3 Marks Each

Question 13 Marks

State the adverse effects of economic reforms.

Answer

Unfavorable Effects of Economic Reforms :

Following adverse effects of economic reforms ,Ire seen :
Small and Cottage industries :
Small and cottage industries could not sustain in competition of multinational companies.

Public services :

In new economic policy, due to privatization of public services, subsidies were reduced in many sectors so, these services become expensive.

Dumping of goods :

MNC companies dumping goods at very cheap rate and so Indian companies are facing trouble to make product at that price.

Exchange rate fluctuation :

Exchange rate determination was left to the market and market fluctuated more.
Many companies suffered owing to such fluctuations.

Agriculture sector :

Many policies of World Trade Organization imposed strict quality measures and it is very much difficult for export countries like India.
Especially for exports of agricultural goods.

Scarcity of basic facilities :

To cope with the speed of privatization and globalization, the infrastructural facilities like electricity, roads etc. proved insufficient.

Inequalities in income :

The benefits of economic reforms have not reached the ordinary masses.
Prosperity of income in country has increased and inequalities of economic power also increased.

Effect on employment :

To increase competitiveness, modern technology has been used in industries and as a result in proportion to investment, creation of job opportunities has been less than required.
This has made the problem of unemployment quite serious.

Problem of social- culture legacy :

Some person believe that the social and cultural foundations of India are threatened because of globalization.

Consumerism increased :

To capture markets, advertisement are bombarded heavily on consumers which has given birth to consumerism.
It has affected the desire and capacity of the ordinary persons adversely.

Others :

Less foreign capital has been availed that is required for development.
The production and sale of life style goods increased against necessities.

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Question 23 Marks

Explain foreign trade policy after globalization.

Answer

India has adopted planning since $1951.$
During the first four decades of planning, India reposed faith in public sector than private sector and protected it as a reserved sector.
More facilities were provided to public sector for its development.
In short, though there was mixed economy, public sector was pampered while private sector was neglected.
Due to political meddling, and inefficiency being rampant in it, the public sector units incurred losses and the return on total investment was very low.
Therefore, since $1991,$ liberalization, privatization and globalization were given more importance in new economic policy.

Steps Following changes are seen after globalization of foreign trade policy of India.

Instead of protective, free trade policy is accepted. Restrictions on foreign trade are gradually decrease. Import- export license has made easy.
Import duty is decrease step by step. Hence, this duty is high in comparison with China and country of South Korea.
State has followed fixed policy for traders or producers and investors of home country and $7.$ foreign country. Discriminating policy is gradually abolished. $0'$
After $1991$ economic policies in India were reformed to enhance trade and investments. Foreign trade policy was made outward looking from a restrictive inward looking one. Indian rupee was allowed to be converted to foreign currencies at market rates from earlier official conversion.
With promotion of $FDI$ and privatization, foreign companies can sell different types of goods in India.
After globalization India's trade with non-traditional trade partners or new countries increased and new trade policy aimed at increasing India's percentage share in world trade.
India became a member of World Trade Organization$(WTO)$ in $1995$ and trade policy changes were made according to $WTO $ rules. .

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Question 33 Marks

State the challenges before foreign trade policy of India.

Answer

Foreign trade policy regulates India's trade with other countries. The foreign trade policy always faced the following challenges.
Need to control certain imports in order to protect domestic industries from the competition of foreign goods.
Control imports of goods unessential for India's development in order to save scarce foreign exchange.
Encourage exports to earn foreign exchange in order to pay for necessary imports.
Many Indian goods could not compete against the quality of foreign goods and hence increasing exports was a challenging for trade policy.
Ensure enough imports of technology, machines, spare parts as well as resources to help increase domestic production and import substitution.
The challenges of foreign trade are different from those of domestic trade as foreign trade involves foreign exchange.
Promote export of goods produced by small sector is always a challenging problem of this policy.
For foreign trade policy maker, it is very much difficult to determine the trend, size and proportion of foreign trade.

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Question 43 Marks

Give the meaning and nature of Foreign Direct Investment.

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.

Types of $FDI$ :

There are so many types of $FDI$ but following four types are main.
Market seeking $FDI$
Resource seeking FM
Efficiency seeking $FDI$
Strategic asset seeking $FDI$
$FDI$ are welcomed but still there are some limitations.
These companies import raw material instead of purchase from local market.
They give employment to only foreign people at high post.
These companies charges high profit for royalty service, interest and earned profit and send to their country.
These companies trie to sell the product or service through advertisement.

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Question 53 Marks

Give the meaning and important aspects of the process of globalization.

Answer

Introduction :

Import — Export licensing policy was made simpler and easy.
There has been absolute reduction in import duties but still in comparison to other countries.
The rates are high e.g. in $1991-92,$ there was average $72.5\%$ import duty which was gone down to $24.8\%$ in $1996-97.$
But trends of world depression were increased and the policy of increasing import duty was implemented.
India became member of World Trade Organization in $1995$ which means perpetual by its rules of free world trade.
Introducing convertibility of Indian rupee into other currencies at market rate by gradually reducing conversion at the official rate.
Thus, value of our currency is determined by trade we have done.
There was sector wise ad systematic increase in foreign direct investment in India.
Investors and producers in India were allowed to increase financial collaborations with their foreign counterparts, and remove the discriminating policy.
State became more indifferent in policy matters between domestic and foreign investor and producer.
In that matter, undue protection for Indian investors against foreign competition was lifted.
Social and cultural ties with other countries were also encouraged including relaxations by many nations in granting visas.
As a part of new economic reforms, flexible exchange rate has been adopted.
The exchange rate is determining according to the factors of demand of foreign currency and supply of foreign currency.
Instead of keeping foreign exchange rate high in an artificial manner, their real value is taken into account.
This has helped promotion of exports.
Total transformation of rupee has been made for all current- account transaction and balance of trade.
The Social and economic distance among the nations has been reduced because of globalization.
Globalization is a process of linking the economy of a country with the global economy.
Before economic reforms, there were many restrictions on international trade.
There were restrictions on imports and import duty was charged at a high rate.
Because of artificially high exchange rate, global trade was restricted.
In $1991, $ International Monetary Fund $(IMF)$ declared several nations are under the higher debt.
IMF imposed upon them to globalize and upgrade the technologies and growth of their nations.
This was a precondition before sanctioning further loans to these nations.
India was one of those and accordingly India had to relax its policies of granting protection to domestic industries from foreign competition.
Thus, India began globalizing by allowing more trade with other countries.
The following systematic steps are taken for globalization process.
Process of Globalization in India :
Free Trade :
Remove the restrictions on import and export and promote free trade among the nations.
Capital Mobility :
To increase the international mobility of the capital among the nations.
Mobility of Technology :
Remove the restrictions on mobility of technology and promote free movement of technology.
Mobility of labours:
To facilitate the mobility of labours among the nations.
The process of integrating nation with the world is known as the globalization.
In other word, globalization is the process of increasing a •$ VIVI$
country's economic integration with rest of world.
The aspects of globalization includes trade, commerce, technology, science, goods, capital, human resources, natural resources, financial instruments etc.
Globalization process consist of :
Meaning and Different Aspects of Globalization :
Foreign capital can be increased without raising debt.
Country can get the benefit of the new technology.
Increases the exports.
New goods will become available in the market.
Increases the production of the Country and increases the competition in the market.
Share of foreign trade increases in $GDP.$
Why globalization is needed for India? : Because of globalization :
Globalization is one of the important components of new economic reforms.
Globalization means the integration of country's economy with the rest of the world by increasing trade of goods and services.
The changes made in transportation and communication sectors give boost to the process.

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Question 63 Marks

State objectives of economic policy reforms of 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 73 Marks

Explain the foreign trade policy before globalization.

Answer

Foreign Trade Policy before globalization

To sell goods or services in foreign is called export and to buy goods or services from foreign is called import.
Here, internal trade differ from international trade because international trade is connected with exchange rate.
So generally in foreign trade policy, import, export and exchange rate are the main points.
There was golden period of India of foreign trade before British rule.
But after British rule the foreign trade was decreased.
To become success in industrial revolution, the foreign trade policy implemented by Britishers has created lot of problems to Indian industries.
After getting independence in $1947$, India has accepted the path of planning since $1951.$
At this time, India has accepted state controlled socialist policy.
And accepted mixed economy system. This system is benefited to public sector and private sector is avoided.
To establish big industries and for development of industries, India has to import.
So due to shortage of foreign exchange, India has implemented foreign trade policy to save foreign exchange by putting restrictions on imports of consumable goods.
In planned foreign trade policy of India, more stress is laid on industries of import substitution and to protect local industries.
For this, policy regarding control on import and save foreign exchange and increase export to earn more foreign exchange is implemented.
Hence, in foreign trade policy in the initial years emphasis was laid upon measures of protection for domestic industry against foreign competition.
Various import restrictions were imposed and export promotion measures were introduced.
Later on, along with the traditional items of exports like agricultural product, handicrafts, gems and jewellery, the exports of non traditional industrial goods were also promoted.
Rates of exchange were basically determined and the rupee was devalued in order to increase exports and reduce imports.
With devaluation, imports become costly but since the items of imports were necessary for India's industrialization there was no significant decline in imports.
Import bills increased and there was a deficit in India's Balance of Payments.
A policy of import substitution was also adopted.
Import substitution is a policy of substitution imports by domestically produced goods.
That is, imports are reduced and replaced by domestic goods.

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Question 83 Marks

Experience of Globalization in India

Answer

The Growth rate of merchandise export of India is double than the rest of the world during $1995-2010$ because of the process of the globalization in India.
The Service sector has played an important role.
The exports of software through outsourcing played a major role in this process.
During this period the import growth rate is higher than the export growth rate.
To compete with the foreign industries, local industries has to improve the use of technology.
This has increased the quality of the product and use of technology.
In India, due to process of globalization economic growth rate is increased but employment growth rate is not that much increased.
Because of latest technology employment opportunity is not that much created.
Because of free trade policy, small and cottage industries are shut-down step by step.
Globalization has increased the inequalities between income and wealth.
There is critical situation of poverty due to inflation.
Globalization provides job to skilled employees but employment of unskilled employees are striped.

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