculture, industry and service sector increased
D. Agriculture decreased, service remains the same and industrial increased.
Answer: A

Question. What can be the probable reason of decline of agriculture sector?
A. Migration of work force from agriculture to Industrial and service sector
B. Migration of work force from service sector to Industrial and agriculture sector
C. Both (a) and (b)
D. None of these
Answer: A

Question. What was the reason behind the instant development of service sector after 1991?
A. globalization
B. Privatization
C. Liberalization
D. All of the above
Answer: D

Question. what was the share of three sectors in 2013-14?
A. Agriculture 18%, industry 24% and service 52%
B. Agriculture 24%, industry 18% and service 52%
C. Agriculture 52%, industry 24% and service 18%
D. Agriculture 24%, industry 52% and service 18%
Answer: A

III. Read the following passage and Answer the questions given below:

New Economic Policy of India was launched in the year 1991 under the leadership of P. V. Narasimha Rao. This policy opened the door of the India Economy for the global exposure for the first time. In this New Economic Policy P. V. Narasimha Rao government reduced the import duties, opened reserved sector for the private players, devalued the Indian currency to increase the export. This is also known as the LPG Model of growth. New Economic Policy refers to economic liberalization or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes to expand the economic wings of the country. Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. Manmohan Singh introduced the NEP on July 24,1991.
Main Objectives of New Economic Policy – 1991, July 24 The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the union Finance Minister Dr. Manmohan Singh are stated as follows:
The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to give it a new thrust on market orientation.
The NEP intended to bring down the rate of inflation

Question. New Economic Policy of India was launched in the year 1991 under the leadership of ……………… (choose the correct alternative))
A. P. V. Narasimha Rao
B. Atal Bihari Bajpayi
C. Sharad Pawar
D. None of these
Answer: A

Question. ……………………………. is also known as the LPG Model of growth. ((choose the correct alternative)) (New Economic Policy / New Education Policy)
Answer: New Economic Policy

3. State whether the given statement is true or false:
Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. ((choose the correct alternative))
True / False
Answer: True

Question. Read the following statements
Assertion (A). New Economic Policy is to expand the economic wings of the country.
Reason (R): Due to economic liberalization or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes
A. Both Assertion (A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A).
B. Both Assertion (A) and Reason(R) are true and Reason(R) is not the correct explanation of Assertion (A).
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason(R) are is true.
Answer: A

IV. Read the following passage and answer the questions given below:

The growth rate of agriculture production which was only3% in 1990-91, rose to 9.3% in 1996-97, during the eight plan the agriculture production increased by 7.5%. No doubt there has been ups and downs. The reforms have not been able to benefit agriculture, where growth rate has been decelerating. Despite mounting stock of food grains there are more than 250 million people below poverty line. There has been appreciable rise in the price of food grains due to curtailing food grain subsidy and increasing the prices at which food grains were supplied to ration shops. Purchasing power. There are poor transportation facilities. Investment in agriculture research and irrigation has been reduced. Shift to the production of cash crops for export has further worsened the position.

Question. What was the growth rate of as agriculture production in 1990-91?
A. 1%
B. 2%
C. 3%
D. 5%
Answer: C

Question. During the _______plan period the agriculture production increased by 7.5 %. (fill in the blanks)
A. Seventh
B. Eight
C. Ninth
D. Tenth
Answer: B

Question. Which of the following statement is not correct with regard to the given passage?
A. The economic reforms have not been able to benefit agriculture
B. There are more than 250 million people below the poverty line
C. Shift to the production of cash crops for exports further improved the position.
D. None of these
Answer: C

Question. What is the reason for the price rise of food grains in India?
A. Curtailing food grain subsidy
B. Increasing the prices at which food grains were supplied to shops.
C. Both a and b
D. None of the above
Answer: C

V. Read the following hypothetical text and answer the given questions:

The performance of Indian economy during the period of first seven five -year plans (1950-1990) was satisfactory if not very impressive. On the eve of independence, India was an industrially backward country, but during this period of first seven plans our industries became far more diversified, with the stress being laid on the public investments in the industrial sector. The policy of import substitution led to protection of the domestic industries against the foreign producers but we failed to promote a strong export surplus. Although public sector expanded to a large extent but it could not bring desired level of improvement in the secondary sector. Excessive government regulations prevented the natural trajectory of growth of entrepreneurship as there was no competition, no innovation and no modernization on the front of the industrial sector. Many Public Sector Undertakings (PSU’s) incurred huge losses due to operational inefficiencies, red- tapism,
poor technology and other similar reasons. These PSU’s continued to function because it was difficult to close a government undertaking even it is a drain on country’s limited resources. On the Agricultural front, due to the measures taken under the Green Revolution, India more or less became self-sufficient in the production of food grains. So the needs for reform of economic policy was widely felt in the context of changing global economic scenario to achieve desired growth in the country.

Question. Which of the following was not a reason for the public sector to play a major role in the initial phase of Indian Economic Planning?
(a) Private entrepreneurs lacked sufficient capital for investment.
(b) Government aimed at social welfare.
(c) The market was big enough to encourage private industrialists for investment.
(d) The government wanted to protect the indigenous producers from the foreign competition.
Answer: C

Question. The policy of .......................... led to protection of the domestic industries against the foreign producers but we failed topromote a strong export surplus. ( fill up the blank with the correct alternative)
(a) Import substitution
(b) Trade
(c) Exports
(d) None of these
Answer: A

Question. Read the following statements –
Assertion (A) and Reason ( R)
Assertion (A): Many public sector undertakings incurred huge losses due to operational inefficiencies.
Reason (R): Red-tapism was one of the reasons for continuation of such enterprises.Select the correct alternative from the following:
Alternatives:
a. Both Assertion (A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A).
b. Both Assertion (A) and Reason(R) are true and Reason(R) is not the correct explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is True.
d. Assertion (A) is false but Reason(R) are is true.
Answer: C

Question. State whether the given statement is true or false:
Mechanization of the Indian agriculture was one of the cause of Green Revolution in India.
TRUE/FALSE
Answer: TRUE

3/4 MARKS QUESTIONS

Question. Do you think outsourcing is good for India? Why are developing countries opposing it?
Answer: Yes, outsourcing is good for India. The following points justify this:
(i) Employment: It provides employment to a large number of unemployed Indians.
(ii) Exchange of technical know-how: Outsourcing enables the exchange of ideas and technical know-how of sophisticated and advanced technology.
(iii) International worthiness: Outsourcing also enhances India's international worthiness credibility.
(iv) Better standard of living and eradication of poverty: By creating more and higher paying jobs, outsourcing improves the standard and quality of living of the people.
However, developed countries oppose outsourcing to India because of the following reasons.
(i) Outsourcing leads to outflow of funds from the developed countries to India, which reduces the income disparities between two countries.
(ii) Outsourcing reduces the employment generation and creates job insecurity in the developed countries.

Question. What are the major factors responsible for high growth of the service sector during reform period?
Answer: The service sector has shown a high growth rate due the following reasons:
(i) Economic Reforms; Liberalization and various economic reforms initiated in 1991 reduced the various restrictions on the movement of international finance. This led to huge inflow of foreign capital, Foreign Direct Investment and outsourcing to India.
(ii) Better performance of some service sectors: There were rapid growth in select areas of the service sector, such as telecommunication, Information Technology, Finance, Entertainment, travel and hospitality services, real estate and trade.
(iii) Cheap and skilled manpower: Due to the availability of cheap and skilled manpower, India has become favourite desalination for outsourcing by the developed economies.

Question. Why did RBI have to change its role form controller to facilitator of financial sector of India?
Answer: Prior to liberalization, RBI used to regulate and control the financial institutions like commercial banks, investment banks, stock exchange operations and foreign exchange market. After the financial sector reforms, RBI shifted its role from a controller to facilitator of financial sector. This means that greater autonomy granted to the financial sector in taking decisions on various matters without consulting the RBI. The main objective behind this was to encourage private sector participation, increase competition and allowing market forces to operate in the financial sector. Banks were given freedom to setup new branches without the approval of RBI.

Question. What do you understand by GST? How good is a system of GST as compared to the old tax system? State its categories.
Answer: GST is the “single comprehensive indirect tax” on supply of goods and services right from manufacturer or service provider to the consumer. The system of GST as compared to the old tax system.
1.It has simplified the multiplicity of taxes on goods and services.
2. The laws, procedures and rates of taxes across the country are also now standardized.
3. It has also facilitated the freedom of movement of goods and services.
4. It has created a common market in the country. The two categories of GST are CGST and SGST

Question. What are the objectives of WTO?
Answer: Objectives of World Trade Organization(WTO) are:
(a)Reduction of trade barriers to liberalize world trade.
(b) Serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners.
(c) To enlarge production and trade of services.
(d) To ensure optimum utilization of world resources.
(e) To protect the environment.
(f) To provide greater market access to all member countries

6 marks questions

Question. Why were reforms introduced in India?
Answer: The various reasons for introduction of reforms in India are:
(i) Poor performance of Public sector: in the last four decades, the overall performance of public sector was very poor as huge losses were incurred by number of public sector enterprises.
(ii) Deficit in Balance of Payments(BOP): Even after imposing heavy tariffs and fixing quotas, there was a sharp rise in imports. On the other hand, there was slow growth of exports due to low quality and high prices of Indian goods in in the international market. It led to deficit in BOP
(iii) Inflationary pressure: there was a consistent rise in general price level in the economy due to increase in money supply and shortage of essential good.
(iv) Fall in foreign exchange reserves: In 1991.foreign exchange reserves fell to the lowest level. Foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks and to pay interest that needs to be paid international lenders.
(v) Huge burden of Debts: the expenditure of Government was much higher than revenue. As a result, the Government had to borrow money from banks, public and from international financial institutions.
(vi) Inefficient Management: The government was not able to generate sufficient revenue and expenditure began to exceed its revenue by large margin.

Question. Discuss economic reforms in India in the light of social justice and welfare?
Answer: The economic reforms have been criticized in the light of social justice and welfare due to the following reasons:
(i) Growing unemployment: though the GDP growth rate has increased in the reform period, but such growth failed to generate sufficient employment opportunities in the country.
(ii) Removal of subsidy: Removal of fertilizers subsidy increased the cost of production which adversely affected small and larger farmers.
(iii) Rise in prices of food grains: Due to export oriented policy strategies in agriculture, the production shifted from food grains to cash crops for the export market. It led to rise in prices of food grains.
(iv) Cheaper imported goods: due to globalization, there was a greater flow goods and capital from developed countries and as a result, domestic industries were exposed to imported goods.
(v) Spread of consumerism: the new policy has been encouraging a dangerous trend of consumerism by encouraging the production of luxuries and items of superior consumption.
(vi) Unbalanced Growth: Growth has been concentrated only some select areas in the service sector, such as tele communication, information technology, finance entertainment, travel and hospitality services, real estate and trade rather than vital sectors such as agriculture and industry.

Question. What measures have been taken to give more priority to private sector in the development process of Indian economy?
Answer: The private sector was encouraged to participate in operation and ownership of production units by way of:
(i) Reduction in number of reserved public sector units
(ii) Disinvestment in public sector undertaking(PSU) by selling the shares of PSU’s into private hands.
(iii) Increase in the share of private sector in total investment.
(iv) Corporatization of public department with some operational and managerial autonomy.
(v) Licensing policy, which was distinctive for the private sector to start anew unit or to expand existing unit, was abolished for all industries except four.
(vi) Tax reforms, free flow of capital and technology from foreign countries also made production process profitable for the private sector.

Question. India is often called as ‘Outsourcing Destination’ of the world. Discuss the prime reason for this name given to India
Answer: India has become a favourable destination of outsourcing most of the MNC’s because of the following reason:
(i) Easy availability of cheap labour: the wage rate in India is comparatively lower than that in the developed countries. As a result, outsource their business in India.
(ii) Availability of skilled manpower: India has vast skilled manpower, which enhances the faith of MNC’s
(iii) Favourable Government Policies: NC’s get various types of lucrative offers from Indian Government like tax holidays, low tax rate etc.

Question. “Agriculture sector appears to be adversely affected by the economic reform process. “Explain the given statement.
Answer:
Agriculture was adversely affected by the reform processes in the following manner:
(i) Reduction of public Investment: Public Investment in agriculture sector, especially in infrastructure, which includes irrigation power road, market linkage and research and extension has been reduced in the reform period.
(ii) Removal of subsidy: Removal of fertilizer subsidy increased the cost of production, which adversely affected the small and marginal farmers.
(iii) Reduction in import duties: After the commencement of WTO a number of policy changes were made, reduction in import duties on agriculture products, removal of minimum support price, lifting of quantitative restriction on agriculture products etc. Affected Indian farmers as they have to face increased international competition.

Question. Distinguish between (a) Tariff and Non- Tariff barriers (b) Bilateral and Multilateral trade.
Answer:
(a) The barriers which are imposed on imports of goods and services to make them relatively costlier and to protect the domestic producers from the international competition are known as tariff barriers. e.g. Import duties.
Non- Tariff barriers are those barriers which are imposed on quantity of import and export of goods and services. E.g.; quota and import licensing.
(b) The trade between two countries is known as bilateral trade, whereas the multi-lateral trade is the trade between more than two countries.

Question. ” The opening up of the Indian economy has led to a rapid increase in Foreign Direct Investment(FDI) and Foreign Exchange Reserves of the country “defend or refute the given statement.
Answer: The statement is true, the foreign investment, both FDI and Foreign Institutional Investment(FII), have increased from about US $100 million in 1990-91 to US $ 30 billion in 2017-18. This has changed the status of India from a “begging bowl” in 1990’s to a “self-dependent” economy at present. Similarly, India has become one of the largest foreign exchange reserve holders in the world. It has increased form US $ 6 billion in 1990-91 to about US $ 443 billion in 2017-18.
Support Material for Economics, class XII (2022-23), KVS Ernakulum Region 188

Question. ” Recently the Government of India has decided to merge MTNL and BSNL on account of rising losses”. justify the steps taken by the Government of India.
Answer: the decision taken by the Government of India to merge MTNL and BSNL is quite appropriate. The Government has merged the two loss incurring businesses, with a motive to:
(i) Achieve higher economical and functional efficiency.
(ii) Minimize possible losses.

Q1- What kind of economic frame work was followed by India after independence ?
Q2 - Describe India’s economic crisis of 1991?
Q3 - “The origin of the financial crisis of 1991 can be traced to the inefficient management of Indian economy in the 1980’s”. Discuss.
Q4- Explain the 2 sets of measures adopted under NEP in India in 1991.
(HINT: stabilization and structural reforms)?

Q5- What is liberalization? Give an account of the liberalization measures introduced in 1991 in
(A)Industrial sector
(B) Financial sector
(C) Taxation
(D)FE markets
(E) Trade and investment

OR

(A) Describe regulatory mechanism of industrial sector before 1991 and reforms introduced after 1991
(B) Discuss the impact of financial sector reforms on the role of RBI after 1991 .
(C) List 3 kinds of changes adopted in tax reforms.
(D) Why was the rupee devalued in 1991?
(E) What type of foreign trade policies were followed before and after 1991?