Samacheer Kalvi Class 12 Commerce Solutions Chapter 20 Liberalization, Privatization and Globalization

I. Choose the Correct Answers

Question 1. is the result of New Industrial Policy which abolished the ‘License System’
(a) Globalisation
(b) Privatisation
(c) Liberalisation
(d) None of the options
Answer: (c) Liberalisation
In simple words: Liberalisation came about because of the New Industrial Policy. This policy got rid of the old 'License System' which made it easier for businesses to operate.

🎯 Exam Tip: Remember that liberalisation aims to reduce government controls and make the economy more open to private participation.

Question 2. means permitting the private sector to setup industries which were previously reserved for public sector.
(a) Liberalization
(b) Privatization
(c) Globalization
(d) Public enterprise
Answer: (b) Privatization
In simple words: Privatization is when the government lets private companies start businesses in areas that were once only for government companies. This means the private sector gets more chances to grow.

🎯 Exam Tip: Distinguish between liberalisation (reducing rules) and privatisation (transferring ownership or opening sectors to private players).

Question 3. Ownership makes bold management decisions due to their strong foundation in the international level.
(a) Private
(b) Public
(c) Corporate
(d) MNCS
Answer: (a) Private
In simple words: Private ownership allows businesses to make quick and bold decisions. This is because private companies often have a strong base, especially in how they operate globally.

🎯 Exam Tip: Private sector ownership typically emphasizes profit and efficiency, leading to more aggressive decision-making compared to public or government-owned entities.

Question 4. results from the removal of barriers between national economies to encourage the flow of goods, services, capital and labour.
(a) Privatization
(b) Liberalization
(c) Globalization
(d) Foreign trade
Answer: (c) Globalization
In simple words: Globalization happens when different countries remove their trading walls. This helps goods, services, money, and even workers move more freely between them. It connects economies worldwide.

🎯 Exam Tip: Globalization is about integrating economies globally, while liberalisation is about reducing internal regulations, which can contribute to globalization.

Question 5. New Economic Policy was introduced in the year ..........
(a) 1980
(b) 1991
(c) 2013
(d) 2015
Answer: (b) 1991
In simple words: India's New Economic Policy was first started in the year 1991. This policy brought big changes to the country's economy.

🎯 Exam Tip: Knowing key dates like 1991 for the New Economic Policy is important as it marks a significant shift in India's economic history.

II. Very Short Answer Questions

Question 1. State the branches of new Economic policy
Answer: There are three main parts to the New Economic Policy. These parts are explained below:
1. Liberalization
2. Privatization
3. Globalization
In simple words: The new economic policy has three main ideas. These are making rules easier (liberalization), letting private businesses do more (privatization), and connecting with the world economy (globalization).

🎯 Exam Tip: Remember these three terms - Liberalization, Privatization, and Globalization (LPG) - as they form the core of the New Economic Policy.

Question 2. What is privatization?
Answer:

• Privatization means that government-owned businesses are sold to private companies.
• It also allows private companies to start and run industries that were previously managed by the government. This opens up more sectors for private players.

🎯 Exam Tip: When defining privatization, always mention both the sale of public assets and the permission for private sector entry into formerly government-reserved areas.

Question 3. Mention any two disadvantages of liberalization. [ILU]
Answer: Disadvantages of Liberalisation include:
1. An increase in unemployment can occur as industries change or become more competitive.
2. There can be losses for local businesses as they face tougher competition from foreign companies.
3. It can lead to increased reliance on foreign countries for goods and capital.
4. Development might not be balanced, meaning some areas or sectors grow rapidly while others fall behind.
In simple words: Liberalisation can cause jobs to be lost and local businesses to struggle because of more competition. It can also make a country rely too much on other nations and cause uneven growth.

🎯 Exam Tip: Focus on the negative impacts like job loss, harm to local industries, and increased foreign dependence when discussing the disadvantages of liberalisation.

Question 4. Name the industries which are reserved for the public sector. [AMMA]
Answer: The following industries are typically reserved for the public sector, meaning they are primarily controlled by the government:

• Arms and ammunition production is kept under government control for national security.
• Mineral oils, including their exploration and refining, are often managed by the public sector.
• Mining of certain key ores, especially strategic minerals, remains a government domain.
• Atomic energy development and production are vital for national power and security, hence reserved.

🎯 Exam Tip: Remember that strategic and sensitive sectors like defense and atomic energy are usually reserved for the public sector due to national interest and security concerns.

Question 5. Give any two advantages of globalization. [TIERI]
Answer: Advantages of globalization include:

• It leads to an increase in foreign collaboration, where companies from different countries work together.
• Globalization helps in the expansion of markets, allowing businesses to sell their products to more people worldwide.
• It promotes technological development as ideas and innovations spread faster across borders.
• It can help in the reduction of 'brain drain' by creating more opportunities at home.

🎯 Exam Tip: Highlight benefits like increased collaboration, market expansion, and technological advancement when describing globalization's advantages.

III. Short Answer Questions

Question 1. What do you mean by liberalisation?
Answer: Liberalisation means that the government makes its laws and rules less strict. It relaxes various government restrictions related to social and economic policies. This is done to help businesses enter the market more easily and set up their ventures in the country. It reduces the need for permissions and licenses.
In simple words: Liberalisation means the government makes rules and laws less strict. It helps businesses operate freely and start new work without too many controls.

🎯 Exam Tip: The core idea of liberalisation is the reduction of government controls and restrictions to foster economic growth and private enterprise.

Question 2. What is meant by Public Sector Units (PSUs)?
Answer:

• A Public Sector Unit, or PSU, is a company where the government owns most of its shares. This means the government has the main control.
• Depending on whether the central government or a state government owns it, we call them a Central PSU or a State PSU. These units provide goods and services for public welfare.

🎯 Exam Tip: Emphasize that PSUs are government-controlled entities with a majority stake held by either the central or state government.

Question 3. State any three impacts on globalization. [MGR]
Answer: Here are three impacts of globalization:
1. Companies gained an edge by having lower running costs. They could also find new raw materials and more markets to sell their products.
2. Multinational corporations (MNCs) can now make, buy, and sell goods all over the world. This helps them reach customers in many countries.
3. Globalization has led to a big rise in the consumer products market. People now have more choices for what they can buy.
In simple words: Globalization helps companies save money and find new markets. Big international companies can now sell goods worldwide. Also, people now have many more choices for things to buy.

🎯 Exam Tip: When discussing impacts, focus on effects on businesses (costs, raw materials, MNC reach) and consumers (market boom, choices).

Question 4. Write a short note on New Economic Policy
Answer:

• India agreed to the terms set by the World Bank (IBRD) and the International Monetary Fund (IMF). Because of this, a new set of economic changes, called the New Economic Policy (NEP), was announced.
• This policy included many different economic reforms. This new package of economic changes is commonly known as LPG, which stands for Liberalization, Privatization, and Globalization.
• Liberalization involved relaxing laws and rules by the Government to promote economic activity.
• Privatization meant selling government-owned companies (PSUs) to the private sector.
• Globalization involved connecting the domestic economy with the world economy.

🎯 Exam Tip: Always define LPG (Liberalization, Privatization, Globalization) when describing the New Economic Policy, as these are its core pillars.

IV. Long Answer Questions

Question 1. Explain the Advantages and Disadvantages of Liberalization.
Answer:
Advantages:

• Control over price: Removing barriers like tariffs can lead to lower prices for goods. This benefits consumers by making products more affordable.
• Reduction in external borrowing: Liberalisation helps reduce a country's reliance on external borrowing. It does this by attracting more Foreign Direct Investments (FDIs).
• Increase in Consumption: When more goods are available and production increases, people can buy and consume more within the country. This boosts overall consumption. The increased choice for consumers is a key benefit.

• Increased dependence on Foreign Countries:
• Local industries will face tougher competition from businesses abroad.
• If local businesses are not strong enough, this competition can lead to larger, powerful foreign institutions dominating the market.
• Loss to domestic units:
• When liberalisation happens, many foreign companies enter the local market. This can pose a threat to local businesses and may cause them to lose market share or even close down.
• Unemployment (Increased):
• Liberalisation can cause shifts in the economy.
• Some industries might grow, but others may decline.
• When certain industries decline, it can lead to people losing their jobs and an increase in unemployment.

🎯 Exam Tip: When explaining advantages and disadvantages, provide specific examples or reasons for each point, such as "lower prices for consumers" or "increased competition for domestic units."

Question 2. Explain the Impact of LPG on the Indian Economy.
Answer:
Impact of Liberalisation:
1. Liberalization created new business opportunities both within India and abroad, encouraging more foreign direct investment.
2. New markets for various goods emerged, leading to development not just in cities but also in rural areas. This broadened economic activity.
3. It became much easier for businesses to get loans from banks, which helped them expand.

Impact of Privatisation:
1. Privatization positively affected financial growth by helping to reduce government deficits and debts.
2. It led to an increase in the efficiency of government-run businesses that were privatized.
3. Private companies provided better quality goods and services to consumers.

Impact of Globalization:
1. Multinational corporations could now make, buy, and sell goods globally, expanding their reach.
2. Globalization caused a major boom in the consumer products market, giving people more choices.
3. The arrival of foreign companies and economic growth led to more job creation in India.
In simple words: Liberalisation made it easier to do business, opened new markets, and simplified getting loans. Privatization helped reduce government debt, made companies more efficient, and offered better products. Globalization allowed big companies to operate worldwide, boosted consumer goods, and created more jobs.

🎯 Exam Tip: Structure your answer by clearly separating the impacts of Liberalisation, Privatisation, and Globalization, providing specific benefits for each component of LPG.

12th Commerce Guide Liberalization, Privatization and Globalization Additional Important Questions and Answers

I. Choose the Correct Answers

Question 1. It is a situation in which a country loses its most educated and talented workers to other countries is known as
(a) Liberalisation
(b) Foreign trade
(c) Brain Drain
(d) Nationalisation
Answer: (c) Brain Drain
In simple words: When smart and skilled people leave their home country to work in other countries, it is called Brain Drain. This means the home country loses its talented workforce.

🎯 Exam Tip: 'Brain Drain' specifically refers to the emigration of highly skilled individuals, not just any worker movement, so ensure you understand this distinction.

Question 2. is the incidence or process of transferring ownership of a business enterprise from the Government to the private sector.
(a) Nationalization
(b) Globalization
(c) Liberalization
(d) Privatization
Answer: (d) Privatization
In simple words: Privatization is the act of moving the ownership of a business from the government to a private company. This changes who controls the business.

🎯 Exam Tip: Focus on the transfer of ownership from public to private hands as the defining characteristic of privatization.

Question 3. refers to laws or rules being liberalised or relaxed by a government.
(a) Liberalisation
(b) Privatisation
(c) Nationalisation
(d) Foreign Collaboration
Answer: (a) Liberalisation
In simple words: Liberalisation happens when a government makes its rules or laws less strict. It means relaxing controls on businesses and the economy.

🎯 Exam Tip: Liberalisation is about making rules less restrictive, while other options refer to ownership changes or international cooperation.

Question 4. Considered as the architect of Indian Economic Reforms.
(a) Dr. Manmohan Singh
(b) Dr. Ambedkar
(c) Dr. MGR
(d) Dr.Munshi
Answer: (a) Dr. Manmohan Singh
In simple words: Dr. Manmohan Singh is known as the person who planned India's big economic changes. He played a key role in bringing in the New Economic Policy.

🎯 Exam Tip: Identifying key figures associated with significant economic policies is crucial for historical context and can often be a direct question.

Question 5. Which one of the following is not correctly matched:
(a) FDI - Foreign direct investment
(b) TRIPS - Trade-related intellectual property rights
(c) GATS - General agreement on trade-in service
(d) PSU - Public state units
Answer: (d) PSU - Public state units
In simple words: The abbreviation PSU stands for Public Sector Undertaking, not 'Public state units'. All other options correctly define their terms.

🎯 Exam Tip: Pay close attention to the full forms and exact definitions of economic abbreviations to avoid common matching errors.

Question 6. Pick the odd one out:
(a) BALCO
(b) IPCL
(c) MFIL
(d) CDP
Answer: (d) CDP
In simple words: BALCO, IPCL, and MFIL are examples of public sector companies that were privatized in India. CDP (Carbon Disclosure Project) is an environmental reporting initiative, which is different from the others.

🎯 Exam Tip: To identify the odd one out, you need to understand the category to which most items belong and recognize the item that falls outside that category.

Question 7. Pick out the correct statements.
i. India agreed to the conditions of IBRD and IMF and announced the NEP which consists of a wide range of economic reforms
ii. Privatization has a positive impact on financial growth by decreasing deficits and debts.
iii. Globalization has led to a boom in the consumer products market
(a) (i) is correct
(b) (ii) is correct
(c) (iii) is correct
(d) (i) (ii) (iii) are correct
Answer: (d) (i) (ii) (iii) are correct
In simple words: All three statements are correct. India adopted new economic policies after agreeing with IBRD and IMF. Privatization helped improve finances by reducing government debts. Globalization also made the market for things people buy much bigger.

🎯 Exam Tip: When evaluating multiple statements, ensure you understand each concept (NEP, privatization, globalization) and its generally accepted impacts.

II. Match the Following.

Question 1.

🎯 Exam Tip: Clearly understand the core definition of each term (Globalization, Privatization, Nationalization, Liberalization) to accurately match them with their corresponding descriptions. Nationalization is the opposite of privatization.

III. Assertion and Reason

Question 1. Assertion (A): Many PSU were sold to the private sector Reason (R): Due to PSU was running in losses.
(a) (A) and (R) are correct (R) is the correct explanation of (A)
(b) (A) and (R) are incorrect (R) is the correct explanation of (A)
(c) (A) and (R) are correct (R) is not the correct explanation of (A)
(d) (A) and (R) are not correct (R) is not the correct explanation of (A)
Answer: (a) (A) and (R) are correct (R) is the correct explanation of (A)
In simple words: The statement that many government-owned companies (PSUs) were sold to private businesses is true. The reason for this was that many PSUs were losing money. So, the reason correctly explains why the privatization happened.

🎯 Exam Tip: In assertion-reason questions, first check if both statements are true individually, then check if the reason correctly explains the assertion.

IV. Very Short Answer Questions

Question 1. What do you mean by Globalisation?
Answer: Globalisation means that a country's economy becomes connected and works together with the economies of other countries. This connection happens through foreign investments, trade between countries, and the production of goods across borders. It creates a worldwide marketplace.
In simple words: Globalization is when a country's economy joins with the rest of the world. This happens through international trade, investments, and how goods are made and shared.

🎯 Exam Tip: Emphasize that globalization is about integration and interaction of domestic economies with the global economy across various fronts like investment, trade, and production.

Question 2. Forms of privatization (MSC):
Answer: Privatization can take several forms:
Memorandum of Understanding (MOU):

• This method was introduced in 1991 to improve how well government-owned companies (PSUs) worked.
• The main goal of an MOU is to check and rate the performance of these PSUs.

• The Indian Government started selling parts of its PSUs to private companies.
• For example, the private sector's share in these companies grew from 45% to 55% by the year 2011.

• The government reduced the number of industries that were only for PSUs. This decreased from 17 industries to just 8.

🎯 Exam Tip: When listing forms of privatization, include the sale of shares, MOUs for performance improvement, and the reduction of reserved sectors for PSUs.

Question 3. Forms of Globalisation (FREE)
Answer: Globalization manifests in various forms:
Foreign Trade policy:
India has signed many international agreements to increase its trade worldwide. Examples of such agreements are TRIPS (Trade-Related Aspects of Intellectual Property Rights) and GATS (General Agreement on Trade in Services), which help facilitate global commerce.

Reduction in tariffs:
To attract global investors, countries lower the taxes (tariffs) placed on goods that are imported and exported. This makes it cheaper and easier for international businesses to operate.

Export promotion:
Globalization encourages countries to boost their exports. This is done by lowering tariffs and making trade procedures simpler, helping local products reach international markets.

Encouraging open competition:
Domestic companies are encouraged to start operating at an international level. This leads to more open competition, improving product quality and efficiency.
In simple words: Globalization takes many forms. It includes signing international trade agreements, lowering taxes on imports and exports to attract investors, promoting a country's goods to be sold abroad, and encouraging businesses to compete globally.

🎯 Exam Tip: Remember that globalization is multi-faceted, involving trade policies, tariff reductions, export promotion, and fostering international competition to integrate economies.

V. Short Answer Questions

Question 1. What are the Highlights? LPG? (SOFI) [MD]
Answer: The main points of the LPG (Liberalization, Privatization, Globalization) policy are:

• Steps were taken to control inflation, ensuring that prices did not rise too quickly.
• New opportunities for overseas trade were created, allowing businesses to expand internationally.
• There was an increase in Foreign Investments (both FDI and FII) coming into the country.
• New foreign trade agreements were introduced to streamline international commerce.
• The Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 was amended to reduce restrictions.
• Deregulation took place, meaning many government controls and licenses were removed.

🎯 Exam Tip: When listing highlights of LPG, ensure you include aspects related to trade, investment, regulation, and inflation control to provide a comprehensive overview.

Question 2. What are the Advantage and Disadvantages of Privatisation?
Answer:
Advantages: (RIP)

• Reduction in the economic burden of Government: When government-owned companies (PSUs) are transferred to the private sector, it reduces the financial load on the government.
• Increase in efficiency: Privatisation often leads to better efficiency because private companies are driven by profit. This encourages them to work smarter and innovate.
• Professional Management: Private ownership allows for bold management decisions because private companies often have a strong foundation and experience at the international level. This can lead to better outcomes.

🎯 Exam Tip: For advantages, focus on the reduction of government burden, increased efficiency, and benefits of professional management. The answer continues on the next page (page 15 in the source document) for disadvantages. Based on the explicit instruction to only process up to page 14, the disadvantages will not be included here.

Question 3. Explain the highlights of LPG policy.
Answer: The major features of the Liberalization, Privatization, and Globalization (LPG) policy in India include:
1. Introduction of New Foreign Trade Agreements: India started signing new agreements for trade with other countries.
2. Foreign Investment (FDI and FII): The country encouraged investments from foreign direct investors and foreign institutional investors.
3. MRTP Act, 1969 (Amended): The Monopolies and Restrictive Trade Practices Act was changed to reduce restrictions on businesses.
4. Deregulation: The government removed many rules and controls on businesses.
5. Opportunities for overseas trade: Businesses got more chances to trade goods and services with other countries.
6. Tax reforms: Changes were made to the tax system.
7. Abolition of License: The need for a license to start many new industries was removed. These policies helped open up the Indian economy and make it more competitive globally.
In simple words: The LPG policy means India made big changes to its economy. It allowed more foreign trade and investment, reduced government controls on businesses, and made it easier for new companies to start.

🎯 Exam Tip: When explaining policy highlights, list each key feature clearly and provide a brief explanation for each to show comprehensive understanding.

Question 4. Explain the concept of Privatization.
Answer: Privatization is when the government transfers the ownership of a business or industry from the public sector (government-owned) to the private sector. This can involve selling shares of government companies (Public Sector Units or PSUs) to private buyers. One main reason for privatization is often to improve efficiency and reduce losses, as government-run companies might suffer from mismanagement or political issues. For example, some PSUs like HZL, IPCL, and MUL were sold to private companies.
In simple words: Privatization is when the government sells its companies or businesses to private owners. This is often done to make the companies run better and stop losing money.

🎯 Exam Tip: Clearly define privatization as the transfer of ownership from public to private, and mention the key reasons for it, such as improving efficiency and reducing losses.

Question 5. What are the advantages of disinvestment?
Answer: Disinvestment means the government sells its assets, usually shares in Public Sector Units (PSUs). The advantages of disinvestment include:
1. It helps bring in more private capital into the economy.
2. It allows the government to sell PSUs that have been losing money.
3. It pushes companies to become more efficient and competitive to survive in the market.
4. It helps increase the overall economic activity in the country. By divesting, the government can use the funds generated for other development projects or to reduce debt.
In simple words: Disinvestment helps the government get more money from private businesses. It also helps companies that were losing money become better and makes the whole economy stronger.

🎯 Exam Tip: List the advantages of disinvestment clearly, focusing on increased capital inflow, improved efficiency, and reduced government burden, which are key terms an examiner looks for.