NCERT Solutions for class 12 Economics Chapter 3 – Liberalisation, Privatisation and Globalisation: An Appraisal
NCERT Solutions for class 12 Economics Chapter 3 – Liberalisation, Privatisation and Globalisation: An Appraisal
Detailed and in-depth NCERT Class 12 Economics Chapter 3 Liberalisation, Privatisation and Globalisation: An Appraisal
Solutions are provided by CBSEprep.in to help students understand the concepts better and perform well in the examinations. Special care is taken to see that all the guidelines of the NCERT (CBSE) are followed while writing the solutions. Students can gain access to exercise questions’ solutions with a detailed explanation for Class 12 Economics Chapter 3. This allows students to not only practice but also to verify the answers for exam preparation. CBSEPrep.in delivers solutions for various subjects like Maths, Science, English, etc. to all standards. Without further adding anything, we will learn some basic questions of CBSE Class 11 Economics Chapter 3.
Q. 1. Why were reforms introduced in India?
Ans. The various reasons for introduction of reforms in India are:
- Poor performance of Public Sector:
Over the past forty years, the public sector has really struggled, experiencing significant losses in many public sector enterprises.
- Deficit in Balance of Payments (BOP):
Despite implementing high tariffs and setting import limits, imports continued to increase sharply. Meanwhile, exports grew slowly because Indian goods were often seen as low quality and priced too high in the international market. This situation resulted in a deficit in the balance of payments (BOP).
3.Inflationary Pressures:
The overall prices in the economy kept going up because of increase in money supply and shortage of essential goods.
- Fall in foreign exchange reserves:
In 1991, the country’s foreign exchange reserves dropped to their lowest point ever. This decline meant that
(1) Indian Government not able to finance imports for more than two weeks; and
(2) To pay the interest that needs to be paid to international lenders.
- Huge burden of debts:
The government spent a lot more money than it earned. Because of this, it had to take loans from banks, the public, and international financial organizations.
- Inefficient Management:
The government was not able to generate sufficient revenue and the expenditure began to exceed it revenue by large margins.
Q. 2. Why is it necessary to became a member of WTO?
Ans. It is necessary to become a member of WTO (World Trade organisation) for the following reasons:
(i) The WTO, or World Trade Organization, gives every member what’s called “Most Favored Nation” status. This means that all member countries have to treat each other equally. If one country gets a special trade benefit, it has to be offered to every other member as well, so no one gets an unfair advantage.
(ii) The WTO, or World Trade Organization, helps countries work together so they can produce goods on a larger scale. This means they can use the world’s resources more efficiently and have better access to markets around the globe.
(iii) Members of the WTO (World Trade Organization) have reduced their trade barriers when trading with one another. This means they can sell their products more easily and access larger markets. As a result, this leads to increased sales, more job opportunities, and quicker economic growth.
(iv) The developing countries 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?
Before liberalization, the Reserve Bank of India (RBI) was responsible for managing and overseeing financial institutions, including commercial banks, investment banks, stock exchanges, and the foreign exchange market.
After the economic liberalization and changes in the financial sector, the RBI changed its role from being a strict controller to becoming a facilitator for the financial sector.
This change meant that financial institutions were given more freedom to make their own decisions on various issues without needing to check with the RBI first.
The main objective behind the financial reforms are
(1) to encourage private sector participation, increase competition and allowing market forces to operate in the financial sector.
(2) Banks were given freedom to set up new branches (after fulfilment of certain conditions) without the approval of the RBI.
Q. 4. How was RBI controlling the commercial banks?
Ans.
(1) RBI 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.
(2) 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. All these measures control the commercials banks’ operations and also control money supply in Indian economy.
Q. 5. What do you understand by devaluation of rupee?
Devaluation refers to a deliberate reduction in the value of domestic currency in comparison to foreign currency by the government of a country.
Devaluation prevails under the fixed exchange rate regime. This implies that the value of rupee has fallen and the value of foreign currency has risen. It means that now (after devaluation) 1 us $ can be exchanged for more rupees.
This encourages exports and discourages imports. It is done to encourage more domestic production resulting in more employment.
Q. 6. Distinguish between:
(i) Strategic and Minority Sale
(ii) Bilateral and Multilateral trade
(iii) Tariff and Non-Tariff Barriers
Ans.
(i) Strategic and Minority Sale
| Strategic Sale | Minority Sale |
| Strategic sale refers to the sale of 51% or more stake of a psu to the private sector who bids the highest. | Minority Sale refers to the sale of less than 49% stake of a PSU to the private sector. |
| 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 Multilateral trade
| Bilateral Trade | Multilateral Trade |
| It is trade agreement between two countries | It is a trade agreement among more than two countries |
| 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 |
(ii) Tariff and Non-Tariff Barriers
| Tariff Barriers | Non-tariff Barriers |
| 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. |
| It includes custom duties, export-import duties. | It includes quotes and licenses. |
| 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. |
Q. 7. Why are tariff imposed?
Ans.
(1) Tariffs are imposed to make imports from foreign countries relatively expensive than domestic goods, thereby, discouraging imports indirectly. These are imposed to provide a safe and protective environment to the infant domestic firms their technologically advanced foreign counterparts.
(2) Tariffs facilitate the domestic firms to survive and grow. Tariffs are also imposed on those goods that the government thinks to be socially unwanted and imports of which will exert unnecessary burden on the scarce foreign exchange reserves.
Q. 8. What is the meaning of quantitative restrictions?
Ans.
Quantitative Restrictions (QRs) refer to the restrictions in the form of limits or quotas on the amount of commodities that can either be imported or exported.
QRs (refers to non-tariff measures) are imposed to discourage imports of foreign goods and to reduce Balance of Payment (BOP) deficits.
The imposition of QRs provides incentive to the domestic firms to survive, grow and expand in a protective and lesser competitive environment.
Q. 9. Those public sector undertakings which are making profits should be privatised. Do you agree with the view? Why?
Ans.
I don’t agree with this idea at all. Public Sector Undertakings (PSUs) that make a profit really help the government earn money, and their profits can make them stronger and more efficient. However, if a PSU is not doing well and is losing money, it might be privatized, but only if it’s not essential for the welfare of the general public. Privatizing important PSUs could harm the poor, as they rely on these services. Therefore, only the less important PSUs should be privatized, while the core PSUs should stay under public control.
Q. 10. Do you think outsourcing is good for India? Why are developed countries opposing it?
Ans.
Yes, outsourcing is beneficial for India. Here are some reasons why:
(i) Job Opportunities: It creates jobs for many unemployed Indians.
(ii) Sharing Knowledge: Outsourcing helps India learn new ideas and advanced technology from other countries.
(iii) Global Reputation: It improves India’s reputation on the international stage.
(iv) Improved Living Standards: By generating more high-paying jobs, outsourcing raises people’s quality of life and helps reduce poverty.
On the other hand, developed countries have some concerns about outsourcing to India:
(i) Money Flow: Outsourcing can lead to money leaving developed countries and going to India, which helps narrow the income gap between the two.
(ii) Job Loss: It can result in fewer job opportunities and job security in developed countries.
Q. 11. India has certain advantages which makes it a favourite outsourcing destination. What are these advantages?
or
“India is often called as ‘Outsourcing Destination’ of the world. Discuss the price reasons for this name given to India.
Ans.
India has become a popular place for many multinational companies (MNCs) to outsource their work. Here are some reasons why:
(i) Access to Affordable Labor: Wages in India are generally lower than in developed countries. This makes it cheaper for MNCs to do business here.
(ii) Skilled Workforce: India has a large number of skilled workers. This gives MNCs confidence that they can find the right talent for their needs.
(iii) Supportive Government Policies: The Indian government offers various benefits to MNCs, such as tax breaks and low tax rates.
(iv) Good Reputation: India is seen as a trustworthy place in the international market, which adds to its appeal for 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.
Yes, the “Navaratna Policy” has really helped public sector companies in India do better.
To make these companies more professional and help them compete in the global market, the government picked nine important companies like BHEL, BPCL, and SAIL and gave them the special title of ‘Navaratnas’.
(i) With this title, these companies were allowed to make more of their own decisions. This gave them the freedom to run their businesses more effectively and earn more profits.
(ii) Because of this new status, these companies performed better. Seeing their success, the government decided to keep these Navaratnas in the public sector and let them grow in global markets and raise money from financial markets on their own.
So, we can say that the Navaratna policy has successfully improved the performance of public sector companies in India.
Q. 13. What are the major factors responsible for the high growth of the service sector?
Ans.
The services sector has been growing quickly for several reasons:
(i) Economic Changes:
Since 1991, India has made several economic changes that reduced restrictions on foreign money. This encouraged a lot of foreign investment and outsourcing to India, which helped the service sector expand.
(ii) Growth in Certain Service Areas:
Some areas of the service sector have seen rapid growth. These include telecommunications, information technology, finance, entertainment, travel, hospitality, real estate, and trade.
(iii) Advancements in Technology:
New technologies and innovations in the IT sector have also played a big role in the growth of services in India.
(iv) Affordable and Skilled Workforce:
India has a large number of skilled workers available at lower costs. This makes it a popular choice for companies from developed countries to outsource their services, which in turn boosts the services sector.
Q. 14. Agriculture sector appears to be adversely affected by the reform process. Why?
Ans.
The agriculture sector faced several challenges due to the reforms that took place. Here’s how it was affected:
(1) Less Public Investment: During the reform period, the government reduced spending on important aspects of agriculture, like building and maintaining infrastructure such as irrigation systems, power supply, roads, and market connections. This infrastructure was vital for the success of the Green Revolution.
(2) Removal of Subsidies: The removal of fertilizer subsidies led to higher production costs, which hit small and marginal farmers the hardest. This made it tougher for them to manage their farms.
(3) Liberalization and Lower Import Duties: After India joined the WTO, several policies changed, including:
- Lower import duties on agricultural products.
- Removal of minimum support prices, which are guarantees that farmers will receive a certain price for their crops.
- Lifting of limits on the quantity of agricultural products that could be imported.
These changes increased competition from international markets, making it harder for Indian farmers.
(4) Shift to Cash Crops: Due to a focus on exporting crops, production shifted away from essential food grains to cash crops that are aimed at the export market. This change caused the prices of food grains to go up, making it more expensive for people to buy them.
Overall, these reforms created significant difficulties for farmers in India, especially those who are small and marginal.
Q. 15. Why has the industrial sector performed poorly in the reform period?
Ans.
The industrial sector faced challenges during the reform period for a few key reasons:
(1) Cheaper Imported Goods:
With globalization, countries began trading more freely, which meant that cheaper goods from developed nations started flooding the market. This made it hard for local industries to sell their products, as many customers preferred the lower-priced imports instead.
(2) Lack of Infrastructure:
The infrastructure, like electricity and roads, wasn’t sufficient because there wasn’t enough investment. This lack of support made it tough for industries to operate effectively.
(3) Import Restrictions by Developed Countries:
While India had its quota restrictions on textile and clothing exports removed, some developed countries, like the USA, still maintained limits on importing textiles from India. This made it harder for Indian manufacturers to compete in those markets.
Q. 16. Discuss economic reforms in India in the light of social Justic and welfare.
Ans.
The economic reforms have faced criticism regarding social justice and welfare for several reasons:
- Increasing Unemployment: Even though the country’s GDP has grown during the reform period, this growth has not created enough jobs for people.
- Ending Subsidies: The removal of the fertilizer subsidy has made it more expensive to produce crops, which has hurt small and marginal farmers the most.
- Higher Food Prices: The focus on exporting cash crops instead of producing food grains has led to increased prices for basic food items.
- Increased Imported Goods: With globalization, a lot of goods and capital are coming from developed countries, which has exposed local industries to competition from imported products.
- Rise of Consumerism: The new policies have promoted a worrying trend of consumerism, emphasizing the production of luxury items and encouraging people to buy more expensive goods.
- Uneven Growth: Growth has mostly happened in specific areas like telecommunications, IT, finance, entertainment, travel, and real estate, instead of important sectors like agriculture and manufacturing, which provide jobs for millions in the country.
