LPG IMPORTANT

QUESTIONS

LEARN
z HOW TO WRITE
ANSWERS FOR YOUR
SUBJECTIVE EXAM
Q-1.
WHY WAS REFORMS INTRODUCED IN INDIA?
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ANS.

REFORMS WERE INTRODUCED IN INDIA BECAUSE OF MANY REASONS SUCH AS:-

1.
POOR PERFORMANCE OF PUBLIC SECTOR
* Due to the huge losses incurred by public sector enterprises, the overall performance of
public sector was very poor.

Considering the huge losses incurred by many public sector enterprises, the government
recognized the need for making necessary reforms.
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2.

DEFICIT IN BALANCE OF PAYMENTS

* Deficit in balance of payment arises when foreign payments for
imports exceed foreign receipts from exports.

* Slow growth of exports (due to LOW QUALITY & HIGH PRICES

OF INDIAN GOODS) in the international market.
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3.

INFLATIONARY PRESSURES
Inflation means price rise. Consistent rise in the general price level
in the economy due to

- INCREASE IN MONEY SUPPLY

&

- SHORTAGE OF ESSENTIAL GOODS

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FALL IN THE FOREIGN EXCHANGE

RESERVES
▪ In 1991, Due to the fall in the foreign exchange reserves has led to
FOREIGN EXCHANGE CRISIS IN THE COUNTRY.

Foreign exchange reserves were left only

- To finance imports for only two weeks (fortnight).

- To pay the interest to international lenders.

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5.
HUGE BURDEN OF DEDTS
▪ Due to high expenditure over revenues,

▪ Government had to borrow money from

- banks

- Public

- International financial institutions

This creates huge burden of debts in our country and which in turn
hinders the growth of INDIAN ECONOMY.
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6.

INEFFICIENT MANAGEMENT
▪ Inefficient management of the Indian economy was the main reason
for FINANCIAL CRISES.

▪ It was very difficult for the government to generate suffiecient

revenues from the internal sources of revenues such as taxes etc.

▪ Due to high expenditure over revenues, Government had to borrow

money from international financial institutions. The worst part Is
that, this money was spent on meeting consumption needs.
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Thus, after facing the issues that hinders the
economic growth, India agreed to the
conditions of WORLD BANK & IMF and
finally announced the NEW ECONOMIC
POLICY
FINANCIAL SECTOR REFORMS

Q-2. z
WHY DID RBI HAVE TO CHANGE ITS ROLE
REGULATOR(CONTROLLER) TO FACILITATOR?

Ans.

Before liberalization,
z
RBI used to control and regulate all the
commercial banks, investment banks, foreign
exchange market.
z1) FACILITATOR

After the financial sector reforms, RBI shifted its role from
REGULATOR TO FACILITATOR of the financial sector.

2) AUTONOMY

Major aim was to grant AUTONOMY to banks in taking decisions on

various matters.
There is no need to consult RBI for taking any decisions on financial
matters.

3) FREEDOM

Banks were given freedom to set up new branches without the

approval of RBI.
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Thus, the main aim was to encourage
private sector participation, increase
competition, allowing market forces to
operate in financial sector. So this
substantial shift in the role of RBI from
regulator to facilitator is a sign of growth of
Indian economy.
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(6marks)Q3. DEFINE LIBERALISATION AND STATE
THE VARIOUS STEPS TAKEN BY INDIAN
GOVERNMENT TO LIBERALIZE THE ECONOMY

▪ Liberalisation means removal of entry and growth restrictions on

private sector

▪ Liberalisation involves deregulation and reduction of

government controls and greater autonomy (freedom) of
private investment to make economy competitive.

▪ Under this process, business is given free hand and is allowed

to run on commercial lines.
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▪ The purpose of liberalization was:

▪ To unlock the economic potential of the country by

encouraging private sector private sector and multinational
corporations to invest and expand ;and

▪ To introduce much more competition into the economy and

creating incentives for increasing efficiency of operation.
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▪ The economic reforms taken by the government under liberalization include

the following:

1. Industrial sector reforms

2. Financial sector reforms

3. Tax reforms

4. Foreign exchange reforms

5. Trade and investment reforms

Thus the main aim was to remove the large number of government restrictions
in in areas of licencing, imports and export trade, dealing in foreign exchange
etc. to make the economy more competitive.
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Q4. Criticism of Economic Reforms OR
DISCUSS THE ECONOMIC REFORMS IN INDIA IN THE
LIGHT OF SOCIAL JUSTICE AND WELFARE

▪ Growing Unemployment : though the GDP growth rate has

increased in the reform period , but such growth failed to
generate sufficient employment opportunities in the country .
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▪ Neglect of Agriculture : The economic policy has neglected the

agriculture sector as compared to industry, trade and services
sector.

1. Reduction of public investment : public investment in agriculture

sector , especially in infrastructure , which includes irrigation ,
power , roads , market linkages etc. has been reduced.

2. Removal of subsidy: Removal of fertilizers subsidy increased

the cost of production , which adversely affected the small and
marginal farmers .
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3. Reduction in import duties on agricultural products (b)removal of minimum

support price and (c)lifting of quantitative restriction on agricultural products
all these policies adversely affected the Indian farmers as they now have to
face increased international competition.

4. Shift towards cash crop: due to export oriented policy strategies ,In
agriculture the products and shifted from food grains to cash crops for the
export market. It lead to rise in prices of food grains.
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▪ 3. Low level of industrial growth industrial growth

recorded are slow down baby to the following reason
▪ (i) cheaper imported goods(due to globalization)

▪ (ii) lack of infrastructural facilities(due to lack of

investment)
▪ (iii) non tariff barriers by developed countries.(some
developed countries like USA have not removed there
quota restrictions on import of textiles from India)
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▪ 4.Ineffective disinvestment policy: the government has always

fixed a target for disinvestment of public sector undertakings .For
instance in 1991 to 92, it was targeted to mobilise ₹2500 crore
through disinvestment. the government was able to mobilise
₹3040 crore more then the target.
▪ hello however according to some scholars the disinvestment
policy was not successful because
▪

• the assets of PSU who are undervalued and sold to private

sector.
• moreover such proceeds from disinvestment were used to
compensate shortage of government revenues rather than
using it for development of PSU and building social
infrastructure in the country.
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▪ 5. Ineffective tax policy : the tax reduction in the reform. Was

done to generate larger revenue and to curb tax evasion but it
did not result in increase in tax revenue for the government.

▪ 6. Spread off consumerism: the new policy has been

encouraging a dangerous trend of consumerism by encouraging
the production of luxurious and items of superior consumption.
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▪ 7. Unbalanced growth: hello growth has been concentrated

only in some select areas in the services sector such as
telecommunication information technology finance
entertainment etc hello rather than vital sectors such as
agriculture and industry which provide livelihood to millions of
people in the country.

Thus, there were criticism against the New Economic

Reforms, especially in the areas of employment,
agriculture, industry, infrastructural development and
fiscal management.
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Q5. What is Outsourcing ? Why India is
a favourable destination of outsourcing?
▪ Outsourcing reference to contracting out some of its activities to a 3rd
party which were earlier performed by the organization. for example,
many companies have started outsourcing security services to outside
agencies on contractual basis.

• outsourcing is one of the most important outcomes of the

globalization process. it is emerging as a major activity in industrial
and service sectors.

• It has intensified in recent times because of growth of fast modes of

communication, particularly the growth of information technology.
z • India has become a favourable destination of outsourcing for most of the
MNC'S because of:
▪ Availability of skilled manpower: India has bast skilled manpower
which enhances the faith of MNC'S for investment in India
▪ favourable government policies: MNCS get in various types of
lucrative offers from the Indian government such as tax holidays tax
concessions etc.
▪ low wage rates and availability of cheap labour in India and skilled
work
▪ considerable growth of Indian IT industry which has provide its
competitive strength in the world.

▪ THUS, India has all the favourable conditions for outsourcing. that’s why India
has become a favourable destination of outsourcing for the for most of the
MNC'S .
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Q6.positive and negative traits of
globalization.
The process of globalization liberalization and privatization
policies has produced positive as well as negative results
both for India and other countries.
In favour of globalization
Globalization resulted in :

• Greater access to global markets

• advanced technology
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• Better future prospects for large industries of

developing countries to become important
players in the international arena.

• Better prospects for skilled people across the

globe to increase their earnings by utilizing their
skills.
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Against Globalization
globalization has been criticized by some scholars because according to them:
• Benefits of globalization accrue more to developed countries as they are able
to extend their market in other countries.
• Globalization comprises the welfare and identity of people belonging to poor
countries.
• Market-driven globalization increases the economic disparity among nations
and people.

• As a result of globalization, hello MNC'S have gained strong position in

developing countries, hello due to which the domestic companies are forced
to face stiff competition.
▪ Thus, Globalisation has both positive and negative effects on India and
other counties.