NCERT Solutions for Class 11 Economics Indian Economic Development Chapter 3

Unit II- Liberalisation, Privatisation and Globalisation: An... Class 11

Chapter 3 Unit II- Liberalisation, Privatisation and Globalisation: An... Exercise Solutions

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Exercise : Solutions of Questions on Page Number : 53

Q1 :  

Why were reforms introduced in India?


Answer :

Economic reforms were introduced in the year 1991 in India to combat economic crisis. Economic Crisis of 1991 was a culminated outcome of the policy failure in the preceding years. It was in that year the Indian government was experiencing huge fiscal deficits, large balance of payment deficits, high inflation level and an acute fall in the foreign exchange reserves. Moreover, the gulf crisis of 1990-91 led to an acute rise in the prices of fuel which further pushed up the inflation level. Because of the combined effect of all these factors, economic reforms became inevitable and were the only way to move Indian economy out of this crisis.

The following are the factors that necessitated the need for the economic reforms.

1. Huge Fiscal Deficit: Throughout 1980s, fiscal deficit was getting worse due to huge non-development expenditures. As a result, gross fiscal deficit rose from 5.7% of GDP to 6.6% of GDP during 1980-81 to 1990-91. Subsequently, a major portion of this deficit was financed by borrowings (both from external and domestic source).

The increased borrowings resulted in increased public debt and mounting interest payment obligations. The domestic borrowings by government increased from 35% to 49.8% of GDP during 1980-81 to 1990-91. Moreover, the interest payments obligations accounted for 39.1% of total fiscal deficit. Consequently, India lost its financial worthiness in the international market and, fell in a debt trap. Thus, economic reforms were needed urgently.

2. Weak BOP Situation: BOP represents the excess of total amount of exports over total amount of imports. Due to lack of competitiveness of Indian products, India was not able to earn enough foreign exchange through exports to finance our imports. The current account deficit rose from 1.35% to 3.69% of GDP during 1980-81 to 1990-91. In order to finance this huge current account deficit, Indian government borrowed a huge amount from the international market. Consequently, the external debt increased from 12% to 23% of GDP during the same period. On the other hand, Indian exports were not potent enough to earn sufficient foreign exchange to repay these external debt obligations. This BOP crisis compelled the need for the economic reforms.

3. High level of Inflation: The high fiscal deficits forced the central government to monetise the fiscal deficits by borrowings from RBI. RBI printed new money that pushed up the inflation level, thereby, making the domestic goods more expensive. The rate of inflation rose from 6.7% p.a. to 10.3% p.a. during 1980s to 1990-91. In order to lower the inflation rate, government in 1991 had to opt for the economic reforms.

4. Sick PSUs: Public Sector Undertakings were assigned the prime role of industrialisation and removal of inequality of income and poverty. But the subsequent years witnessed the failure of PSUs to perform these roles efficiently and effectively. Instead of being a revenue generator for the central government, these became liability. The sick PSUs added an extra financial burden on the government's budget.

Thus, because of all the above reasons existing concomitantly, the economic reforms became inevitable.


 

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Q2 :  

Why is it necessary to become a member of WTO?


Answer :

It is important for any country to become a member of WTO (World Trade Organisation) for the following reasons:

i) WTO provides equal opportunities to all its member countries to trade in the international market.

ii) 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 utilise world resources optimally and provides greater market accessibility.

iii) It advocates for the removal of tariff and non-tariff barriers, thereby, promoting healthier and fairer competition among different producers of different countries.

iv) The countries of similar economic conditions being members of WTO can raise their voice to safeguards their common interests.

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Q3 :  

Why did RBI have to change its role from controller to facilitator of financial sector in India?


Answer :

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Q4 :  

How is RBI controlling the commercial banks?


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Q5 :  

What do you understand by devaluation of rupee?


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Q6 :  

Distinguish between the following

(i) Strategic and Minority sale

(ii) Bilateral and Multi-lateral trade

(iii) Tariff and Non-tariff barriers.


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Q7 :  

Why are tariffs imposed?


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Q8 :  

What is the meaning of quantitative restrictions?


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Q9 :  

Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why?


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Q10 :  

Do you think outsourcing is good for India? Why are developed countries opposing it?


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Q11 :  

India has certain advantages which make it a favourite outsourcing destination. What are these advantages?


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Q12 :  

Do you think the navaratna policy of the government helps in improving the performance of public sector undertakings in India?

How?


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Q13 :  

What are the major factors responsible for the high growth of the service sector?


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Q14 :  

Agriculture sector appears to be adversely affected by the reform process. Why?


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Q15 :  

Why has the industrial sector performed poorly in the reform period?


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Q16 :  

Discuss economic reforms in India in the light of social justice and welfare.


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