Class
XI
Indian
Economic Development
Chapter
- 6
Economic Reforms Since 1991
Q.1. Why were reforms
introduced in India?
Ans. The economic
reforms were introduced in the year 1991 in India to combat economic crisis,
relating to its external debt:
a) Various rules and plans
introduced by the government for controlling and regulating the economy
resulted in hampering the process of growth and development National income was
growing at the rate of 0.8%.
b) India was highly
indebted country and government was not able to make repayments of loan from
abroad.
c) Foreign exchange
reserves collapsed as import is more than the export.
d) The inflation level
reached 16.8% which ultimately increases the prices of essential goods.
e) India took loan from IMF
and World Bank to the extent of 7 billion dollars. In pressure, government has
to liberalize its market.
Q.2. Why is it necessary
to become a member of WTO?
Ans. It is important for
any country to become a member of WTO (World Trade Organization) for the
following reasons:
a) WTO provides equal
opportunities to all its member countries to trade in the international market.
b) It provides its member
countries with larger scope to produce at large scale to cater to the needs of
people across the international boundaries. This provides ample scope to utilize
world resources optimally and provides greater market accessibility.
c) It advocates for the
removal of tariff and non-tariff barriers, thereby, promoting healthier and
fairer competition among different producers of different countries.
d) The countries of similar
economic conditions being members of WTO can raise their voice to safeguards
their common interests.
Q.3. Why did RBI have to
change its role from controller to facilitator of financial sector in India?
Ans. After economic
liberalization and financial sector reforms, RBI needed to shift its role from
a controller to facilitator of the financial sector. This means that the
financial sector may be allowed to take decisions on many matters without
consulting the RBI. The reform policies led to the establishment of private
sector banks, Indian as well as foreign.
Q.4. How is RBI
controlling the commercial banks?
Ans. All the banks in
India are controlled through various norms and regulations of the RBI. It
controls the commercial banks via various instruments like Statutory Liquidity
Ratio (SLR), Cash Reserve Ratio (CRR), Bank Rate, Prime Lending (PLR), Repo
Rate, Reverse Repo Rate and fixing the interest rates and deciding the nature
of lending to various sectors. These are those ratios and rates that are fixed
by RBI and it is mandatory for all the commercial banks to follow or maintain
these rates.
Q.5. What do you
understand by devaluation of rupee?
Ans. Devaluation of
Rupee refers to the fall in the value of rupee in terms of foreign currency.
This means that value of rupee has fallen and the value of foreign currency has
risen.
Q.6. Distinguish between
the following
(i) Strategic and Minority Sale
(i) Strategic Sale
refers to the sale of 51% or more stake of a PSU to the private
ector who bids the
highest. Minority Sale refers to the sale of less than 49% stake of a PSU to
the private sector.
(ii) The ownership of
PSU is handed over to the private sector. The ownership of PSU still remains
with the government as it holds 51% of stakes.
(ii) Bilateral and Multi-lateral trade
(i) It is a trade
agreement between two countries It is a trade agreement among more than two
countries.
(ii) This is an
agreement that provides equal opportunities to both the countries. This is an agreement
that provides equal opportunities to all the member countries in the
international market
(iii) Tariff and Non-tariff barriers.
(i) It refers to the tax
imposed on the imports by the country to protect its domestic industries. It
refers to the restrictions other than taxes, imposed on imports by the country.
(ii) It includes custom duties, export-import duties It includes quotes and
licenses.
(iii) It is imposed on the physical units (like per tonne) or on value of the
goods imported. It is imposed on the quantity and quality of the goods
imported.
Q.7. Why are tariffs
imposed?
Ans. Tariffs are imposed
to make imports from foreign countries relatively expensive than domestic
goods. This discourages imports and protects domestically produced goods.
Q.8. What is the meaning
of quantitative restrictions?
Ans. Quantitative
restrictions are specific limits imposed by countries on the quantity or value
of goods that can be imported or exported. It can be in the form of a quota, a
monopoly or any other quantitative means.
Q.9. Those public sector
undertakings which are making profits should be privatized. Do you agree with
this view? Why?
Ans. The following
explanation is possible for this:
a) The PSUs which are
making profits should not be privatized because they are revenue generator for
the government. But if a PSU is an inefficient and loss making one, then the
same PSU exerts unnecessary burden on the government's scarce revenues and further
may lead to budget deficit. The loss making PSUs should be privatized.
b) Some of the PSUs like,
water, railways, etc. enhance the welfare of nation and is meant to serve
general public at a very nominal cost. Privatization of such important PSUs
will lead to loss of welfare of poor people. Hence, only less important PSUs
should be privatized while leaving the core and important PSUs to be owned by
the public sector.
c) Instead of privatization
of profit-making PSUs, government can allow more degree of autonomy and
accountability in their operations, which will not only increase their
productivity and efficiency but also enhance their competitiveness with their
private counterparts.
Q.10. Do you think
outsourcing is good for India? Why are developed countries opposing it?
Ans. Yes, outsourcing is
good for India because:
a) Employment: For a developing country
like India, employment generation is an important objective and outsourcing
proves to be a boon for creating more employment opportunities. It leads to
generation of newer and higher paying jobs.
b) Exchange of technical know-how: Outsourcing enables the
exchange of ideas and technical know-how of sophisticated and advanced
technology from developed to developing countries.
c) International worthiness: Outsourcing to India also enhances India's
international worthiness credibility. This increases the inflow of investment
to India.
d) Encourages other sectors: Outsourcing not only benefits the service
sector but also affects other related sectors like industrial and agricultural
sector through various backward and forward linkages.
e) Contributes to human capital formation: Outsourcing helps in
the development and formation of human capital by training, imparting them with
advanced skills, thereby, increasing their future scope and their suitability
for high ranked jobs.
f) Better standard of living and eradication of poverty: By creating more and
higher paying jobs, outsourcing improves the standard and quality of living of
the people in the developing countries. It also helps in reducing poverty.
g) Greater infrastructural investment: Outsourcing to India
requires better quality infrastructure. This leads to the modernization of the
economy and larger investment by the government to develop quality
infrastructure and develop quality human capital.
Developed
countries are opposing this because outsourcing leads to the outflow of
investments and funds from the developed countries to the developing nations.
Also the MNCs contribute more to the development of the host country than the
home country.
Q.11. India has certain
advantages which make it a favourite outsourcing destination. What are these
advantages?
Ans. The advantages
which make it a favourite outsourcing destination are:
a) Easy Availability of Cheap Labour: As the wage rates in
India are comparatively lower than that of in the developed countries, MNCs
find it economically feasible to outsource their business in India.
b) Skills: Indians have reasonable degree of skills and techniques also
knowledge of international language, English.
c) Stable Political Environment: The democratic
political environment in India provides a stable and secured environment to the
MNCs to expand and grow.
d) Availability of raw material at cheaper rate: India is well enriched
in natural resources. This ensures the MNCs cheap availability of raw material
and undisturbed and perennial supply of raw materials. This enables proper and
smooth operation of MNCs.
Q.12. Do you think the
navaratna policy of the government helps in improving the performance of public
sector undertakings in India? How?
Ans. The government has
decided to give special treatment to some of the important profit making PSUs.
The granting of navaratna status resulted in better performance of these
companies They were given greater managerial and operational autonomy, in
taking various decisions to run the company efficiently and thus increase their
profits. They also became highly competitive and some of them are becoming the
giant global players. Therefore, the navaratna policy has certainly improved
the performance of these PSUs.
Q.13. What are the major
factors responsible for the high growth of the service sector?
Ans. There are various
factors which are responsible for the high growth of the service sector:
a) Reforms introduced in
1991, removed various restrictions on the movement of international finance
which led to huge inflow of foreign capital, foreign direct investments and
outsourcing to India. This encouraged the service sector growth.
b) Availability of cheap
labour and skilled labour at lower wage rate.
c) The revolution in
Information Technology (IT) field in India has also played a major role in the
high growth of the service sector.
d) Indian economy is
experiencing structural transformation that implies shift of economic
dependence from primary to tertiary sector. Due to this transformation, there
was increased demand of services by other sectors which y boosted the service
sector.
Q.14. Agriculture sector
appears to be adversely affected by the reform process. Why?
Ans. The economic
reforms of 1991 have not been able to benefit agriculture, where the growth
rate has been decelerating. The reasons are:
a) Public investment in
agriculture sector especially in infrastructure, which includes irrigation,
power, roads market linkages and research and extension, has been reduced in
the reform period.
b) Removal of subsidies on
fertilizers pushed up the cost of production of agriculture. This made farming
more expensive, thereby, adversely affecting the poor and marginal farmers.
c) Since the commencement
of WTO, this sector has been experiencing a number of policy changes such as
reduction in import duties on agricultural products, removal of minimum support
price and lifting of quantitative restrictions on agricultural products.
Q.15. Why has the
industrial sector performed poorly in the reform period?
Ans. The industrial
sector has performed poorly in the reform period due to:
a) The cheaper imports of
foreign goods have replaced the demand of domestic goods.
b) Due to lack of
infrastructure, the domestic firms could not compete with their developed
foreign counterparts in terms of cost of production and quality of goods.
c) Developing countries
like India still does not have the access to global markets of developed
countries due to high non-tariff barriers.
d) The domestic industries
were given protection during the pre-liberalized period but at the time of
liberalization, the domestic industries were still not developed up to the
extent it was thought and consequently, they could not compete with the
multi-national companies.
Q.16. Discuss economic
reforms in India in the light of social justice and welfare.
Ans. If the economic
reforms have given us an opportunity in terms of greater access to global
markets and high technology, it has also compromised the welfare of people
belonging to poor section. It devastated the local producers as well as the
farmers. It results in the greater inequalities of income and wealth. Further,
the economic reforms developed the areas that were well connected with the
metropolitan cities leaving the remote and rural area undeveloped. It results
in growth of service sector of India especially in the form of quality
education, superior health care facilities, IT, tourism, multiplex cinemas etc.
were out of the reach of the poor section of the population.
