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Economics 2 Marks Each

Economic Reforms · Gujarat Board (GSEB) STD 11 Commerce (GSEB - English Medium). 16 questions.

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16 questions · timed · auto-graded

Question 12 Marks
Give a short explanation about Foreign Institutional Investment.
Answer
Those foreign companies that invest in financial institutions and bond/ stock/share markets of another country are called Foreign Institutional Investors (Fll). Such an investment is also called portfolio investment.
  • Fils are the big companies such as investment banks, mutual fund houses, etc. who invest considerable amount of money in the Indian markets.
  • Such companies have to register in India as Foreign Institutional Investors. Then they buy such stocks from the bond/share market of India.
  • Thus, instead of investing in plant and machinery in another country like India these companies invest in the financial market.
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Question 22 Marks
Explain the reasons which compelled India to adopt reforms in $1991.$
Answer
  • On account of the defects of economic policies implemented due to the first four decades of planning, the development of private sector was hindered and public sector which was assigned the main duty of development of economy proved inefficient.
  • The development growth rate t remained very low.
  • Not only that to meet the inefficiency and losses incurred by public sector, fiscal deficit had to be increased.
  • The restrictions on foreign trade kept the import industries in low efficiency.
  • Reserve was more than export and India had to approach IMF to solve the problem of foreign exchange and as a part of the conditions of IMF aid, economic reforms had to be made.
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Question 32 Marks
Give the meaning and types of disinvestment.
Answer
  • Meaning of Disinvestment :
  • Disinvestment means where the state reduces its share of investment in a public enterprise or draws back its investment completely by selling its shares to the private sector.
  • Thus, the process by which the state 'disinvests' from public enterprises is called disinvestment.
  • Types of Disinvestment :
  • According to process of disinvestment, there are three types of disinvestment.
  • Through Ownership :
  • Sell all the share of public sector to private sector $($complete disinvestment$),$
  • Partial disinvestment $(29\%$ or $49\%$ of shares transferred to private sector$),$
  • Minor disinvestment $($less than $51\%$ of shares transferred to private sector$),$
  • Major disinvestment $($more than $51\%$ of shares transferred to private sector$)$
  • Some sector restricted by state which are opened for private sector.
  • Give more self dependency to take economic decision to public sector.
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Question 42 Marks
Give the full form of $MRTP$ and state the reason behind the formulation of this act.
Answer
Full Form of $MRTP$ : Monopolies and Restrictive Trade Practices Act, $1969$. Reason behind formulation of this act is to prevent enterprises from growing very big and establishing monopolies.
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Question 52 Marks
Give the meaning and components of economic reforms.
Answer
  • Meaning of economic reforms :
  • It is a process of systematically reducing policy regulations and excessive state imposed controls in economic functioning.
  • Components of economic reforms :
  • Following are the three important components of economic reforms :
  • Liberalization,
  • Privatization,
  • Globalization.
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Question 62 Marks
Favorable Effects of Economic Reforms
Answer
  • Economic changes like liberalization, privatization and globalization were implemented by the government in $1991$ in India.
  • Following favorable effects are seen.
  1. Benefit to customer : Customer started getting variety of goods of international quality at reasonable price easily.
  2. Foreign exchange: India's foreign exchange reserve was at bottom level which is increased after economic reforms.
  3. Increase in export: Due to liberalization, globalization and privatization policy, the export of India are increased.
  4. Agriculture Sector: Progressive exchange rate policy has provided reasonable prices to the farmers for their farm product. Therefore total agricultural exports has increased.
  5. Industrial Development: Along with increase in $FDI$, the risk of certain investments and debt burden of the state for importing costly technology etc. are reduced.
  • Large scale investments increased in the private sector which in turn increased production and employment.
  1. Mobility in factors of production : Factors of production became more mobile within the country and between the countries.
  2. Efficiency increase: Under an era of too many regulations, corruption, bureaucratic hurdles, delays in decision making and inflexibility in administration had become a common feature in policy implementation.
  • All these are found to have gradually reduced after reforms.
  1. Neglected sector got momentum : Certain sectors which are significant in growth but neglected owing to scarcity of capital and government regulations got the momentum with private sector's investment initiatives. E.g. natural gas pipelines, modernization of railways and so on.
  2. Shortages of goods and services became past thing, rather variety increased.
  3. Social and cultural ties with other countries are increased.
  4. Others : Because of more mobility in factors of production, social and cultural ties with other nations improved and scarcity of goods and services are decreased.
  • After implementation of economic reforms, poverty has decreased.
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Question 72 Marks
State the positive effects of economic reforms.
Answer
  • Economic changes like liberalization, privatization and globalization were implemented by the government in $1991$ in India.
  • Following favorable effects are seen.
  1. Benefit to customer : Customer started getting variety of goods of international quality at reasonable price easily.
  2. Foreign exchange: India's foreign exchange reserve was at bottom level which is increased after economic reforms.
  3. Increase in export: Due to liberalization, globalization and privatization policy, the export of India are increased.
  4. Agriculture Sector: Progressive exchange rate policy has provided reasonable prices to the farmers for their farm product. Therefore total agricultural exports has increased.
  5. Industrial Development: Along with increase in $FDI$, the risk of certain investments and debt burden of the state for importing costly technology etc. are reduced.
  • Large scale investments increased in the private sector which in turn increased production and employment.
  1. Mobility in factors of production : Factors of production became more mobile within the country and between the countries.
  2. Efficiency increase: Under an era of too many regulations, corruption, bureaucratic hurdles, delays in decision making and inflexibility in administration had become a common feature in policy implementation.
  • All these are found to have gradually reduced after reforms.
  1. Neglected sector got momentum : Certain sectors which are significant in growth but neglected owing to scarcity of capital and government regulations got the momentum with private sector's investment initiatives. E.g. natural gas pipelines, modernization of railways and so on.
  2. Shortages of goods and services became past thing, rather variety increased.
  3. Social and cultural ties with other countries are increased.
  4. Others : Because of more mobility in factors of production, social and cultural ties with other nations improved and scarcity of goods and services are decreased.
  • After implementation of economic reforms, poverty has decreased.
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Question 82 Marks
Explain the meaning and concept of globalization.
Answer
  • The process of connecting the economy of the country with the countries of the world is called globalization.
  • In this process, the nation moves from domestic level to international level.
  • To implement this process,
  • free trade,
  • free movement of capital at international level,
  • free movement of technology and
  • free movement of labour are included in it.
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Question 92 Marks
State the nature of $FDI$ in India.
Answer
  • Foreign Direct Investment($FDI$) :
  • In India, fast development was began in 1991 and later when economic reforms viz. globalization, liberalization and privatization were introduced.
  • When home country invites capital by allowing foreign investor or companies to produce or sell directly in India then such investment is called foreign direct investment.
  • In short, $FDI$ means investment made by a non-resident in equity of domestic company with intension of participating in management of the company.
  • In $FDI$, foreign companies directly set up their business in India by constructing their plants, bringing in technology and producing or by collaborating with Indian companies to do so.
  • These companies either manage the entire business or have a share in management if they are collaborating partners.
  • Nature of $I'M$ :
  • The nature of $FDI$ can be stated as follows :
  • It is a physical establishment in the loon of direct investment and hence stable form of investment.
  • It brings machines, materials and wealth to home country.
  • It brings new technology to the country.
  • It brings different work culture along with it. India has systematically allowed $FDI$ in increased proportion in various sectors and India's foreign exchange earnings has increased.
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Question 102 Marks
What is meant by Foreign direct investment?
Answer
  • When the home country invites capital by allowing foreign investors or companies to produce and sell directly in India such investment is called foreign direct investment.
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Question 112 Marks
Which changes are made by Indian legislative body for liberalization in regulation (laws)?
Answer
  • $MRTP$ Act was replaced by Competition Act.
  • This Act preventing enterprises from growing very big and establishing monopolies.
  • Competition Act, $2002$: This Act replaced $MRTP$ and was aimed at reducing unhealthy competition among the enterprises.
  • $FERA$ was replaced by $FEMA.$ The word regulatory was removed from $FERA$ and replaced by the word management.
  • This Act regulating foreign exchange earnings and transactions of enterprises.
  • $FEMA$ Act managing foreign exchange earnings and transactions of enterprises instead of regulating those.
  • Major changes were made in the industrial policy.
  • Some sectors are opening up for private sector which reserved for investment only by the public sector.
  • Now only three sectors are reserved for the public sector namely.
  • Atomic energy, some minerals related to atomic energy and railways. Another noteworthy change was raising the investment limit in the definition of small scale units so that with higher investment a small scale unit can adopt modernization.
  • The procedure for foreign investment became more investor friendly and in many sectors automatic licensing path was introduced for investment by foreign companies in India.
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Question 122 Marks
State the objective of economic reforms in India.
Answer
  • The changes brought about in economic policies since $1991$ in order to keep a change in the economic system of India.
  • One change was highly regulated by the state and other change was more market oriented.
  • As well as to reduce the extent of public sector in mixed economic system came to be known as economic reforms.
  • The objectives of these are as stated under:
  • Optimum and efficient allocation of country's resources can be possible.
  • Increase the domestic income, employment and export income of the country.
  • Increase competitiveness of the Indian economy.
  • Increasingly encourage the private and foreign investments in order to utilize India's abundant natural and human resources in the process of economic development in a productive manner.
  • Restrict expenditures of the state and keep the resources recovered from disinvestment in public enterprises towards increasing utility which enhance welfare of the people.
  • Ensure the steady economic growth and development of the Indian economy in the long run. In order to fulfill these objectives, systematic reforms in economic policy were initiated in $1991$ which had following three components:
  • Liberalization,
  • Privatization,
  • Globalization.
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Question 132 Marks
Which steps are taken in process of liberalization$?$
Answer
Following steps are taken in process of liberalization :
  • There is a gradual decline in the controls imposed by the state in economic functioning.
  • The role of market forces of demand and supply increases in economic decision making.
  • The private sector is systematically allowed to enter the investment areas reserved for the public sector.
  • Protection granted by state to domestic industries against foreign competition is systematically reduced.
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Question 142 Marks
Explain the meaning and concept of liberalization.
Answer
  • dealings of the people and to take economic decisions according to market system. In liberalization, the restrictions and controls regarding industrial sector, foreign trade sector, prices, choice of customers, foreign investment, labour laws etc. are removed.
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Question 152 Marks
Which steps are taken by India for globalization ?
Answer
  • Since $1991$, following steps have been taken as the part of economic reforms for globalization:
  • The rates of export-import have been reduced.
  • Import became free as licenses for imports have been removed.
  • Progressive foreign exchange rate has been accepted and exchange rate is determined by demand and supply factors.
  • The government has announced the list of industries in which foreign investment has been welcome.
  • The procedure for permission has been simplified
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Question 162 Marks
What are the objectives of privatization in India ?
Answer
  • In India, there were three main objectives of privatization
  • To improve efficiency and increase profitability of public sector.
  • To be free from burden of financial payments of debts and interests incurred by public sector.
  • To avail of necessary financial resources for economy.
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