Economic Policy of India Since 1991
Exercise
Q. 1. Complete the following statements by choosing the correct alternative:
1. After Independence, India had adopted c) Mixed Economy.
2. The new economic policy approved foreign technology in d) High priority industries.
3. At present, the number of industries reserved for public sector has been reduced to d) 2.
2. Assertion and Reasoning questions:
1. Assertion (A): Delicensing of industries was an important step taken under liberalization.
Reasoning (R): Unwanted controls and restrictions led to economic stagnation prior to 1991.
(a) (A) is TRUE but (R) is FALSE
(b) (A) is FALSE but (R) is TRUE
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)
(d) (A) and (R) both are TRUE but (R) is not the correct explanation of (A)
Answer: (c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)
2. Assertion (A): In 1990-91, India faced an acute shortage of foreign exchange reserves.
Reasoning (R): Import quotas and tariffs led to an increase in imports.
(a) (A) is TRUE but (R) is FALSE
(b) (A) is FALSE but (R) is TRUE
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)
(d) (A) and (R) both are TRUE but (R) is not the correct explanation of (A)
Answer: (a) (A) is TRUE but (R) is FALSE
3. Assertion (A): Post liberalization, the sale of domestic goods has increased.
Reasoning (R): The demand for imported goods had increased due to liberal policy.
(a) (A) is TRUE but (R) is FALSE
(b) (A) is FALSE but (R) is TRUE
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)
(d) (A) and (R) both are TRUE but (R) is not the correct explanation of (A)
Answer: (b) (A) is FALSE but (R) is TRUE
4. Assertion (A): Due to Globalisation, a country cannot achieve self-sufficiency in food production.
Reasoning (R): Globalisation has created a revolution in the IT sector.
(a) (A) is TRUE but (R) is FALSE
(b) (A) is FALSE but (R) is TRUE
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)
(d) (A) and (R) both are TRUE but (R) is not the correct explanation of (A)
Answer: (d) (A) and (R) both are TRUE but (R) is not the correct explanation of (A)
3. Find the odd word out:
1. New Economic Policy – Liberalization, Privatization, Demonetization, Globalisation
Answer: Demonetization
2. Industries requiring compulsory licensing – defense equipment, agro-based industries, cigarettes, industrial explosives
Answer: agro-based industries
3. Navratna status companies – SPCL, IOC, ONGC, HPCL
Answer: SPCL
4. Liberalization dealt with the following – MRTP, FERA, SEBI, NTPC
Answer: NTPC
4. Identify and explain the concepts from the given illustrations:
1. Vehicles manufactured by various automobile companies are now available in India.
Answer: Globalization.
Globalization means the interaction of the domestic economy with the rest of the world with regard to foreign investment, trade, production, and financial matters.
2. Government equity in some public sector enterprises is sold to the private sector.
Answer: Disinvestment.
A disinvestment is an act of selling shares of sick public sector units to the private sector.
Eg. Disinvestment of Maruti, ITDC hotels, VSNL, etc.
3. Foreign investments are encouraged on a large scale in the industrial sector of India.
Answer: Foreign Direct Investment (FDI).
FDI was approved under the Industrial Policy of 1991, to encourage investment in high-priority industries which require high investment and technology.
Q. 5. State with reasons whether you agree or disagree with the following statements:
1. Agree
Liberalisation has permitted the use of foreign technology in high-priority industries to reduce costs and enhance competitiveness, as stated in the policy measures.
2. Disagree
The government has not given private enterprises free access to all public sector industries. Only specific industries were opened, and two (railways and atomic energy) remain reserved for the public sector.
3. Disagree
The government’s monopoly in the insurance sector ended with the Insurance Regulatory and Development Authority Act (IRDA) of 1999, allowing private and foreign companies to enter the sector.
4. Agree
The National Renewal Board (NRB) was created to address unemployment and poverty by providing compensation to workers affected by the closure of loss-making public sector units.
5. Agree
Indian Oil Corporation (IOC) is listed as one of the nine public sector units granted Navratna status in 1997-98.
Q. 6. Answer in detail:
1. Features of Economic Policy of 1991
Delicensing: Abolished the need for government licenses for most industries, except for four strategic sectors: electronic aerospace and defence, industrial explosives, hazardous chemicals, and cigarettes.
Abolition of MRTP Act: Removed restrictions on large industrial houses for expansion and mergers, fostering industrial growth.
Encouragement to Small Sector: Increased investment limits for small-scale units from ₹1 crore to ₹5 crore to boost output and exports.
Encouraging Foreign Investment: Allowed FDI up to 51%, later increased to 74% and 100% in select industries to attract capital and technology.
Reducing Role of Public Sector: Reduced reserved industries from 17 to 2 (railways and atomic energy) to promote private sector participation.
Trade Liberalisation: Abolished import licensing, made capital goods freely importable, and set up SEZs and AEZs to boost exports.
Reforms in Insurance Sector: Ended government monopoly through the IRDA Act, allowing private and foreign companies to enter.
Reforms in Financial Sector: Permitted private and foreign banks to operate, enhancing competition and efficiency.
2. Measures Undertaken for Globalisation
Removal of Quantitative Restrictions: Eliminated restrictions on imports and exports and reduced import duties to facilitate free trade.
Encouragement to Foreign Capital: Opened the economy to foreign investments, attracting capital to various sectors.
Convertibility of Rupee: Made the rupee fully convertible for current account transactions, with flexible exchange rates.
Foreign Collaboration: Allowed Indian companies to form partnerships with foreign firms, e.g., Maruti-Suzuki and Tata-Corus.
Long-term Trade Policy: Introduced liberalized trade policies, removed restrictions, and encouraged foreign collaborations.
Encouragement to Exports: Provided incentives through EXIM policy and established Special Economic Zones to boost exports.
Q. 7. Read the following passage carefully and answer the questions:
1. Reason for Low Per Capita Consumption of Ice-Cream in India
The low per capita consumption of ice-cream (400 ml) in India is due to the prevalence of traditional sweets, with over 100 varieties, which are preferred over ice-cream as desserts.
2. Impact of Globalisation on the Indian Ice-Cream Industry
Globalisation has transformed the ice-cream industry by introducing multinational companies that set up ice-cream parlours offering diverse varieties and flavours, appealing to younger consumers. Improved delivery systems and a changing mindset towards global dessert options like ice-cream have further boosted the industry.
3. Factors Leading to the Growth of the Ice-Cream Industry in India
Improvement in cold chain infrastructure ensures better storage and distribution.
Increasing disposable income enables more consumers to afford ice-cream.
Changing lifestyles, influenced by globalization, drive demand for modern dessert options like ice-cream.
4. Views on Implications of Higher GST on Ice-Cream Industry
The 18% GST on ice-cream, compared to 12% on other dairy products like butter and cheese, increases the cost for consumers, potentially reducing demand, especially among price-sensitive customers. This higher tax rate may hinder the industry’s growth, as it makes ice-cream less competitive compared to other desserts or dairy products. A lower GST could make ice-cream more affordable, boosting consumption and supporting the industry’s expansion.
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