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Economics 3 Marks Question

Liberalisation, Privatisation And Globalisation · CBSE STD 12 Commerce (CBSE - English Medium). 45 questions.

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Question 13 Marks
Write a short note on WTO.
Answer
In 1948, GATT (General Agreement on Trade and Tariff) was formed with 23 countries as the founder members to administer all multilateral trade agreements. WTO was formed as successor of GATT on 1 January, 1995. It aimed to establish a rule based trading regime which nations cannot place arbitrary restrictions on trade. India was a founder member. It has been in forefront in WTO. It has kept its commitment towards liberalisation of trade made in the WTO by removing quantitative restrictions on imports and reducing tariff rates.
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Question 23 Marks
Give any three aims of demonetisation.
Answer
The three aims of demonetisation are:
  1. To curb corruption.
  2. To curb counterfeiting.
  3. To curb the use of high denomination notes for terrorist activities.
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Question 33 Marks
Read this excerpt of a news item from a daily newspaper describing something that is now becoming increasingly common.
"On a morning, a few minutes before 7A.M., Greeshma sat in front of her computer with her headset on and said in accented English 'Hello, Daniella'. Second later, she gets the reply, 'Hello, Greeshma'. The two chatted excitedly before Greeshma said that we will work on pronouns today'. Nothing unusual about this that except that Greeshma, 22, was in Kochi and her student Daniella, 13, was at her home in Malibu, California. Using a simulated whiteboard on their computers, connected by the Internet, and a copy of Daniella's textbook in front of Greeshma, she guides the teenager through the intricacies of nouns, adjectives and verbs. Greeshma, who grew up speaking Malayalam, was teaching Daniella English grammar, comprehension and writing."
  1. How has this become possible? Why can't Daniella get lessons in her own country? Why is she getting English lessons from India, where English is not the mother tongue?
  2. India is benefitting from liberalisation and integration of world markets. Do you agree?
Answer
  1. This has become possible through developments in the IT sector which has enabled people in diverse geographical locations to interact with one another by a click of a button.
Daniella cannot get lessons at the same cost in her country because tuition services are quite expensive in USA.

She is getting English lessons from India because Indians have a good command over English Grammar and, as compared to Americans are willing to offer their services for less remuneration.
  1. Yes, I agree. The opening up of the economy has opened new employment opportunities for our country.
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Question 43 Marks
What were the objectives behind Trade and Investment Policy reforms?
Answer
Trade and investment policy reforms were initiated to:
  1. Increase international competitiveness of industrial production.
  2. Attracting foreign investment and technology into the economy.
  3. Dismantling of quantitative restrictions on imports and exports.
  4. Reduction of tariff rates.
  5. Removal of licensing procedures for imports.
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Question 53 Marks
What is meant by demonetisation? What is its impact on the money supply of the country?
Answer
Demonetisation w.r.t. India, refers to the two largest denomination notes of ₹ 500 and ₹ 1,000 (demonetised with immediate effect on 8 November 2016), ceasing to be legar tender except for a few specific purpose.
The impact of demonetisation on the money supply of the country would be that it will lead to money supply contraction in the form of cash. There had been restrictions placed on cash withdrawls. There is a presumption that the higher the amount of cash in circulation, the greater the amount of corruption.
In this sense, to reduce the cash in an economy could have important long-term benefits in terms of reducing levels of corruption.
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Question 63 Marks
What was the impact of reforms on growth and employment in India?
Answer
Although there has been an increase in the growth rates during reform period, scholars point out that growth has not led to creation of employment opportunities. It is a job less growth brought about by capital intensive methods. Moreover, it has not led to growth of all the sectors equally.
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Question 73 Marks
Write a brief note on trade and investment policy reforms. How did it lead to economic growth?
OR
What was the purpose of liberalisation of trade and investment in 1991?
Answer
Liberalisation of trade and investment was initiated to increase international competitiveness of industrial production and also the flow of foreign investments and technology into the economy. Prior to these reforms, in order to protect domestic industries, India was following a regime of quantitative restrictions on imports and restrictions of foreign investments.The trade policy reforms aimed at:
  1. Dismantling of quantitative restrictions on imports and exports.
  2. Reduction of tariff rates.
  3. Removal of licensing procedures for imports. Liberalisation led to economic growth by increasing the level of investment in the country.
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Question 83 Marks
The single tax implemented from 1st July 2017 was likely to reduce prices of which kind of products? Give example of any three items which are exempted from GST and why? Give reason.
Answer
Goods and Services Tax (GST) which was implemented from 1st July 2017 is likely to reduce the price of essential items like food items, fresh vegetables etc.The three items exempted from the Goods and Services Tax are:
  1. Common salt.
  2. Health services.
  3. Educational services.
All the above three items are essential items which are consumed by the masses, so keeping the social welfare motive in mind, the government has exempted them from GST.
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Question 93 Marks
Explain any four negative impacts of liberalisation and globalization.
Answer
The four negative impacts of liberalisation and globalisation are:
  1. There has been a decline in agricultural growth rate. The removal of fertiliser subsidy has adversely affected the small and marginal farmers.
  2. Industrial sector has also witnessed lopsided growth, as the cheaper imports have led to a decrease in the demand for domestically produced industrial products.
  3. Globalisation which brought about free movement of goods and services from R.O.W. has had an adverse effect on the products of domestic industries and thereby the employment opportunities.
  4. Liberalisation and globalisation have led to the spread of consumerism.
  5. Economic reforms have also led to the erosion of cultural roots and values.
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Question 103 Marks
India is benefiting from liberalisation and integration of world markets. Comment on this statement in the light of outsourcing services.
Answer
The growth of India's population is a big factor in making it a source of "outsourcing". India has invested heavily in technical education and can provide a ready supply of bright people at relatively low cost, owing to government's inability to provide employment to them. Being located on the other side of the developed world gives the advantage of time difference to India and some companies find it a definite advantage.
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Question 113 Marks
Write a brief note on International Monetary Fund (IMF). Also state its objectives.
Answer
IMF was conceived at the Bretton Woods Conference held in 1944 and set-up in 1946. The main objective of setting up of such an organisation was to administer a code of good conduct in international liquidity of its member countries and to grant short-term loans to economies, experiencing temporary deficit in Balance of Payments (BOP). IMF started to function from March 1947. Its headquarters is located in Washington DC. There are 189 member countries including India. The highest authority of the IMF is the Board of Governors, which consists of the most part of Ministers of Finance or Central Bank Governors of the member countries. Each member country appoints one Governor. The board generally meets only once in a year.The main objectives of IMF are as follows:
  1. To promote international monetary cooperation.
  2. To promote exchange stability.
  3. To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions.
  4. To give confidence to members by making the general resources of the fund temporarily available to them under adequate safeguards.
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Question 123 Marks
What is privatisation? How can government companies be converted into private companies?
Answer
Privatisation is the process of transferring property, from public ownership to private ownership and/ or transferring the management of a service or activity from the government to the private sector.
The government companies can be converted into private companies by the following ways:
  1. By withdrawl of the government from its ownership and management of PSUs.
  2. By outright sale of public sector companies.
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Question 133 Marks
What were the main reforms in the financial sector?
Main reforms in the financial sector were:
Answer
  1. Reduced control of RBI on commercial banks.
  2. Statutory liquidity ratio and cash reserve ratio reduced.
  3. Free determination of interest rate by the market forces of demand and supply.
  4. Foreign investment limit in banks increased.
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Question 143 Marks
What are your views on the reforms introduced in the financial sector under the New Economic Policy?
Answer
Financial Sector includes financial institutions such as commercial banks, investment banks, stock exchange and foreign exchange market.The following reforms were initiated in this sector:
  1. The banking sector was opened for the private sector. This led to an increase in competition and expansion for services for consumers.
  2. RBI's role underwent a change from a 'regulator' to a 'facilitator'.
These reforms were much needed and subsequent to these changes, this sector has witnessed tremendous growth and helped in the development of the economy as a whole.
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Question 153 Marks
Explain any four main objectives of globalisation.
Answer
Following are the main objectives of globalisation are as follows:
  1. Reduction of trade barriers to liberalise world trade.
  2. Serves as a platform for countries to raise their concern regarding the trade policies of their trading partners.
  3. To enlarge production and trade of services.
  4. To ensure optimum utilisation of world resources.
  5. To protect the environment. To provide greater market access to all member countries.
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Question 163 Marks
Give any four arguments in favour of New Economic Policy.
Answer
  1. New Economic Policy, through the economic reforms, aimed at removing the inefficiencies in the economic system.
  2. The growth of the service sector led to the growth of the GDP from 5.96% during 1980-81 to 8.2% during 2007-2012.
  3. The economy opening up to the Rest of the World, led to the rapid expansion of foreign direct investment and foreign exchange reserves.
  4. There has been an increase in the foreign exchange reserves from about $6 billion in 1990-91 to $400 billion in 2011-12.
  5. Rising prices had also been kept under control.
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Question 173 Marks
What was the condition imposed by World Bank and International Monetary Fund for giving loan to India?
Answer
India received a loan of $7 billion from World Bank and International Monetary Fund to manage its financial crisis in the late 1980's. For this, certain conditions were imposed on India:
  1. To liberalise and open up its economy by removing restrictions on the private sector.
  2. To reduce the role of the government in many areas of production.
  3. To remove trade restrictions.
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Question 183 Marks
Give suggestions to improve the profitability of electricity producing companies.
Answer
Suggestions to be undertaken to improve the profitability of electricity producing companies:
  1. Reducing power tariff to avoid stealing of electricity.
  2. Improving the quality of power generation.
  3. Giving subsidies.
  4. Attract foreign investment.
  5. Disinvestment.
  6. Reducing taxes on profit of companies.
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Question 193 Marks
What were the main reforms in the foreign trade sector?
Answer
Main reforms in the foreign trade sector were:
  1. Dismantling of quantitative restrictions on imports and exports.
  2. Reduction of tariff rates.
  3. Removal of licensing procedures for imports.
Foreign exchange regulations were liberalised, foreign investment was encouraged, import regulations were simplified.
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Question 203 Marks
State the main objectives of liberalisation policy.
OR
Why is it said that NEP is liberal?
Answer
The main objectives of liberalisation policy are:
  1. To increase competition among domestic industries.
  2. To increase foreign capital formation and improve the technology.
  3. To decrease the debt of the country.
  4. To encourage cross border trade.
  5. To expand the size of the market.
Since the NEP aims to achieve all the above stated objectives, therefore it is said that, NEP is liberal.
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Question 213 Marks
"NEP stimulated economic growth". Give three arguments in favour and against of this statement.
Answer
Arguments in favour of this statement are:
  1. India has become a vibrant economy with the introduction of NEP.
  2. NEP led to considerable increase in foreign exchange reserves.
  3. NEP helped to control fiscal deficit.
Arguments against this statement are:
  1. It led to urban concentration of growth process.
  2. This policy encouraged economic colonialism.
  3. This policy resulted in the spread of consumerism.
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Question 223 Marks
The Gulf crisis and the collapse of Soviet Block was responsible, to a certain extent for the economic crisis of 1991. Discuss.
Answer
The Gulf crisis and the collapse of Soviet Block was definitely responsible, to a certain extent, for the economic crisis of 1991, as is explained below:
  1. Gulf crisis US declared war with Iraq in early 1991 because of Saddam Hussein's attempt to take over Kuwait. Iraq and Kuwait were our big suppliers of oil. With an ongoing war, ships found it hard to reach the Persian Gulf. Also, many oil wells were burnt. This led to rise in oil prices (doubling in a few months).
  2. Collapse of soviet block Since 1960, Soviet Union was our biggest export destination. By 1991, it split into 15 nations (Russia, Ukraine, etc). This significantly affected our exports. With import bill rising (Gulf crisis) and exports falling (collapse of Soviet Union), our foreign exchange position got worsened.
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Question 233 Marks
Explain briefly the meaning of economic reforms. What are the main economic reforms?
Answer
Economic reforms refer to the changes made in the economy with a view to deregulate it and to solve the prevailing economic problems of the country. In India, economic reforms were introduced in 1991, with the implementation of New Economic Policy.These reforms can be categorised as:
  1. Stabilisation reforms: These reforms were short-term measures which intended to correct disequilibrium in BoP and to check inflation.
  2. Structural reforms: These are long-term measures which intend to bring efficiency in the working of the economy. These reforms can be categorised as liberalisation, privatisation and globalisation.
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Question 243 Marks
Why do developed countries oppose outsourcing?
Answer
Developed countries oppose outsourcing because of the following reasons:
  1. Outsourcing leads to the drainage of jobs that belong to their middle class. It fuels the high unemployment rate.
  2. The outsourced jobs leads to poorer quality in goods and services produced.
  3. Due to less of well paying jobs, consumers turn towards credit which results in a weakened economy.
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Question 253 Marks
Why are stabilisation measures also referred to as 'macroeconomic stabilisation measures?
Answer
Stabilisation measures are also referred to as ‘macroeconomic stabilisation measures', as these measures affect the economy as a whole. These measures relate to the changes made in the monetary policy, fiscal policy and exchange rate policy.
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Question 263 Marks
In your opinion why did the government resort to the measure of "demonetisation"?
Answer
The government resorted to the measure of demonetisation to curb:
  1. Corruption.
  2. Counterfeiting.
  3. Terrorism.
  4. The accumulation of black money generated by income not declared to the tax authorities.
Demonetisation emphasises the govenment's determination to penalise the illicit activities and the association wealth. Through demonetisation the government wanted to reduce the levels of corruption. It is an attempt to crack down on black money showing that tax evasion will no longer be tolerated/ accepted.
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Question 273 Marks
Why are most of the MNCs outsourcing their services to India?
Answer
Most of the MNCs are outsourcing their services to India on account of the following factors:
  • Availability of services at a cheaper cost.
  • With reasonable degree of skill and accuracy.
Thus, it is the availability of skilled manpower at the low wage rates which has made India a destination for global outsourcing.
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Question 283 Marks
What is demonetisation?
Answer
Demonetisation means stopping a form of currency from being legal tender. That means that this currency can no longer be legally used. It cannot be used to buy things and if it is paid into the bank, your bank manager should not accept it.
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Question 293 Marks
Do you think India has scope in handloom and handicrafts exports?
Answer
A developing country like India still does not have the access to the markets of developed countries because of non-tariff barriers. Our country has removed all quota restrictions on textile industry but developed coutries like the USA has not removed quota restriction on imports of textiles from India. In this situation, I do not think that India has much scope in handloom and handicrafts exports.
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Question 303 Marks
Why has the industrial sector performed poorly in the reform period?
Answer
The industrial sector has performed poorly in the reform period because of reasons enumerated below:
  1. Cheaper imports have decreased the demand for domestic industrial goods.
  2. Globalisation created conditions for the free movement of goods and services from foreign countries that adversely affected the local industries and employment opportunities in developing countries.
  3. There was inadequate investment in infrastructural facilities such as power supply.
  4. A developing country like India still does not have the access to developed countries markets because of high non-tariff barriers.
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Question 313 Marks
How were the industries regulated in India before 1991?
Answer
Before 1991, the industries were regulated in various ways:
  1. Through industrial licensing under which every entrepreneur had to get permission from government to start a firm, close a firm, expand the firm or produce a new product.
  2. Private sector was not allowed in many industries.
  3. Through controls on price fixation and distribution of selected industrial products.
  4. Some goods could be produced only in small-scale industries.
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Question 323 Marks
In your opinion, what are the advantages of privatisation to the economy?
Answer
Advantages of privatisation are:
  1. It will introduce efficiency and profitability in Public Sector Undertakings (PSUs).
  2. It promotes consumer's sovereignty. High degree of consumer's sovereignty implies wider choice and better quality of goods and services.
  3. It will reduce budgetary deficits which result from expenditure on loss making PSUs.
  4. It promotes diversification of production. Also, unlike PSUs, private enterprises invariably generate high profits.
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Question 333 Marks
How is GST administered in India?
Answer
Keeping the federal structure of India, there will be two components of GST, i.e, Central GST (CGST) and State GST (SGST).
  • Both centre and states will levy GST across the value chain simultaneously.
  • Centre would levy and collect CGST and states would levy and collect the SGST on all transactions within a state.
  • The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage.
  • Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output.
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Question 343 Marks
What did the trade policy reforms aim at?
Answer
The trade policy reforms aimed at:
  1. Dismantling of quantitative restrictions on imports and exports.
  2. Reduction of tariff rates.
  3. Removal of licensing procedures for imports.
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Question 353 Marks
Why was Indian government forced to borrow from World Bank and International Monetary Fund in the late 1980's?
Answer
The severe financial crunch forced India to borrow from World Bank and International Monetary Fund because:
  1. In the late 1980's, government expenditure exceeded its revenue by such large margins that it became unsustainable.
  2. Prices of many essential goods rose sharply.
  3. Imports rose more sharply than exports causing a serious balance of payments crisis.
  4. Foreign exchange reserves fell to $1 billion which was not sufficient to pay even for the interest to international lenders. India was on the verge of being declared a defaulter on payments.
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Question 363 Marks
What are the objectives of privatisation?
Answer
The most common and important objectives of privatisation are:
  1. Improving the financial condition of the government.
  2. Raising funds through disinvestment.
  3. Reducing the workload of public sector.
  4. Increasing the efficiency of the government undertakings.
  5. Providing better goods and services to consumers.
  6. Bringing healthy competition within an economy.
  7. Making way for Foreign Direct Investment (FDI).
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Question 373 Marks
Explain the concept of privatisation. What measures of privatisation have been adopted under the new economic policy, 1991?
Answer
  • Privatisation implies shedding of the ownership or management of a government owned enterprise.
  • The main aim of privatisation is to improve the financial discipline and facilitate modernisation.
  • The government felt that privatisation could provide impetus to the inflow of FDI.
  • The government has also tried to improve the efficiency of PSU's by giving them autonomy in taking managerial decisions. Some of PSU's have been given special status as maharatanas, navratatnas and miniratnas.
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Question 383 Marks
Explain the fiscal reforms introduced under the New Economic Policy.
Answer
Fiscal Reforms introduced under the new economic policy are:
  1. Both direct and indirect taxes were reduced.
  2. Reduced expenditure on administration and subsidies on food, fertilizers and exports.
  3. In order to encourage tax payers, many procedures have been simplified.
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Question 393 Marks
What steps were taken towards privatisation in 1991?
Answer
Steps taken towards privatisation in 1991 were:
  1. Reduction in number of reserved public sector units from 17 to 4.
  2. Disinvestment in public sector undertakings by selling the shares of PSUs into private hands.
  3. Increase in the share of private sector in total investment.
  4. Corporatisation of a public department with some operational and managerial autonomy.
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Question 403 Marks
Write a short note on foreign exchange reforms.
Answer
The first important reform in the external sector was made in the foreign exchange market. In 1991, as an immediate measure to resolve the Balance of Payments (BOP) crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange.After liberalisation policy of 1991:
  1. Approval was given for direct foreign investment upto 51% foreign equity in high priority industries.
  2. Automatic permission was given for foreign technology agreements in high priority industries upto a lumpsum payment of 1 crore.
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Question 413 Marks
List any five such PSUs that are partly privatised.
Answer
The examples of five partly privatised PSUs are:
  1. Delhi Vidyut Board.
  2. Videsh Sanchar Nigam Limited.
  3. Steel Authority of India.
  4. Delhi Transport Corporation.
  5. National Fertilisers Ltd.
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Question 423 Marks
Discuss the impact of fiscal sector reforms.
Answer
Fiscal sector reforms did not produced desirable results. Reducing tax rates have not led to increase in government revenue. Reform policies like tariff reduction have reduced the scope of increasing government revenue. Tax incentives offered to attract MNCs has further reduced scope of increasing government revenue.
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Question 433 Marks
What are the objectives of WTO?
Answer
Objectives of World Trade Organisation (WTO) are:
  1. Reduction of trade barriers to liberalise world trade.
  2. Serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners.
  3. To enlarge production and trade of services.
  4. To ensure optimum utilisation of world resources.
  5. To protect the environment.
  6. To provide greater market access to all member countries.
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Question 443 Marks
How will Goods and Services Tax (GST) be a comprehensive indirect tax? Explain.
Answer
GST will be a comprehensive indirect tax on the manufacture, sale and consumption of goods and services throughout India, to replace taxes levied at the central and state level. For example, a car's price varied among states because of different rates of taxes like value-added tax, octroi and road tax. But, GST has removed all these and made India a single tax market.
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Question 453 Marks
How is the financial sector in India controlled by the Reserve Bank of India?
Answer
The Reserve Bank of India, through its various norms and regulations, controls all the banks and other financial institutions in India.
  • It decides how much money the banks can keep with themselves.
  • Fixes interest rates.
  • Determines the nature of lending to various sectors.
  • Certain managerial aspects in relation to private sector banks (Indian as well as foreign) have been retained with the RBI, to safeguard the interests of the accountholders and the nation.
One of the major aim of financial sector a reforms is to reduce the role of RBI from a regulator to a facilitator of financial sector.
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