Liberalisation, Privatisation and Globalisation : An Appraisal NCERT Solutions for Class 11 Indian Economic Development
1. Why were reforms introduced in India?
Ans: Reforms were introduced in India in 1991 to address severe economic crises marked by a balance of payments crisis, high fiscal deficits, external debt, and low foreign exchange reserves. The government, led by then-Finance Minister Dr. Manmohan Singh, initiated economic liberalization policies to stabilize the economy, attract foreign investment, promote export-led growth, and foster overall economic development. Key reforms included liberalization of trade and investment, industrial deregulation, fiscal reforms, and the dismantling of the License Raj.
2. How many countries are members of the WTO?
Ans: As of my last knowledge update in January 2022, there were 164 member countries of the World Trade Organization (WTO). It’s important to note that this number may change over time as countries join or leave the organization.
3. What is the most important function of RBI?
Ans: The Reserve Bank of India (RBI) has several functions, but one of its most important roles is the formulation and implementation of monetary policy. The RBI aims to maintain price stability and control inflation by regulating the supply of money and credit in the economy. Through tools like interest rates, reserve requirements, and open market operations, the RBI influences economic variables such as money supply, interest rates, and inflation to achieve macroeconomic stability. Additionally, the RBI is responsible for regulating and supervising the banking and financial system in India.
4. How was RBI controlling the commercial banks?
Ans: The Reserve Bank of India (RBI) controls commercial banks through various tools of monetary policy. Key methods include:
- Cash Reserve Ratio (CRR): The RBI mandates that commercial banks maintain a certain percentage of their net demand and time liabilities in the form of cash reserves with the RBI. By adjusting the CRR, the RBI can control the liquidity in the banking system.
- Statutory Liquidity Ratio (SLR): Commercial banks are required to maintain a certain percentage of their deposits in government-approved securities. The RBI uses changes in SLR to regulate the liquidity position of banks.
- Repo Rate and Reverse Repo Rate: The RBI uses these policy rates to influence short-term interest rates in the economy. A higher repo rate makes borrowing more expensive for banks, reducing liquidity, while a lower rate has the opposite effect.
- Open Market Operations (OMO): The RBI buys or sells government securities in the open market to influence the money supply and interest rates.
- Bank Rate: The bank rate, although less frequently used, is the rate at which the RBI lends to commercial banks. Changes in the bank rate affect the cost of borrowing for banks.
Through these tools, the RBI can control the money supply, interest rates, and liquidity in the banking system, thereby influencing credit creation and economic activity.
5. What do you understand by devaluation of rupee?
Ans: Devaluation of the rupee refers to a deliberate reduction in the official exchange rate of the Indian rupee against other currencies. This is typically done by the country’s central bank, in this case, the Reserve Bank of India (RBI). Devaluation is used as a policy measure to address issues such as a trade imbalance, boost exports, and correct the external account.
When a currency is devalued, its value in terms of other currencies decreases. This makes exports cheaper for foreign buyers and imports more expensive for domestic consumers. The objective is to make the country’s goods more competitive in the international market, leading to an improvement in the trade balance. Devaluation is often contrasted with the concept of depreciation, which is a decrease in the value of a currency due to market forces rather than intentional policy measures.
6. Distinguish between the following:
(i) Strategic and Minority Sale:
- Strategic Sale: In a strategic sale, a government sells a significant portion (often a majority stake or 100%) of its ownership in a state-owned enterprise to a private entity. The objective is to transfer control and management of the enterprise to the private sector.
- Minority Sale: In a minority sale, the government sells less than a majority stake in a state-owned enterprise. The government retains control and management rights, but seeks to bring in private investment for capital infusion and improved efficiency.
(ii) Bilateral and Multi-lateral Trade:
- Bilateral Trade: Bilateral trade involves the exchange of goods, services, or capital between two countries. It is a direct trading relationship between two nations, and trade agreements negotiated are specific to those two countries.
- Multi-lateral Trade: Multi-lateral trade involves the exchange of goods, services, or capital between multiple countries. Trade agreements are negotiated collectively by a group of nations, often through international organizations such as the World Trade Organization (WTO). Examples include regional trade blocs like the European Union (EU).
(iii) Tariff and Non-tariff Barriers:
- Tariff Barriers: Tariff barriers are taxes or duties imposed on imported goods, making them more expensive and less competitive in the domestic market. Tariffs are a form of protectionist measure aimed at promoting domestic industries.
- Non-tariff Barriers: Non-tariff barriers are restrictions on trade that do not involve the imposition of taxes or duties. These can include quotas, licensing requirements, technical standards, and other regulations that impede the flow of goods and services across borders. Non-tariff barriers are often used for reasons such as protecting domestic industries or ensuring product safety and quality.
7. Why are tariffs imposed?
Tariffs are imposed for various reasons, and governments use them as trade policy tools. Some common objectives for imposing tariffs include:
- Protecting Domestic Industries: Tariffs provide protection to domestic industries by making imported goods more expensive. This protection aims to shield domestic producers from foreign competition and encourages consumers to buy locally produced goods.
- Revenue Generation: Tariffs can be a source of government revenue. The revenue collected from import duties can contribute to the country’s budget and be used to finance public services and infrastructure.
- Balancing Trade: Governments may use tariffs to address trade imbalances. By making imports more expensive, tariffs can reduce the demand for foreign goods, helping to balance trade and prevent large trade deficits.
- Encouraging Domestic Production: Tariffs are often employed to incentivize domestic production by making imported goods less attractive. This can stimulate the growth of domestic industries and create employment opportunities.
- Strategic Trade Policy: Tariffs can be used as part of a strategic trade policy to gain a competitive advantage in specific industries. Governments may strategically support certain sectors to enhance their global competitiveness.
8. What is the meaning of quantitative restrictions?
Quantitative restrictions refer to limitations imposed on the quantity or volume of specific goods that can be imported or exported. These restrictions are often implemented to achieve various economic objectives. Common forms of quantitative restrictions include:
- Import Quotas: A specific quantity limit is set on the amount of a particular product that can be imported within a specified period. This is often done to protect domestic industries from foreign competition or to manage trade imbalances.
- Export Quotas: Similar to import quotas, export quotas restrict the quantity of certain goods that a country can export. This may be implemented to ensure sufficient domestic supply, control prices, or manage resources.
- Voluntary Export Restraints (VERs): These are agreements between two countries where the exporting country voluntarily limits the quantity of specific goods it exports to the importing country. VERs are often negotiated to avoid the imposition of more stringent measures.
Quantitative restrictions are a form of non-tariff barrier and are used to regulate international trade for various purposes, including protecting domestic industries, managing trade balances, and ensuring the availability of essential goods in the domestic market.
9. Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why?
Ans: The perspective on privatizing profitable public sector undertakings (PSUs) is subjective and depends on various factors. Advocates argue that privatization can enhance efficiency, competitiveness, and innovation in these enterprises. Private ownership may lead to better management practices, increased productivity, and improved financial performance. However, opponents contend that profitable PSUs can contribute to public welfare through dividends, employment generation, and social initiatives. The decision to privatize profitable PSUs should consider the specific circumstances, potential benefits, and the broader economic and social impact.
10. Do you think outsourcing is good for India? Why are developed countries opposing it?
Ans: Outsourcing has been advantageous for India due to cost-effectiveness, skilled labor availability, and economic growth. It has created job opportunities, boosted exports, and attracted foreign investment. However, developed countries often oppose outsourcing for reasons such as job loss in their domestic markets, concerns about data security, and the perceived erosion of their competitive edge. Global debates on outsourcing involve balancing economic benefits with addressing social and employment challenges, making it a complex and contested issue.
11. India has certain advantages which make it a favorite outsourcing destination. What are these advantages?
Ans: India’s attractiveness as an outsourcing destination is attributed to several advantages:
- Skilled Workforce: India possesses a large pool of English-speaking, skilled professionals in various domains, including IT, customer service, and research.
- Cost-Effectiveness: Labor costs in India are relatively lower compared to developed countries, making outsourcing financially attractive for businesses seeking efficiency.
- Time Zone Advantage: India’s time zone difference allows for 24/7 business operations, enabling seamless workflow and quicker turnaround times.
- Robust IT Infrastructure: The country has invested significantly in information technology infrastructure, ensuring a reliable and secure environment for outsourcing activities.
- Government Support: Supportive government policies and incentives encourage foreign investment and business outsourcing.
- Educational System: India has a strong educational system producing a high number of graduates and skilled professionals annually.
12. Do you think the Navaratna policy of the government helps in improving the performance of public sector undertakings in India? How?
Ans: The Navaratna policy, introduced by the Indian government, designates certain public sector undertakings (PSUs) as Navaratnas or “Nine Jewels.” These enterprises are granted greater autonomy to make strategic decisions and are subject to less bureaucratic control. The policy aims to enhance the performance of PSUs in the following ways:
- Operational Autonomy: Navratna PSUs have increased operational autonomy, enabling them to make quicker decisions, implement strategies efficiently, and respond promptly to market changes.
- Financial Flexibility: These PSUs have greater financial autonomy, allowing them to make investment decisions, form joint ventures, and diversify their business portfolios to improve financial performance.
- Competitive Edge: The Navaratna status enhances the competitiveness of these PSUs by encouraging innovation, improving efficiency, and fostering a more market-oriented approach.
- Talent Retention: The policy allows for more flexibility in talent management, including competitive compensation and performance-based incentives, aiding in attracting and retaining skilled professionals.
While the Navaratna policy is aimed at improving PSU performance, its success depends on effective implementation, corporate governance, and the ability of these enterprises to adapt to market dynamics.
13. What are the major factors responsible for the high growth of the service sector?
Ans: The high growth of the service sector is influenced by several factors:
- Technological Advancements: The rapid advancement in technology, especially in information technology, has fueled the growth of services such as software development, IT consulting, and business process outsourcing.
- Globalization: Increased globalization has led to the outsourcing of services, enabling companies to access a global talent pool and reduce costs.
- Rising Consumerism: Growing consumer demand for services, including healthcare, education, entertainment, and financial services, has contributed to the expansion of the service sector.
- Increased Urbanization: As urbanization continues, there is a rising demand for services related to healthcare, education, entertainment, and lifestyle, driving the growth of the service sector in urban areas.
- Skills and Education: The service sector relies heavily on skilled professionals. Improvements in education and skill development have contributed to the availability of a skilled workforce, fostering the growth of service industries.
14. Agriculture sector appears to be adversely affected by the reform process. Why?
Ans: The agriculture sector in India has faced challenges and adverse impacts due to the reform process for various reasons:
- Reduced Subsidies: Agricultural reforms often involve reducing subsidies, impacting the cost of inputs for farmers. This can lead to increased financial burden on farmers, especially those with small landholdings.
- Market-oriented Policies: The shift towards market-oriented policies may expose farmers to price volatility and market uncertainties, affecting their income and livelihoods.
- Focus on Non-agricultural Sectors: Economic reforms have often prioritized the growth of non-agricultural sectors, leading to a relative neglect of agriculture in terms of investments and policy support.
- Land Fragmentation: Inheritance laws and population growth have resulted in the fragmentation of landholdings, making it challenging for farmers to adopt modern agricultural practices and achieve economies of scale.
- Access to Credit: Reforms might impact farmers’ access to credit, hindering their ability to invest in modern technologies, seeds, and equipment.
It’s important to note that the impact of reforms on the agriculture sector can vary based on the specific nature of the reforms, their implementation, and regional factors. Addressing the challenges faced by the agriculture sector remains a crucial aspect of sustainable economic development.
15. Why has the industrial sector performed poorly in the reform period?
Ans: The performance of the industrial sector during the reform period in India has been influenced by various factors:
- Global Economic Factors: The global economic scenario, including economic recessions and fluctuations in demand, has impacted India’s industrial exports and overall performance.
- Policy Implementation Challenges: Inconsistent policy implementation, delays in project approvals, and bureaucratic hurdles have hindered the growth of the industrial sector.
- Infrastructure Bottlenecks: Inadequate infrastructure, including power shortages, transportation bottlenecks, and logistical issues, has affected industrial production and efficiency.
- Financial Sector Issues: Problems in the financial sector, such as non-performing assets (NPAs) and limited access to credit for small and medium enterprises, have constrained industrial growth.
- Trade Imbalances: A surge in imports, coupled with trade imbalances, has affected certain industries, leading to increased competition and challenges for domestic manufacturers.
- Taxation and Regulatory Challenges: Complex taxation structures and regulatory issues have posed challenges for businesses, impacting the ease of doing business in India.
16. Discuss economic reforms in India in the light of social justice and welfare.
Ans: Economic reforms in India, initiated in the early 1990s, have had a complex impact on social justice and welfare. Key points include:
- Poverty Alleviation: Reforms have contributed to economic growth, lifting millions out of poverty. However, the benefits have not always been evenly distributed, leading to concerns about income inequality.
- Education and Healthcare: Reforms have led to increased private sector participation in education and healthcare. While this has improved access for some, it has also raised concerns about affordability and quality for marginalized sections.
- Employment Generation: Economic reforms have led to job creation, especially in sectors like information technology and services. However, challenges persist, particularly in addressing underemployment and informal labor markets.
- Rural Development: The impact of reforms on rural areas varies. While some reforms have facilitated agricultural growth, challenges like land fragmentation and access to markets persist, affecting rural welfare.
- Social Safety Nets: The government has implemented various social safety net programs to address the adverse effects of reforms, including Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) for rural employment and targeted subsidy programs.
In conclusion, while economic reforms have contributed to overall economic growth, their impact on social justice and welfare is nuanced. Ongoing efforts are needed to ensure that the benefits of economic growth are inclusive and reach all sections of society.