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Class 12 Economics Chapter 7 Economic Reforms Since 1991
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Economic Reforms Since 1991
Chapter: 7
| PART – (B) INDIAN ECONOMIC DEVELOPMENT |
(A) Very Short Types Question & Answers:
1. Define liberalisation?
Ans: It refers to the removal of unnecessary controls on trade and industry imposed by the government.
2. Define privatisation?
Ans: It means de-nationalisation or to allow the private sector to have more operation and ownership of production units.
3. Define globalisation?
Ans: It is a process in which one economy integrates with rest of the world with respect to production and trade.
4. What is W.T.O?
Ans: It is an organisation of various trading countries of the world which is pursuing the policy of retrade.
5. When was WTO founded?
Ans: January, 1995.
6. Define dis-investment?
Ans: The disinvestment of Public Sector Units (PSU) refers to the sale of the shares of public sector undertakings to the private hands.
7. Define fiscal deficit?
Ans: It is the excess of anticipated government expenditure over its receipts.
8. How many countries are members of the WTO?
Ans: 148.
9. Define Structural Adjustment Programme.
Ans: These are policy measures which help in regulating the aggregate supply of the economy.
10. What are the three components of new economic reforms?
Ans: Libersation, Privatisation and Globalisation.
11. How does liberalisation promote economic growth?
Ans: Liberalisation promotes economic growth by creating a more competitive and dynamic business environment. It allows for greater market efficiency, encourages innovation and investment, attracts foreign capital and technology, expands trade opportunities, and fosters productivity growth, all of which contribute to overall economic expansion.
12. What do you mean by economic reforms?
Ans: Economic reforms or new economic policy refer to various policy measures and changes introduced since 1991. Economic reforms was to create a new economic environment for economic development, by removing existing obstacles.
13. What is modernisation?
Ans: It means adoption of new technology. It refers to a change in the structural and institutional set-up of the economy, shift in sectorial composition of output, diversification of farm output, advancement of technology etc.
14. Why is it necessary to become a member of WTO?
Ans: As an important member of WTO India is following the global rules and regulations. It has removed quantitative restrictions on imports and reduced tariff rates. India is also committed to liberalise its trade regime in case of other reforms that are being discussed in WTO.
15. Why did RBI have to change its role from controller to facilitator of financial sector in India?
Ans: The RBI decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors etc. One of the major aims of financial sector reforms is to reduce the role of RBI from regulator to facilitator of financial sector. This means that the financial sector may be allowed to take decisions on many matters without consulting the RBI.
16. Do you think the navaratna policy of the govt. helps in improving the performance of public sector undertakings in India?
Ans: Yes, it has provided sovereignty to the public enterprises. They are working independently. As a result the profits and efficiency of these enterprises have increased.
17. Agriculture sector appears to be adversely affected by the reform process. Why?
Ans: Agriculture sector is adversely affected by reform process. It could not get much benefit. Because this sector is already within the limit of private sector and liberalism. In this agriculture sector imports have become possible due to globalisation. As a result this sector has to face many challenges. Therefore, the growth rate of this sector lies in between 3% to 4% only.
18. What are economic reforms in India?
Ans: Economic reforms in India refer to the policy measures and changes implemented to liberalise and modernise the Indian economy. These reforms aimed to remove various regulatory barriers, encourage private sector participation, promote foreign investment, and improve overall economic efficiency.
19. When did economic reforms in India start?
Ans: Economic reforms in India began in 1991 with the initiation of a comprehensive set of policy changes known as the New Economic Policy or New Economic Reforms.
(B) Short Type Questions & Answers:
1. Write the benefits of Green Revolution.
Ans: The benefits of Green Revolution are:
(a) Development of Agriculture.
(b) Rural Income Generation.
(c) Self-Sufficiency.
(d) Commercialisation of Agriculture.
2. Are economic reforms in India ongoing?
Ans: Yes, economic reforms in India are an ongoing process. The initial wave of reforms in 1991 was followed by subsequent policy changes and sector-specific reforms. The government continues to undertake measures to improve the business environment, ease regulatory burdens, promote entrepreneurship, and enhance the country’s competitiveness in the global economy.
3. What is sectorial composition of an economy? Is it necessary that the service sector should contribute maximum to GDP of an economy? Comment.
Ans: The GDP of a country is derived from the different sectors of the economy. The contribution made by each of these sectors makes up the structural or sectorial composition of an economy.
In some countries, growth in agriculture contributes more to the GDP growth, while in some countries the growth in the service sector contributes more to the GDP growth. However, at higher level of development, the service sector contributes more to the GDP than the other two sectors. So, at certain points it becomes necessary.
4. What were the major policy measures implemented during economic reforms in India?
Ans: The major policy measures implemented during economic reforms in India included the dismantling of the License Raj, reduction of trade barriers, lowering of import tariffs, simplification of taxation, introduction of foreign direct investment (FDI) policies, establishment of special economic zones (SEZs), and financial sector reforms.
5. How does liberalisation impact employment?
Ans: Liberalisation can have both positive and negative impacts on employment. While it may create new job opportunities through the growth of industries, investment inflows, and increased business activity, it can also lead to job displacements and structural changes in the labor market. The overall impact on employment depends on various factors, including the pace and nature of liberalisation, the level of workforce skills, and the ability to adapt to changing market conditions.
6. How did economic reforms in India affect foreign direct investment (FDI)?
Ans: Economic reforms in India significantly opened up the country to foreign direct investment (FDI). The reforms liberalised FDI policies, removed restrictions on foreign ownership, and streamlined approval processes. This led to increased FDI inflows into sectors such as manufacturing, services, and infrastructure, contributing to technology transfer, job creation, and improved competitiveness.
7. What role did economic reforms play in India’s global trade and competitiveness?
Ans: Economic reforms played a crucial role in enhancing India’s global trade and competitiveness. Liberalisation measures, such as reducing tariffs, dismantling trade barriers, and promoting exports, increased India’s integration into the global economy. The reforms contributed to the growth of sectors like information technology and services, making India a competitive player in global markets.
8. How is the success of liberalisation evaluated in terms of its impact on economic development?
Ans: The success of liberalisation in terms of its impact on economic development is evaluated based on various indicators. These include measures such as economic growth rates, employment levels, productivity gains, technological advancements, competitiveness, poverty reduction, and human development outcomes. The evaluation also considers the inclusiveness of growth, social welfare, and environmental sustainability as important aspects of overall economic development.
9. How does globalisation affect cultural exchange?
Ans: Globalisation facilitates cultural exchange by promoting the spread of ideas, knowledge, and cultural practices across borders. It enables the diffusion of languages, traditions, cuisines, and popular culture, leading to increased intercultural understanding and diversity.
10. What are the criticisms of globalisation?
Ans: Critics of globalisation argue that it exacerbates income inequalities, leads to job losses and wage stagnation in certain sectors, undermines local cultures and traditions, and contributes to environmental degradation and exploitation of resources. They also express concerns about the influence of multinational corporations and the erosion of national sovereignty.
11. How does liberalisation contribute to the LPG policy?
Ans: Liberalisation in the LPG policy involves the removal of trade barriers, such as tariffs and quotas, and the promotion of free competition. It aims to create a business-friendly environment, attract foreign investment, and foster economic efficiency by allowing market forces to determine prices and allocation of resources.
12. What are the environmental implications of globalisation?
Ans: Globalisation has environmental implications, including increased carbon emissions due to international trade and transportation, the depletion of natural resources, and the spread of environmental pollution. However, globalisation also creates opportunities for global collaboration on environmental issues and the sharing of best practices.
13. How has globalisation influenced labor markets?
Ans: Globalisation has reshaped labor markets by creating new job opportunities, particularly in sectors such as services and manufacturing. It has also led to increased competition for jobs and downward pressure on wages in certain industries. Additionally, globalisation has facilitated the mobility of labor across borders, leading to migration and changes in workforce demographics.
14. What is the role of privatisation in the LPG policy?
Ans: Privatisation is an essential component of the LPG policy. It involves the transfer of state-owned enterprises to the private sector, reducing the government’s role in economic activities. Privatisation aims to improve efficiency, promote competition, attract investment, and enhance the performance of industries previously controlled by the state.
15. How does privatisation impact employment?
Ans: Privatisation can lead to job losses, particularly in sectors where redundancies or restructuring occur as part of the transition from public to private ownership. However, proponents argue that privatisation can also create new job opportunities, improve labor productivity, and stimulate overall employment growth in the long run.
16. What are the potential benefits of privatisation?
Ans: Privatisation is often pursued with the expectation of several benefits, including increased efficiency and productivity, improved service quality, enhanced innovation and competition, reduced government expenditure, and attraction of private investment and expertise.
17. What are the considerations for a successful privatisation process?
Ans: A successful privatisation process requires careful planning. transparent procedures, proper valuation of assets, effective regulation, and consideration of social impact. It is important to balance the objectives of efficiency, competition, social welfare, and accountability in order to achieve positive outcomes from privatisation.
18. How does globalisation contribute to the LPG policy?
Ans: Globalisation in the LPG policy involves the integration of the domestic economy with the global economy. It promotes international trade, encourages foreign direct investment, facilitates technology transfer, and fosters economic interdependence. Globalisation allows countries to access global markets, attract capital and technology, and participate in global value chains.
19. What are the potential benefits of the LPG policy?
Ans: The LPG policy is expected to bring several benefits, including increased economic growth, improved productivity and efficiency, access to new technologies and markets, job creation, and overall improvement in the standard of living. It aims to create a more competitive and dynamic economy that can adapt to global challenges and opportunities.
20. What role does regulation play in the LPG policy?
Ans: Regulation plays a crucial role in the LPG policy to ensure fair competition, consumer protection, and social welfare. Effective regulation is needed to prevent monopolistic practices, enforce market rules, safeguard the interests of consumers and workers, and maintain a level playing field for all participants in the liberalised and privatised sectors.
21. What are the types or measures of land-reform implemented in the agriculture sector?
Ans: Need: It were implemented for equal distribution of land and to provide land to the tenants.
Types:
(a) Abolition of Zamindari System.
(b) Ceiling on long holdings.
(c) Co-operative Farming.
(d) Consolidation of Land Holdings.
(e) Bhoodan Movement
(f) Tenancy Reforms, such as, fixation of rent, compensation to the te nants, exemption from rent, check on gifts etc.
22. Match the following:
| 1. Prime Minister | (A) Seeds that give large proportion of output. |
| 2. Gross Domestic Product | (B) Quantity of goods that can be imported. |
| 3. Quota | (C) Chairman of the Planning Commission. |
| 4. Land Reform | (D) The money value of all the find goods and services. |
| 5. HYV Seeds | (E) Improvements in the field of agriculture to increase its productivity. |
| 6. Subsidy | (F) The monetary assis tance given by govt. for product activities. |
Ans:
| 1. Prime Minister | (C) Chairman of the Planning Commission. |
| 2. Gross Domestic Product | (D) The money value of all the find goods and services produced within the economy in one year. |
| 3. Quota | (B) Quantity of goods that can be imported. |
| 4. Land Reform | (E) Improvements in the field of agriculture to increase its productivity. |
| 5. HYV Seeds | (A) Seeds that give large proportion of output. |
| 6. Subsidy | (F) The monetary assis tance given by govt. for product activities. |
23. What steps were taken by the govt. to achieve economic equality?
Ans: (a) Progressive taxation system.
(b) Expansion of public sector.
(c) Control over monopoly.
(d) New licensing policy.
24. Why were reforms introduced in India?
Ans: In middle of 1991, need for major economic reforms was felt in the country. These are urgently needed to bring an up-turn in the economy. It was mainly due to the following reasons—
(a) Excessive Fiscal Deficit.
(b) Balance of Payment Deficit.
(c) Rise in Prices.
(d) Reduction in Foreign Exchange Reserve.
(e) Poor performance of Public Sector.
(f) Gulf Crisis.
(g) Excessive Control.
25. What are the major factors responsible for the high growth of the service sector?
Ans: The main factors are:
(a) Development of means of transport and communicated due to globalisation.
(b) Development of banking and insurance sector due to the policy of privatisation.
(c) Expenditure on the development of infrastructure.
(d) Investment in different service sectors due to indigenous and foreign institutional investment.
(e) Rapid industrialization.
(f) Development of agriculture due to green revolution.
26. Why has the industrial sector performed poorly in the reform period?
Ans: The reasons are:
(a) More dependence on foreign loans.
(b) Competition with foreign developed countries.
(c) Comparison on the quality of the product of Indian industries with foreign industries.
(d) Exploitation of consumers due to privatisation.
(e) Challenge of price from industrial sector of China.
27. Discuss economic reforms in India in the light of social justice and welfare.
Ans: The economic reforms in the light of social justice and welfare are as under—
(A) Benefits/ Merits:
(a) Increase in the rate of economic growth.
(b) Reduction in poverty and inequility.
(c) Increase in the efficiency of public sector enterprises.
(d) Reduction in fiscal deficit.
(e) Development of small-scale industries.
(f) Control over price.
(B) Loss/ Demerits:
(a) Increase in unemployment.
(b) Neglect of agriculture sector.
(c) Too much emphasis on privatisation.
(d) Loss of economic sovereignty.
(e) Promotion of consumerism.
(f) More dependence on foreign debt.
28. Write the merits of Liberalisation.
Ans: The merits of Liberalisation are:
(a) Use of new machines and technology.
(b) No govt. interference in production.
(c) Free flow of foreign investment.
(d) Freedom from bureaucracy.
29. Write the merits of privatisation.
Ans: The merits of privatisation are:
(a) Reduction in extra burden on government.
(b) Control over poor performance of public sector.
(c) Check on high-handedness of bureaucracy.
(d) Reduction in capital output ratio.
30. Write the merits of Globalisaiton.
Ans: The merits of Globalisaiton are:
(a) It helps in removing inefficiency from industrial units.
(b) Helps in improving allocative efficiency of resources.
(c) It encourages foreign competition which reduces costs and improves quality.
(d) It results in international division that helps in raising world production.
31. Write the demerits of Liberalisation.
Ans: The demerits of Liberalisation are:
(a) It has all the demerits of capitalism.
(b) Neglects of social welfare.
(c) Possibility of monopolies and concentration.
32. Write the demerits of privatisation.
Ans: The demerits of privatisation are:
(a) Neglects standard of living and social welfare of masses.
(b) It will promote private monopoly.
(c) Unbalanced growth of the economy.
33. Write the demerits of Globalisation.
Ans: The demerits of Globalisation are:
(a) Wipes out small units.
(b) Under developed countries are unable to face the competition of large scale foreign units.
(c) Encourages MNC which hold monopoly like situation.
34. Distinguish between Liberalisaiton and Privatisation.
Ans: The main distinctions are—
(a) Liberalisation means freedom from restrictions, non-interference of state in economic activities. But, privatisation means freedom of ownership of assets and business.
(b) Liberalisation makes the business free from rules, procedures and instructions, but privatisation promotes personal control and management over the business.
(c) Liberalisation widens the scope of business, but privatisation restricts the management of business in few hands.
35. Distinguish between Globalisaiton and Liberalisation.
Ans: The main differences are:
(a) Liberalisation of economy is generally limited to national level, but globalisation refers to internationalisation of trade.
(b) Liberalisation means freedom of restriction and non-interference of government but globalisation means to link an economy with the world economy.
(c) Liberalisation refers to freedom of trade, agriculture, industry or activities of financial institutions. However, globalisation is always referred with the economy as a whole.
36. What are the objectives of WTO?
Ans: The objectives of WTO are:
(a) To ensure the reduction of tariff and other barriers to trade.
(b) To enlarge production and trade of services.
(c) To ensure optimum utilisation of world resources.
(d) To provide greater market access to all member countries.
(e) To protect environment.
37. What are the major factors responsible for the high growth of the service sector?
Ans: The main factors are:
(a) Development of means of transport and communicated due to globalisaton.
(b) Development of banking and insurance sector due to the policy of privatisation.
(c) Expenditure on the development of infrastructure.
(d) Investment in different service sectors due to indigenous and foreign institutional investment.
(e) Rapid industrialization.
(f) Development of agriculture due to green revolution.
38. What are the causes of need for Economic Reforms?
Ans: The causes of need for Economic Reforms are:
(a) Excessive Fiscal Deficit
(b) Balance of Payment Deficit.
(c) Rise in Prices.
(d) Reduction in Foreign Exchange Reserve.
(e) Poor performance of Public Sector.
(f) Gulf Crisis.
(g) Excessive Control.
39. Why Economic Reforms or New Economic Policy is useful?
Ans: The economic reforms is useful for economic development due to the following reasons—
(a) Increase in the rate of Economic Growth.
(b) Competitiveness of Industrial Sector.
(c) Reduction of Poverty and Inequality.
(d) Encouraging Private Sector.
(e) Increase in the Efficiency of Public Sector Enterprises.
(f) Reduction in deficit in Balance of Payment and control over prices.
(C) Long Type Questions & Answers:
1. What were the key objectives of economic reforms in India?
Ans: The key objectives of economic reforms in India were:
(a) Promote Economic Growth: One of the primary objectives of economic reforms was to accelerate economic growth and development in India. The reforms aimed to create a conducive environment for investment, entrepreneurship, and productivity enhancement, leading to higher GDP growth rates.
(b) Enhance Global Competitiveness: Economic reforms sought to improve India’s competitiveness in the global economy. The objective was to make Indian industries more efficient, technologically advanced, and globally integrated, enabling them to compete effectively in international markets.
(c) Attract Foreign Direct Investment (FDI): Economic reforms aimed to attract foreign direct investment into India. By liberalising FDI policies, reducing entry barriers, and offering incentives, the objective was to encourage foreign companies to invest in Indian industries, bring in capital and technology, and contribute to economic growth.
(d) Create Employment Opportunities: Another objective of economic reforms was to generate employment opportunities for the growing workforce. The reforms focused on promoting sectors with high employment potential, such as manufacturing, services, and infrastructure, to address the challenge of unemployment and underemployment.
(e) Improve Infrastructure: Economic reforms recognized the importance of infrastructure development for overall economic growth. The objective was to improve infrastructure in areas like transportation, power, telecommunications, and urban amenities to support industrial expansion, trade, and connectivity.
(f) Reduce Government Intervention: The reforms aimed to reduce excessive government intervention and bureaucracy in the economy. The objective was to dismantle the License Raj system, simplify regulations, and minimise administrative hurdles to foster a more business-friendly environment and encourage private sector participation.
(g) Foster Technological Advancement: Economic reforms sought to promote technological progress and innovation in Indian industries. The objective was to upgrade technological capabilities, encourage research and development, and adopt modern practices and technologies to enhance productivity and competitiveness.
2. What were the major components of economic reforms in India?
Ans: The major components of economic reforms in India included:
(a) Liberalisation: Liberalisation was a key component of economic reforms. It involved reducing government regulations, dismantling trade barriers, and opening up various sectors of the economy to competition. This included removing industrial licensing requirements, relaxing foreign investment restrictions, and allowing greater market access for domestic and international players.
(b) Privatisation: Privatisation aimed to reduce the role of the government in the economy by transferring ownership and management of state-owned enterprises to the private sector. It involved the sale of shares of public sector companies through disinvestment or strategic divestment, encouraging private participation in previously government-controlled industries.
(c) Deregulation: Deregulation focused on reducing bureaucratic controls and simplifying regulatory frameworks to promote ease of doing business. It involved streamlining approval processes, eliminating unnecessary restrictions, and reducing red tape to encourage entrepreneurship and investment.
(d) Fiscal Reforms: Fiscal reforms aimed to address fiscal imbalances and improve the efficiency of public finances. These reforms included measures such as rationalising subsidies, reducing fiscal deficits, implementing tax reforms (such as the introduction of Goods and Services Tax or GST), and improving tax administration.
(e) Financial Sector Reforms: Financial sector reforms aimed to strengthen and modernise the financial system. This involved liberalising banking and insurance sectors, encouraging foreign participation, establishing regulatory bodies (such as the Securities and Exchange Board of India or SEBI), promoting capital market development, and enhancing financial inclusion.
(f) Trade and External Sector Reforms: Trade and external sector reforms focused on liberalising international trade and promoting export-oriented growth. This included reducing import tariffs, easing restrictions on imports and exports, simplifying trade procedures, and encouraging foreign trade and investment.
(g) Industrial Policy Reforms: Industrial policy reforms aimed to promote industrial development and enhance competitiveness. These reforms involved delicensing industries, simplifying industrial regulations, encouraging technology upgradation, promoting foreign direct investment, and facilitating the growth of special economic zones (SEZs).
(h) Agricultural Reforms: Agricultural reforms aimed to modernise and liberalise the agricultural sector. This included measures such as removing restrictions on agricultural marketing, promoting contract farming, improving rural infrastructure, and introducing technology and best practices to enhance agricultural productivity.
(i) Social Sector Reforms: Social sector reforms aimed to improve social welfare and human development. These reforms focused on areas such as education, healthcare, rural development, and poverty alleviation. They involved increasing public spending on social programs, expanding access to education and healthcare services, and implementing targeted poverty reduction initiatives.
(j) Legal and Institutional Reforms: Legal and institutional reforms were undertaken to strengthen the legal and regulatory framework, improve governance, and ensure a level playing field for businesses. This included enacting new laws, amending existing legislation, establishing regulatory authorities, and enhancing transparency and accountability in governance.
3. What were the impacts of economic reforms in India?
Ans: The economic reforms in India had significant impacts on various aspects of the economy and society.
Some of the key impacts of economic reforms are as follows:
(a) Economic Growth: One of the most notable impacts of economic reforms was the acceleration of economic growth in India. The reforms created a more conducive business environment, attracted investments, stimulated entrepreneurship, and fostered competition, leading to higher GDP growth rates. India’s average annual GDP growth rate increased significantly after the reforms were introduced in 1991.
(b) Foreign Direct Investment (FDI) Inflows: Economic reforms opened up the Indian economy to foreign investors and encouraged FDI inflows. The liberalisation of FDI policies, along with the relaxation of entry barriers and investment regulations, attracted foreign companies to invest in India. This resulted in increased capital inflows, technology transfer, job creation, and the expansion of various sectors.
(c) Industrial and Services Sector Growth: The reforms led to significant growth in the industrial and services sectors. The removal of industrial licensing and other regulatory barriers fostered competition and allowed industries to expand. Sectors such as information technology, telecommunications, finance, and retail experienced rapid growth and became globally competitive. The services sector, including IT-enabled services, witnessed substantial expansion and emerged as a major contributor to India’s GDP.
(d) Trade and Global Integration: Economic reforms promoted trade liberalisation, leading to increased exports and imports. Trade barriers were reduced, tariffs were lowered, and export promotion measures were implemented. India’s trade volume expanded significantly, and it became more integrated into the global economy. The reforms contributed to the growth of sectors like textiles, pharmaceuticals, automotive, and software services, making India a competitive player in international markets.
(e) Employment Generation: While economic reforms led to overall economic growth, the impact on employment generation was mixed. While new job opportunities were created in sectors such as IT, services, and manufacturing, the pace of job creation could not match the growth of the labor force. The informal sector continued to be a significant source of employment, and there were concerns about the quality of jobs and underemployment.
(f) Financial Sector Development: Reforms in the financial sector resulted in the modernization and strengthening of India’s banking system. The entry of private and foreign banks, along with the establishment of regulatory bodies, brought competition and efficiency to the sector. The reforms also facilitated the development of capital markets, improving access to finance for businesses and individuals.
(g) Poverty Reduction: The reforms had a positive impact on poverty reduction, although the progress was not uniform across all regions and sectors. Economic growth and job creation contributed to poverty alleviation. However, the benefits of reforms were not equally distributed, and income inequalities persisted, requiring additional measures to address poverty and inequality effectively.
(h) Infrastructure Development: Economic reforms played a crucial role in attracting private investment and improving infrastructure in India. The reforms encouraged private participation in sectors like power, transportation, telecommunications, and urban development. This resulted in the development of better roads, ports, airports, power generation, and telecommunication networks, supporting economic activities and improving connectivity.
(i) Technological Advancement: The reforms facilitated technological advancements in various sectors. The liberalisation of technology imports and collaborations with foreign companies led to the transfer of technology and knowledge. Industries, especially IT and telecommunications, witnessed significant advancements, making India a global hub for IT services and software development.
4. How did economic reforms in India impact the agricultural sector?
Ans: The impact of economic reforms on the agricultural sector in India can be analysed in the following ways:
(a) Market Orientation: Economic reforms introduced market-oriented policies in the agricultural sector. This included the removal of restrictions on agricultural marketing and the promotion of contract farming. Farmers were given greater freedom to sell their produce directly in the market, bypassing intermediaries. This led to improved price realisation and increased efficiency in agricultural marketing.
(b) Technology Adoption: The reforms facilitated the adoption of modern agricultural technologies and practices. With the liberalisation of trade and investment, there was increased access to agricultural machinery, improved seeds, fertilisers, and pesticides. Farmers were able to adopt new techniques, leading to increased productivity, improved crop quality, and reduced post-harvest losses.
(c) Private Sector Participation: Economic reforms encouraged private sector participation in the agricultural sector. This led to increased investments in agri-infrastructure, such as cold storage facilities, warehousing, and agro-processing units. Private companies also entered the sector with contract farming arrangements, providing farmers with assured markets, technical support, and better access to inputs and credit.
(d) Integration with Global Markets: Liberalisation of trade policies allowed agricultural products to be traded more freely in the global market..Export restrictions were reduced, and agricultural exports received greater support. This created new opportunities for farmers to access international markets and benefit from export-oriented agriculture. However, the impact of globalisation on small and marginal farmers was mixed, as they faced challenges in terms of competitiveness and market access.
(e) Productivity and Income: The adoption of modern technologies and improved agricultural practices resulted in increased agricultural productivity. Farmers were able to produce more output per unit of land, leading to higher farm incomes. However, the income gains were not evenly distributed across all farmers, and there were disparities between regions and different categories of farmers.
(f) Crop Diversification: Economic reforms led to a shift in cropping patterns and diversification of agricultural production. With increased market orientation and exposure to global markets, farmers began to cultivate high-value crops for export, such as fruits, vegetables, spices, and floriculture. This diversification helped in increasing farmers’ incomes and reducing dependence on traditional crops.
(g) Access to Credit and Insurance: Reforms in the financial sector improved farmers’ access to credit and insurance services. The establishment of specialised agricultural banks and the introduction of crop insurance schemes provided financial support and risk mitigation for farmers. This helped in reducing the vulnerability of farmers to crop failures and natural disasters.
(h) Infrastructure Development: Economic reforms led to increased investments in rural infrastructure, including irrigation facilities, rural roads, and market linkages. This enhanced the productivity and efficiency of the agricultural sector by improving access to water for irrigation, reducing post-harvest losses through better storage and transportation, and providing better connectivity to markets.
5. What are the key features of liberalisation?
Ans: The key features of liberalisation are as follows:
Market-oriented Policies: Liberalisation involves the adoption of market-oriented policies that promote free competition, reduce government intervention, and allow market forces to determine prices, allocation of resources, and business decisions. It aims to create a business-friendly environment and foster economic efficiency.
(a) Trade Liberalisation: Liberalisation emphasises the removal of trade barriers, such as tariffs, quotas, and import restrictions. It promotes free trade by encouraging imports and exports, facilitating international trade agreements, and reducing protectionism. This allows for greater market access, promotes competition, and encourages specialisation based on comparative advantage.
(b) Deregulation: Liberalisation entails the removal or relaxation of regulations and bureaucratic controls that hinder economic activities. It seeks to simplify administrative procedures, reduce red tape, and eliminate unnecessary restrictions on business operations. Deregulation aims to promote entrepreneurship, innovation, and investment by creating a more flexible and responsive regulatory framework.
(c) Foreign Investment and Capital Flows: Liberalisation encourages foreign direct investment (FDI) and the free flow of capital across borders. It involves relaxing restrictions on foreign investment, allowing multinational corporations to establish subsidiaries and joint ventures, and providing incentives to attract foreign capital. Liberalisation promotes economic integration with the global economy and facilitates technology transfer, job creation, and access to international markets.
(d) Privatisation: Liberalisation often involves the transfer of state-owned enterprises and assets to the private sector. Privatisation aims to reduce the role of the government in economic activities, promote efficiency, and enhance competition. It allows for private ownership, management, and operation of industries previously controlled by the state.
(e) Financial Sector Reforms: Liberalisation in the financial sector involves the removal of restrictions on banking, capital markets, and financial services. It includes measures such as liberalising interest rates, easing capital controls, encouraging competition among financial institutions, and promoting the development of stock markets, bond markets, and other financial intermediaries. Financial sector liberalisation aims to improve access to finance, enhance efficiency, and attract domestic and foreign investments.
(f) Technology and Innovation: Liberalisation encourages the adoption and diffusion of technology and innovation. It facilitates the transfer of technology through trade, foreign investment, and collaborations. Liberalisation also fosters competition and incentives for research and development, promoting technological advancements and productivity gains in industries.
(g) Privilege of Individual Choice: Liberalisation emphasises the importance of individual choice and freedom in economic decision-making. It allows individuals and businesses to make independent choices regarding production, consumption, investment, and employment. Liberalisation aims to minimise government interference and maximise individual freedoms in economic activities.
(h) Competition Policy: Liberalisation promotes competition as a means to enhance efficiency, productivity, and consumer welfare. It involves the implementation of competition laws and policies to prevent anti-competitive practices, monopolies, and unfair market practices. Liberalisation encourages fair competition, level playing field, and consumer protection.
(i) Social Safety Nets: While liberalisation aims to promote economic efficiency and growth, it also recognizes the need for social safety nets. These safety nets are designed to mitigate the potential adverse effects of liberalisation on vulnerable groups, such as the poor, workers in declining industries, and marginalised communities. Social safety nets may include measures like income support, skill development programs, and targeted welfare schemes.
6. How does liberalisation influence international trade and globalisation?
Ans: Liberalisation has a significant impact on international trade and globalisation. Here are some ways in which liberalisation influences these aspects:
(a) Expansion of International Trade: Liberalisation promotes the expansion of international trade by removing trade barriers and restrictions. Reductions in tariffs, quotas, and other trade barriers make it easier for goods and services to flow across borders. This leads to increased export opportunities for countries, allowing them to access larger markets and diversify their economies. Liberalisation encourages specialisation based on comparative advantage, facilitating trade in goods and services among countries.
(b) Integration into Global Value Chains: Liberalisation encourages countries to participate in global value chains (GVCs), which involve the fragmentation and international distribution of production processes. By removing barriers to trade and investment, liberalisation enables countries to attract foreign direct investment (FDI) and integrate into GVCs. This allows countries to benefit from technology transfer, access to global markets, and participation in higher-value stages of production.
(c) Attraction of Foreign Direct Investment (FDI): Liberalisation policies make countries more attractive for foreign direct investment. By reducing restrictions on foreign investment, streamlining regulatory processes, and providing incentives, liberalisation encourages multinational corporations to establish operations in other countries. FDI brings in capital, technology, managerial expertise, and access to global markets, contributing to economic growth and development.
(d) Globalization of Financial Markets: Liberalisation plays a crucial role in the globalisation of financial markets. It involves the liberalisation of capital flows, easing restrictions on cross-border investments, and allowing greater integration of financial markets. Liberalisation enables countries to access international sources of capital, facilitates foreign investment in domestic financial markets, and promotes the development of global financial institutions.
(e) Technology Transfer and Innovation: Liberalisation facilitates the transfer of technology and fosters innovation through international trade and investment. It allows countries to access new technologies, know-how, and best practices through imports, FDI, and collaborations with foreign companies. Liberalisation encourages competition and provides incentives for research and development, leading to technological advancements and innovation in industries.
(f) Standardization and Harmonization: Liberalisation promotes the standardisation and harmonisation of regulations and standards, facilitating international trade. Through negotiations and agreements, countries work towards aligning their rules and regulations to reduce trade barriers and facilitate the smooth movement of goods and services across borders. This promotes efficiency, reduces costs, and enhances market access for businesses.
(g) Economic Interdependence: Liberalisation fosters economic interdependence among countries. As trade barriers are reduced, countries become more reliant on each other for goods, services, and investments. This interdependence creates a network of economic relationships and cooperation, leading to mutual benefits and shared prosperity.
(h) Impact on Domestic Industries and Workers: Liberalisation can have both positive and negative effects on domestic industries and workers. While liberalisation may lead to increased competition and challenges for certain domestic industries, it can also create opportunities for growth, innovation, and specialisation. The impact on workers varies, as some may benefit from new job opportunities and higher wages, while others may face job displacement or increased competition in the labor market.
7. What are the key features of globalisation?
Ans: The key features of globalisation include:
(a) Increased international trade: Globalisation has led to a significant expansion of international trade, with goods and services flowing across borders more easily than ever before. Trade agreements, reduced trade barriers, and advancements in transportation and communication have facilitated the global exchange of goods and services.
(b) Global flow of capital: Globalisation has resulted in the increased mobility of capital across borders. Financial markets have become more interconnected, allowing for the flow of investments, portfolio diversification, and access to international sources of capital. This has facilitated economic growth and development in many countries.
(c) Technological advancements: Globalisation is closely linked to technological advancements, particularly in communication and information technologies. The internet, digital platforms, and telecommunications have revolutionised communication, enabling instant global connectivity, collaboration, and the exchange of information and ideas.
(d) Integration of markets: Globalisation has led to the integration of markets, with companies operating on a global scale. Multinational corporations have expanded their operations across countries, establishing supply chains, production networks, and distribution channels that span multiple nations. This integration has increased economic interdependence among countries.
(e) Cultural exchange and diffusion: Globalisation has facilitated cultural exchange and the diffusion of ideas, values, and cultural practices across borders. People have greater access to information, media, and entertainment from different parts of the world. This has led to the blending of cultures, the spread of languages, cuisines, and popular culture, and increased intercultural understanding.
(f) Globalisation of financial markets: Financial markets have become increasingly globalised, allowing for the free flow of capital, investments, and financial services. Global financial institutions, such as banks, investment firms, and stock exchanges, operate across borders, providing services to individuals, businesses, and governments around the world.
(g) International division of labor: Globalisation has led to the international division of labor, with countries specialising in the production of goods and services based on their comparative advantages. This specialisation allows countries to benefit from efficient production, access to resources, and increased trade.
(h) Increased interconnectivity: Globalisation has made the world more interconnected and interdependent. Events and developments in one part of the world can have ripple effects on other regions. Economic, social, and environmental issues are often addressed through international cooperation and collaboration.
(i) Global governance and institutions: Globalisation has given rise to global governance structures and institutions aimed at addressing global challenges and fostering cooperation among nations. International organisations, such as the United Nations, World Trade Organization, International Monetary Fund, and World Bank, play a significant role in shaping global policies and regulations.
8. How does globalisation impact international trade?
Ans: Globalisation has a significant impact on international trade in several ways:
(a) Trade Liberalisation: Globalisation promotes trade liberalisation by reducing trade barriers such as tariffs, quotas, and trade restrictions. Countries enter into trade agreements and negotiate lower tariffs and fewer trade barriers, enabling the flow of goods and services more freely across borders.
(b) Market Access: Globalisation expands market access for businesses. It allows companies to reach customers in different countries, access larger consumer bases, and tap into new markets. This leads to increased opportunities for export-oriented industries and the potential for economic growth.
(c) Global Value Chains: Globalisation has facilitated the development of global value chains, where production processes are fragmented and dispersed across different countries. Companies can take advantage of lower production costs, access specialised inputs, and benefit from the expertise and resources available in different regions.
(d) Specialization and Comparative Advantage: Globalisation encourages countries to specialise in the production of goods and services in which they have a comparative advantage. This specialisation allows countries to allocate resources efficiently, improve productivity, and enhance their competitiveness in the global marketplace.
(e) Increased Competition: Globalisation brings increased competition as companies from different countries vie for market share. This competition can lead to improved product quality, innovation, and cost efficiency as companies strive to differentiate themselves and gain a competitive edge.
(f) Access to Resources: Globalisation enables countries to access resources that may be scarce or unavailable domestically. By engaging in international trade, countries can acquire necessary inputs, raw materials, and technologies from other countries, thereby enhancing their productive capacity.
(g) Economic Growth: Globalisation, through its impact on international trade, can contribute to economic growth. Increased trade volumes, market expansion, and access to new opportunities can lead to higher productivity, employment generation, and overall economic development.
(h) Knowledge and Technology Transfer: Globalisation facilitates the exchange of knowledge, ideas, and technologies across borders. Through international trade, countries can acquire new technologies, best practices, and managerial skills, which can enhance productivity and spur innovation.
(i) Foreign Direct Investment (FDI): Globalisation attracts foreign direct investment as companies seek to expand their operations and tap into new markets. FDI brings capital, technology, expertise, and employment opportunities to host countries, contributing to their economic development.
9. What are the economic features of globalisation?
Ans: The economic features of globalisation include:
(a) Increased International Trade: Globalisation has led to a significant increase in international trade, with goods and services being traded across borders more extensively than ever before. This includes both merchandise trade (physical goods) and services trade (intangible services such as tourism, financial services, and software development).
(b) Cross-Border Investment: Globalisation has facilitated cross-border investment and capital flows. Foreign direct investment (FDI) allows companies to invest in businesses and assets in other countries, while portfolio investment involves the purchase of stocks, bonds, and other financial instruments in foreign markets.
(c) Integration of Financial Markets: Globalisation has resulted in the integration of financial markets, allowing for the free flow of capital across borders. Financial institutions operate globally, and investors have access to a wide range of financial products and services offered by institutions from different countries.
(d) Technological Advancements: Technological advancements have played a vital role in facilitating globalisation. The development of transportation infrastructure, communication networks, and the internet has significantly reduced the costs and barriers associated with conducting international business, enabling real-time communication, data sharing, and coordination of activities across borders.
(e) Global Value Chains: Globalisation has given rise to the formation of global value chains, also known as global supply chains. Companies now divide production processes across multiple countries, allowing for specialisation and efficiency gains. This integration of production networks has enabled companies to source inputs and components from various countries to create finished products.
(f) Exchange of Knowledge and Technology: Globalisation facilitates the exchange of knowledge, ideas, and technology across borders. Advances in communication and information technology have made it easier to share information, collaborate on research and development, and disseminate technological innovations globally.
(g) Global Financial Institutions and Organisations: Globalisation has led to the establishment of global financial institutions and organisations, such as the International Monetary Fund (IMF) and the World Bank. These institutions provide financial assistance, policy advice, and support to countries, fostering global economic stability and development.
(h) Economic Interdependence: Globalisation has created a high degree of economic interdependence among countries. Economic developments in one country can have significant impacts on other nations due to the interconnectedness of markets, trade relationships, and financial linkages.
10. How does globalisation impact developing countries?
Ans: Globalisation impacts developing countries in several ways, both positive and negative:
(a) Economic Growth and Development: Globalisation can provide opportunities for economic growth and development in developing countries. Increased international trade, access to foreign markets, and inflows of foreign direct investment (FDI) can stimulate economic activity, create employment opportunities, and attract capital and technology.
(b) Poverty Reduction: Globalisation has the potential to reduce poverty in developing countries. Through increased trade and investment, countries can generate income, create jobs, and improve living standards. Economic growth resulting from globalisation can lift people out of poverty and improve access to basic services and resources.
(c) Technology Transfer: Globalisation facilitates the transfer of technology and knowledge from developed countries to developing countries. Access to advanced technologies can help improve productivity, enhance production processes, and support innovation in various sectors.
(d) Access to Global Markets: Globalisation opens up global markets for developing countries, allowing them to export their products and services to a wider customer base. Access to international markets provides opportunities for revenue generation, diversification of exports, and the development of competitive industries.
(e) Foreign Direct Investment (FDI): Developing countries often attract FDI as a result of globalisation. FDI brings capital, expertise, and technology to host countries, supporting the development of industries, infrastructure, and employment. It can also contribute to knowledge and skills transfer to the local workforce.
(f) Integration into Global Value Chains: Globalisation enables developing countries to participate in global value chains. By specialising in certain stages of production, countries can benefit from the expertise and resources available in other countries. This can lead to economic diversification, skill development, and increased competitiveness.
(g) Knowledge and Innovation: Globalisation facilitates the exchange of ideas, information, and knowledge across borders. Developing countries can tap into global knowledge networks, collaborate with international partners, and learn from best practices in various fields, which can drive innovation and technological advancements.
(h) Access to Financial Resources: Globalisation allows developing countries to access international financial resources, including loans, grants, and investments. International financial institutions and capital markets provide avenues for countries to raise funds for development projects, infrastructure, and social programs.
11. What are the key features of privatisation?
Ans: The key features of privatisation include:
(a) Transfer of Ownership: Privatisation involves the transfer of ownership and control of public assets, enterprises, or services from the public sector (government) to the private sector (individuals, companies, or organisations). This transfer can be through various means such as sale, lease, or public offerings.
(b) Market Orientation: Privatisation aims to introduce market-oriented principles and competition into sectors previously dominated by government control. Private ownership is believed to foster efficiency, innovation, and responsiveness to market forces, leading to improved productivity and economic outcomes.
(c) Profit Motive: Privatisation emphasises the pursuit of profit as a primary objective. Private entities aim to generate profits by delivering goods or services more efficiently, reducing costs, and maximising revenues. Profitability is seen as a measure of success and sustainability.
(d) Increased Efficiency and Productivity: Privatisation is often pursued to enhance operational efficiency and productivity. Private ownership is expected to introduce competition, incentivize performance, and drive efficiency gains through better management practices, investment decisions, and resource allocation.
(e) Entrepreneurship and Innovation: Privatisation encourages entrepreneurial activity and innovation. The private sector is generally seen as more dynamic and innovative compared to the public sector. By allowing private entities to take ownership, privatisation seeks to harness entrepreneurial skills, creativity, and risk-taking to drive economic growth.
(f) Focus on Core Functions: Privatisation aims to streamline the role of the government by focusing on core functions such as policy-making, regulation, and oversight, while leaving the delivery of goods and services to the private sector. This allows the government to allocate its resources more effectively and focus on areas where it has a comparative advantage.
(g) Accountability and Transparency: Privatisation seeks to enhance accountability and transparency in the delivery of goods or services. Private companies are subject to market discipline, shareholder scrutiny, and regulatory oversight, which are expected to ensure greater accountability and efficient use of resources.
12. How does privatisation impact the economy?
Ans: Privatisation can have various impacts on the economy, including:
(a) Efficiency and Productivity: Privatisation is often pursued to improve the efficiency and productivity of industries or sectors. Private companies are typically driven by profit motives and are incentivized to cut costs, enhance operational efficiency, and innovate to remain competitive. This can lead to improved productivity, resource allocation, and overall economic efficiency.
(b) Investment and Infrastructure Development: Privatisation can attract private investment in sectors that were previously under government control. Private companies may have access to capital markets, enabling them to raise funds for investment in infrastructure development, technological upgrades, and capacity expansion. This investment can stimulate economic growth and create employment opportunities.
(c) Competition and Innovation: Privatisation introduces competition into previously monopolistic or state-controlled sectors. Increased competition can drive innovation, improve product quality, and offer consumers a wider range of choices. Competition also encourages companies to adopt new technologies, improve services, and respond to changing market demands.
(d) Fiscal Impact: Privatisation can have a positive impact on the government’s fiscal position. By transferring ownership and management of public enterprises to the private sector, the government can reduce the financial burden of running these entities. Privatisation proceeds from the sale of assets or shares can generate revenue for the government, which can be used for public investments, debt reduction, or other priority areas.
(e) Government Focus and Efficiency: Privatisation allows governments to focus on core functions such as policymaking, regulation, and public service delivery oversight. By transferring the responsibility of service provision to the private sector, governments can redirect their resources and attention to areas where they can have a greater impact. This can lead to improved governance and public administration.
(f) Job Creation and Labor Market Flexibility: Privatisation can lead to job creation, particularly if private companies invest in expanding their operations or introducing new technologies. However, the impact on employment can vary depending on the specific circumstances and restructuring plans associated with privatisation. It may also result in labor market flexibility, as private companies have more flexibility to adjust their workforce based on market conditions.
13. What are the key features of the LPG (Liberalisation, Privatization, Globalization) policy?
Ans: The key features of the LPG (Liberalisation, Privatization, Globalization) policy are as follows:
(a) Liberalisation: Liberalisation refers to the opening up of the economy by reducing government intervention and restrictions on economic activities. It involves deregulation, removing trade barriers, easing foreign investment rules, and promoting competition. The key features of liberalisation include:
(b) Trade liberalisation: Reduction or elimination of tariffs, quotas, and other barriers to promote international trade.
Financial liberalisation: Opening up financial markets, allowing foreign banks, and facilitating capital flows.
(c) Industrial liberalisation: Removing industrial licensing, reducing regulations, and promoting private sector participation.
(d) Policy reforms: Revising regulations, laws, and policies to create a conducive business environment and promote economic freedom.
(e) Privatisation: Privatisation involves the transfer of ownership, control, or management of public sector enterprises to the private sector. The key features of privatisation include:
(f) Transfer of ownership: Transferring government-owned assets, companies, or services to private entities through various methods such as sale, lease, or public offerings.
(g) Market-oriented approach: Introducing market principles and competition in sectors previously dominated by the public sector.
Efficiency and productivity improvement: Expectation of enhanced efficiency, improved management, and cost-effectiveness in privatised entities.
(h) Access to private capital: Attracting private investment and capital to support the development and expansion of industries and infrastructure.
(i) Globalization: Globalisation refers to the increasing interconnectedness and integration of economies on a global scale. It involves the free flow of goods, services, capital, and information across national boundaries.
The key features of globalisation include:
(a) Trade liberalisation: Facilitating international trade through the reduction of trade barriers, negotiation of free trade agreements, and participation in global trading systems.
(b) Foreign investment and capital flows: Encouraging foreign direct investment (FDI), promoting cross-border investments, and attracting capital from global sources.
(c) Technological advancements: Utilising advancements in transportation, communication, and information technology to facilitate global economic activities.
