5 Marks Each

Question 15 Marks

Give the meaning of privatization and explain its process in India.

Answer

Introduction: India adopts the mixed system to develop the nation.

After $1991$ policy, they didn't rise significantly.
On March $1951$ there were $5$ public sector enterprises under central government, which became $233$ in $1990$ and $217$ in $2010$ and were around $300 $ in the year $2015.$
The process of disinvestment from old enterprises continues while the state may also set up new enterprises.
Now only the areas like atomic energy, certain minerals related to atomic energy and railways are reserved for investment by public sector.
After independence there was a significant rise in the number of public sector enterprises under the Central Government.
Besides owning public enterprises, the state also held some control over certain areas of investment.
Certain areas of strategic importance and public utility services were not open for investment by the private sector till $1991.$ After privatization in $1991,$ most of these areas were declared open for investment by the private sector. Following sectors are opened for investment for private sector.
E.g. Banking. Education, Communication, Transportation are now open for private sector and foreign investment.
Entry of Private Sector in controlled area of State :
If government sell some portion of shares of the state in public enterprises to the private sector. E.g.
If $29\%$ or $49\%$ shares are transferred to private sector then it is called partial disinvestment.
If less than $51\%$ share are transferred to private sector then it is called minor disinvestment and if more than $51 \%$ shares are transferred to private sector then it is called major disinvestment.
Partial, Minor and Major Disinvestment:
If government sell all the shares of the state in a public enterprise sector to private sector is called complete disinvestment.
Complete Disinvestment :
Disinvestment means a process where the state reduces its share of investment in a public enterprise or pull back its investment completely by selling its share to the private sector.
In other words, if government sells some shares of public sector to private sector but keeps its management under its control is called disinvestment, In short, the process by which the state ' disinvests' from public enterprises is called disinvestment
Through Disinvestment :
Privatization can be done by following three ways :
Through disinvestment-
By reducing the number of areas reserved for investment.
Only by the public sector and opening them for investment by the private sector.
By establishing the public private partnership.
Process of Privatization :
Entry of private sector into the public sector units.
De-nationalization of industries, by selling the shares of public sector units to the private sector.
The entry of private sector in the reserve list of public sector.
The public sector units are given on rental basis to private sector.
The administrative responsibility is given to the private sector.
Reduce the beginning of new industrial units by the government sector.
The contract is given to the private sector to produce specific commodities than that of private sector.
Privatization means the process of transferring ownership of economic enterprises from public sector to private sector either partially or fully.
In other words, process of introducing private ownership in publicly owned enterprises and increasing the size of private sector.
Generally, the transfer of public sector unit to private sector is called privatization. Such privatization takes place in the field of industries or services.
The term 'privatization' has a wide range of ideas.
Let understand the meaning of the term 'privatization'.
It can be explained in narrow sense as well as broad sense.
In a narrow sense, privatization means the induction of private ownership in publicly owned enterprises while in a broad sense, it implies besides private ownership, the induction of private management and control in the public sector enterprises.
Privatization covers three set of measures.
Ownership measures.
Organizational measures.
Operational measures.
According to Dr. D.R. Pandse, the definition of privatization can be explained in a following way: Irk
Meaning of Privatization :
Increase the efficiency and profitability of the public sector.
To remove the burden of the debt created by the public-sector
To get necessary financial instruments for the economy.
Objective of the Privatization :
Public units became inefficient because of no competition.
Public units were running in loss and therefore the concept of privatization was adopted in new economic policy of $1991.$
The process of accepting the market and private sector led economic decisions is known as Privatization.
The implementation of privatization took place step by step.
The laws were removed for producers and investors, and then the foreign investments were invited.

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Question 25 Marks

Evaluate the effects of the economic reform process of India which began in $1991.$

Answer

Introduction :

India has adopted planning since $1951.$
During the first four decades of planning India reposed more faith in public sector than the private sector. From $1951.$
India adopted socialist pattern of planning and in order to set up a society with equality, it adopted narrow, regulated and inward looking economic policies.
After $1991,$ India made these policies liberal, market oriented and outward looking for promoting trade and development. This transformation was called the process of economic reforms.
Evaluation of these reforms after almost $25$ years $(1991-2015)$ can be done as under:
Economic policy reforms in the form of liberalization, privatization, globalization increased the significance of the market forces of demand and supply owing to which determination of prices, wages, and interest became market oriented and more realistic and less regulated.
Besides owing to decreased the regulations, the decisions regarding production, investment and distribution also became market oriented.

Favorable Effects of Economic Reforms :

Economic changes like liberalization, privatization and globalization were implemented by the government in $1991$ in India.
Following favorable effects are seen.
Benefit to customer.

Customer started getting variety of goods of international quality at reasonable price easily.
Foreign exchange:
India's foreign exchange reserve was at bottom level which is increased after economic reforms.

Increase in export:

Due to liberalization, globalization and privatization policy, the export of India are increased.

Agriculture Sector:

Progressive exchange rate policy has provided reasonable prices to the farmers for their farm product.
Therefore total agricultural exports has increased.

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.

Mobility in factors of production :

Factors of production became more mobile within the country and between the countries.
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.

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.
Shortages of goods and services became past thing, rather variety increased.
Social and cultural ties with other countries are increased.

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.

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 35 Marks

Give the meaning of liberalization and explain the changes which came about with it in India.

Answer

Introduction :

Government of India took loan form $IMF$ and World Bank to overcome the crises of increased fiscal deficit and foreign exchange
Before this adopted the new economic policy of privatization, globalization and liberalization.
Be so many restrictions were imposed by the government on industries like industrial licensing, controls reservation for public sector, long process to leave the sector, controls on production and distributions etc.
So many areas were restricted for the public sector.
Therefore, private sector can't enter into that field.
This process impeded the India's economic development.
On one hand private sector cannot enter and on the other hand public units became inefficient because of no competition.
The huge administrative expenditure of the public units raised the fiscal deficit of the government.
To increase the development of India and reduce the fiscal deficit of the government.
Government of India has adopted the new economic policy.

Meaning of Liberalization :

It is the process which increases the scope of private enterprise, private sector's say in economic functioning market oriented decision making by relaxing the policy regulations regarding the same.
Increasing the role of private sector and market oriented processes in economic planning in place of state regulated economic processes in India's mixed economic system is called liberalization of India economy.

Steps of Liberalization :

Remove the restrictions of states on economy gradually.
Give the importance of market led decisions. Decisions of the producers are based on the market forces.
Reduce the restricted area for public sector and increased the importance of the private sector.
Remove the license policy.
Remove the protection given by the state to the domestic industry and create a competitive environment in the economy.
It includes disinvestment, reduction in import tariffs, free flow of foreign investment etc.

Process of Liberalization in India :

Liberalization in India was implemented as a gradual process. Initially investment rules were simplified for domestic producers and investors and subsequently for foreign investors.
Likewise, initially the consumer goods sector was opened up for investment by foreign companies and then service sector and later on the financial sector.
Thus, it was a strategic liberalization process. The process of bringing about such economic changes which is also called economic reforms call for systematic changes in policy regulations.
Some important regulatory changes which were brought about by the Indian Legislative body were:

$MRTP$ 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.
Besides relaxations in the industrial policy, relaxation in export-import rules were introduced. Foreign exchange was allowed to be converted at market rates instead of the earlier method of convertibility only at the official rates and expenditure on subsidies was attempted to be reduced as part of the fiscal policy changes.
Facilitate the process of import of new technology through foreign investment and increase the efficiency of industrial units.
Government has adopted a policy in which market take decisions of fiscal policy, trade policy, monetary policy, price policy etc.
Government has decreased the number of reserved small scale units from the total list of $800$ units.
Government has also increased the limit of investment for small scale industries to increase the efficiency of these units.

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Question 45 Marks

Give the meaning of Foreign Direct Investment and clarify its nature.

Answer

self

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Question 55 Marks

What is Globalization? Explain the process of Globalization in India.

Answer

Introduction :

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.
Experience of Globalization in India
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 relaxation 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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