Plus One Economics-Chapter 3 Questions and Answers

Chapter 3

Liberalization, Privatization and Globalization: An Appraisal.

1. The industrial sector has performed poorly during reform period ‘ . Justify.
Answer:

The industrial sector has performed poorly in the re form period due to the following reasons:

• Shortage of electricity and raw materials affect the quality of goods produced .
• NEP has seriously affected the local industrial production
2. At present how many industries are reserved for pub sector India ? Which are they ?
Answer:

industries . They are :

• i ) Atomic energy
• ii ) Minerals enlisted under schedule of atomic energy
3. If the companies in developed countries stop outsourcing to India , it will be a heavy loss to the Indian youth. Explain.
Answer:

Out sourcing is one of the important outcomes of the globalisation process . Large number of Indian youth are employed in IT and other sectors due to this outsourcing . Low wage rate and availability of skilled manpower in India bring the benefits of outsourcing .

4. India has certain advantages which make it a favourite outsourcing destination . What are these advantages ?
Answer:

India is a favourable destination for outsourcing . This is because India has advantages in :

• i ) Large supply of cheap labour .
• ii ) The skilled manpower .
• iii ) The development of telecommunication .
• iv ) The English speaking population .
5. Briefly assess the impact of New Economic Policy on Indian Economy.
Answer:

INDIAN ECONOMY DURING REFORMS : AN ASSESSMENT

The economic reforms had merits and demerits . They are given below .

Merits

• i ) The GDP growth rate increased .
• ii ) The foreign exchange reserve increased .
• iii ) Foreign Direct Investment increased .
• iv ) Exports increased .

Demerits

• i ) No sufficient employment opportunities .
• ii ) Public investment in agriculture has been falling .
• iii ) PSU disinvestment did not come up to target .
6. The plot of Malayalam film ‘ Midhunam ‘ revolves around the struggles of the hero to get necessary licenses as required to commerce a biscuit company . This was the general condition of all businessmen in India before 1991. Critically evaluate the policies of Government of India on indutsrial development during 1950-1990.
Answer:
• i) Difficulty to get licence
• ii) Followed commanding heights principle
• iii) Public sector domination , private sector was not allowed in many industries
• iv) Existence of licence Raj .
7. If the hero of the film ‘ Midunam ‘ starts the company after 1991 , he does not face the problems like ‘ Permit Licence Raj ‘ . Explain this with the help of the liberalization measures introduced in India since 1991.
Answer:

Permit Raj was the elaborate system of licences , regulations and accompanying red tape that were required to set up and run business in India between 1947 and 1990. The licence Raj is considered to have been significantly reduced industrial growth . This sys tem gradually eased after 1991 with the opening up of economy and privalisation .

8. Write a note on the Industrial Policy Resolution ( IPR ) 1956.
Answer:

As Industrial Policy Resolution 1956 ( IPR 1956 ) : In accordance with the goal of the state controlling the commanding heights of the economy , the Industrial Policy Resolution of 1956 was adopted . The features of the IPR is given below .

• i ) The industry was categorised into three :
• a ) Owned by state
• b ) Owned by state but if underprovided , the private sector can supplement .
• c ) Rest of the industries where private sector could operate .
• ii ) The licensing system was introduced .
• iii ) Promoting regional balance .
• iv ) Small scale industry was encouraged .
9. Liberalisation involves liberating the economy from controls . Discuss the process of liberalisation introduced in India since 1991.
Answer:

Liberalisation means liberating the economy from re strictions on growth . It became necessary because the earlier policy of government intervention became excessive interference . Various economic reform measures of liberalisation are given below .

• i) Financial sector reforms
• ii) Deregulation of Industrial sector Tax reforms
• iii) Foreign exchange reforms
• iv) Trade and investment policy reforms
10. Give two ways of converting government companies into private companies.
Answer:
• i ) Disinvestment :- Sale of public sector companies .
• ii ) Withdrawal of the government from ownership and management of public sector companies .
11. Classify the following as direct tax and indirect tax .

    Sales tax , Property tax , VAT , Customs duty , Income tax , Corporate tax

Answer:

Table 3.1
Direct Tax	Indirect Tax
Customs duty	Sales tax
Income tax	Property tax
Corporate tax	VAT

12. Mention the monetory reforms under new economic policy ?
Answer:
• i ) Re – constitution of banking systemThe origin of financial crisis in 1991 can be traced from the inefficient management of the Indian economy in the 1980s . Discuss .
• ii ) Free determination of interest rate
• iii ) Reduction of liquidity ratio
• iv ) Improvement in banking system
• v ) More freedom to banks
• vi ) Abolition of direct credit program
13. The Government of India recently decided to sell the shares of Hindustan Copper Ltd. ( HCL ) , a Public Sector Undertaking . Do you think of it as a form of privatization ? Name its other forms.
Answer:

Yes , it is a kind of privatization. The other forms of privatization are :

• a ) Asset sale privatization – selling an entire organization ( or part of it ) to a strategic investor , usually by auction .
• b ) Voucher privatization distributing shares of ownership to all citizens , usually for free or at a very low price .
14. Identify the various favourable conditions prevailing in India which make outsourcing possible.
Answer:

Outsourcing 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 , security – each provided by respective departments of the com pany ) . As a form of economic activity , outsourcing has intensified , in recent times , because of the growth of fast modes of communication , particularly the growth of Information Technology ( IT ) . Most multina tional 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 . The low wage rates and avail ability of skilled manpower in India have made it a destination for global outsourcing in the post – reform period . Thus I think in this reform period outsourcing is good for India .

15. ” Globalization is a strategy of developed countries to expand their markets in other countries . ” Do yo agree with this statement ? Justify.
Answer:

No , I do not agree with this statement .

Globalization is the process of extending social re lations across world – space . Globalization describes the interplay across cultures of maco – social forces . These forces include religion , politics , and economics . Globalization can erode and universalize the characteristics of a local group . Advances in transportation and telecommunications infrastructure , including the rise of the Internet , are major factors in globalization , generating further in terdependence of economic and cultural activities .

16. Match Column A with Column B and C.

    Table 3.2
    A	B	C
    Privatisation	Tariff	Iron and Steel Industry
    Secondary Sector	Dis-investment	Denationalisation
    Globalisation	Electricity	Reduction of Subsidies

Answer:

Table 3.3
A	B	C
Privatisation	Dis-investment	Denationalisation
Secondary Sector	Electricity	Iron and Steel Industry
Globalisation	Tariff reduction	Reduction of Subsidies

17. ” India is emerging as a major outsourcing destination ” . What are the advantages of India in business process outsourcing ?
Answer:

Outsourcing is one of the important outcomes of the globalisation process . In outsourcing , a company hires regular service from external sources . In a de veloping country like India , skilled labourers can be availed at cheaper cost . Hence the foreign multina tional companies utilise India , a favourite destination for global outsourcing . At the same time , it is a cause for loss of employment in developed countries . The advantages of India in outsourcing are :

• i) India had a better technological advantage
• ii) India passes better infrastructure
• iii) Cost of production in India is very low
• iv) Time zone in India is suitable for the industrialists countries .
18. a) Name the outcome of the two policy strategies of liberalization and privatization.

    b) Do you think that Indian agriculture sector was adversely affected by the reform process ? Justify.

Answer:

a ) Globalization

b ) I agree with this statement because of the following reasons .

• i) Fall in public investment in agriculture
• ii) Withdrawal of fertilizer subsidy has increased the cost of production .
• iii) The reduction of import duty forced the farmers to face international competition .
• iv) The removal of minimum support price has af fected the position of Indian farmers .
• v) Export oriented policy induced the farmers to the production of cash crops .
19. While explaining the features of globalization , your Economics teacher says ” outsourcing is one of the important out comes of the globalization process ” . Examine how outsourcing helps Indian economy ?
Answer:

Outsourcing 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 , security – each provided by respective departments of the com pany ) . As a form of economic activity , outsourcing has intensified , in recent times , because of the growth of fast modes of communication , particularly the growth of Information Technology ( IT ) . 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 . The low wage rates and avail ability of skilled manpower in India have made it a destination for global outsourcing in the post – reform period . Thus I think in this reform period outsourcing is good for India .

20. Do you think that ” navaratna policy ” of the government helps in improving the performance of Public Sector undertakings in India ? Substantiate.
Answer:

In 1996 , in order to improve efficiency , infuse professionalism and enable them to compete more effectively in the liberalized global environment , the government chose nine PSUs and declared them as navaratnas . They were given greater managerial and operational autonomy , in taking various decisions to run the company efficiently and thus increase their profits . Greater operational , financial and managerial autonomy had also been granted to 97 other profit making enterprises referred to as mini ratnas . The granting of navaratna status resulted in better performance of these companies . Gradually the government has decided to help these Navaratnas in becoming independent so that they can expand themselves in the global markets and raise resources by themselves from financial markets.

21. ‘ NEP has impact on poverty ‘ . Do you agree ? Substantiate.
Answer:

The NEP cannot solve the problem of poverty . It seems that it will in crease the problem of poverty . The reason is that there will be reduction of public expenditure on projects benefiting the poor . It will also reduce subsidy on food and agricultural product . At the same time the government will raise the prices of essential prod ucts used by the poor . All these will lead to increase in poverty.

22. The origin of financial crisis in 1991 can be traced from the inefficient management of the Indian economy in the 1980s . Discuss.
Answer:

The background of Financial crisis : The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s . The continued spending on development programs of the government did not generate additional revenue . Moreover , the government was not able to generate sufficient revenue from internal sources such as taxation . The income from public secor undertakings was also not very high . The for eign exchange , borrowed from other countries was also spent on conception needs . No attempts were made to reduce such spendings or to boost exports . Finally India reached a stage where it had not adequate finance for even two weeks . India approached the World Bank and the International Monetary Fund ( IMF ) to avail a loan . The condition laid by them against the loan was that India was expected to liberalise and remove restrictions on the private sector , remove trade restrictions and reduce the controle of the government . India agreed to the conditions and announced the New Economic Policy ( NEP ) . The strategy was termed as liberalisaiton , privatisation and globalisation.

23. ” Outsourcing is one of the most important outcomes of the globalization process . ” Discuss the importance of outsourcing and its impact on employment in India.
Answer:

Outsourcing 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 , security each provided by respective departments of the company ) . As a form of economic activity , outsourcing has intensified , in recent times , because of the growth of fast modes of communication , particularly the growth of Information Technology ( IT ) . 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 . The low wage rates and availability of skilled manpower in India have made it a destination for global outsourcing in the post – reform period . Thus I think in this reform period outsourcing is good for India .

24. In a mixed economy like India , public sector under takings play an important role in the economic devel opment of the country . Prepare a debate report on the role of public sector undertakings in the economic development of India in the present context .
Answer:

Debate Report on Role of Public Sector undertak ings in the Indian economic development .

Table 3.1
Favouring points	Opposing arguments
Welfare oriented	Inefficiency
Absence of wealth concentration	Mismanagement
Job Security	Corruption
Social security	Less innovative and competitive

25. It is 20 years since the New Economic Policy was introduced in India . Prepare a debate report on its impact on Indian economy .

    or

    Prepare a seminar report on the compelling eco nomic situations that led to the implementation of the New Economic Policy in India .

Answer:

” Background of New Economic policy 1991 “

The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s . We know that for implementing various policies and its general administration , the goverment generates funds from various sources such as taxation , running of public sector enterprises etc. When expenditure is more than income , the government borrows to finance the deficit from banks and also from people within the country and from international financial institutions . When we import goods like petroleum , we pay in dollars which we earn from our exports . Development policies required that even though the revenues were very low , the government had to overshoot its revenue to meet problems like unemployment , poverty and population explosion . The continued spending on development programmes of the government did not generate additional revenue . Moreover , the government was not able to generate sufficiently from internal sources such as taxation . When the government was spending a large share of its income on areaswhich do not provide immediate returns such as the social sector and defence , there was a need to utilise 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 .

At times , our foreign exchange , borrowed from other countries and international financial institutions , was spent on meeting consumption needs . Neither was an attempt made to reduce such profligate spending nor sufficient attention was given to boost exports to pay for the growing imports . India approached the International Bank for Reconstruction and Development ( IBRD ) , popularly known as World Bank and the International Monetary Fund ( IMF ) , and received $ 7 billion as loan to manage the crisis , For availing the loan , these intemational agencies expected India to liberalize and open up the economy by removing restrictions on the private sector , reduce the role of the government in many areas and remove trade restrictions . India agreed to the conditionality of World Bank and IMF and announced the New Economic Policy ( NEP ) .

The NEP consisted of wide ranging economic reforms . The thrust of the policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms . This set of policies can broadly be classified into two groups : the stabilization measures and the structural reform measures .

Stabilization measures are short term measures , intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control . In simple words , this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control . On the other hand , structural reform policies are long – term measures , aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy . The govemment initiated a variety of policies which fall under three heads viz . , liberalization , privatization andglobalization . The first two are policy strategies and the last one is the outcome of these strategies .

26. Prepare a seminar report on the topic ” New Economic Policy – 1991 “.
Answer:

” New Economic Policy – 1991 “

Introduction:

The plus one Humanities batch of ( Name of school ) conducted a seminar on the topic ” New Economic Policy – 1991 ” on 16/01/2023 at 11.0 a.m with the ample guidance of our economics teacher . Our class was divided into three groups to cover the entire area of the topic . Each group presented one objective each they focused on the area given to them and the group leader presented the seminar paper after required preparation .

Content:

LIBERALISATION :
Liberalization was introduced to put an end to these restrictions and open up various sectors of the economy . Though a few liberalization measures were introduced in 1980s in areas of industrial licensing , export – import policy , technology up gradation , fiscal policy and foreign investment . Reform policies initiated in 1991 were more comprehensive . Let us study some important areas such as the industrial sector , financial sector , tax reforms , foreign exchange markets and trade and investment sectors which received greater attention in and after 1991. The features of liberalization are :
• i) Deregulation of Industrial Sector
• i) Financial Sector Reforms
• iii) Tax Reforms
• iv) Foreign Exchange Reforms
• v) Trade and Investment Policy Reforms
PRIVATISATION :
It implies shedding of the ownership or management of a government owned enterprise . Government companies can be converted into private companies in two ways:

( i ) by withdrawal of the govemment from ownership and management of public sector companies and or

( ii ) by outright sale of public sector companies .

Privatization of the public sector undertakings by selling off part of the equity of PSUs to the public is known as disinvestment . The purpose of the sale , according to the government , was mainly to improve financial discipline and facilitate modernization . It was also envisaged that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUS .

GLOBALISATION :

Globalization is the outcome of the policies of liberalization and privatization . Although globalization is generally understood to mean integration of the economy of the country with the world economy , it is a complex phenomenon . It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration . It involves creation of networks and activities transcending economic , social and geographical boundaries . Globalization attempts to establish links in such a way that the happenings in India can be influenced by events happening miles away . It is turning the world into one whole or creating a borderless world .

Conclusion :

All the three groups presented their topics with necessary facts and figures . After the presentation there was the question answer session . The active participation of everyone made this session live and interesting . On the whole the seminar was a big success .
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