CBSE Class 11 Economics Economic Reforms Since 1991 Assignment

IMPORTANT POINTS: -

Meaning: Economic reforms refer to a set of economic policies directed to accelerate the pace of 'growth and development' OF Indian Economy
Economic reforms or structural adjustment is a long term multi-dimensional package of various policies (Liberalization, privatization, and globalization) and programme for the speedy growth, efficiency in production and make a competitive environment.
Economic reforms are adopted by Indian Govt. in1991.
Factors responsible for Economic reforms.
➢ Fall in foreign exchange reserve.
➢ Adverse balance of payments
➢ Mounting fiscal deficit.
➢ Rise in prices
➢ Failure of public enterprises.
➢ Gulf crisis.

Stabilization measures: These are short run measured introduced by Govt. to control price rise, adverse balance of payment and fall in foreign exchange reserve.
Structural reform measures: These are long-run policies, the goal is to abolish controls, eliminate bureaucratic hurdles. and red-tapism and make the decision-making process efficient and trans parent. In the new economic policy 1991, Structural reforms can be seen with respect to:
1. Liberalization. 2. Privatization 3. Globalization.
Liberalization: Liberalization means removing all unnecessary control and restriction like permits, licenses, quotas etc.
Liberalization measures:
➢ Industrial sector reforms
➢ Financial sector reforms.
➢ Fiscal reforms.
➢ Foreign exchange reforms
➢ Trade and Investment policy reforms
.
Privatization: Privatization is the general process of involving the private sector in the ownership or operation of state-owned enterprises.
Policies adopted for privatization:
➢ Contraction of public sector.
➢ Abolish the ownership of Govt. in the management of public enterprises.
➢ Sale of shares of public enterprises. (disinvestment)

Globalization: Globalization may be defined as a process associated with increasing openness growing economic interdependence and deepening economic integration in the world economy.
Policy promoting globalization:
➢ Increase in equity limit of foreign investment.
➢ Partial convertibility.
➢ Long term trade policy.
➢ Reduction in tariff.

An Appraisal of LPG Policies: -
Positive Impact:
➢ Increase in foreign investment
➢ Increase in foreign exchange reserves
➢ A check of inflation.
➢ Increase in domestic product.
➢ Increase in exports.
➢ Consumer sovereignty.

Negative Impact.
➢ Neglect of agriculture
➢ Increase in competition for domestic industry.
➢ Increase in urbanization.
➢ Disaffect of disinvestment policy.
➢ Spread of consumerism.
Foreign Direct Investment (FDI): Refers to investment by the foreigners by way of their business establishments in India. It implies ownership and control of business. Examples: Coke, Pepsi, Domino's, McDonald.
Foreign Institutional Investment (FII): Refers to investment in Indian companies (by way of purchasing their equity or shares) by the foreign banking and non-banking institutions. It does not involve any kind of direct control on the management of the Indian companies where investment is made. FII, unlike
FDI, is simply an investment in the stock market in India by the foreign banking and non-banking institutions.
Tariff barriers mainly refer to barriers on imports through high import duty.

Non-tariff barriers generally refer to quota-barriers, implying quantitative restrictions on imports (or restrictions on the quantum of imports).
Bilateral trade agreements refer to trade agreements of one country with the other. Or, these are trade agreements between any two countries of the world.
Multilateral trade agreements refer to trade agreements of one country with many countries of the world. Or, these are trade agreements among many countries of the world.
Devaluation: - Devaluation implies lowering the value of our currency in relation to other currencies of the world.
Disinvestment: - Disinvestment is a policy instrument to promote privatization.
It occurs when the government sells off its share capital of PSUs (public sector Undertakings) to the private investors.
GST (Goods and Services Tax) has been introduced in India with a view to providing a uniform tax structure across all parts of the country It is a one tax in place of all taxes on goods and services, and it is a uniform tax across all states of the country. Thus, GST carries the slogan of 'one tax, one nation, one market'.
DEMONETISATION: -Demonetization, introduced in 2016, is closely related to financial sector reforms. Let us understand its concept and consequences in the context of the Indian economy. Concept Demonetization is a policy action of the government that withdraws the status of 'legal tender' from the existing currency. Once the status of 'legal tender' is withdrawn, the existing currency (or the currency notes) are reduced merely to pieces of paper. The demonetized notes were replaced by new currency notes of Rs.500 and Rs. 2,000. Basic purpose of demonetization is to curb illegal transactions and anti-social activities (funded through illegal transactions).

Principal Merits:
➢ It helps unearth (find out) black money.
➢ Reduction of black money leads to shrinkage of shadow economy (a n economy with unrecorded production activity and tax evasion)

Multiple Choice Questions

Question. Economic reforms in India were initiated in the year:
A1990
C 1991
B 1992
D 1993
Answer: C

Question. Which of the following is an element of financial sector of the economy?
A. Banking and non-banking financial institutions
B. Stock exchange market
C. Foreign exchange market
D. All of these
Answer: D

Question. World Trade Organization (WTO) has been established in ___________
A. 1960
B. 1992
C. 1963
D. 1995
Answer: D

Question. ___________ implies free interaction among all the countries in various fields like trade, technology, outsourcing etc.
A. Monopoly
B. Privatization
C. Disinvestment
D. Globalization
Answer: D

Question. Selling off part of the equity of PSU’s is called______________.
A. Globalization
B. Privatization
C. Disinvestment
D. None of these
Answer: C

Question.  _______ and _________ Currency notes of old Mahatma Gandhi series were banned as legal tender money on 8th Nov. 2016.
A. Rs.50/ and Rs. 100/
B. Rs.500/ and Rs. 1000/
C. Rs.500/ and Rs. 2000/
D. Rs.500/ and Rs. 200/
Answer: B

Question. Demonetization does not target:
A. Tax administration
B. Cash less Economy
C. Credit creation
D. Encouragement to black money
Answer: D

Question. Objectives of privatization policy are:
A. To improve the government’s financial position
B. To improve the performance of an enterprise
C. To reduce the burden on public administration.
D. All the above.
Answer: D

Question. Arrange the following tax structures adopted in India in the correct chronological order; (choose the correct arrangements)
i. Goods and Services Tax
ii. Sales Tax
iii. Value Added Tax
iv. Mod. Value Added Tax
Alternatives:
A. I, ii, iii, iv
B. ii, iii, iv, i
C. iii, iv, ii, i
D. iv, iii, ii, I,
Answer: B

Question. Liberalization of the economy under the New Economic Policy changed the role of RBI in the economy: (choose the correct alternative)
A. From a ‘regulator’ to ‘facilitator’ of the financial sector
B. From a ‘controller’ to ‘manager’ of the government debt
C. Both (a) and (b)
D. None of these
Answer: C

Question. Read the following statements carefully and choose the correct alternative from the following:
Statement 1: Globalization is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and Integration.
Statement 2: Globalization has benefitted the agriculture sector by increasing food grain production
Alternatives:
A. Both the statements are true.
B. Both the statements are false.
C. Statement 1 is true and Statement 2 is false
D. Statement 2 is true and Statement 1 is false
Answer: C

Question. Which of the following committee recommended the introduction of GST in India?
A. Kelkar Task Force
B. C.Rangrajan Committee
C. Both
D. None of them
Answer: A

Question. .……………. was the Indian Finance Minister in 1991, acknowledged for his capabilities to steer away the economic crisis looming large on the erstwhile Indian Economy. (Fill up the blanks with correct alternative)
A. Dr. Subramanian Swamy
B. Pranab Mukherjee.
C. Dr. Manmohan Singh.
D. Dr. Urjit Patel
Answer: C

Question. In the context of Indian experience, controls were imposed by the government with a view to:
A. Checking the growth of private monopolies
B. Minimizing the hold of large industrial houses on the financial resources of the country
C. Both (a) and (b)
D. None of these
Answer: C

Question. The parameters of economic reforms undertaken in an economy are:
A. Macroeconomic stabilization
B. Macroeconomic structural adjustments
C. Both (a) and (b)
D. None of these
Answer: C

Question. The programme of economic reforms in India was started on ………………….
A. 26th July 1990
B. 23th July 1992
C. 21th July 1991
D. 24th July 1991
Answer: D

Question. International Bank for Reconstruction And Development (IRBD) is popularly known as:
a) World bank
b) Bank of Tokyo
c) American express
d) HSBC bank
Answer : A

Question. Economic reforms in India was started on 24th July:
a) 1992
b) 1993
c) 1991
d) 1990
Answer : C

Question. When expenditure is more than income, the government borrows to finance the ____from banks.
a) Surplus
b) Deficit
c) Credit
d) Debit
Answer : B

Question. ______means integrating the domestic economy with the world economy.
a) Globalisation
b) Liberalization
c) Privatisation
d) Demonetisation
Answer : A

Question. Stabilization measures were intended to correct:
a) Balance of payment problem
b) Inflationary situations
c) depleting foreign exchange reserves
d) all of these
Answer : D

Question. Financial sector in India is regulated by
a) RBI
b) CENTRAL GOVT
c) SEBI
d) both (a) and (b)
Answer : A

Question. Reforms have not been able to benefit agriculture because of
a) Public investment in agriculture sector especially in infrastructure has fallen
b) Rise in subsidy
c) Rise in import duties on agricultural products
d) Shift from production of cash crops to food crops
Answer : A

Question. Stabilization measures were intended to
a) Improving the efficiency of the economy
b) Increasing its international competitiveness
c) Both (a) and (b)
d) Maintain sufficient foreign exchange
Answer : C

Question. General Agreement on Trade and Tariff (GATT) was the forum for International trade agreement between:
A. 1980-1990
B. 1943-1953
C. 1947-1994
D. 1948-1990
Answer: C

Question.  Which of the following refers to removing unnecessary controls and restrictions imposed by the Government?
A. Liberalization
B. Privatization
C. Globalization
D. Modernisation
Answer: A

Question. From the set of statements given in column I and Column II, choose the correct pair of statements:
Column I                                                         Column II
(a) Financial sector reforms             (i)  Rationalization of Direct taxes
(b) Foreign Exchange reforms         (ii) Devaluation of Rupee
(c) Industrial sector reforms            (iii) Change in Role of RBI
(d) Tax Reforms                              (iv) Removal of export duty
Answer: (b)

CASE STUDY - 1 

Read the following hypothetical text and answer the given questions

While the beginning of the current economic liberalization policy in India could be traced to the period much earlier than the 1990s, the explicit acceptance and implementation of the economic liberalization program during mid-1991 by Indian government could be seen as the starting point of the new reform program, and its subsequent change of approach and priorities about its governance. It was based on the belief that economic globalization/liberalization worked toward the integration of national economies into the international economy through trade, direct foreign investment, short-term capital flows, international flow of workers and humanity, and flow of technology. But in the process of liberalizing the economy, the state’s role has transformed in prioritizing a strong military, police and legal structures, and functions to protect private property rights and ensure proper functioning of markets. If the markets do not exist in the areas of land, water, education, health care, social security, and so on, the state must take initiative in creating a market. After creating such markets, the state should keep its activities to bare minimum without interfering with the functions of the market for it to perform efficiently .Such thinking based on Neoliberalism1(Neoliberalism refers to a political ideology that espouses economic liberalism as a means of promoting economic development and securing political liberty.) started occupying the minds, in a measured manner, in the policy circle worldwide during the 1970s, which led to a major shift in the political–economic practices, and started moving toward deregulation, privatization, and withdrawal of state from many areas of social security, for efficient governance, based on market economy.

Question. liberalism as a means of promoting (Choose the correct option)
(a) promoting economic development
(b) securing political liberty
(c) Freedom of private enterprises
(d) All the above
Answer : D

Question. ……………… refers to a political ideology that espouses economic liberalism as a means of promoting economic development and securing political liberty.( Choose the correct option) (Neoliberalism/ Liberalism)
Answer : Neoliberalism

Question. State whether the given statement is true or false While the beginning of the current economic liberalization policy in India could be traced to the period much earlier than the 1990s. TRUE / FALSE (Choose the correct option)
Ans: True

Question. Read the following statements
Assertion (A) and Reason (R) Assertion (A) started occupying the minds, in a measured manner, in the policy circle worldwide during the 1970s. Reason (R):which led to a major shift in the political–economic practices, and started moving toward deregulation, privatization, and withdrawal of state from many areas of social security, for efficient governance, based on market economy.
a. Both Assertion (A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A).
b. Both Assertion (A) and Reason(R) are true and Reason(R) is not the correct explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason(R) are is true.
Answer : A

CASE STUDY - 2

New Economic Policy of India was launched in the year 1991 under the leadership of P. V. Narasimha Rao. This policy opened the door of the India Economy for the global exposure for the first time. In this New Economic Policy P. V. Narasimha Rao government reduced the import duties, opened reserved sector for the private players, devalued the Indian currency to increase the export. This is also known as the LPG Model of growth. New Economic Policy refers to economic liberalisation or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes to expand the economic wings of the country. Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. Manmohan Singh introduced the NEP on July 24,1991. Main Objectives of New Economic Policy – 1991, July 24 The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the union Finance Minister Dr. Manmohan Singh are stated as follows: 1. The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to give it a new thrust on market orientation. 2. The NEP intended to bring down the rate of inflation

Question. New Economic Policy of India was launched in the year 1991 under the leadership of …
a) P. V. Narasimha Rao
b) Atal Bihari Bajpayi
c) Sharad Pawar
d) None of these
Answer : A

Question. ……………………………. is also known as the LPG Model of growth.( (choose the correct alternative)) ( New Economic Policy / New Education Policy)
Ans: New Economic Policy

Question. State whether the given statement is true or false
Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India.( (choose the correct alternative))
True / False
Answer : True

Question. Read the following statements Assertion (A). New Economic Policy is to expand the economic wings of the country.
Reason (R): Due to economic liberalisation or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes
a. Both Assertion (A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A).
b. Both Assertion (A) and Reason(R) are true and Reason(R) is not the correct explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason(R) are is true.
Answer : A

CASE STUDY - 3

Read the following hypothetical text and answer the given questions: -
We now look at some trends in the post-reform period. Data from Sri Lanka which started on a programme of economic reform in 1977 indicates that an increasing awareness on health issues is coupled with the growing incidence of diseases associated with stress, particularly those of the cardio-respiratory kind (Gunawardena 1995). A similar pattern is emerging in India with the advent of tropical diseases like falciparum malaria and Japanese B encephalitis, stress-and environment related cardiovascular complaints, respiratory and endemic intestinal problems as well as nervous disorders (Ghosh 1996). It is likely that with continued rural-urban migration, the mushrooming of unhealthy towns and cities and the degradation of the natural environment combined with jobs which increasingly concentrate workers in industries, Export Promotion Zones and sweat shops, the range of diseases and illnesses will increase. Women and their health will be adversely affected as they form the basis of the pool of cheap labour, essential for the growth of EPZs.

Question. Sri Lanka which started on a programme of economic reform in………….( Choose the correct option)
(a) 1978
(b) 1977
(c) 1990
(d) 1992
Answer : B

Question. A similar pattern is emerging in India with the growing incidence of diseases with stress , particularly those of the ………………………… kind.( Choose the correct option) ( cardio-respiratory/ heart diseases)
Answer : cardio-respiratory

Question. State whether the given statement is true or false
It is likely that with continued rural-urban migration, the mushrooming of unhealthy towns and cities and the degradation of the natural environment combined with jobs which increasingly concentrate workers in industries. (Choose the correct option)
True / False
Answer : True

Question. Read the following statements :
Assertion (A) and Reason ( R)
Assertion (A) Women and their health will be adversely affected
Reason (R):as they form the basis of the pool of cheap labour, essential for the growth of Export Promotion Zones.
a. Both Assertion (A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A).
b. Both Assertion (A) and Reason(R) are true and Reason(R) is not the correct explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason(R) are is true.
Answer : A

CASE STUDY - 4

The reduction of fiscal deficits is an inalienable component normally included in the conditionality of Structural Adjustment Program (SAP)5 and consequently government expenditures must be cut to meet the targets for reducing fiscal deficits. There are several studies that have pointed out the declining trend in social sector expenditures. UNICEF’s Adjustment with a Human Face) was the first major study of SAPs to point out its impact on the vulnerable. This study has also shown that out of 78 countries that were implementing IMF-guided structural adjustment reforms, 91% had put a constraint on government expenditure, 83% had reduced the budget deficits, and 65% followed a policy of wage restraint. It has further noted a strong association between reduction in social sector expenditures and social indicators.
Thus, reducing the public debt and stabilizing the economy were the main objectives of India liberalizing its economy in 1991. This path toward reducing the fiscal deficit has resulted in pruning down the expenditure in social sectors (which includes education). These measures in a longer run have affected the development and growth of social sectors by curtailing its new infrastructure and other resources.

Question. The main objectives of India liberalizing its economy in 1991.( (choose the correct alternative))
(a) reducing the public debt and stabilizing the economy
(b) To improve economy
(c) Improvement of education
(d) None of these
Answer : A

Question. The reduction of …………… is an inalienable component normally included in the conditionality of Structural Adjustment Program. (Choose the correct alternative)) fiscal deficits / Financial deficits
Ans: fiscal deficits

Question. State whether the given statement is true or false UNICEF’s Adjustment with a Human Face was the first major study of SAPs to point out its impact on the vulnerable. (Choose the correct alternative)) True / False
Answer : True

Question. Read the following statements Assertion (A). Indian economy has become a more vibrant economy.
Reason (R): Overall level of economic activity has trended up as indicated by GDP growth. Post LPG policies, the growth of GDP shot up to as high as 8 per cent per annum
a. Both Assertion (A) and Reason(R) are true, and Reason (R) is the correct explanation of Assertion (A).
b. Both Assertion (A) and Reason(R) are true, and Reason(R) is not the correct explanation of Assertion (A).
c. Assertion (A) is true, but Reason (R) is false.
d. Assertion (A) is false but Reason(R) are true.
Answer : A

ASSERTION AND REASON BASED QUESTIONS

Question. Read the following statements – Assertion (A) and Reason (R).
Choose one of the correct alternatives given below:
Assertion (A): India has become a best destination for global outsourcing in the post reform period.
Reason(R): Favorable Government policies such as various efforts like tax holidays, tax concessions, availability of cheap labour etc. helped MNCs
Alternatives:
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason (R) is true
Answer: A

Question. Assertion (A): In 1991, India met with an economic crisis relating to its internal debt.
Reason (R): The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason (R) is true
Answer: D

Question. Assertion (A): The reform policies introduced in and after 1991 removed many industrial and licensing restrictions
Reason(R): Rules and laws which were aimed at regulating the economic activities became major hindrances in growth and development.
Alternatives:
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
B. Both Assertion (A) and Reason (R)are true and Reason (R) is not the correct explanation of Assertion (A)
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason (R) is true
Answer: A

Question. Assertion (A): Devaluation as a foreign exchange reform set the tone to free the determination of rupee value in the foreign exchange market from government control.
Reason(R): Devaluation caused an increase in the outflow of foreign exchange
Alternatives:
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason (R) is true
Answer: C

Question. Assertion (A): Globalization is a outcome of the set of various policies that are aimed at trans forming the world towards greater independence and integration. It involves creation of network and activities transcending economic, social and geographical boundaries.
Reason (R): Globalization is a strategy of the developed countries to expand their market in other countries.
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason (R) is true
Answer: B

Question. Assertion (A): The government borrows only from banks to finance the deficit caused.
Reason (R): Deficit is caused when expenditure is more than income
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason (R) is true
Answer: D

Question. Assertion (A): Liberalization of trade and investment regime was initiated to increase
International competitiveness of industrial production.
Reason(R): The aim was to promote the efficiency of the local industries and the adoption of modern technologies.
Alternatives:
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
C. Assertion (A) is true but Reason (R) is false.
D. Assertion (A) is false but Reason (R) is true
Answer: A

Learning objectives
1 Meaning of new economic policy
2 Need for economic reforms
3 Features of new economic policy
(i) Liberalization and its measure
(ii) Privatization and its measure
(iii) Globalization and its measure
4 Positive impact of LPG
5 Negative impact of LPG

Question.What is economic reforms?
Answer. The new economic policy started by the government since 1991 in order solve the Economic crisis and to accelerate the rate of economic growth is called Economic Reforms. It is also known as new economic policy which consists of Liberalization, Privatization and Globalization (LPG).

Question.Why there was need for economic reforms?
Answer.
1. Mounting fiscal deficit : Fiscal deficit of the government had been mounting year after year on continuous increase in non-development expenditure. Due to persistent rise in fiscal deficit there was corresponding rise in public debt and interest payment liability there was possibility that the economy might lead to debt-trap situation. Thus it becomes essential for the government to reduce its non- development expenditure and restore fiscal discipline in the economy.
2. Adverse balance of payment :When receipts of foreign exchange fall short of their payments,the problem of adverse balance of payment arises. Despite the restrictive policy adopted by the government till 1990 import substitution and export promotion the desired result could not be meet. Our export could not compete in terms of price and quality in the international market. As a result there was slow growth of export and rapid increase in imports. Accordingly the burden of foreign debt services increased tremendously and leading to depletion of foreign exchange reserves.
3.Gulf Crises: On account of Iraq war in 1990-91 prices of petrol shot-up . Besides india used to receive huge amount of remittances from gulf countries in terms of foreign exchange.
4. Poor performances of PSU’s: Due to poor performances of public sector undertakings degenerated in to a liability. Most of public sector undertakings were incurring loss and their performance was quiet satisfactory. On account of these factors, it becomes imperative for the government to adopt new economic policy or to initiate economic reforms.
5 .Rise in price: Due to rise in prices of food grains there was pressure of inflation Prior to 1991. Which deepen the economic crisis from bad to worse.
6 .Fall in foreign exchange reserves: In 1990-91 India’s foreign exchange reserves fall to such a low level that there was not enough to pay for an import bill of even10 days. In such situation the government had to helplessly resort to policy of liberalization as suggested by the World Bank.

Question. what is New Economic Policy? Briefly explain it.
Answer. New Economic Policy refers to adoption of Liberalisation,Privatisation and Globalization(LPG) which aims at the rendering the economy more efficient, competitive and developed.

ELEMENTS OF NEW ECONOMIC POLICY

1. Liberalization: It means to free the economy from the direct and physical control imposed by the government.
Measures adopted for Liberalization:
(i) Abolition of industrial licensing.
(ii) DE reservation of production areas
(iii) Expansion of production capacity
(iv) Freedom to import capital goods
2. Privation: It refers to general process of involving the private sector in the ownership or management of state owned enterprises. It imply partial or full ownership and management of public sector enterprises by the private sector.
Measures adopted for Privatization:
(i) Contraction of public sector
(ii) Disinvestment of public sector undertaking
(iii) Selling of shares of public enterprises
3. Globalization: It men’s integrating the economy of a country with the economies of other countries under condition of free flow trade and capital and movement of persons across borders.
Measures adopted for Globalization:
(i) Increase in equity limit of foreign investment
(ii) Partial convertibility of Indian rupees
(iii) Long –term trade policy
(iv) Reduction in tariffs.

Question. Mention the positive impact of LPG polices
Answer.1. a vibrant Economy
2. Stimulant to Industrial production
3. Check on fiscal deficit
4. Check on inflation
5. Improvement in consumers sovereignty
6. A substantial increase in foreign exchange reserves.
7. Flow of private foreign investment.
8. India as an emerging economic power
9. Shift from monopoly market to competitive market

Question. Mention the negative impact of LPG polices.
Answer.1. Neglect of agriculture
2. Urban concentration of growth process
3. Economic colonialism
4. Spread of consumerism
5. Lopsided growth process
6. Cultural erosion

Key points CBSE Class 11 Economics Economic Reforms Since 1991 Assignment

Economic feforms or structural adjustment is a long term multi dimensional package of various policies (Liberalisation, privatisation and globalisation) and programme for the speedy growth, effeciency in production and make a competitive enviornment. Economic reforms are adopted by Indian Govt. in 1991.

Factor’s responsible for Economic reforms.

1. Fall in foreign exchange reserve.

2. Adverse balance of payments

3. Maunting fiscal deficit.

4. Rise in prices

5. Failure of public enterprises.

6. Gulf crisis.

* Stabilisation measures : - These are short run measured. Indroduced by Govt to control rise in price, adverse balance of payment and fall in foreign exchange reserve.

* Structural adjustment : These are longrun policies the goal of structurcal reforms is to abolish controls, eliminate bereocratic hurdus. and redtapism and make the decision making process efficient and transparent.

* In the new economic policy 1991, Structural reforms can be seen with respect to :

1. Liberalisation.

2. Privatisation

3. Globalisation.

Liberalisation means removing all unnecessary control and restriction like permits licenses. protectionist duties quotas ect 

Economis reforms under liberalisation.

1. Industrial sector reforms

2. Finincial sector reforms.

3. Fiscal reforms.

4. Foreign exchange reforms.

5. Trade and investment reforms.

* Privatisation is the general process of involving the private sector in the ownership or operation of a state owned enterprises.

Policies adopted for privatisation

1. Contraction of public sector.

2. Abolish the ownership of Govt. in the management of public enterprises.

2. Sale of shares of public enterprises.

* Globalisation :- Globalisation may be defined as a process associated with increasing openness growing economic interdependence and deepening economic integration in the world economy.

Policy promoting globalisation.

1. Increase in equity limit of foreign investment.

2. Partial convertibility.

3. Long term trade policy.

4. Reduction in tariff.

An Appraisal of LPG Policies Positive Impact
1. Increase in foreign investment
2. Increase in foreign excharge reserves
3. A check of inflation.
4. Increase in domestic product.
5. Increase in exports.
6. Consumer sovereignity.

Negative Impact.
1. Neglact of agriculture
2. Increase in competition for domestic industry.
3. Increase in urbanisation.
4. Diseffect of disinvestment policy.
5. Spread of consumerism.
6. Cultural erosion.

MCQs

Question. Moderate rate of tax was implemented during reforms period to
a) Encourage savings
b) Voluntary disclosure of income.
c) Increasing in foreign exchange reserve
d) Both (a) and (b)
Answer : D

Question. In 1991, India met with an economic crisis relating to its:
a) External debt
b) Internal debt
c) stock exchange
d) none of the above
Answer : A

Question. The most urgent problem which promoted the introduction of New Economic Policy in 1991 Was:
(a) Bad performance of public sector units.
(b) Foreign exchange crises.
(c) High tax rates leading to tax evasion.
(d) Both A and B
Answer : D

Question. Government taxation and expenditure policy is known as
a) Trade policy
b) Monetary policy
c) Fiscal policy
d) Taxation policy
Answer : C

Question. The process of privatization is where:
a) A company is transferred to a non-profit organization
b) Services that were previously supplies are outsourced
c) A few public sector enterprises are sold to private sector
d) A state industry merges with or takes over a private or publicity owned company
Answer : C

Question. Taxes imposed on incomes of individuals are :
a) Indirect taxes
b) Tariff barriers
c) Direct taxes
d) All of these
Answer : C

Question. GATT was established in the year:
a) 1958
b) 1948
c) 1968
d) 1995
Answer : C

Question. Objectives of privatization are:
a) To improve the government’s financial position
b) To improve the performance of an enterprise
c) To reduce the burden on public administration
d) All the above
Answer : A

1 MARK QUESTIONS

Question. State the meaning of economic reforms.
Answer: 1. Economic reforms refers, those measures which are adopted for the speedy growth of economy, efficiency in production and make a competitive environment.

Question. How does increase in fiscal deficit creats the requirement of economic reforms?
Answer: Due to increasing fiscal deficit the interest paid by the Govt. for the borrowings become 36.4% of the Govt. expenditure. So economic reforms become essential for the Govt.

Question. State the name of economic reform which makes free to economy from direct or physical controls imposed by the Govt.
Answer: Liberalisation.

Question. What is meant by foreign exchange reserve?
Answer: Stock of foreign currency held with the Govt. at given point of time called foreign exchange reserve.

Question. Why the requirement of fiscal reforms arose under liberalisation?
Answer: Prior to liberalisation, tax structure was highly complicated and evasive. Fearing a heavy burden of taxation it promote evade the payment of tax, so tax reforms become essential for the Govt.

Question. What is meant by direct tax?
Answer: Direct taxes are those taxes, the burden of which can not be shifted on to other’s eg. Income tax.

Question. Define indirect tax with the help of example.
Answer: Indirect taxes are those taxes the burdon of which can be shifted on to other for example sales tax.

Question. What is meant by develuation?
Answer: Devaluation refers to lowering in the official value of a currency with respect to gold or foreign currency.

Question. State the meaning of privatisation.
Answer: Privatisation is the general process of involving the private sector in the ownership of operation of a state owned enterprises.

Question. What is meant by globalisation?
Answer: Globalisation may be defined as a process associated with increasing open ness growing economic interdependence and deepening economic integration in the world economy.

Question. What benefit goes to domestic Industries of reduction in tariff?
Answer: Due to reduction in tariff, imports becomes cheaper and profit margin increase on exports for domestic industries.