case study on lpg class 12

Important Questions and Answers on Liberalization, Privatization, and Globalization for Class 12 Economics Board Exams

If you're a Class 12 Economics student preparing for your board exams, it's important to understand the concepts of liberalization, privatization, and globalization (LPG) given in the Indian Economic Development book Chapter 3. Here are some important questions and answers to help you prepare for your exams and gain a deeper understanding of these economic concepts.

"The only thing that stands between you and your dream is the will to try and the belief that it is actually possible." - Joel Brown

Indian Economic Development Chapter 3 Liberalization, Privatization, and Globalization Important Questions & Answers

Q. No. 1) Multiple Choice Questions (MCQ)

i. Which of the following can help reduce the fiscal deficit?

a . increasing subsidies

b. increasing the PSU profits

c. investing in improving public goods

d. decreasing the burden and incidence of tax

Ans. Option (b)

ii. …………….was the Indian Finance Minister in 1991, acknowledged for his capabilities to steer away the economic crisis looming large on the erstwhile Indian Economy.

(Choose the correct alternative)

a. Dr. Subramanian Swamy

b. Pranab Mukherjee

c. Dr. Manmohan Singh

d. Dr. Urjit Patel

Ans. Option (c)

iii. Which of the following statements correctly represents actions taken by the government towards liberalization?

• P: levying high tariffs to discourage import and promote the consumption of domestic goods and services
• Q: devaluation of the rupees to encourage the inflow of foreign exchange
• R: allowing for private banks to make decisions independent of the RBI restrictions
• S: fixing prices of certain industrial goods in order to support increased consumption of these goods to boost the manufacturing industry

a . P and Q only

b. P and R only

c. Q and R only

d. Q and S only

iv. Which of the following policies was adopted to increase the competitive position of Indian goods in the international markets?

a . export duties were removed

b. import licensing was abolished

c. the rate of corporation tax was reduced

d. Foreign Institutional Investors (FII) were allowed to invest in India

Ans. Option (a)

v. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below.

• Assertion (A): In 1991, as an immediate measure to resolve the Balance of Payments crisis, the rupee was devalued against foreign currencies.
• Reason (R): Devaluation of currency was eminent, exchange reserves.

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, but Reason (R) is the explanation of Assertion (A).

c. Assertion (A) is true, but Reason (R) is false.

d. Assertion (A) is false, but Reason (R) is true.

vi. There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose the correct option.

• Assertion (A): The Devaluation of the Indian rupee in 1991 resulted in the inflow of foreign exchange.
• Reason (R): The Devaluation of the Indian rupee was a step to get taken to get more foreign investments.

a. A is true but R is false.

b. A is false but R is true.

c. Both A and R are true and R explains A.

d. Both A and R are true but R does not explain A.

vii. Which of the following falls under the role of the World Trade Organisation?

a. setting the limit for domestic and foreign investments in a country

b . mandating the level of tax levied on foreign firms in developing countries

c . aiding the development of poor countries by providing infrastructural investment

d . providing a platform for member countries to decide future tariff-related strategies

Ans. Option (d)

viii. There are two statements given below, marked as Statement (1) and Statement (2). Read the statements and choose the correct option.

• Statement (1): Air India, a fully owned Public Sector Undertaking (PSU) was disinvested and sold to a private entity.
• Statement (2): Public Sector Undertakings (PSU) are sold to create more direct and/or indirect employment opportunities in the country.

a. Statement 1 is true and Statement 2 is false.

b . Statement 1 is false and Statement 2 is true.

c . Both statements 1 and 2 are true

d . Both statements 1 and 2 are false

ix. Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

• Assertion (A): Every year government fixes a target for disinvestment of Public Sector Enterprises (PSEs).
• Reason (R): Disinvestment is an excellent tool for discarding the loss incurring Public Sector Enterprises (PSEs).

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) is true.

x. There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose the correct option.

• Assertion (A): According to the Government of India, the disinvestment of Public Sector Enterprises has brought accountability and professionalism to them.
• Reason (R): The Government of India used disinvestment mainly to improve financial discipline and facilitate modernization .

b . A is false but R is true.

c . Both A and R are true and R explains A.

d . Both A and R are true but R does not explain A.

Q. No. 2) India’s post-1990 economic strategy entailed three important breaks with the past:

• To dismantle the vast network of controls and permits that dominated the economic system.
• To redefine the role of the state as a facilitator of economic transactions and as a neutral regulator rather than the primary provider of goods and services.
• To move away from a regime of import substitution and to integrate fully with the global trading system.

The 1991 reforms unleashed the energies of Indian entrepreneurs and gave untold choices to the consumers and changed the face of the Indian economy. The reform agenda constituted a paradigm shift and has defined the broad contours of economic policymaking for three decades.

Liberalization was adopted as the guiding principle of governance and all governments since 1991, have broadly stuck to that path.

Today we don’t need a paradigm shift. We need to look at individual sectors and see which one of these needs, reforms to create a competitive environment and improve efficiency. The power sector, the financial system, governance structures, and even agricultural marketing need reforms.

Today’s reforms also require much more discussion and consensus-building. The central government needs to work in tandem with state governments and consult different stakeholders impacted by reform decisions. Timing and sequencing are critically important in the new reforms’ agenda.

Source: Excerpts from ‘Like 1991, the 2021 crisis presents an opportunity, by C.Rangarajan , 22nd January 2021 (livemint.com)

i. According to the given text, ________ was adopted as the guiding principle of governance and all governments since 1991.

a. Modernization

b. Liberalisation

c. Privatization

d. Globalization

ii. Read the following statements carefully and choose the correct alternatives given below:

• Statement 1 – 1991 was a landmark moment in India’s post-independence history as that changed the nature of the economy in fundamental ways.
• Statement 2 –India’s economic establishment launched a multipronged reforms agenda to repair India’s macroeconomic balance sheet and ignite growth.

a. Both statements are true.

b. Both statements are false.

c. Statement 1 is true and Statement 2 is false

d. Statement 2 is true and Statement 1 is false

iii. Read the following statements - Assertion (A) and Reason (R):

• Assertion (A) – India’s pre-1990 economic strategy dismantles the vast network of controls and permits that dominated the economic system.
• Reason(R) – The 1991 reforms unleashed the energies of Indian entrepreneurs, gave untold choices to consumers, and changed the face of the Indian economy.

From the given alternatives choose the correct one:

b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

iv. In the light of the given text and common knowledge, identify the incorrect statement: -

a. A severe balance of payments problem triggered an acute economic crisis in 1991.

b. In 1991, the economic and political leadership launched a multipronged reform agenda to repair the macroeconomic situation of the nation.

c. In the post-1991 situation, the state was

d. given the role of primary regulator of the economy.

e. Post-pandemic, individual sectors should be looked at closely. Sectors that need reforms should be identified and corrective action should be taken.

v. Read the following statements carefully and choose the correct alternatives given below:

• Statement 1 – Timing and sequencing are critically important in the post-economic reform agenda.
• Statement 2 –Post pandemic reforms in India require a paradigm shift.

vi. Read the following statements - Assertion (A) and Reason (R):

• Assertion (A) – The 1991 reforms released the vitalities of Indian businesspersons.
• Reason(R) – The reform agenda established a paradigm shift and defined the broad outlines of economic policymaking for years to come.

Q. No. 3) Why were reforms introduced in India?

• A steep fall in foreign exchange reserves : Foreign exchange reserves, which we generally maintain to import petroleum and other important items, dropped to levels that were not sufficient for even a fortnight.
• An unfavorable Balance of Payments (BOP) : Imports grew at a very high rate without matching the growth of exports.
• A huge burden of external debt : The government was not able to make repayments on its borrowings from abroad. There was also not sufficient foreign exchange to pay the interest that needed to be paid to international lenders.
• High rate of price inflation : Prices of many essential goods rose sharply.
• A huge burden of fiscal deficit in the government budget : 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. The revenue from taxation and public sector undertakings was lower than the expenditure incurred on developmental policies.

Q. No. 4) Discuss briefly any two major steps taken by the Government of India on the “Financial Sector” front under the Economic Reforms of 1991.

Ans. Two steps taken by the government of India in the financial sector under the Economic Reforms of 1991 were:

• Change in the role of the Reserve Bank of India (RBI): The role of RBI was reduced from regulator to facilitator of the financial sector. This means that the financial sector was given greater autonomy (to take decisions) on many matters independent of RBI.
• Origin of Private Banks: The reform process led to the establishment of private sector banks of Indian as well as foreign origin.

Q. No. 5) Why did RBI have to change its role from controller to facilitator of the financial sector in India?

• Economic liberalization:  In 1991, India began a process of economic liberalization that led to a greater role for the private sector in the economy. This meant that the RBI could no longer control the financial sector in the same way that it had in the past.
• Globalization:  India's integration into the global economy also meant that the RBI had to change its role. The RBI could no longer insulate the Indian financial sector from the global financial system.
• Financial sector reforms:  The RBI undertook a number of financial sector reforms in the 1990s and 2000s. These reforms led to a more competitive and efficient financial sector. This meant that the RBI needed to change its role from controller to facilitator in order to promote competition and efficiency.

Q. No. 6) Name any two taxes which were subsumed in Goods and Services Tax (GST).

Ans. Value-added tax, service tax, excise duty, sales tax.

Q. No. 7) Those public sector undertakings which are making profits should be privatized. Do you agree with this view? Why?

Ans. Arguments in favor of privatization:

• Increased efficiency:  Private companies are often more efficient than government-owned companies. This is because they are driven by the profit motive and are not subject to the same bureaucratic constraints as government-owned companies.
• Improved service delivery:  Private companies are often able to deliver better services than government-owned companies. This is because they are more responsive to customer needs and are not subject to the same political interference as government-owned companies.
• Increased competition:  Privatization can lead to increased competition in the market. This can benefit consumers by driving down prices and improving the quality of goods and services.
• Revenue generation:  The government can generate revenue from the sale of PSUs. This revenue can be used to fund other government programs or to reduce the national debt.

Arguments against privatization:

• Loss of jobs:  Privatization can lead to job losses, as private companies are often more efficient and may not need as many employees as government-owned companies.
• Reduced social welfare:  Public sector undertakings often provide social welfare benefits to their employees, such as subsidized housing, healthcare, and education. Privatization can lead to a reduction in these benefits, as private companies are not legally obligated to provide them.
• Increased inequality:  Privatization can lead to increased inequality, as private companies are often owned by a small number of wealthy individuals. This can lead to a concentration of wealth and power in the hands of a few people.
• Loss of control:  Privatization can lead to a loss of control over strategic industries, as they are transferred to private ownership. This can make it more difficult for the government to regulate these industries and to ensure that they are operating in the best interests of the public.

Q. No. 8) Define the following terms:

• a. Disinvestment
• b. Outsourcing

Ans. a. Disinvestment : Privatisation of the public sector enterprises (PSEs) by selling off a part/whole of the equity to the general public or any private sector player is known as disinvestment.

b. Outsourcing: Hiring of regular service from external sources, mostly from foreign countries, which was previously provided internally or from within the country is known as outsourcing.

Q. No. 9) Name any one Maharatana company.

Ans. Indian Oil Corporation Limited.

Q. No. 10) “In the post-reform period, the Government of India decided to retain profit-making Public Sector Undertakings (PSUs). It provided a special status to PSUs to enable them to expand in the global market.” Do you agree with the given statement? Give valid reasons in support of your answer.

Ans. Yes. In order to improve efficiency, infuse professionalism and enable Public Sector Undertakings (PSUs) to compete more effectively in the liberalized global environment, the government identified profit-making PSUs. The government declared them as Maharatnas, Navratnas, and Miniratnas. PSUs were given greater managerial and operational autonomy, in taking various decisions. As a result, over the years these Maharatnas, Navratnas, and Miniratnas have performed exceedingly well and established themselves as market leaders.

Q. No. 11) Amazon has been outsourcing to various customer support companies in India to accommodate more local and international buyers and sellers. In light of the above statement, how has the process of globalization impacted the Indian economy?

• generates more employment and job opportunities
• increases the overall GDP of the country
• leads to the formalization of the employment sector
• limits the availability of social security measures for the workers.

Q. No. 12) India has certain advantages which make it a favorite outsourcing destination. What are these advantages?

Ans. The low wage rates and availability of skilled manpower in India have made it a destination for global outsourcing in the post-reform period.

Q. No. 13) Why is it necessary to become a member of the WTO?

• Increased market access:  WTO membership gives countries access to the markets of other WTO members. This can lead to increased exports and economic growth. For example, India's exports to other WTO members have increased by more than 500% since it joined the WTO in 1995.
• Reduced trade barriers:  WTO members agree to reduce tariffs and other trade barriers. This makes it easier for businesses to trade goods and services across borders. For example, India has reduced its tariffs on imports by an average of 50% since it joined the WTO.
• Increased investment:  WTO membership can attract foreign investment. This can help to finance economic growth and create jobs. For example, India has received more than $1 trillion in foreign investment since it joined the WTO.
• Improved access to technology:  WTO membership can give countries access to new technologies. This can help to improve productivity and competitiveness. For example, India has benefited from access to new technologies in the areas of agriculture, manufacturing, and information technology.
• Strengthened rules-based trading system:  WTO membership helps to strengthen the rules-based trading system. This can help to prevent trade disputes and ensure that trade is fair and open. For example, India has used the WTO to resolve trade disputes with other countries.

Q. No. 14) ‘The opening up of the Indian Economy has led to a rapid increase in Foreign Direct Investments and Foreign Exchange Reserves of the country’. Defend or refute the given statement.

Ans. The given statement is true to its character. Foreign investments, both Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII), have increased from about US $100 million in 1990-91 to US $ 74 billion recently. This has changed the status of India from a ‘begging bowl’ in the 1990s to a ‘self-dependent’ economy in the present age.

Due to the opening up of the Indian Economy, she has become one of the largest foreign exchange reserve holders in the world. India has been able to register an increase in its foreign exchange reserves from about US $ 6 billion in 1990-91 to about US $ 321 billion in 2014-15.

Q. No. 15) “Agriculture sector appears to be adversely affected by the economic reform process.” Explain the given statement.

Ans. The agricultural sector was adversely affected by the reform process in the following manner:

• Public investment in the agriculture sector especially in infrastructure like irrigation, power, etc. has been reduced in the reform period
• The reduction of fertilizer subsidies has increased the cost of production affecting thereby the small and marginal farmers
• Increased international competitiveness due to liberalization and reduction of import duties.
• Shift from food crops to cash crops due to export-oriented policy in agriculture led to a rise in prices of food grains.

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CBSE Class 12 Economics Important Case Study Based Questions for 2023 Board Exams

Cbse class 12 economics important case study based questions: class 12th economics exam is just a few hours away. get important case study questions to practice before cbse class 12 economics board examinations scheduled to be conducted on march 17, 2023. .

Important Case Study Based Questions for CBSE Class 12 Economics Board Exam 2023

Read the following case study paragraph carefully and answer the questions on the basis of the same..

Q1 The central bank of India i.e. Reserve Bank of India, is the apex institution that control the entire financial market. It's one of the major functions is to maintain the reserve of foreign

exchange. Also, it intervenes in the foreign exchange market to stabilise the excessive fluctuations in the foreign exchange rate.

In other words, it is the central bank's job to control a country's economy through monetary policy; if the economy is moving slowly or going backward, there are steps that central bank can take to boost the economy. These steps, whether they are asset purchases or printing more money, all Involve injecting more cash into the economy. The simple supply and demand economic projection occur and currency will devalue.

When the opposite occurs, and the economy is growing, the central bank will use various methods to keep that growth steady and in-line with other economic factors such as wages and prices.

Whatever the central bank does or in fact don't do, will affect the currency of that country.

Sometimes, it is within the central bank's interest to purposefully effect the value of a currency.

For example, if the economy is heavily reliant on exports and their currency value becomes too high, importers of that country's commodities will seek cheaper supply; hence directly effecting the economy.

1 Which of the following tools are used by the central bank to control the flow of money in domestic economy?

(a) Fiscal tools (b) Quantitative monetary tools

(c) Qualitative monetary tools (d) Both (b) and (c)

• a) Tighten the money supply in the economy
• b) Ease the money supply in the economy
• c) Allow commercial banks to work under less strict environment
• d) Both (b) and (c)

3 Which of the following steps should be taken by the central bank if there is an excessive rise in the foreign exchange rate?

(a) Supply foreign exchange from its stock

(b) Demand more of other foreign exchange

(c) Not intervene in the market as the exchange rate is determined by the market forces

(d) Help central government to stabilize the foreign exchange rate.

Answer: 

1(d) Both (b) and (c)

2(a) Tighten the money supply in the economy

3(a) Supply foreign exchange from its stock

Q2 Changes in aggregate demand bring about changes in the level of output, employment, income, and price. These changes are generally cyclical in nature. These changes, more generally, follow a cycle of four different stages namely boom, recession, depression and recovery. The cyclical nature of economic activity is known as trade cycle or business cycle. Boom is a stage of economic activity characterized by rising prices, rising employment, rising purchasing power.

• During the time of ‘excess demand’, Govt. should .................. the public expenditure.
• a) Reduce b) increase c) unchanged d) none of these.
• Investment depends on: a) Supply b) income c) saving d) Both (a) and (c)

Answer: Income.

Q3 In the modern world, govt. aims at maximizing the welfare of the people and the country. It

requires various infrastructure and economic welfare activities. These activities require huge govt. spending through appropriate planning and policy. Budget provides a solution to all these concerns. Budget is prepared by the government at all levels.

Estimated expenditure and receipts are planned as per the objectives of the government. In India, budget is prepared by the parliament on such a day as the president may direct. The parliament approves the budget before it can be implemented. The receipts and expenditures as shown in the budget are only the estimated values for the upcoming fiscal year, and not the actual figure.

• a) Reallocation of resources.
• b) Re distribution of income
• c) Reducing expenditure
• d) Economic stability.

Answer: c) Reducing expenditure

Answer: False

Q4 India’s balance of payments position improved dramatically in 2013-14 particularly in the last three quarters. this moved in large part to measure taken by the government and the Reserve Bank of India (RBI) and eat some part to the overall macro-economic slowdown that fed into the external sector. current account deficit (CAD) declined sharply from a record high of U.S. dollar 88.2 billion (4.7% of GDP) in 2012 -1/3 to U.S. dollars 32.4 billion (1.7% of GDP) in 2013 -14. After staying at perilously unsustainable levels off well over 4.0 percentage of GDP in 2011 -12 and 2012 -13, the improvement in BOP position is a welcome relief, and there is need to sustain the position going forward. This is because even as CAD came down, net capital flows moderated sharply from U.S. dollars 92.0 billion in 2012 -13 do U.S. dollar 47.9 billion in 2013-14, that two after a special swap window of

The RBI under the nonresident Indian (NRI) scheme / overseas borrowings of banks alone yielded U.S. dollar 3 4.0 billion. This led to some increase in the level of external debt, but it has remained at the manageable levels. the large depreciation of the rupee during the course of the year, note with standing sizable accretion to reserve in 2013 – 14, could partly be attributed to frictional forces and partly to the role of expectations in the forex market. the rupiah has stabilized the recently, reflecting an overall sense of confidence in the forex market as in the other financial markets of a change for better economic

prospects there is a need to nurture and build upon this optimism through creation of an enabling environment for investment inflows so as to sustain the external position in an as yet uncertain global milieu. --------- The Hindu, archives

• a) credit, capital account
• b) debit, capital account
• c) credit, current account
• d) debit, current account
• a) current account
• b) revenue account
• c) capital account
• d) official reserves
• a) outward flow of foreign exchange
• b) inward flow of foreign exchange
• c) decrease in the level of external debt
• d) decrease in future claims

Answers: 1.b 2. c 3. b 4. d

Q5 The green revolution for the third agricultural revolution is the set of research technology

e-transfer initiatives earring between GNE E and the late 1960 that increased agricultural

production worldwide beginning most markedly in the late 1960 the initiative resulted in

the adoption of new technologies including high yield varieties of CSR rules of cells

especially does wheat and rice it was associated with chemical fertilizers agrochemicals

and controlled water supply and newer methods of cultivation including machine isolation

National bank for agriculture and rural development is and apex development finance

institution fully owned by government of India the bank has been entrusted with Martyrs

concerning policy planning and operations in the field of credit for agriculture and other

economic activities in rural areas in India.

1 Who among the following is known as the father of green revolution

(a) Dr. M S Swaminathan

(b) Dadabhai Naoroji

(c) Vikram Sarabhai

(d) all of these

2 Green revolution is also known as ..................

(a) Golden revolution

(b) milk revolution

(c) Wheat revolution

(d) None of this

3 Which of the following institutions were setup as the apex body in rural areas to support the small farmers in the adoption of modern farming methods?

4 Green revolution was the ............... set of agricultural reforms brought in India

Answer: 1 (a) 2 (c) 3 (d) 4(c)

• 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 governmentreduced 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.

1 New Economic Policy of India was launched in the year 1991 under the

• P. V. Narasimha Rao
• Atal Bihari Bajpayi
• Sharad Pawar
• None of these

2 .................................. 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

Q7 Both forms of capital formation are the outcomes of conscious investment decisions. The decision regarding investment in physical capital is taken on the basis of one’s knowledge in this regard. The ownership of physical capital is the outcome of the conscious decision of the owner the physical capital formation is mainly an economic and technical process.

Human capital formation takes place in one’s life when she/he is unable to decide whether it would maximize her/his earnings. Children are given different types of school education and health care facilities by their parents and society. Moreover, the human capital formation at this stage is dependent upon the already formed human capital at the school level. Human capital formation is partly a social process and partly a conscious decision of the possessor of the human capital.

• a) Human capital is intangible whereas physical capital is tangible.
• b) Human capital can cope up with the changing technology whereas physical cannot.
• c) Human capital generates both personal and societal benefits whereas physical capital generates only personal benefit.
• d) Human capital gets obsolete with time whereas physical capital does not.
• In the context of the paragraph, it can be argued that human capital depreciates faster than the physical capital. The given statement is:
• c) Partially true
• d) can’t comment due to lack of proper estimation mechanism
• Machines and industrial tools are examples of _
• a) Physical capital
• b) Human capital
• c) Both physical and human capital
• d) Natural capital
• Investment in education by parents is the same as_______
• a) Investment in intermediate goods by companies
• b) Investment in CSR activity by companies
• c) Investment in capital goods by companies
• d) None of the above

Answer: – c) Investment in capital goods by companies

Q8 The central government will spend Rs. 9800 crores on livestock development over the next five years in a bid to leverage almost Rs. 55000 crore of outside investment into the Animal Husbandry Sector. It would do this by merging a slew of schemes of the Department of Animal Husbandry and Dairying into three main programmes, focused on indigenous cows and dairy development, livestock health and infrastructure development, an official statement said. The Cabinet Committee on Economic Affairs approved the implementation of the special livestock sector package by revising and realigning the various components of the existing schemes in order to boost growth and make animal husbandry more remunerative for the 10 crore farmers engaged in it.

1) Livestock production provides ------------- for the family without disrupting other food producing activities

(a)Increased stability in income 

(b) food security

(c)transport and fuel 

Answer: (d) all of these

2) The central bank undertakes to invest on livestock development in ----------- (horticulture/ animal husbandry) sector

Answer: animal husbandry

3) State one limitation of livestock sector in India

Answer: The livestock productivity is quite low as compared to other countries

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Economic Reforms Since 1991 Class 12 Economics Important Questions

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Economic Reforms Since 1991 Class 12 Economics Important Questions. myCBSEguide has just released Chapter Wise Question Answers for class 12 Economics. There chapter wise Practice Questions with complete solutions are available for download in  myCBSEguide   website and mobile app. These test papers with solution are prepared by our team of expert teachers who are teaching grade in CBSE schools for years. There are around 4-5 set of solved Economics Test Papers from each and every chapter. The students will not miss any concept in these Chapter wise question that are specially designed to tackle Board Exam. We have taken care of every single concept given in  CBSE Class 12 Economics syllabus  and questions are framed as per the latest marking scheme and blue print issued by CBSE for class 12.

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Practice Questions for Class 12 Economics

• Economic Reforms Since 1991

How many industries still need license for its operations? ( 1)

When government disinvests its shares to the extent of 5 to 10 percent to meet the deficit in the budget, this is termed as  ( 1)

• Partial privatisation
• Token privatisation
• Denationalisation

LPG stands for:  ( 1)

• Liberalisation, Production and Global Cooperation
• License, Privatisation and Globalisation
• Liberalisation, Privatisation and Globalisation
• License, Permit and Goods

CRR is  ( 1)

• The percentage of total deposits which the banks have to keep in the form of cash.
• The percentage of total deposits which the banks have to keep with the RBI.

Define the globalization.  ( 1)

Privatisation has done more harm than good. Justify your answer.  ( 1)

Why should tariff and non-tariff barriers be removed to promote globalisation?  ( 1)

Why did the Indian Government need to borrow from international organisations?  ( 1)

Those Public Sector Undertakings which are making profits should be privatised. Do you agree with this view? Why?  (3 )

In your opinion, what are the advantages of privatisation to the economy?  (3 )

Write a brief note on trade and investment policy reforms. How did it lead to economic growth?  (4 )

What were the objectives behind Trade and Investment Policy reforms?  (4 )

Explain the changing role of state in Indian economy since introduction of reforms.  (4 )

Evaluate the positive and negative impacts of LPG policy.  (6 )

Write a brief note on International Bank for Reconstruction and Development (IBRD).  (6 )

• Explanation: The only industries which are now reserved for the public sector are 4. i.e defence equipment, atomic energy generation and railway transport.
• Token privatisation Explanation:  Token privatisation, also known as deficit privatisation occurs when the government disinvests its share to the extent of 5 to 10 percent to meet the deficit in the budget.
• Liberalisation, Privatisation and Globalisation Explanation:  The government initiated a variety of policies which fall under three heads viz., liberalisation, privatisation and globalisation. (LPG)
• The percentage of total deposits which the banks have to keep with the RBI. Explanation:  Cash Reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI.
• Globalization is the free movement of goods, services and people across the world in a seamless and integrated manner.
• It will help in reducing the burden on the exchequer.
• It will help in modernising and diversifying PSUs.
• It will help in making PSUs more competitive.
• It will help in improving the quality of decision making of management.
• It will help in reviving sick units, which are eating away the revenue of government.
• It will help in developing capital market and international market.
• It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A state-owned firm doesn’t have this pressure and so it is easier for them to be inefficient. Therefore privatisation inceases the efficiency of firms.

Case against privatisation :

• It will encourage growth of monopoly power in the hands of big business houses.
• It will increase disparities in income and wealth.
• Private sector has no interest in buying loss making and sick enterprises.
• Privatisation may result in lop-sided development of industries in the country.
• Private sector may have no interest in long gestation projects, infrastructure investment and risky projects.
• Private sector may not have sufficient funds for many vital projects.
• Unexpectedly, all of the utilities create negative externalities (via pollution, spoiling the environment, etc.) It can be argued that as public sector companies, the government can regulate output and make sure that it is at the socially optimal level (i.e. allow for externalities). In the private sector, maximisation of profit is the only concern, so a socially damaging level of externalities will occur.
• Tariff and non-tariff barriers restrict the free flow of trade between the two countries. Therefore, these barriers should be removed to promote globalisation. Otherwise, domestic goods would lose international competitiveness.
• A severe financial crisis due to unsustainable fiscal deficit, fall in foreign exchange reserves and inability to pay interest to international lenders forced the Indian Government to borrow from international organisations. It is because India’s export industry was lagging behind due to which she could obtain BOP surplus.
• No, I do not agree with this view. Even though disinvestment would increase the revenue of the government, the profit-making Public Sector Units(PSUs) are revenue generator for the government and they should be retained in the public sector because the profits of these undertakings add to the revenues of the government and can be used to develop other PSUs and the infrastructure of the company. The profit making PSUs should not be privatised just for the reason that the government can get funds to cover the deficit in government budget. A profit-making PSU should be privatised only if it can earn better revenues and thus higher profit if run more efficiently by the private sector. Also, in the process of disinvestment, if the assets of the profit-making industries are undervalued, it will lead to a substantial loss to the government. Also, the government should retain the strategic profit making industries to avoid emergence of any monopoly in the private sector.
• It will introduce efficiency and profitability in Public Sector Undertakings (PSUs).
• It promotes consumer’s sovereignty. High degree of consumer’s sovereignty implies wider choice and better quality of goods and services.
• It will reduce budgetary deficits which result from expenditure on loss making PSUs.
• It promotes diversification of production. Also, unlike PSUs, private enterprises invariably generate high profits.
• Often privatisation of state owned monopolies occurs alongside deregulation – i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market.
• It helps in lowering the cost of goods by removing tariff barriers.
• These reforms help in bringing economies of scale by increasing specialisation.
• These reforms help in maintaining friendly relations with other countries.
• These reforms increase competition, which in turn help firms to increase efficiency in production.
• It helps in earning foreign exchange.
• Remove the restrictions on foreign goods and to increase international competitiveness in Indian markets.
• Attract foreign investment and to promote the adoption of modern technology into the economy.
• Dismantling of quantitative restrictions on imports and exports.
• Reduction of tariff rates
• Removal of licensing procedures for imports.
• To increase the efficiency of domestic market.
• The public sector must withdraw from the areas where no public sector is served by its presence.
• State should make investments only in those areas where investment is of main infrastructural nature where private sector is not likely to come forth to an adequate extent within a reasonable time perspective.

After that we saw a major shift in the Indian economy and the role of state has been changing from a controller, regulator and participator to that of a facilitator, observer and guide. The changes that took place in the role of state since 1991 are as under:

• Before economic reforms, government had its share in all sectors of the economy. It was producing bread, butter, biscuits, milk, running hotels and many of these were actually not required to be in public sector. Government withdrew herself from these sectors through delicensing, deregulation and disinvestment.
• As a regulator, during 1947-1990, Government regulated all activities with the laws and acts. But after 1991, except some basic and strategic goods and services, decisions were made to be market driven. For this purpose, regulatory authorities were set up for different sectors.
• Since 1991, Government has focused its attention on development of social sector like education, health, defence, law and order.
• A vibrant economy: Indian economy has definitely become a more vibrant economy. The Overall level of economic activity has definitely picked up after the introduction of the policies of liberalisation, privatisation and globalisation. Results are evident in terms of an impressive increase in the growth rate of GDP.
• A stimulant to industrial production: LPG policies have worked as a great stimulant to industrial production in the Indian economy. Presently, industrial production is hovering around 10 percent which is a big jump from the pre-1991 level.
• A check on fiscal deficit: Mounting fiscal deficit has been a serious threat to the process of investment in the Indian economy. it was as high as 8.5 percent prior to 1991. thanks to the LPG policies, there has been a significant increase in government revenue.
• A check on Inflatio n : Owing to the greater flow of goods and services in the economy, there has been a check on the rate of inflation. Till 2007-08, it ranged between 4-5 percent which is not a serious threat to interest rate structure.
• consumer’s sovereignty : consumers sovereignty has definitely widened over time. this is evident from the actual fact that a large kind of goods and services from the various international markets are currently among the simple reach of the consumers. producers are widely responding to consumers choice and preference.

Negative impact of LPG policies

• neglect of agriculture: growth of GDP has primarily been owing to substantial growth of the industrial sector. In the wake of LPG policies, focus shifted from agriculture to industries. Consequently, the growth rate in agriculture suffered a setback.
• Urban concentration of growth process: LPG policies have resulted in the concentration of the growth process in urban areas. think of any MNC, you will hardly find its trace in the rural areas of country. All MNCs are focusing only on urban areas, where they find conductive infrastructural facilities.
• Economic colonialism: India suffered nearly 200 years of political colonialism during British rule. Now while MNCs are dominating the Indian economy, we might suffer a sort of economic colonialism. Implying a situation where MNCs are exploiting the Indian markets to sell their products.
• Spread of consumerism: Spread of consumerism within the country as a consequence of LPG policies has resulted during a large-scale unfold of consumerism. A variety of global brands in the market lured the masses to become spendthrift, even beyond their means.
• cultural erosion: Globalisation has also caused cultural erosion of Indian society. Economic prosperity has taken a lead over all other parameters of life. Everybody wants to be economically independent and well off, regardlessly of his responsibility towards his family or society.
• To assist in the reconstruction and development of its member countries by facilitating the investment of capital for productive purposes, thereby promoting long range growth of international trade and improvements in the standard of living.
• To promote private foreign investment by guarantees of and participation in loans and other investments made by private investors.
• To maintain balance growth of international trade and to attain equilibrium in BoP account.
• Motivating governments to act on preventing climate change, controlling communicable diseases, managing international financial crises and promoting free trade.

Chapter Wise Practice Test for Class 12 Economics

• National Income and Related Aggregates
• Money and Banking
• Determination of Income and Employment
• Government Budget and the Economy
• Balance of Payments & Foreign Exchange
• Indian Economy on the Eve of Independence
• Indian Economy 1950-90
• Human Capital Formation in India
• Rural Development
• Employment Growth Informational and other Issues
• Infrastructure
• Environment Sustainable Development
• Development Experiences India & Neighbours

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Liberalisation, Privatisation and Globalisation: An Appraisal

Cbse class 12 economics - liberalisation, privatisation and globalisation: an appraisal.

INDIA’S FOREIGN TRADE

Export and Import of goods and services across/ with different countries is called foreign or international trade.

Observations under International Trade

1. It’s based on International specialization and on principle of comparative cost advantage.

2. Facilitates the exports of goods at higher prices compared with domestic prices to the rest of the world.

3. Increases investment opportunities for trading partners by providing a wider market size. Serves as an engine of growth as a higher investment means higher GDP growth.

India’s Foreign Trade at the time of Independence:

1.India became a source of raw material and a market for the finished goods from Britain.

2. Direction of trade was largely restricted to Britain

3.Trade composition directed the backwardness of economy.

India’s Foreign Trade after Independence

Volume of Foreign Trade : refers to the value f exports and imports in a country.

1. Rise in the percentage of exports and imports are a result of ‘base effect’. A small increase seemed significant due to the fact that initially, it was extremely low.

2.India’s share in global trade had declined despite India’s foreign trade had risen.

3. Only after the initiation of economic reforms the volume became significant.

Composition of Foreign Trade:

Refers to the items that compose the export and imports.

1 . The decline in Percentage Share of Agricultural Exports:

•  To meet the demands of increasing consumption of farm products by growing population India showed a significant decline in agricultural exports.
• Farm products were started to be used as raw materials for the domestic industry.

2. Decline in Percentage Share of Conventional Items:

• The demand for conventional items of exports like tea, jute, etc started having rise in domestic demand which previously formed the bulk of India’s exports, therefore their exports tended to fall.

3.   Increased in percentage share of Manufactured Goods:

1. Gems and jewellery are now in the list of highest exporting goods. This is a result of Planned Development Programmes launched after independence.

•  There was a structural transformation as the predominance of the primary sector was now replaced by the secondary and tertiary sectors. Therefore, no longer backward economy.

Direction of Foreign Trade:

1. The direction of Foreign  Trade took significant change as now list of trading partners has expanded over time which was largely restricted to Britain pre-independence. China, UAE, Australia, Iran, etc became the major trading partners.

2. As a result of Globalization and free trade, Chinese goods started dominating the Indian markets more than Indian goods in Chinese markets. China succeeded d India in earning the gains of trade.

1991; Year of the great divide as India relied on ‘Inward Looking Trade Strategy ‘’ till 1990 that failed to give enough and targeted gains. After 1991 India shifter to the strategy of export promotion which accelerated the rise in exports and imports of the country.

INWARD LOOKING TRADE STRATEGY

( Import Substitution Strategy )

Meant domestic production of goods that economy had to import from the rest of the world. This was followed in order to save foreign exchange by restricting import volume.

1. Scarce foreign exchange had to be used for import of machinery that was essential for growth and development as it couldn’t be produced domestically due to lack of technology and investment funds.

2. Government wanted to economize use of foreign exchange.

3. This was also done to protect the domestic industry from international competition.

Impact of Inward Looking Trade Strategy:

Good Impact

1. High rate of Industrial Growth with Structural Transformation:

Contribution of industrial sector to the GDP increased despite Green Revolution which was the indicator of economic growth based on structural transformation in an economy.

2. Diversification of Industrial Growth:

• The industry started to expand across engineering goods and a wide range of consumer goods and not just textile.
• Growth in the sunrise industry like electronic industry and   Growth of the automobile industry was also observed

3. Opportunities of Investment:

•  New opportunities for those who had less capital opened by the protection of Small scale industry.
• Use of resources that remained idle was observed.
•  Opportunities of self-employment opened promoting growth and equity as a result of new investments.

1. Growth of Inefficient Public Monopolies:

• Inefficient public monopolies started growing as a result of the protection of the public sector industry.

2. Lack of Competition implied Lack of Modernization:

• Domestic producers lacked the inducement to upgrade and modernize their products because of lack of competition.

3. The indiscriminate spread of Public Sector Enterprises:

• These public sector enterprises started swallowing up all the opportunities of private entrepreneurs and were spreading indiscriminately.

4. Economically Unviable State Enterprises; a Compulsion:

• Despite being incapable of working successfully the public sector or state enterprises continued operating on political compulsion and trade union on the pretext of social injustice and unemployment. Private unviable enterprises were shut if seen economically unviable.

NEW ECONOMIC POLICY

The economic reforms started by the Government of India in 1991 to end economic crisis of 1990s came to be known as New Economic Policy.

Three major components of NEP are Liberalization, Privatization and Globalization, commonly called LPG.

Need for NEP:

1. High Fiscal Deficit: Borrowings of government on account of the excess of its expenditure over revenue during a year is called fiscal deficit.

It shows poor financial status, triggers inflation and lowers faith of international institutions (like World Bank) in the country.   The government was in debt trap from 1990 to 1991.

2. Balance of Payment Crisis:   relates to BOP deficit which is a difference between total receipts and total payments of a country on an account of economic transitions with the world. End of 1990 marked the high borrowings and building CAD. NEP was the only way out.

3. Falling Foreign Exchange Reserves: India’s forex reserves fell so low that it could not afford to pay for an import bill of even ten days. Country’s gold reserves had to be mortgaged by the government with the World Bank. Need for NEP was immediate and essential.

4. Inflationary Spiral: Inflation shot up as a result of an increase in the supply of money as a result of borrowings by govt to cope with the fiscal deficit.

5. Poor Performance of PSU’S:   Huge amount of money was invested in the growth of PSU’S that turned out to be inefficient and corrupted resulting in huge losses. NEP was required to reverse the damage done by them.

ELEMENTS OF NEP (NEW ECONOMIC POLICY)

1. Liberalization:   means freedom of producing units from the direct or physical controls imposed by governments. The controls included:

• Industrial Licensing, Price control or financial control on goods, import license, forex control, investment restrictions by big houses.   These controls resulted in corruption, undue delay, and inefficiency.
• Greater reliance, therefore, was placed on market forces of supply and demand rather than checks and controls.

2. PRIVATISATION: involving private sector ownership operation of state-owned enterprise.

• Sale   of government enterprises to private entrepreneurs.

Need for Privatization:   Public Sector Enterprises became dead weights that were incurring huge losses. Corruption and inefficiency became widespread therefore government decided to sell out the equity of public enterprises to the private entrepreneurs.

NAVRATNAS : Referred to nine profit-making companies that are called the epicenter of growth in the country by the government. These provided infrastructural base and source of employment as well.

3. GLOBALISATION : Is a process that allows openness, economic interdependence and deepening of economy’s integration into the world economy. In simple terms, free flow of trade and capital across the borders

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• Economics /

Class 12 Notes on Economic Reforms Since 1991

• Updated on  
• Jan 16, 2024

LPG which is also known as Liberalisation, Privatisation and Globalisation were the three major measures that the Indian government adopted under its New Economic Policy. For this, they approached International Banks for development and the betterment of the country and economy. When they approached these international banks and organisations, these agencies asked them to open up our Indian economy to the world, remove trade restrictions and trade barriers and foster the private sector. In this blog, we will be digging more into the chapter on Class 12 Economic Reform Since 1991.

Also Read: Business Economics: Career, Courses, and Universities

This Blog Includes:

Brief overview of the era before lpg, stabilization measures , structural reforms, factors responsible for economic reforms since 1991, liberalization , objectives of liberalization policy, major economic reforms since 1991 under liberalisation, privatization , forms of privatization , objectives of privatization , policies adopted for privatisation , globalization , benefits of globalization , policies promoting globalisation, positive and negative impacts of lpg policies , world trade organisation.

Before 1991 , the Indian economy and Indian companies were living under a shelter of protection that was created by the Indian government to protect domestic companies from outside or international competition. The economy was not ready to step out into the international market and compete with big established companies and organisations. But, in 1991, the government agreed to the reforms that were advised by the foreign banks and hence announced the New Economic Policy (NEP) to develop the Indian economy and also for its future growth. In the Class 12 Economic Reform Since 1991 chapter, we can broadly categorise or classify the measures into two groups: 

• Structural reforms 
• Stabilization measures 

Must Read: Everything You Need to Know About Economics Class 11

Stabilization measures were taken and accepted by the Indian government to revamp the Indian economy. These measures were undertaken to correct the inherent and carried forward weaknesses that had been developed in BOPs (Balance of Payments) and also to control inflation. These were mainly short-term measures , unlike the structural reforms.

Class 11 Liberalization, Privatization and Globalisation talks about the structural reforms that were taken to improve the economy. From a long-term perspective and to strengthen international competitiveness, reforms have been put in place to eliminate rigidity in various segments of the Indian economy. Hence these are long-term measures and policies. The structural reforms that were adopted by the Indian government were as follows:

As per the class 12 syllabus of Indian Development Economics, the major factors that were responsible and let the government come up with the economic reforms since 1991 were:

• A decrease in foreign exchange reserves: imports grew faster than exports
• The unfavourable balance of payments gave rise to a repayment crisis
• The budget deficit worsened as public expenditure increased faster than receipts
• Prices increased, with a negative impact on investment
• Failure of state-owned enterprises: – very small high return on investment
• The Gulf crisis has led to a rise in crude oil prices, which has had a negative impact on the balance of payments.
• High ratio of deficit funding
• The collapse of the soviet block

Also Read: Top 50 Highest Paying Government Jobs in India

In Class 12 Economic Reform Since 1991, we will first talk about Liberalization. Liberalization was one of the three structural reforms that were adopted by the Indian government. It was adopted to put an end to various restrictions and reforms which later on became a hindrance in the development and the growth of the Indian economy. The government decided to loosen up its influence and let private sector organisations and companies enter the Indian economy and start working without or with fewer government restrictions. This allowed the economy to become liberal and grow eventually.

There were many reasons why the structural reform of liberalization was undertaken by the government. They are mentioned below.

• Increase competitiveness between domestic industries
• Encourage foreign trade with other countries whose imports or exports are regulated
• Foreign capital and technological improvements
• Expand the borders of the country’s global marketplace
• A reduction in the country’s debt burden
• Contraction of Public Sector
• Abolition of Industrial Licensing
• Freedom to Import capital goods
• De-regulation of interest rates
• Reducing various Ratios like SLR and CRR
• Change in the role of the central bank or the RBI from the regulator to facilitator of the economy and banks.
• Devaluation of rupee
• Trade and investment reforms
• Fiscal reforms
• Tax reforms

Moving further, Class 12 Economic Reform Since 1991 talks about Privatization. This was the second policy among the three policies of LPG that were adopted by the government. Privatization policy has been used to enhance the dominant role of private sector enterprises and the diminished role of public sector enterprises. In other words, it’s reducing the ownership of the management of a government-owned company. Now, these State-owned enterprises can be turned into private enterprises in two ways:

• By disinvestment
• By withdrawal of governmental ownership or stakes from these public sector companies

Also Read: Class 12 Notes on Indian Economy Chapter 3

There are various forms of Privatization. They are mentioned below. 

• Denationalization or Strategic Sale : When full ownership of productive assets is transferred to private sector companies, the law is called denationalization.
• Partial Privatization or Partial Sale : Where the private sector holds more than 50% but less than 100% of the shares of a public sector corporation whose transfer has already been interpreted, this is called partial privatization. In this case, most of the shares are held by the private sector. Accordingly, the private sector has significant control over the functionality and autonomy of the business.
• Deficit Privatization or Token Privatization : When the government disinvest its share capital to a degree of 5-10% to compensate for the deficit in the budget is called the privatization deficit.

Class 12 Economic Reform Since 1991 also talks about the various objectives of privatization as a policy. They are mentioned below. 

• Improve the government’s fiscal situation.
• Reduce the workload on public sector firms.
• Raise capital through divestment.
• Increase the effectiveness of governmental agencies.
• Provide the consumer with higher quality and improved goods and services.
• Develop healthy competition in society.
• Encouragement of foreign direct investment (FDI) in India.

Also Read: Emerging Modes of Business Class 11 Notes

As per the unit of class 12 on Economic Reforms Since 1991, the policies that were adopted for privatisation by the government of India are as follows:

• Contraction of the public sector
• Abolishing the ownership of the Government in the management of public enterprises
• Sale of shares of public enterprises

This is the third policy of LPG in Class 12 Economic Reform Since 1991. Globalisation refers to the integration of the economy of the nation with the global economy. During globalization, the emphasis is placed on foreign trade and private and institutional foreign investment. It was the final LPG policy to be implemented in India. Having said that, globalization as a term is a very complicated phenomenon. The main objective is to transform the world into an independent and integrated world by defining various strategic policies. Globalisation tries to create a world without borders, where the needs of a country can come from all over the world and become a great economy. 

The most important outcome of globalisation in the Indian economy is the concept of the outsourcing model. Outsourcing refers to when a company in a country hires professionals from other countries to get their work done at cheap prices. The best part about outsourcing is that the work can be done at a low cost and from the top sources and human resources available throughout the world. Services such as legal advice, marketing, technical assistance, etc. were being outsourced from companies based in the US , UK , and other parts of Europe. As information technology or IT has also developed in recent years, outsourcing of contract work from one country to another increased considerably due to globalisation. As a means of communication has broadened their reach, all economic activities have increased around the world. 

Having said that, various business process outsourcing (BPO) companies or call centres, which have their voice business process model, are being developed in India. Activities such as accounting and bookkeeping services, clinical counselling, banking or even education were being outsourced from developed countries to India.

Towards the end, Class 11 Liberalization, Privatization and Globalisation talks about the many benefits of Globalization. You can have a look here: 

• The biggest advantage of globalisation and its outcome outsourcing is that large multinational corporations or even small businesses can benefit from good services at a lower rate than their country’s standards. 
• The skill set and the availability of human resource capital in abundance in India are regarded as the most dynamic and effective throughout the world. 
• The professionals in India are the best at what they do. 
• The low wage rate and highly skilled personnel have made India the most favourable global outsourcing destination in the subsequent phase of the reform.
• It has helped in the growth and development of the tertiary sector of the economy and the creation of more jobs and employment for the people. 

Also Read: Class 11 Introduction To Microeconomics

As per the unit of Class 12 of Economic Reforms since 1991, the main policies that were adopted by the government of India to promote and implement globalisation were: 

• Increase in the equity limit for foreign investments
• Partial convertibility
• Long-term business and trade policy
• Reduction of tariffs

The last topic of the class 12 unit on Economic Reforms Since 1991 is the World Trade Organisation. Also known as WTO, this institution or organisation was established in 1995. It successfully replaced the General Agreement on Trade and Tariffs (GATT) which had been in place since 1946. The overarching goal of the World Trade Organization or WTO is to always contribute to smooth, free, fair and predictable trade. To meet this objective, they perform these functions:

• Monitoring and revising domestic trade policies
• Support the members in the development of trade policies through technical assistance and training programs.
• Administration of World Trade Agreements
•  Serve as the forum for trade negotiations
• Settlement and Management of Trade Disputes
• Technical assistance and training for developing nations
• Cooperation with other International Organizations

Relevant Blogs

Liberalization, Privatization, and Globalization were the three branches of the new economic strategy of 1991.

Economic reforms are the basic changes implemented in 1991 with the goal of liberalising the economy and speeding up its rate of economic growth.

Economic reforms were implemented in 1991 to promote faster and more robust economic development. It was started by the Narasimha Rao government to increase people’s confidence in the Indian economy.

With this, we come to the end of our blog on Class 12 Economic Reform Since 1991. We hope it helps you in preparing for your exams. Selecting the right stream after your schooling plays a major role in shaping your career. If you are looking for a career that suits you perfectly then reach out to our experts at Leverage Edu . 

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• Introduction to LPG

LPG stands for Liberalization , Privatization , and Globalization . India under its New Economic Policy approached International Banks for development of the country. These agencies asked Indian Government to open its restrictions on trade done by the private sector and between India and other countries.

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Indian Government agreed to the conditions of lending agencies and announced New Economic Policy (NEP) which consisted wide range of reforms. Broadly we can classify the measures in two groups:

1. Structural Reforms

With long-term perspective and eyeing for improvement of the economy and enhancing the international competitiveness, reforms were made to remove rigidity in various segments of Indian economy .

Browse more Topics under Liberalization Privatisation And Globalisation

• Liberalization
• Indian Economy During Reforms

2. Stabilization Measures (LPG)

These measures were undertaken to correct the inherent weakness that has developed in Balance of Payments and control the inflation . These measures were short-term in nature . Various Long-Term Structural Reforms were categorized as:

• Privatization and

Globalization

Collectively they are known by their acronym LPG. The balance of Payment is the system of recording the economic transactions of a country with the rest of the world over a period of one year. When the general prices of goods and services are increasing in an economy over a period of time, the same situation is called Inflation . Let’s understand each terminology in detail

The basic aim of liberalization was to put an end to those restrictions which became hindrances in the development and growth of the nation. The loosening of government control in a country and when private sector companies ’ start working without or with fewer restrictions and government allow private players to expand for the growth of the country depicts liberalization in a country.

Objectives of Liberalization Policy

• To increase competition amongst domestic industries.
• To encourage foreign trade with other countries with regulated imports and exports .
• Enhancement of foreign capital and technology.
• To expand global market frontiers of the country.
• To diminish the debt burden of the country.

Impact of Liberalization

Privatization

This is the second of the three policies of LPG. It is the increment of the dominating role of private sector companies and the reduced role of public sector companies. In other words, it is the reduction of ownership of the management of a government-owned enterprise. Government companies can be converted into private companies in two ways:

• By disinvestment
• By withdrawal of governmental ownership and management of public sector companies.

Forms of Privatization

• Denationalization or Strategic Sale : When 100% government ownership of productive assets is transferred to the private sector players, the act is called denationalization.
• Partial Privatization or Partial Sale : When private sector owns more than 50% but less than 100% ownership in a previously construed public sector company by transfer of shares, it is called partial privatization. Here the private sector owns the majority of shares. Consequently, the private sector possesses substantial control in the functioning and autonomy of the company.
• Deficit Privatization or Token Privatization: When the government disinvests its share capital to an extent of 5-10% to meet the deficit in the budget is termed as deficit privatization.

Crisis of 1991 and Indian Economic Reforms

Objectives of Privatization

• Improve the financial situation of the government.
• Reduce the workload of public sector companies .
• Raise funds from disinvestment.
• Increase the efficiency of government organizations.
• Provide better and improved goods and services to the consumer.
• Create healthy competition in the society.
• Encouraging foreign direct investments (FDI) in India.

It means to integrate the economy of one country with the global economy. During Globalization the main focus is on foreign trade & private and institutional foreign investment. It is the last policy of LPG to be implemented.

Globalization as a term has a very complex phenomenon. The main aim is to transform the world towards independence and integration of the world as a whole by setting various strategic policies. Globalization is attempting to create a borderless world, wherein the need of one country can be driven from across the globe and turning into one large economy.

Outsourcing as an Outcome of Globalization

The most important outcome of the globalization process is Outsourcing. During the outsourcing model, a company of a country hires a professional from some other country to get their work done, which was earlier conducted by their internal resource of their own country.

The best part of outsourcing is that the work can be done at a lower rate and from the superior source available anywhere in the world. Services like legal advice, marketing, technical support, etc. As Information Technology has grown in the past few years, the outsourcing of contractual work from one country to another has grown tremendously. As a mode of communication has widened their reach, all economic activities have expanded globally.

Various Business Process Outsourcing companies or call centres, which have their model of a voice-based business process have developed in India. Activities like accounting and book-keeping services, clinical advice, banking services or even education are been outsourced from developed countries to India.

What are the   Benefits of Globalization?

The most important advantage of outsourcing is that big multi-national corporate or even small enterprises can avail good services at a cheaper rate as compared to their country’s standards. The skill set in India is considered most dynamic and effective across the world. Indian professionals are best at their work. The low wage rate and specialized personnel with high skills have made India the most favourable destination for global outsourcing in the later stage of reformation.

Solved Example for You

Question: How are public sector undertaking classified with respect to their performance and professionalism?

Answer: To attain professionalism and improve efficiency with positive competition the government of India identifies its public sector undertakings (PSUs) as:

• Navratnas and
• Mininavratnas

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Liberalization, Privatisation and Globalisation

2 responses to “introduction to lpg”.

Difference between globalization and privatisation?

globalisation is the rapid influx of goods and services between economies, that means that products and services are exported or imported between countries thus facilitating foreign trade through exports and imports. globalisation thus, ensures competition in the market by producers of different countries. Privatisation on the other hand is the inclusion of the private sector into previously public sector owned enterprises, it involves reducing the governments interference in market operations thus, promoting a healthy business environment by the introduction of several private players into the market.

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NCERT Solutions for Class 6, 7, 8, 9, 10, 11 and 12

Important Questions for Class 12 Economics Chapter Wise CBSE

CBSE Important Questions for Class 12 Economics Chapter Wise Pdf free download was designed by expert teachers from latest edition of NCERT books to get good marks in board exams. Here we have given NCERT Important Questions for Class 12 Economics Chapter Wise State Board.

Chapter Wise Important Questions Class 12 Economics

Macroeconomics Class 12 Important Questions

• Introduction to Macroeconomics Important Questions
• National Income Accounting Important Questions
• Money and Banking Important Questions
• Determination of Income and Employment Important Questions
• Government Budget and the Economy Important Questions
• Balance of Payments and Foreign Exchange Rate Important Questions

Indian Economic Development Class 12 Important Questions

• Indian Economy on the Eve of Independence Important Questions
• Indian Economy 1950 to 1990 Important Questions
• Liberalisation, Privatisation and Globalisation: An Appraisal Important Questions
• Poverty Important Questions
• Human Capital Formation Important Questions
• Rural Development Important Questions
• Employment and Unemployment Important Questions
• Infrastructure Important Questions
• Environment and Sustainable Development Important Questions
• Comparative Development Experiences of India and its Neighbours Important Questions

Important Questions for Class 12 Economics Topic Wise

1. Introduction

• Economics and its Types
• Central Problems and Solutions of an Economy, Production Possibility Curve and Opportunity Cost

2. Theory of Consumer Behaviour

• Utility, Total Utility, Marginal Utility and its Law
• Consumers Equilibrium Through Utility Approach
• Indifference Curve, Indifference Map and Properties of Indifference Curve
• Budget Set, Budget Line and Consumer Equilibrium through Indifference Curve Analysis or Ordinal Approach
• Concept of Demand, Factors Affecting Demand and Law of Demand
• Concept of Price Elasticity of Demand and its Determinants

3. Production and Costs

• Concept of Production Function
• Concept of Cost Function

4. Theory of Producers Behaviour and Supply

• Concept of Revenue
• Producers Equilibrium
• Concept of Supply and Elasticity of Supply

5. Forms of Market

6. Market Equilibrium

• Basic Concepts of Economics
• Investment,Stock,Flows and Circular Flow of Income

2. National Income Accounting

• National Income and its Related Concepts
• Methods of Calculating National Income

3. Money and Banking

• Barter System and Money
• Commercial Banks and Central Bank

4. Income Determination

• Aggregate Demand and Supply and Their Components
• Short run Equilibrium Output
• Problems of Deficient and Excess Demand

5. Government Budget and The Economy

• Concept and Components of Government Budget
• Budgetary Deficit and its Measures

6. Foreign Exchange Rate and Balance of Payments

• Foreign Exchange Rate
• Balance of Payments

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Cbse notes and sample papers, liberalisation, privitisation and globilisation class 12 economics notes | studytution.

April 1, 2020 Mehak Economics 2

LIBERALIZATION

Liberalization means removal of entry and growth restriction on the private sector.

• Liberalization involves deregulation and reduction of government controls and greater autonomy (freedom) of private investment, to make economy more competitive.
• Under this process, business is given free hand and is allowed to run on commercial lines.
• The purpose of liberalization was : # To unlock the economic potential of the country by encouraging private sector and multinational corporations to invest and expand; and # To introduce much more competition into the economy and creating incentives for increasing efficiency of operations.
•  The economic reforms taken by the government under liberalization include the following :
• Industrial sector reforms
• Financial sector reforms
• Tax reforms
• Foreign exchange reforms
• Trade and investment policy reforms

INDUSTRIAL SECTOR REFORMS

Reduction in industrial licensing:.

The new policy abolished industrial licensing for all the projects, expect for a short list of industries (like liquor, defense equipment, industrial explosives etc….)

• No licenses were needed

(i) to set up new units

(ii) expands or diversify the exciting line of manufacture.

• However, license is required for certain industries, related to security and strategic considerations.

Decrease in role of public sector:

One of the striking features was the substantive reduction in the role of the public sector in the future industrial development of the country. The number of industries reserved for the public sector, reduced from 17 to following 3 industries

(i)defense equipment

(ii) atomic energy generation

(iii) railway transport.

De-reservation under small-scale industries:Many goods produced by small scale industries have now been de- reserved.

• The investment ceiling on plant and machinery for small undertakings enhanced to  rupees one crore.
• In many industries, the market was allowed to determine the prices through forces of the market (and not by directivity policy of the government).

Monopolies and restrictive trade practice (MRTP) Act:

with the introduction of liberalization and expansion schemes, the requirement of large companies, to seek prior approval for expansion , establishment of new undertakings, merger , amalgamations, etc.. Were eliminated.

FINANCIALLY SECTOR REFORMS

Financial sector includes financial institutes like commercial banks, investment hank, stock exchange operations and foreign exchange market . the financial sector in India is controlled by the central bank — Reserve bank of India (RBI) .

• Change in role of RBI:

The role of RBI was reduced from regulation of facilitator of financial sector . As a result, financial sector was allowed to take decisions on many matters, without consulting the RBI.

•  Origin of private banks:

The reforms policies led to the establishment of private sector banks , Indian as well as foreign . for example, Indian banks like ICICI and foreign banks like HSBC increased the competition and benefitted the consumers through lower interest rates and better services.

•  Increase in limit of foreign investment:

The limit of foreign investment in banks was raised to around 51% foreign institutional investors (FII) such as merchant bankers, mutual funds and pension funds were now allowed to invest in Indian financial markets.

• Ease in expansion process:

Bank were given freedom to set up new branches (after fulfillment of certain condition) without the approval of the RBI.

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 incomes of individuals as well as profits of business enterprises for example , income tax (taxes on individual incomes) and corporate tax (taxes on profits of companies ) .

• Indirect taxes refer to those taxes which affect the income and property of persons through their consumption expenditure. indirect taxes are generally imposed on goods and services. For example, sales tax, VAT , custom duty, etc.

• Reduction in taxes :

Since 1991, there has been a continuous reduction in income and corporate tax as high tax retes were an important reason for tax evasion. It is now widely accepted that moderate rates of income tax encourage savings and voluntary disclose of income.

•  Reforms in indirect taxes:

Considerable reform have been made in indirect taxes to facilitate establishment of common national market for goods and services

• Simplification of process

In order to increase better compliance on the part of tax pair many procedures have been simplified.

Foreign Exchange Reforms

The important reforms made in the foreign exchange market are:

• 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

Trade and Investment Policy Reforms

Before 1991, a lot of restrictions (high tariffs and quotas) were imposed on imports to protect the domestic industries.

However, this protection reduced the efficiency and competitiveness of domestic industries and led to their slow growth.

So, the reforms in the trade and investment policy were initiated:

• To increase the international competitiveness of industrial production.
• To promote foreign investments and technology into the economy.
• To promote efficiency of local industries and adoption of modern technologies.

The important trade and investment policy reforms include

1. 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 2007

2. Removal of Export Duties: Export duties were removed to increase the competitive position of Indian goods in the international markets

3. Reduction in Import Duties :  Import duties were reduced to improve the position of domestic goods in the foreign market.

4. 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”

PRIVATIZATION

Privatization means transfer of ownership, management and control of public sector enterprises to the entrepreneurs in the private sector.

Privatization implies greater role of the private sector in the economic activities of the country. Over the years, Indian Government has diluted its stake in several public enterprises, including IPCL, IBP, Maruti Udyog, etc.

Privatization can be done in two ways:

•  Transfer of ownership and management of public sector companies from the government to the Private Sector
• Privatization of the public sector undertakings (PSU) by selling off part of the equity of PSUs to the public.
• This process is known as disinvestment.

Disinvestment is of three type

• Complete disinvestment in this type of disinvestment complete public sector undertaking is sold to private sector.
• Majority disinvestment in this type of disinvestment a major portion of public sector undertaking is sold ie more than 50% shares of public sector undertaking are sold to private sector.
• Minority disinvestment in this type of disinvestment government sells less than 50% of stake two private sector.

The purpose of privatization was mainly to improve financial discipline and facilitate modernization. It was also believed that private capital and managerial capabilities will help in improving performance of the PSUS.

GLOBALIZATION

Globalization means integrating the national economy with the world economy through removal of barriers on international trade and capital movements

• Globalization is the outcome of the policies of liberalization and privatization

• Globalization is generally understood to mean integration of the economy of the country with the world economy

• However, it is a complex phenomenon. It is an outcome of the set of various policies that aim to transform the world towards greater interdependence and integration

Changes made by the Globalization of the Indian Economy

1. The New Economic Policy prepared a specified list of high technology and high investment priority industries, in which automatic permission will be available for foreign direct investment up to 51 per cent of foreign equity

2 In respect of foreign technology agreements, automatic permission is provided in high priority industry up to a sum of rupees 1 crore. No permission is now required for hiring foreign technicians or for testing indigenously developed technology abroad.

3. In order to make international adjustment of Indian currency, rupee was devalued in July 1991 by nearly 20 per cent. It stimulated exports, discouraged imports and raised the influx of foreign capital.

4 To integrate Indian economy with world, the Union Budget 1992-93 made Indian rupee partially convertible and then the rupee was made fully convertible in 1993-94 budget

5, A new five year export import Policy (1992 – 97) announced by the Go i,rir • establish the framework of globalisation of India’s foreign trade The policy removed all restrictions and controls on the external trade and allowed market forces to play a greater role in respect of exports and imports.

6. In order to bring the Indian economy within the ambit of global competition, the government has modified the customs duty to a considerable extent. Accordingly, the peak rate of customs duty has been reduced from 250 per cent to 10 per cent in 2007-2008 budget.

OUTSOURCING

Outsourcing refers to contracting out some of its activities to third party which. were earlier performed by the organisation. For example, many companies have started outsourcing security service to outside agencies on a contractual basis.

• Outsourcing is one of the important outcomes of the globalization process.
• It has intensified in recent times because of the growth of fast modes of communication, particularly the growth of Information Technology (IT).
• With the help of modern telecommunication links, the text, voice and visual data in respect of these services is digitized and transmitted in real time over continents and national boundaries.
• India has become a favorable destination of outsourcing for most of the MNC’s because of low wage rates and availability of skilled manpower.
• For example, Indian Business Process Outsourcing (BPO) companies are already gaining prominence and earning precious foreign exchange.

World Trade Organisation (WTO)

Origin of World Trade Organisation (WTO)

• Prior to WTO, General Agreement on Trade and Tariff (GATT) was established as global trade organisation, in 1948 with 23 countries.
• GATT was set up to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market.
• WTO was founded in 1995 as the successor organisation to the GATT
• The WTO agreements cover trade in goods as well as services, to facilitate international trade.
• At present, there are 159 member countries of WTO and all the members are required to abide by laws and policies framed under WTO rules

Some Major Functions of WTO:

1. To facilitate international trade (both bilateral and multilateral trade) through removal of tariff as well as non-tariff barriers;

2. To establish a rule-based trading regime, in which nations cannot place arbitrary restrictions on trade.

3. To enlarge production and trade of services

4. To ensure optimum utilization of world resources

5. To protect the environment.

AN APPRAISAL OF LPG POLICIES (ECONOMIC REFORMS)

Economic reforms created mixed reactions at different levels. Le us discuss some of the positive and negative aspects of economic reforms. Arguments in Favor of Economic Reforms The following are some of the important arguments advanced in favor of economic reforms:

1 Increase in rate of Economic Growth:

• The growth of GDP increased from 5.6% during 1980-91 to 6.1% during 1992-2001
• This shows that there has been an increase in the overall GDP growth in the reform period.
• During the reform period, the growth of agriculture and industrial sectors has declined, whereas the growth of service sector has gone up.
• This indicates that the growth is mainly driven by the growth in the service sector. Currently, the growth rate of GDP is estimated to be 8.2%

2. Inflow of Foreign Investment:

• The opening up of the economy has led to the rapid increase in foreign direct investment (FDI).
• The foreign investment (FDI and foreign institutional investment) increased from about US $ 100 million in 1990-91 to US $ 36 billion in 2016-17.

3. Rise in Foreign Exchange

• Reserves foreign exchange reserves reached the level of $ 25,186 million at the end of March 1995 as compared to only $ 3,962 million in 1989-90.
• At present, India is the 6th largest foreign exchange reserve holder in the world, with $ 321 billionin the year 2014-15.

4. Rise in Exports:

• During the reform period, India experienced considerable increase in exports of auto parts, engineering goods, IT software and textiles

5. Control on Inflation.

• Increase in production tax reforms and other reforms helped in controlling the inflation.
• The annual rate of inflation reduced from the peak level of 17% in 1991 to around 7.6% in 2012-13.

6. Increase in role of Private sector

• Abolition of licensing system and removal of restrictions on entry of the private sector, in areas earlier reserved for the public sector, have enlarged the area of operation of the private sector

Criticism of Economic Reforms

Critics have raised a series of criticism against the New Economic Reforms, especially in the areas of employment, agriculture, industry, infrastructure development and fiscal management.

1. 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

2. Neglect of Agriculture

The new economic policy has neglected the agricultural sector as compared to industry, trade and services sector.

(i) Reduction of public investment : Public investment in agriculture sector, especially in infrastructure, which includes irrigation, power, roads, market linkages and research and extension (which played a crucial role in the Green Revolution), 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) Liberalisation and reduction in import duties: After the commencement of WTO, a number of policy changes were made:

(a) Reduction in import duties on agricultural products;

(b) Removal of minimum support price

(c) Lifting of quantitative restrictions on agricultural products.

All these policies adversely affected the Indian farmers as they now have to face increased international competition.

(iv) Shift towards cash crops: 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 the prices of food grains.

3. Low level of Industrial Growth:

Industrial growth recorded a slowdown due to the following reasons:

(i) Cheaper Imported Goods:

• Due to globalisation, there was a greater flow of goods and capital from developed countries and as a result, domestic industries were exposed to imported goods.
• Cheaper imports replaced the demand for domestic goods and domestic manufacturers started facing competition from imports. For example, cheaper Chinese goods pose a big threat to Indian manufacturers

(ii) Lack of infrastructure facilities: The infrastructure facilities, including power supply, have remained inadequate due to lack of investment.

(iii) Non-Tariff Barriers by Developed countries: All quota restrictions on exports of textiles and clothing have been removed from India. But some developed countries, like USA have not removed their quota restrictions on import of textiles from India.

4. Ineffective Disinvestment Policy:

• The government has always fixed a target for disinvestment of PSUs.
• For instance, in 1991-92, the target was rupees 2,500 crore, whereas, government was able to mobilize rupees 3,040 crore.
• However, according to some scholars, the disinvestment policy of government was not successful because:
• The assets of public sector undertakings (PSUS) were under-valued and sold to the private sector.
• Moreover, such proceeds from disinvestment were used to compensate shortage of government revenues rather than using it for the development of PSUs and building social infrastructure in the country

5. Ineffective Tax Policy:

• The tax reduction in the reform period was done to generate larger revenue and to curb tax evasion.
• But, it did not result in increase in tax revenue for the government.
• Tariff reduction decreased the scope for raising revenue through customs duties.
• Tax incentives provided to foreign investors to attract foreign investment further reduced the scope for raising tax revenues.

6. 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.

DEMONETIZATION (8 November 2016)

• The Government of India, made an announcement on November 8, 2016 with profound implications for the Indian economy.
• The two largest denomination notes,’500 ‘1,000, were  ‘demonetised’ with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills.
• This led to eighty six per cent 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. In other words, restrictions were placed on the convertibility of domestic money and Bank deposits.

Meaning of Demonetization

• Demonetization is a process of stripping a currency unit of its status as alegal tender. In simple words, when the Government demonetized the 500 and 1000 rupees notes, they were no longer valid as legal currency.
• Usually, a new currency replaces the old currency unit/s.
• In India, this is not the first instance of demonetization. In 1946, the Reserve Bank of India had demonetized Rs. 1,000 and Rs. 10,000 currency notes which were then under circulation.
• In 1954, the Government introduced new currency notes of Rs. 1,000, Its. 5,000, and Rs. 10,000.
• Further, these notes were demonetized in 1978 when the Morarji Desai Government decided to curb illegal transactions and anti-social activities

Reasons to Government demonetize 500 and 1000 notes in 2016

The Government made many claims with respect to the objectives and outcomes of the demonetization scheme in 2016. These were:

1. It will plug financing to terrorists

2. It will help unearth black money

3. The unearthed black money will also expand the fiscal space of the government

4. It will help reduce interest rates in the banking system

5. It will help formalize India’s informal economy, reduce the extent of cash transactions, and help in the creation of a less-cash economy

The government offered several incentives to induce people to use digital transactions too.

Possible Benefits of Demonetization

The aim of demonetization was to curb corruption, counterfeiting the use of high denomination notes for illegal activities; and especially the accumulation of ‘black money’ generated by income that has not been declared to the tax authorities.

• Increased Savings – When currency is demonetized, people tend to deposit their cash with a bank and store less physical currency at home. This helps them save more.

• Lower lending rates With currency demonetization, money moves from people to banks and financial institutions. Therefore, there is a better circulation of money. Further, banks and financial institutions have a lower cost of funds which translates into lower lending rates.

• Better economy – Since demonetization induces people to deposit their cash with the banks, there is a higher circulation of money in the economy The government receives more taxes and can undertake more development projects. Eventually, this leads to a better-perlbrming economy.

• Curbing anti-social activities – Usually, anti-social elements like smugglers or terrorists use cash as a mode of transaction. When the government decided to demonetize 500 and 1000 rupees notes, they were the highest denomination notes in circulation. By demonetizing them, the government forced these anti-social units to find ways to get rid of the old notes. This allowed the government an opportunity to get a better control over the unaccounted money in the economy and curb anti-social activities.

• Reducing counterfeit currency notes During demonetization, people deposit all old notes with banks who check if the notes are genuine or counterfeit before accepting them. Therefore, this allows the government to weed out counterfeit notes circulating in the market.

• Demonetization is viewed as a tax administration measure.
• Cash holdings arising from declared income was readily 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.
• . Demonetization is also interpreted as a shift on the part of the government indicating that tax evasion will no longer be tolerated or accepted
•  Demonstration also led to tax administration channelizing 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 base loans, at lower interest rates.
•  Another feature of demonetization is to create a less-cash or cash-lite economy, i.e., channeling more savings through the formal financial system and improving tax compliance.

Though there are arguments against this as digital transactions require use of cell phones for customers and Point-of

Sale (PoS) machines for merchants, which will only work if there is internet connectivity.

On the contrary, these disadvantages are Counterbalanced by an understanding that it helps people into the formal Digitization has broadly impact three sections of society: The poor, who are largely outside the digital economy; the less largely outside the digital economy; the less affluent, who are becoming part of the digital economy who have been covered under Jan Dhan Accounts and Rupay cards, and the affluent, who are fully conversant with digital transactions

GOODS AND SERVICE TAX (01. July 2017)

• Introduction of Goods and Services Tax (GST) will indeed be an important perfection and the next logical step towards a widespread indirect tax reforms in India.
• As per, First Discussion Paper released by the Empowered Committee of the State Finance Ministers on 10.11.2009, it has been made clear that there would be a “Dual GST” in India, i.e. taxation power lies with both by the Centre and the State to levy the taxes on the Goods and Services.
• Constitutional Amendment: While the Centre is empowered to tax services and goods upto the production stage, the States have the power to tax sale of goods.
• The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods.
• Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the supply of goods and Services’.
• Moreover, theConstitution also does not empower the States to impose tax on imports.
• Therefore, it is essential to have Constitutional Amendments for empowering the Center to levy tax on sale ofgoods and States for levy of service tax and tax on imports and other consequential issue

What is GST?

‘G’-Goods

‘S-Services

Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and

consumption of goods and service at a national level under which no distinction is made

between goods and services for levying of tax. It will mostly substitute all indirect taxes levied

on goods and services by the Central and State governments in India. GST is a tax on goods and

services under which every person is liable to pay tax on his output and is entitled to get inputtax credit (ITC) on the tax paid on its inputs(therefore a tax on value addition only) and ultimately the final Consumer shall bear the tax”.

Types of GST

There are three kinds of taxes under the GST:-SGST, CGST, and IGST 1. SGST- State Goods and Service Tax is the part of tax diverted to the state government which is credited to revenue department of state government.

This is generally equivalent to CGST. This compensates the loss of existing VAT or Sales Tax revenue to state government. In the easi of local sales, 50% quantum of tax amount under GST is diverted to GST tax.

2. CGST:- Central Goods and Service Tax is the share of GST tax diverted to revenue department of central government and is also equivalent to SGST.

This share of tax compensates the loss of existing excise duty and service tax to the central government. In the case of local sales, balanc 50% quantum of GSTI transferred to CGST.

3.IGST:- Integrated Goods and Services Tax is levied when inter-state sales and purchase is make. One part of this tax transferred to central government and another to state governmeni to whom goods and services belong. The IGST is charged only in case of inter-state sales or when transactions between two states involved.

OBJECTIVES OF GST:

• One of the main objective of Goods & Service Tax (GST) would be to eliminate the double taxation i.s. cascading effect of taxes on production and distribution cost of goods and services.
• The exclusion of cascading effect i.n. tax on tax till the level of final consumers will significantly iwprove the competitiveness of original goods and services in market which leads to beneficial impact to the GDP growth of the country. introduction of a GST to replace the existing multiple tax structure of Centre and State taxes is not only desirable but imperative.
• Integration of various taxes into a GST system would make it possible to give full credit for inputs taxes Iallected. GST, being a destination-based consumption tax based on VAT principle.

Worldwide GST:

France was the first Country to introduce GST in 1954. Worldwide, Almost 150 countries have

introduced GST in one or the other form since now. Most of the countries have a unified GST

system. Brazil and Canada follow a dual system.

Tax Rates under GST in India

• GST rates are divided into five categories which are 0% , 5%, 12%, 18%, 28%. All the basic need requirement goods are pleased in 0% category like food grains, bread, salt, books etc.
• Goods like paneer, packed food, tea coffee etc are placed under 5% category.
• Mobiles, sweets, medicine, are under 12%. Al types of services are under 18% category.
• All other remaining luxury items are placed under the last head of 28%.
• Petrol, gas, crude oil, diesel etc, are still out from the criteria of GST.

Impact of GST

• In the case of indirect taxes, the burden was on end customer or consumer.
• But due to the implementation of one tax in the whole country the overall cost of production of all goods will be reduced but on the other hand in case services, it will increase after the implantation of GST but CST gets abolished which ultimately reduces the cost of goods. Currently, we pay 30 35% tax on a commodity.
• In the case of sonic goods, direct and indirect taxes imposed by government raise its cost’ upto 30%. After the implementation of GST, it will reduce.
• The GST also reduces the cascading effect of tax which helps in making the trade simple and reduces the tax Burden of Entrepreneurs

Conclusion of GST

• Implementation of GST is one of the best decision taken by the Indian government.
• For the same reason, July 1, 2017 was celebrated as Financial Independence day in India when all the Members of Parliament attended the function in Parliament House.
• The transition to the GST regime which is accepted by 159 countries would not be easy. Confusions and complexities were expected and will happen.
• India, at some point, had to comply with such regime, Though the structure might not be a perfect one but once in place, such a tax structure will make India a better economy favorable for foreign investment. Until now India was a union of 29 small tax economies and 7 union territories with different levies unique to each state.
• It is a much accepted and appreciated regime because it does away with multiple tax rates by Centre and States.
• And if you are doing any kind of business then you should register for GST as it is not only going to help Indian government but will help you also to track your business weekly as in GST you have to make your business activity statement each work.

I always spent my half an hour to read this blog’s articles every day along with a cup of coffee.

Very good info. Lucky me I discovered your blog by chance

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CBSE Class 12 Indian Economic Development Notes

Economic Development is a wider concept than economic growth and deals with the programs, activities, and policies that aim at improving the economic well-being and quality of life of a country. GeeksforGeeks has designed Notes for Class 12 Indian Economic Development in a way that provides detailed knowledge about the subject and related topics. The notes of Indian Economic Development contain 8 chapters covering important topics, like World Trade Organisation, Economic Reforms, Agriculture, Industrial Sector, Sustainable Environment, GDP, Employment, Rural Development, Human Capital and Human Development, Unemployment, Liberalisation, Privatisation, Globalisation, and many more. 

Chapter 1: Indian Economy on the Eve of Independence

The first chapter of Class 12 Indian Economic Development ‘Indian Economy on the Eve of Independence’ explains in detail the situation of the Indian Economy after Independence. The notes of this chapter consist of important topics, like the agricultural sector, industrial sector, occupational structure, foreign trade, demographic conditions, infrastructure, and different policies of British rulers that led to the exploitation of the Indian Economy. 

• Indian Economy on the Eve of Independence
• Agriculture Sector on the Eve of Independence
• Industrial Sector on the Eve of Independence
• Foreign Trade and Demographic Condition on the Eve of Independence
• Occupational Structure and Infrastructure on the Eve of Independence
• Policies of British Rulers that led to Exploitation of Indian Economy  
• Impact of Partition on the Indian Economy  

Chapter 2: Indian Economy (1950-1990)

The second chapter of Class 12 Indian Economic Development ‘Indian Economy (1950-1990)’ explains in detail the situation of the Indian Economy from the years 1950 to 1990, its economic system, the Five Year Plan, and other related topics. The quick links given below for the notes of this chapter consists of important topics, like Economic Planning, Agriculture, Measures to solve agricultural problems, Green Revolution, Industrial Policy Revolution, Foreign Trade, and many more. 

• Indian Economy (1950-1990): Economic System adopted by Independent India
• Economic Planning during 1950-1990
• India’s Five Year Plan  
• Evaluation (Achievements and Failures) of Economic Planning till 1991  
• Agriculture during 1950-1990  
• Policies or Measures to Solve Agricultural Problems during 1950-1990
• Green Revolution: Impacts, Achievements and Shortcomings
• Debate Over Subsidies to Agriculture
• Industries during 1950-1990
• Industrial Policy Revolution, 1956
• Foreign Trade during 1950-1990|Trade Policy: Import Substitution
• P.C. Mahalanobis and His Contribution

Chapter 3: Liberalisation, Privatisation, and Globalisation: An Appraisal

Liberalisation, Privatisation, and Globalisation are the three types of measures initiated by the Indian Government under the New Economic Policy. The third chapter of Class 12 Indian Economic Development, ‘Liberalisation, Privatisation and Globalisation’ consists of everything required to know about LPG under the New Economic Policy. The important topics covered in the notes of this chapter are Economic Reforms, New Economic Policy, Liberalisation, Privatisation, Globalisation, World Trade Organization, and the Impacts of LPG. 

• Economic Reforms: Need and Criticism of Economic Reforms
• New Economic Policy 1991: Objectives and Components
• Liberalisation: Meaning, Economic Reforms Adopted by Indian Government and Objectives
• Privatisation: Meaning, Disinvestment, Rationale and Obstacles to Privatisation in India
• What is Globalisation? Explain advantages, disadvantages and types of Globalisation.
• World Trade Organisation (WTO): Features, Functions and Objectives
• Impact of Liberalisation, Privatisation, and Globalisation
• Concept and Features of Demonetization
• Goods and Services Tax (GST)

Chapter 4: Human Capital Formation in India

Human Capital is the stock of knowledge and skills embodied in human beings, and human capital formation means increasing the level of productivity and efficiency of human beings by providing them education and health. The fifth chapter of Class 12 Indian Economic Development, ‘Human Capital Formation in India’ covers in detail about human capital, human development and education. 

• Human Capital Formation: Meaning, Sources, Role and Importance
• Difference between Physical Capital and Human Capital
• Sources of Human Capital Formation
• Problems of Human Capital Formation
• Role of Human Capital on Economic Growth
• Difference between Human Capital and Human Development
• Human Capital Formation in India: Growth of the Education Sector in India

Chapter 5: Rural Development

Rural Development means to improve and develop the rural areas of a country. The sixth chapter of Class 12 Indian Economic Development, ‘Rural Development’ explains in detail the rural sector and its development. The important topics covered in the notes of this chapter are agricultural rural credit, agricultural marketing, organic farming, and many more. 

• Rural Development: Meaning, Significance, Process and Evaluation
• Rural Credit: Meaning, Purpose, Need, Sources and Critical Appraisal
• Sources of Rural Credit
• Agricultural Marketing: Meaning, Measures, Defects and Alternate Marketing Channels
• Agricultural Diversification: Needs, Benefits and Types
• Organic Farming: Meaning, Benefits, Challenges and Future Prospects of Organic Farming

Chapter 6: Employment: Growth, Informalisation and Other Issues

Employment is an activity under which people perform productive activities for the sake of generating income. The seventh chapter of Class 12 Indian Economic Development, ‘Employment: Growth, Informalisation and Other Issues’ explains in detail the concept of employment and related topics. The notes provided for this chapter by the quick links mentioned below covers important topics like self-employed workers, hired workers, growth of employment, changing structure of employment and unemployment. 

• Employment: Meaning, Importance, Basic Terms of Employment and Participation of people in Employment
• Forms of Employment: Self and Wage Employment
• Distribution of Employment
• Growth and Changing Structure of Employment
• Informalisation of Indian Workforce
• Difference between Formal Sector and Informal Sector
• Unemployment: Meaning, Types, Causes, Effects and Remedial Measures
• Unemployment and its Types

Chapter 7: Environment and Sustainable Development

Environment and Sustainable Development is the ninth chapter of Class 12 Indian Economic Development that explains  the Environment, Sustainable Development, Degradation, Causes of Environmental Degradation and Impact of Environmental Degradation. 

• Environment: Meaning, Functions, and Reasons for Environmental Crisis
• Environmental Degradation in India
• Causes and Impact of Environmental Degradation
• What are the measures to control Environmental Degradation ?
• Sustainable Development: Meaning, Objectives and Strategies

Chapter 8: Comparative Development Experiences of India and its Neighbours

The last chapter of Class 12 Indian Economic Development, ‘Comparative Development Experiences of India and its Neighbours’ explains the demographic indicators, development strategies, developmental path of India, and many more. 

• Great Leap Forward (GLF) | Meaning, Components and Effects  
• Comparative Study between India, China, and Pakistan
• Appraisal of Development Strategies of India, China, and Pakistan

CBSE Previous Year Papers (2020)

• CBSE Class 12 Economics Solved Question Paper 2020 – Set 1
• CBSE Class 12 Economics Solved Question Paper 2020 (Set 58/1/2)
• Class 12 Economics Solved Question Paper 2020 (Set 58/1/3)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 2
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 2 (58/2/2)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 2 (58/2/3)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 3
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 3 (58/3/2)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 3 (58/3/3)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 4 (Code No. 58/4/1)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 4 (58/4/2)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 4 (58/4/3)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 5 (58/5/1)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 5 (58/5/2)
• CBSE Class 12 Economics Solved Question Paper 2020 – Set 5 (58/5/3)

Chapters not in Current CBSE Syllabus (2024-2025)

Chapter: poverty.

A situation in which a human being is not even able to fulfill his/her basic requirements, including food, clothing, education, health, and housing is known as poverty. The below links talks in detail about poverty and the situation of poverty in India. The important topics covered are poverty line, dimensions of poverty in India, impact of poverty, causes of poverty, and Anti-Poverty Programmes adopted by the Government of India and its shortfalls. 

• Poverty: Meaning, Characteristics, and Measures
• Difference between Relative Poverty and Absolute Poverty
• Poverty Line: Meaning, Determination, Types and Criticism
• Below Poverty Line | Full Form of BPL, History and Benefits
• Trends and Dimensions of Poverty in India
• Impact and Causes of Poverty
• What are the Government Approach to remove Poverty?
• Poverty Alleviation Programmes in India
• Measures to Remove Poverty
• Anti-Poverty Measures

Chapter: Infrastructure

Infrastructure is the type of structure which is built to provide services in the economy. The below links explains the concept of infrastructure and related concepts. The important topics covered include need for infrastructure, importance of infrastructure, types of infrastructure, and many more. 

• Infrastructure: Meaning, Characteristics, Importance and Types
• Energy Infrastructure 
• Difference between Commercial and Non-commercial Sources of Energy
• Conventional vs Non-Conventional Sources of Energy
• Health Infrastructure in India
• Power Infrastructure: Sources, Challenges and Measures to meet Power Crisis
• Difference between Economic Infrastructure and Social Infrastructure

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Liberalisation, Privatisation and Globalisation: An Appraisal Class 12 Important Extra Questions Economics Chapter 3

January 30, 2021 by Prasanna

Here we are providing Class 12 Economics Important Extra Questions and Answers Chapter 3 Liberalisation, Privatisation and Globalisation: An Appraisal. Economics Class 12 Important Questions  are the best resource for students which helps in class 12 board exams.

Class 12 Economics Chapter 3 Important Extra Questions Liberalisation, Privatisation and Globalisation: An Appraisal

Liberalisation, privatisation and globalisation: an appraisal important extra questions very short answer type.

Question 1. When were economic reforms introduced in India? Answer: Economic reforms were introduced in India in 1991. Economic reforms refer to all those measures that aim at rendering the economy more efficient, competitive and developed.

Question 2. List any two reasons which led to economic reforms in India. Answer: The reasons which led to economic reforms in India include: (i) Unfavourable Balance of Payment (ii) Inflation (iii) Falling foreign exchange reserves

Question 3. What are the three broad components of New Economic Policy, 1991? Answer: The three broad components of New Economic Policy are: (i) Liberalisation (ii) Privatisation (iii) Globalisation

Question 4. Define liberalisation. Answer: Liberalisation means liberating the trade and industry of an economy from unnecessary restrictions and making the industries more competitive.

Question 5. State any two reforms introduced under liberalisation. Answer: The reforms introduced under liberalisation include: (i) Deregulation of industrial sector (ii) Trade and investment policy reforms (iii) Tax reforms

Question 6. What is fiscal policy? Answer: It refers to the revenue and expenditure policy of the government to achieve balanced development in the economy.

Question 7. Define direct tax. Give two examples. Answer: Direct taxes are those taxes levied immediately on the property and income of persons, and are paid directly by the consumers to the state. For example, income tax, property tax.

Question 8. Define indirect tax. Give two examples. Answer: Indirect tax is a tax collected by an intermediary (seller) from the person who bears tne ultimate economic burden of the tax (buyer). For example, excise duty, sales tax.

Question 9. What was the consequence of devaluation of rupee? Answer: Devaluation of rupee led to huge inflow of foreign exchange in India.

Question 10. List the aims of trade policy reforms. Answer: The aims of trade policy reforms were: (i) Removal of quantitative restrictions (ii) Reduction in tariff rates (iii) Removal of import licensing

Question 11. For what categories of products was industrial licensing not abolished? Answer: Industrial licensing was not abolished for product categories such as alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs and pharmaceuticals.

Question 12. Define privatisation. Answer: Privatisation means the induction of private management and control in the public sector enterprises.

Question 13. What is disinvestment? Answer: Disinvestment involves selling a part of the Public Sector Undertaking’s equity to the public to promote privatisation.

Question 14. State the purpose for undertaking disinvestment. Answer: Disinvestment was undertaken: (i) to maintain fiscal discipline; and (ii) to facilitate modernisation.

Question 15. Define globalisation. Answer: Globalisation means unification or integration of the domestic economy with the world economy.

Question 16. What is outsourcing? Answer: It is the practice of hiring external sources, mostly from other countries, for regular services.

Question 17. List a few services which are being outsourced by companies in developed countries to India. Answer: A few services which are being outsourced by companies in developed countries to India are: (i) Record keeping (ii) Accountancy (iii) Banking services (iv) Music recording (v) Film editing (vi) Clinical advice

Question 18. How are WTO and GATT related? Answer: GATT was established in 1948. WTO was founded in 1995 as the successor organisation to GATT.

Question 19. Where is the headquarters of WTO? Answer: The headquarters of WTO is in Geneva.

Question 20. What has been the impact of economic reforms on GDP? Answer: The overall GDP growth has increased as a result of economic reforms.

Question 21. List the areas which were ignored during the reform period. Answer: The sectors which were ignored during the reform period are:. (i) Agriculture (ii) Industry (iii) Employment (iv) Infrastructure (v) Fiscal management

Question 22. Name the sector that benefited the most with the introduction of economic reforms in India. Answer: Service (tertiary) sector benefitted the most with the introduction of economic reforms in India

Question 23. Define GST. Answer: GST (Goods and Services Tax) is an indirect tax for the whole nation, which will make India one unified common market.

Question 24. Why is GST implemented? Answer: (i) GST will create a simpler tax system. (ii) It increases overall transparency and compliance.

Question 25. When was GST implemented in India? Answer: 1st July 2017

Question 26. Who is the head of the GST Council? Answer: Finance Minister

Question 27. Which constitutional amendment is done to pass the GST bill? Answer: 101 st

Question 28. What type of goods are not covered under the GST bill? Answer: (i) Cooking gas (ii) Liquor (iii) Petrol

Question 29. List the main categories of GST. Answer: (i) CGST (ii) SGST (iii) I GST

Question 30. What is demonetisation? Answer: Demonetisation is the act of stripping a currency unit of its status as legal tender.

Question 31. When did demonetisation take place in India? Answer: 8th November, 2016

Question 32. What was main motive behind demonetisation? Answer: To curb black money, terror funding and to stop the use of fake currency available in the market

Question 33. When did demonetisation take place in India for the first time in history? Answer: In 1946

Question 34. Which currency notes were affected due to demonetisation in November 2016? Answer: ₹ 500 & ₹ 1,000 notes (Liberalisation, Privatisation and Globalisation: An Appraisal)

Question 35. Which currency notes were newly implemented after demonetisation in November 2016? Answer: X 200 & X 2,000 notes

Question 36. What was the last date of tendering old currency? Answer: 30th December, 2016

Question 37. State one positive effect of demonetisation in India? Answer: Over fake currency

Liberalisation, Privatisation and Globalisation: An Appraisal Important Extra Questions Short Answer Type

Question 1. Explain the occurrence of events which led to introduction of economic reforms in India. Answer: The inefficient management of the Indian economy led to huge amount of borrowings from national and international financial institutions. As a result, India met with an economic crisis in 1991 due to its failure to repay its borrowings from abroad. Crisis led to rise in prices of essential goods. In order to overcome the crisis, India approached IMF and World Bank for loan. The IMF and World Bank announced New Economic Policy as a condition to support Indian economy. Thus, India needed to introduce economic reforms:

• To maintain sufficient foreign exchange reserves
• To keep inflation under control
• To improve economic efficiency
• To remove rigidities in various areas
• To increase international competitiveness

Question 2. Discuss the nature of government’s revenue and expenditure prior to economic reforms in India. Answer: The government was not able to generate sufficient revenue from taxation. Lack of revenue was accompanied by problems such as unemployment, poverty and population explosion. The income from PSUs was also not very high to meet the growing expenditure. On the other hand, the government was spending a large share of its insufficient income on areas which did not provide immediate returns.

Moreover, the foreign exchange borrowed from other countries and international financial institutions was spent on meeting consumption needs. The government neither made an attempt to reduce such reckless spending nor did it pay sufficient attention to increase its exports to meet growing imports’ expenditure.

Question 3. Write a short note on New Economic Policy, India. Answer: The IMF and World Bank announced New Economic Policy as a condition to support Indian economy to overcome crisis. The NEP consisted of wide range of economic reforms. The core policies were intended to create a more competitive environment in the economy and remove the barriers to entry and growth of firms.

This set of policies can broadly be classified into two groups:

(i) Stabilisation Measures: These are short-term measures aimed to correct the weaknesses developed in the balance of payments and to bring inflation under control.

(ii) Structural Reform Measures: These are long-term measures initiated to improve economic efficiency and increase its international competitiveness by eliminating the rigidities in various segments of the Indian economy.

Question 4. Explain the significance of liberalisation as an element of new economic reforms. Answer: Liberalisation means liberating the trade and industry of an economy from unnecessary restrictions and making the industries more competitive. It implies making the economy free from direct or physical controls imposed by the government. Partial liberalisation was started in India’s economy in the decade of eighties.

However, the New Economic Policy initiated in 1991 is more comprehensive and focused on reducing the controls by introducing liberal changes in both the external as well as domestic economy. Liberalisation process is based on the assumption that market forces could guide the economy in a more effective way than the government control.

Question 5. State the salient features of trade policy reforms. Answer: The features of trade policy reforms are:

• There was moderation/reduction in import duty to enhance competitiveness in the domestic market.
• Import quotas had been completely abolished.
• Policy of import licensing had almost been scrapped.
• Export duty had been withdrawn to enhance competitiveness of Indian goods in the international market.

Question 6. How were the Indian industries regulated prior to reforms? Ans. The Indian industries were regulated in the following ways prior to reforms: (i) Obtaining industrial license from government officials was mandatcy for every entrepreneur to start a firm, close a firm or to decide the quantity of goods that could be produced. (ii) Private sector was not allowed in many industrial categories. (iii) Production o.f some goods was reserved for only in small scale industries. (iv) Government controlled prices determination and distribution of selected industrial products.

Question 7. Discuss the need for privatisation.What are the ways in which PSUs can be privatised? Answer: Privatisation means the induction of private management and control in the public sector enterprises. With a view to improve the performance of the public sector enterprises, the wave of privatisation has spread all over the world. Need for privatisation was felt mainly because of the inefficiency of the public sector enterprises. Thus, the private sector was given a larger space to operate in the areas reserved exclusively for the public sector.

Privatisation can be done by two ways: (i) By withdrawal governmental control from the management and ownership of public sector companies; and (ii) By outright sale of public sector companies.

Question 8. How can the government improve efficiency of PSUs? Explain giving examples. Answer: The government has made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions. For example, to improve efficiency, promote professionalism and enable them to compete more effectively in the liberalised global environment, the government chose nine PSUs and declared them as Navaratnas.

The first set of navaratna companies is as under.

• IOCL (Indian Oil Corporation Ltd.)

Question 9. Explain the significance of globalisation in the light of today’s modern world. Answer: Integration and unification of domestic economy with the world economy is known as globalisation. Globalisation is the outcome of liberalisation and privatisation. Due to the globalisation process, the unrestricted flow of goods and services, technology, capital and expertise was enabled among different countries of the world.

It helps in fostering healthy foreign competition among nations. As a result of globalisation process, the government of India has decided to increase the share of foreign investment up to 51% in Indian companies and provided automatic sanction to collaborations and foreign investors for this much of investment.

State the objective of WTO. The WTO has the following objectives:

• To develop the multilateral trading system encompassing the GATT, the results of the Uruguay Round and all the agreements concluded under the GATT
• To raise standard of living, real income, employment through expansion of trade
• To promote optimum utilisation of the world’s resources
• To secure the share of developing countries in the growth of international trade
• To eliminate discriminatory treatment in international trade
• To ensure linkage among different trade policies, environmental policies and sustainable development

Question 10. How important is the role of outsourcing in globalisation process? Answer: Outsourcing is the practice of hiring external sources, mostly from other countries, for regular senvices such as legal advice, advertisements, security, computer services, etc. With the adoption of globalisation, outsourcing has been intensified by the growth of fast modes of communication.

Many companies of developed nations are outsourcing a variety of services such as voice-based business processes, which are known as BPO or call centres, banking services, film editing, clinical advice, teaching, record keeping, accountancy, music recording, book transcription, etc. to India. Most of the multinational corporations and even small companies are outsourcing their services to India at a cheaper cost with reasonable degree of skill and accuracy.

Question 11. Why do global countries prefer to outsource resources and services? Answer: At present, many global countries prefer to outsource resources and services because: (i) Outsourcing increases efficiency. (ii) It releases capital expenditure, which can be used for other productive activities. (iii) It enables countries to focus on their primary activities.

Question 12. Discuss the role of India as WTO member. Answer: Being a founder member of WTO, India has been in the forefront offraming fair global rules, regulations and safeguards and advocating the interests of the developing world. India has kept its commitments towards liberalisation of trade by removing quantitative restrictions on imports and reducing tariff rates.

Question 13. Evaluate the process of disinvestment in PSUs undertaken during reforms. Answer: During reforms, PSUs had been undervalued and sold to the private sector. This resulted in a huge loss to the government. The government used the proceeds from disinvestment to offset the budget deficits rather than using it for the development of PSUs and country’s social infrastructure.

Question 14. Discuss the impact of economic reforms on fiscal management. Answer: The following points explain the impact of economic reforms on fiscal management: (i) Tax revenue did not increase. (ii) Tariff revenue and custom duties were reduced. (iii) Tax invectives were offered to foreign investors, which reduced the scope for raising tax revenues.

Question 15. What is Goods and Services Tax (GST)? Answer: GST is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture upto final consumption with credit of taxes paid at previous stages available as set-off. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer. GST is one indirect tax for the whole nation, which will make India one unified common market.

Question 16. What type of GST is prepared to be implemented? Answer: A dual GST system has been prepared with center and state simultaneously levying it on a common tax base. The GST to be levied by the center on intra-state supply of goods and/or services would be called the Central GST (CGST) and that to be levied by the states would be called the State GST (SGST). Similarly, Integrated GST (IGST) will be levied and administered by center on every inter-state supply of goods and services.

Question 17. Why is dual GST required? Answer: India is a federal country where both the center and the states have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the constitutional requirement of fiscal federation.

Question 18. What is IGST? Answer: Under the GST regime, an Integrated GST (IGST) would be levied and collected by the center on inter-state supply of goods and services. Under article 269A of the Constitution, the GST on supplies in the course of inter-state trade or commerce shall be levied and collected by the government of India and such tax shall be apportioned between the union and the states in the manner as may be provided by the Parliament by law on the recommendations of the Goods and Services Tax Council.

Question 19. What are the components of GST? Answer: There are three taxes applicable under this system – CGST, SGST and IGST. (i) CGST: It is collected by the central government on an intra-state sale. For example: transactions happening within Maharashtra

(ii) SGST: It is collected by the state governments on an intra-state sale. For example: transactions happening within Maharashtra

(iii) IGST: It is collected by the central government on an inter-state sale. For example: transactions happening between Maharashtra and Tamil Nadu

Question 20. How is GST calculated? Answer: With the unified system of taxation, it is now possible for taxpayers to know the tax levied at different points for various goods and services under the GST regime. For the calculation of GST, the taxpayer should know the GST rate applicable to various categories. The different slabs for are 5%, 12%, 18% and 28%.GST calculation can be explained by simple illustration: If a good or service is sold at ₹ 1,000 and the GST rate applicable is 18%, then the net price calculated will be: = 1,000 + \(\left(1,000 \times \frac{18}{100}\right)\) = 1,000 + 180 = ₹ 1, 180

Question 21. What do you understand by the term demonetisation? Answer: Demonetisation is the act of stripping a currency unit of its status as legal tender. In other words, to withdraw (money or the like) from use. It occurs whenever there is a change of national currency. The current form or forms of money is pulled from circulation and retired often to be replaced with new notes or coins.

Sometimes a country completely replaces the old currency with new currency. India demonetized its ₹ 500 and ₹ 1,000 rupee notes on November 8, 2016. This action affected 86% of all cash in circulation.

Liberalisation, Privatisation and Globalisation: An Appraisal Important Extra Questions Long Answer Type

Question 1. What was the need for economic reforms in India? Explain. Answer: At the time of independence, building a large public sector was almost unavoidable. The capabilities of India’s private sector could not be visualised at that time to make very large investments in the areas like infrastructure. However, by late 1980s the situation had completely changed. By that time, India had developed a strong private sector. Therefore, the argument of a large public sector was no longer valid. Need for economic reforms or New Economic Policy was observed mainly due to following reasons:

(i) Increase in Fiscal Deficit: By 1991, government expenditures began to exceed its revenue by such large margins, which became unsustainable. Fiscal deficit was increasing year after year due to increase in its non-developmental expenditure. Fiscal deficit was 5.4 percent of GDP in 1981 -82, which increased to 8.4 percent of GDP in 1990-91.

Interest payments on public debt were amounted to I0 percent of total government expenditure in 1980-81 which increased to 36.4 percent in 1991. Thus, government was fast heading for debt trap. India had lost the faith of international institutions like World Bank and IMF. Hence, it was necessary to begin new economic reforms in the country.

(ii) Adverse Balance of Payments: Balance of payments is an account of all the payments and receipts of one country with other countries. Imports grew at a very high rate unable to match growth in exports. Thus, India faced adverse balance of payment. The country needed foreign exchange to pay for the import of goods and services. The deficit in the balance of payment on current was ₹ 2,214 crore in 1980-81 which rose to ₹ 17,367 crore in 1990-91. Therefore, it was necessary to adopt New Economic Policy to correct the deficit in the Balance of Payment.

(iii) Gulf Crisis: Prices of petroleum increased in 1990-91 due to Iraq War. This Gulf crisis further worsened the balance of payment position of India.

(iv) Rise in Prices: During 1990-91, the level of inflation in the country reached to double digit. As a result, foreign investors had lost their confidence in Indian economy and national capital resources were flying out of the country. Cost of production had taken an upward jump due to high rate of inflation.

(v) Poor Performance of the Public Sector Undertaking: After 1980, most of the public sector undertakings had suffered huge losses. As a result, PSUs have become a liability to the nation. It became inevitable for the government to adopt New Economic Policy.

(vi) Fall in Foreign Exchange Reserves: During 1990-91, foreign exchange reserves declined to a level that was not adequate for imports worth more than two weeks; exports declined and industrial output of the country was crippled.

India had to approach the World Bank and IMF to provide huge loans of $7 billion to bail India out of the crisis. The IMF and World Bank announced New Economic Policy as a condition to support Indian economy to overcome crisis.

Question 2. Explain the measures taken in various sectors for liberalisation of the economy. Answer: The following measures had been taken for liberalisation of Indian economy under New Economic Policy: I. Industrial Sector Reforms (i) The number of industries reserved for the public sector was reduced from 17 to 4 and in the areas reserved for public sector; private sector’s participation was to be allowed.

(ii) Monopolies and Restrictive Trade Practices (MRTP) Act was liberalised. According to the provision of MRTP Act, all those firms having assets worth more than 100 crore were used to be declared as MRTP firms and were subjected to many restrictions. Now, the concept of MRTP has been abolished. These firms are now free to expand themselves.

(iii) Under the policy of liberalisation, industries are now free for expansion and production. Producers are now free to produce anything on the basis of demand in the market. Licensing was abolished and as a result, firms are free to expand their production capacity.

(iv) Investment limit of the small scale industries has been raised to ₹ one crore to enable them for modernisation.

(v) Automatic approval was granted for Foreign Direct Investment up to 51 percent in a wide range of industries.

(vi) Under liberalisation, Indian industries were allowed to buy machinery and raw material from abroad. Government has also allowed the industries to import technology for their modernisation from abroad.

II. Financial Sector Reforms

• (i) RBI’s role had been changed from controller to facilitator in India to allow the financial sector to take decisions on various matters without consulting the RBI.
• (ii) The limit for foreign investment in banks was raised to around 50 percent.
• (iii) Foreign Institutional Investors such as merchant bankers, mutual funds and pension funds are now allowed to invest in Indian financial markets.

III. Foreign Exchange Reforms

• The rupee was devalued against foreign currencies to attract huge inflow of foreign exchange.
• The government adopted free market mechanism for the determination of rupee value in the foreign exchange market.

IV. Trade Policy Reforms

Question 3. What were the measures taken under economic reforms to promote privatisation? Explain. Answer: The following measures were taken to promote privatisation under New Economic Policy: (i) Contraction of Public Sector: Earlier for the economic development of India, great importance was given to public sector. However, most of the objectives of economic development have remained unfulfilled.

As a result, policy of contraction of public sector was adopted under economic reforms. Number of industries reserved exclusively for public sector was reduced from 17 to 8 and further to 2, viz. atomic energy and railways transport. All other industries form the part of private sector.

(ii) Disinvestments: In the liberalisation process, the part of the equity of inefficient public sector undertakings was sold to the private sector (public). This is also known as disinvestments. The purpose of disinvestments was mainly to improve financial position and facilitate modernisation.

It was thought that disinvestments could provide strong impetus to the inflow of Foreign Direct Investment. It should be remembered that all of our PSUs are not inefficient. Our Nine PSUs, which are known as ‘Navaratnas’ of Indian Economy are still playing a leading role in the world market.

Question 4. Discuss the various strategies which laid the foundation stone for the process of globalisation in India. Answer: The various strategies which laid the foundation stone for the process of globalisation in India are discussed below:

(i) Foreign Exchange Reforms: In 1991, rupee had to be devalued against foreign currencies in order to correct the widening deficit in the balance of trade. That was the first and most important reform in the external sector which was made in the foreign exchange market. At present, the value of rupee is determined by market on the basis of demand and supply of exports and imports and by FDI or Fils.

(ii) Trade and Investment Policy Reforms: Since 1991, the door for foreign investment and technology transfer are opened. Foreign Exchange Regulation Act (FERA), which intended to control the inflow and outflow of foreign exchange, was replaced by a more liberal Foreign Exchange Management Act (FEMA).

Quantitative restrictions on imports of agricultural products and manufactured consumer goods were also fully removed from April, 2001. Since 1991, tariff rules are reduced and the licensing procedures for imports are removed.

(iii) Reduction in Tariff: In order to encourage competitiveness, tariff barriers have been withdrawn on most goods traded between India and rest of the world.

Question 5. What are the merits and demerits globalisation? Answer: Merits of Globalisation (i) Globalisation provides exposure to international economies and helps availing advanced technology and inputs from across the globe. This improves quantity as well as quality of production.

(ii) It helps in improving efficiency of allocation of resources due to more competitive environment.

(iii) It encourages healthy competition among nations, which helps in improving the quality of goods and services at a competitive price.

(iv) India’s share in the world trade has increased from 0.5 per cent in 1990-91 to 1.1 percent in 2005.

Demerits of Globalisation (i) Many industries (especially small units) may not be able to compete at par with big MNCs. As a result, they might be forced to merge with global enterprises or face a closure.

(ii) Large scale establishment of MNCs in the developing countries like India might result in monopolies.

(iii) Globalisation may lead to income inequalities within the country as it will benefit only those who possess latest skills and technology.

Question 6. Discuss the benefits of WTO to India. Answer: The following are the important benefits emerging from the WTO agreement: (i) Due to reductions in tariff and non-tariff barriers, there will be development oftrading environment leading to dynamism.

(ii) Countries like India will be helped in their liberal economic policies due to increase in market access opportunities under the WTO.

(iii) It is estimated that world income from trade liberalisation could increase from $ II0 billion to $5 10 billion annually.

(iv) The WTO will strengthen the trade relations among member countries. It will lead to a new trade order.

(v) India will gain in the long run due to low duties on raw-material, components and capital goods.

(vi) The TRIPs are not going to harm India and other developing countries because of providing safeguards.

(vii) India, being a founder member country, has already started to assert itself in the meeting of the WTO council.

(viii) The WTO agreement will emphasise linkages between trade policies, environmental policies and sustainable development.

Question 7. Discuss the positive impacts of New Economic Policy. Answer: The positive impacts of New Economic Policy are discussed below: (i) Increase in the Rate of Economic Growth: The annual growth rate of GDP in 1991 -92 was slightly more than I percent, which rose to 7.6 percent in 2004-05. With the adoption of New Economic Policy, there has been increase in the rate of economic growth.

The rate of growth of per capita income in 1991-92 was 1.5 percent, which rose to 6.1 percent in 2004-05. However, in comparison to the growth rate of many other Asian or world countries, India’s performance has been rather dismal.

(ii) Increase in the Competitiveness of Industrial Sector: Indian industrial sector stood nowhere in the international world. After adoption of New Economic Policy, efforts were taken to stimulate the industrial activity so that it becomes competitive and profitable.

(iii) Control on Prices: With the adoption of New Economic Policy, annual rate of inflation has been reduced from 17 percent in 1991 to below 5 percent in 2005-06.

(iv) Fall in the Fiscal Deficit: Fiscal deficit as a percentage of GDP has fallen from 8.5 percent in 1990-91 to 4.3 percent in 2005 – 06.

(v) Reduction in Poverty and Inequality: Poverty and inequalities in the distribution of wealth: have not been reduced in India during the planning era. However, after the New Economic Policy regime, people are getting more opportunities of self-employment, which are expected to reduce these problems. Population below: poverty line was 36 percent in 1993-94, which reduced to 26.1 percent in 1999-2000. Twelfth plan projection is to reduce poverty below 10 percent.

(vi) Increase in the Efficiency: New Economic Policy is adding to the efficiency of the Indian economy in many ways viz., scientific management, improvement in technology, closure of inefficient units, freedom from controls and restrictions, competition and co-operation, etc.

(vii) Decline in Deficit of Balance of Payment: Current account deficit of balance of payment has been declined from 3.2 percent of GDP in 1990-91 to 1.8 percent in 2005-06. Thus, New Economic Policy has raised the global confidence in the Indian economy.

(viii) Increase in Investment: After adoption of New Economic Policy, the international copfidence on the economy has been restored. Foreign investors are now showing active interest : in investment in many sectors.

Question 8. Explain the advantages of GST in India. Answer: Following are the advantages of GST in India: (i) Mitigation of Cascading Effect: Under the GST administration, the final tax would be paid by the consumer for the goods and services purchased. However, there would be an unified tax credit structure in place to ensure that there is no slumping of taxes.

(ii) Evolution of Multiple Layers of Taxation: One of the advantages of GST is that it integrated different tax levied such as central excise, service tax, luxury tax, special additional duty of customs, etc. into one consolidated tax.

(iii) Enhanced Productivity of Logistics: The restriction on inter-state movement of goods has reduced earlier. Logistic companies had to maintain multiple warehouses across the country to avoid state entry tax on inter-state movements.

(iv) Reduction of Litigation: GST aids in reducing litigation as it establishes clarity towards the jurisdiction of taxation between the central and state governments

Question 9. Explain the disadvantages of GST. Answer: Following are the disadvantages of GST: (i) Negative Impact on Estate Market: Some economists say that GST in India would negatively impact the real estate market. It would add up 8% cost of new homes.

(ii) No Reduction in the Number of Tax Layers: Some experts say that CGST and SGST are nothing but new names for central excise/service tax, VAT and CST.

(iii) Expensive: Some retail products currently have only 4% tax on them. After GST, garments and clothes could become more expensive.

(iv) Bad Effects upon Industrial Sector: The aviation industry would be affected. Service taxes on airfares currently range from 6 to 9%. With GST, this rate will surpass 15% and effectively double the tax rate.

Question 10. State the impacts of GST in India. Answer: The GST is one of the biggest tax reforms in India especially in the indirect tax structure after the independence of India. It was first implemented on 1st July 2017. Since then SMEs have sought clarity concerning the changed GST which the new four-tiered tax structure will bring into the taxation system.

Through the GSTN educational series, the government attempted to offer clarity on GST and the tremendous impact it will have on the Indian business owners as a whole. GST has far reaching implications for the concept of “One Nation – One Tax” legislation on SMEs is in India. The government has introduced the revised rates of indirect taxes for every good and service and specified all details along with the modifications for transactions.

Question 11. What principles were adopted for subsuming all taxes under GST? Answer: The various central and local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind: (i) Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

(ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import or manufacture or production of goods or services.

(iii) This action should result in free flow of tax credit in intra and inter-state levies. The taxes, levies and fees that are not specifically related to supply of goods and services should not be subsumed under GST.

(iv) Revenue fairness for both the union and the states individually would need to be attempted.

Question 12. What are the advantages of demonetisation in India? Answer: (i) Trace Black Money: A major achievement of demonetisation has been that it has helped the government in tracking black money. The government claimed that large sums of black money were kept hidden by tax evaders and demonetisation has helped it uncover the huge amount of accounted cash.

According to estimates made by RBI, during the demonetisation drive people had deposited more than rupees three lakh crores worth of black money in the bank accounts.

(ii) Increase in Tax Revenue: Another expected benefit was that due to people disclosing their income by depositing money in their bank accounts, government will get a good amount of tax revenue which can be used by providing good infrastructure, hospitals, national institutes, roads and many facilities for poor and needy sections of society.

(iii) Cashless Economy: Another major objective of the government achieved through demonetisation was to push the Indian economy towards becoming cashless. The government succeeded in encouraging people to use digital means for making transactions.

(iv) Increase the Number of Taxpayers: Economy has witnessed close to 20% decline in currency in circulation, number of taxpayers has considerably increased and a large number of shell companies have been identified.

Question 13. What are the disadvantages of demonetisation in India? Answer: (i) Inadequate Supply of New Notes: The biggest disadvantage of demonetisation has been the chaos and frenzy it created among common people initially. Everyone was rushing to get rid of demonetised notes while inadequate supply of new notes affected the day to day budgets of citizens,

(ii) Destruction of Old Currency: Another disadvantage is that destruction of old currency units and printing of new currency units involve costs, which has to be borne by the government; and if the costs are higher than benefits, there is no use of demonetisation.

(iii) Failure to Recover Enough Black Money: Another problem is that this move was targeted towards black money but many who had not kept cash as their black money and used that money in other asset classes like real estate, gold and so on were not affected by demonetisation.

Liberalisation, Privatisation and Globalisation: An Appraisal Important Extra Questions HOTS

Question 1. Is disinvestment really good for India? Answer: In the liberalisation process, the part of the equity of inefficient public sector undertakings was sold to the private sector (public). This is known as disinvestments. The purpose of disinvestments was mainly to improve financial position and facilitate modernisation. It was thought that disinvestments could provide strong impetus to the inflow of Foreign Direct Investment. Therefore, disinvestment has been a crucial step against inefficiency of PSUs.

Question 2. India has reduced import restrictions several times in the 2000s, still it is evaluated as more restrictive than similar developing economies by the WTO in 2008. What can be the reason for this? Answer: Despite reducing import restrictions several times in the 2000s, India was evaluated as more restrictive than similar developing economies by the WTO. The possible reason can be electricity shortage and inadequate transportation infrastructure, which act as significant constraints on trade.

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• Introduction to LPG

Indian Trade blending with LPG

Indian trade economy met and adopted a new hemisphere where LPG was introduced. LPG is the acronym for Liberalization, Privatization, and Globalization. The Government of India was aware of the world trade economy, which was free of any obstacles and ran smoothly. To install the same in our country, the Indian Government loosened its control on international trade and capital, took steps to hand over the sick public sector units to the private entities, and boosted the growth of interdependence on the world trade economy. In short, the Indian Government took an advent to introduce LPG in our economy, which opened our economy to the world trade centre that helped in harnessing abundant wealth, talent, fame, and honour to our country.

LPG is the subject matter to be dealt with in this section. We will understand what agitated the reform of LPG and how it is progressing in the present Indian era.    

Liberalization, Privatisation, and Globalisation

India’s economy in the early nineties faced a major crisis, followed by a foreign exchange crunch that pushed the economy down. The country exhausted its foreign exchange reserves.  To face the crisis, the government came up with new adjustments in the economy by bringing new reforms. 

These reforms were known as 'structural adjustments'. The government announced a New Economic Policy on July 24, 1991. This new model of economic reforms is commonly known as the LPG or Liberalisation, Privatisation, and Globalisation model. 

The main objective was to put the Indian economy into the arena of “Globalization” and to give it a new thrust on market orientation. The policy was intended to move towards a higher economic growth rate and to build sufficient foreign exchange reserves.

Liberalization

Liberalization removes state control over economic activities. It provides better autonomy to the businesses in decision-making without government interference. It was assumed that the market forces of demand and supply would operate automatically to derive a better efficiency and economic health will recover. Internally, this was enacted by bringing reforms in the real and financial sectors and externally by releasing foreign exchange and trade from state governments grip. 

Privatization

It means withdrawing the ownership or management of a government enterprise. Government companies are converted into private companies in two ways 

Government is shredded from the ownership or management of the public-sector companies.

by the blatant sale of public sector companies.

Privatization is the transfer of the control and ownership of businesses from the public sector to the private sector. It means a decline in the role of the government as the property rights shaft from public to private. 

The public sector enterprises had been experiencing challenges, since planning, such as low efficiency, low profitability, growing losses, political interference, lack of autonomy, labour issues, etc. Therefore, to address this situation government introduced privatisation in the economy. 

Conditions to be met before Privatisation

Liberalization and deregulation of the economy are major prerequisites for privatization to set foot. 

Capital markets should be developed to bear the brunt of disinvested public sector shares.

Globalization

Globalization can be defined as the integration of the national economy with the world economy. It enables a free flow of information, technology, goods and services, capital investments, and even people across different countries. It brings the trade, investments, and markets from various countries under one umbrella. It promotes a more lucid economy. Globalization is also divided into three types.

The Main Elements of Globalisation are

To open the domestic markets for the steady flow of foreign manufactured goods, India reduced customs duties on imports. 

The amount of foreign capital in a country is a good indicator of the growth and globalization of an economy. 

Foreign Exchange Regulation Act (FERA) was liberalized in 1993 and later the Foreign Exchange Management Act (FEMA) 1999 was passed to start transactions in foreign currency.

Positive Impact of LPG in Our Economy

1. Increase in GDP Growth- 

The Indian economy has surely become vibrant after the LPG reforms. The overall growth of the economy has trended up as indicated by GDP growth. Post LPG policies, the growth of GDP shot up to as high as 8 percent per annum.

2. Stimulant to Industrial Production-

LPG policies have worked as a great stimulant to industrial production in the Indian economy. IT industries in India have reached the global level because of these LPG reforms.

3. Curb on Fiscal Deficit

 The ever-increasing fiscal deficit has been a danger to the process of investment in the Indian economy. It was 8.5 percent of GOP before 1991. Thanks to the LPG policies, government revenue has increased. As a result, the Fiscal deficit was deduced to 4% of the GOP (gross operating profit).

4. Check on Inflation

LPG reforms made the flow of demand and supply smooth and it in return checked the inflation. There was a fall in inflation rates as reforms increased the production of goods and services resulting in either falling of price or constant price. The competition also helped to keep inflation in check.

5. The Decline in Poverty

The reform led to the smooth running of businesses without any hindrance, which led to more employment and hence the decline in Poverty. 

Negative Impact of LPG Reforms

The reforms were mainly for the formal sector of the economy, the agricultural sector, the urban informal sector, and forest depending communities were untouched by the reform. This resulted in Uneven economic growth and unequal distribution of wealth. 

Economic liberalization in the organized manufacturing industries (subjected to strict labour laws) has led to very little employment.

Market-based reforms led to the economic disparity between the rich class and the poor class.

Social Sectors like Health, education were ignored in this reform which has led to poor health sector development and lousy educational growth.

Economic reforms have pushed up the growth of the economy but have miserably failed to generate adequate employment. 

FAQs on Introduction to LPG

1. How did LPG reforms lead to Income Disparity?

Globalization leads to ever-increasing income gaps within the country. It benefits those who possess skills and technology. The growth rate accomplished by an economy can be at the expense of decreasing incomes of people has rendered them unessential.

2. Did LPG Reforms Lead to Increased Competition in the Market?

Yes, The competition increased as the flow of goods and services from foreign countries increased. The variety of products accelerated leading for consumers a wide variety of choice. It increased competition in the market.

3. How did LPG affect India?

With the introduction of LPG reforms, the Indian economy has become more of a vibrant economy. The overall economic activity has escalated, this is being reflected by the GDP indicator ever since 1991. 

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Chapter 3 IED Liberalisation, Privatisation And Globalisation

• Chapter 1 IED Indian Economy On The Eve Of Independence
• Chapter 2 IED Indian Economy 1950-1990
• Chapter 4 IED Poverty
• Chapter 5 IED Human Capital Formation In India
• Chapter 6 IED Rural Development
• Chapter 7 IED Employment: Growth Informalisation Other Issues
• Chapter 8 IED Infrastructure
• Chapter 9 IED Environment And Sustainable Development
• Chapter 10 IED Comparative Development Experiences of India

What we will study in this Chapter

Last updated at April 16, 2024 by Teachoo

In the last Chapter ,we studied about Indian Govt Economic Policies from 1950-90

These economic Policy had an adverse effect on the economy and Our Economy was in a crises

So economic policies were changed from 1991 and Reforms introduced

We will study about this new Economic Policy and Economic Reform in this Chapter

Chapter 3 Liberalization, Privatisation and Globalisation: An Appraisal Indian Economy Before Independence (British Rule till 1947) After Independence (Indian Govt Rule) Till 1990 From 1991 Indian Economy on the Eve of Independence Chapter 1 Chapter 2 Indian Economy 1950-90 Chapter 3 Economic Reforms Since 1991 This we will study in this Chapter

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Assertion Reason MCQs of Liberalisation Privatisation Globalisation Economics class 12

• January 31, 2022
• MCQS , Indian Economy , Liberalisation Privatisation Globalisation

Looking for important assertion reason-based MCQs with answers of Liberalisation privatization Globalisation chapter of Indian economic development book of Class 12 CBSE, ISC, UPSC and other state Board.

We have compiled very important Assertion reason-based multiple choice questions with answers of chapter 3 of the Indian economic development book of class 12

Assertion Reason Multiple choice question with answers of liberalisation privatisation globalisation chapter of economics class 12

Let’s Practice

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Every year, the government fixes a target for the disinvestment of public sector enterprises (PSEs)

Reason (R): As per the Five Year Plan, The Indian Government is moving to a more Capitalist Economy by selling enterprises that can be managed by the private sector.

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 False d) Assertion (A) is False but Reason (R) is true.

Ans – a)

Assertion (A): India has become a favorite destination of outsourcing for most of MNCs.

Reason (R): India has vast skilled and cheap manpower which enhances the faith of MNCs for investment in India.

Assertion (A): After the New Economic Policy was announced in1991, domestic competition has increased.

Reason (R): Industrial sector reforms abolished industrial licensing for all the projects, except for a shortlist of industries.

Assertion (A): Under the Financial Sector Reforms, the financial sector was allowed to take decisions after consulting RBI.

Reason (R): The role of RBI was reduced from regulator to facilitator of the financial sector.

Ans – d) Explanation:- After Financial Sector Reforms, Financial Enterprises can take financial decision without consulting the RBI.

Assertion (A): New Economic Policy introduced in 1991 initiated liberalization of the Indian Economy.

Reason (R): Industrial growth was very slow before 1991.

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