CHAPTER-4

POVERTY

1. Answer the following questions in a sentence each:  1 mark

1.  Define poverty.

 Poverty is a situation where people are unable to get food, clothing, housing, health facilities and education.

2.  Write the important features of poorest households.

The poorest households do not have huts and square meals a day. They suffer from starvation, illiteracy and skills.

3.  What makes the poor physically weak?

Malnutrition and poor health make the poor physically weak.

4.  What is poverty line?

Poverty line refers to the line that separates people into poor and non-poor.

In other words it refers to the level of income that makes it possible for a person to pay for basic food, clothing and shelter.  The planning commission of India estimated poverty line in terms of nutrition.   2400 calories has been set for a rural person and 2100 calories for a person living in urban area per day.

5.  What is Head count ratio?

The number of poor estimated as the proportion of people below the poverty line is known as head count ratio.

                                             The number of people living below poverty line

 Head count ratio   =        ----------------------------------------------------------------  

                                               Total population

6.  Expand MGNREGP.

Mahatma Gandhi National Rural employment Guarantee Programme.

7.  What programmes has the government adopted to help the elderly people and poor and destitute women?

National Social assistance programme by the central government gives pension to elderly people, Destitute women and widows.(Sandhya Suraksha Yojana in Karnataka)

II. Answer the following questions in four sentences each:  2 marks.

1.  What are the Types of Poverty?

 There are two kinds of poverty. They are:

1. Absolute Poverty:  refers to a situation where the consumption expenditure of an individual is insufficient to maintain a minimum acceptable level of living (Minimum cereals, pulses, milk etc.) as per the national standard.

2. Relative poverty: The section of people who have the lowest income in a country is said to be relatively poor.

2.  How are poor Categorized?

Poor people can be categorized into

1.  Chronic Poor:  are those people who are poor for a long duration.  Ex.  Casual workers and unemployed people.

2. Transient Poor: includes

a)  Churning poor who frequently move in and out of poverty.  Ex.  Small farmers and seasonal workers.

b)  Occasional poor:  are those people who are above poverty line but sometimes turn poor due to bad luck.

3. Never poor:  are those people who are non poor.

3.  Describe the vicious circle of poverty.

According to Prof. Nurkse. “It implies circular constellation of forces tending to act and react one another in such a way as to keep a poor country in a state of poverty.   Low productivity results in low income.  Low income results in Low savings. Low savings results in low investment.  Low investment results in capital deficiency. Capital deficiency results in Low productivity.
Prof. Nurkse cited an example of a poor man.  A poor man does not get enough food which makes him weak. As a result of weakness his efficiency reduces as a consequence he gets low income and thus becomes poor.”

4.  Do you think the growth oriented approach is successful in reducing poverty?

During the initial plan periods the government felt that rapid industrialization, green revolution, increased GDP and Percapita income would reduce poverty.  But this attempt did not succeeded due to rapid growth of population and lack of proper implementation of land reforms. It just increased the gap between the rich and poor.

Answer the following in 15 sentences on each: 5 marks

1.  Explain the Causes of Poverty

Poverty is a situation where people are unable to get food, clothing, housing, health facilities and education.

The Major causes of poverty are:

1. British Exploitation:  Our vast natural resources were plundered by the Britisher’s besides destroying our cottage and small scale industries.

2. Economic inequalities:  In India, few people are extremely rich and wealthy while major section of the people is poor.

3. Low resource Base:  A Large section of rural poor have small piece of land or no land.  The income from their land is insufficient. In urban areas, petty vendors, casual labourers have very low resource base which leads to poverty.

4. Unemployment:  The high degree of Unemployment and underemployment prevents the people to get their basic necessaries.

5. Rapid growth of population:  is responsible for excess supply of labour and unemployment.  Further it results in low percapita income.

6. Inflationary pressure:  Rise in the prices of essential commodities further aggravates the problem of poverty.

7. Vicious circle of poverty:  refers to a situation where low percapita income results in low savings, low capital formation, low investment, low productivity and low income. 

8. Social factors:  include Illiteracy, narrow outlook of the people, ignorance superstious beliefs, etc

2.  Explain the Policies and Programmes towards Poverty Alleviation

The government’s approach to poverty has three dimensions:

1. Growth oriented approach:  During the initial plan periods the government felt that rapid industrialization, green revolution, increased GDP and Percapita income would reduce poverty.  But this attempt did not succeeded due to rapid growth of population and lack of proper implementation of land reforms. It just increased the gap between the rich and poor.

2. Income and employment generation approach: This approach was started during the third five year plan and continued till date with specific poverty alleviation and wage employment programmes.

a) Self employment programmes:  include Swarnajayanthi Grama Swarozgar Yojana-It is implemented through Self help groups providing financial assistance for self employment.

b) Swarna Jayanthi Shahari Rozgar Yojana and Pradhanana Manthri Rozgar yojana provide financial assistance through banks to set up small industries.

c) Wage employment programmes:  include

i) National food for work programme

ii) Sampoorna Grameena Rozgar yojana

iii) Mahatma Gandhi National Rural employment Guarantee programme( provides guaranteed wage employment to every adult person unskilled manual work for 100 days in a year).

3. Providing minimum basic needs to the people: This approach tackles poverty by providing minimum basic amenities to the people.

The major programmes include:

I.  Public Distribution System, Integrated Child Development Scheme and Mid-day meals aimed to improve the food and nutritional status of the poor.

II. Pradhana Manthri Gram Sadak Yojana and Pradhana  Manthri Gramodaya Yojana aimed to provide basic infrastructure in rural areas.

III. Indira Awas Yojana, Valmiki Ambedkar Awas Yojana and Basava Vasathi Yojana in Karnataka to provide shelter to the poor.

IV. Social security Measures:  National Social assistance programme by the central government gives pension to elderly people, Destitute women and widows.(Sandhya Suraksha Yojana in Karnataka)

V. Aam Aadmi Bima Yojana provides insurance to the head of the family of landless rural people.

Yashaswini Yojana provides health insurance to rural poor in Karnataka.

Bhagya Lakshmi Yojana provides financial support to the female child born in a poor family

3.  Critically examine the Poverty Alleviation programmes.

Since Independence, Poverty Alleviation programmes have had limited success in bringing changes in ownership of assets and improvement of basic amenities to the poor people.  The following reasons are stated by Some Scholars.

1.  Inequality in the distribution of land and other assets.

2. Non poor are receiving the benefits instead of Poor people.

3. Insufficient resources

4. Ill motivated, inadequately trained and corruption prone Government and bank officials in charge of implementing these programmes.

5. Lack of participation by the poor and local level institutions.

Statistics for Economics Chapter 4

Presentation of Data

Exercise : Solutions of Questions on Page Number : 56

Q1 :

Bar diagram is a

(i)             one-dimensional diagram

(ii)          two-dimensional diagram

(iii)       diagram with no dimension

(iv)        none of the above

Answer :

Bar diagrams are One-dimensional diagrams. These are represented on a plane of two axis and depicts the relationship between the two variables (plotted on the either axis) in form of rectangular bars.

Q2 :

Data represented through a histogram can help in finding graphically the

(i)             mean

(ii)          mode

(iii)       median

(iv)        all the above

Answer :

Graphically mode can be determined by presenting the data in the form of Histogram. The highest Histogram indicates the modal class. The intersection point of the lines diagonally joining the two top corners of the modal rectangles to the corners of the adjacent Histograms indicates the Modal Value.

Q3 :

Ogives can be helpful in locating graphically the

(i)             mode

(ii)          mean

(iii)       median

(iv)        none of the above

Answer :

Graphically, Median can be determined by the intersection point of Less than Ogive and More than Ogive. The value of x-axis corresponding to the intersection point indicates the median.

Q4 :

Data represented through arithmetic line graph help in understanding

(i)             long-term trend

(ii)          cyclicity in data

(iii)       seasonality in data

(iv)        all the above

Answer :

Data represented through arithmetic line graph (or time series graph) helps in understanding the long-term trend and periodicity.

Q5 :

Width of bars in a bar diagram need not be equal (True/False).

Answer :

The above statement is false as all bars in a bar diagram need to be of equal width. Moreover, all bars are at equal distance from each other.

Q6 :

Width of rectangles in a histogram should essentially be equal (True/False).

Answer :

The above statement is false, as the width of all rectangles in a histogram may or may not be equal. The width of a rectangle depends on the width of its corresponding class interval.

Q7 :

Histogram can only be formed with continuous classification of data (True/False).

Answer :

Yes, a Histogram can only be formed with the continuous classification of data. The frequency distribution of a continuous series is graphically presented in form of a Histogram. If the given data is not continuous, then it is to be converted into exclusive series before presenting the data in the form of Histogram. Histograms can never be prepared for discrete series.

Q8 :

Histogram and column diagram are the same method of presentation of data (True/False).

Answer :

The above statement is false. This is because Histogram and column diagram are different method of presentation. While the Histogram is a Two-dimensional diagram, the bar diagram is a One-dimensional diagram. Histograms are prepared for the continuous series, whereas the bar diagrams are prepared for the discrete series. Further, Histograms are drawn continuously without any space between two consecutive Histograms, whereas the space is must between two bars in a bar diagram.

Q9 :

Mode of a frequency distribution can be known graphically with the help of histogram (True/False).

Answer :

The above statement is true. Graphically, mode can be determined by presenting the data in the form of Histogram. The highest Histogram indicates the modal class. The intersection point of the lines diagonally joining the two top corners of the modal rectangles to the corners of the adjacent Histograms indicates the Modal Value.

Q10 :

Median of a frequency distribution cannot be known from the ogives (True/False).

Answer :

The statement is false. Graphically Ogives can be determined by the intersection point of the less than Ogive and more than Ogive.

The value of x-axis corresponding to the intersection point indicates the median.

Q11 :

What kinds of diagrams are more effective in representing the following?

(i)         Monthly rainfall in a year

(ii)      Composition of the population of Delhi by religion

(iii)   Components of cost in a factory

Answer :

(i)           The monthly rainfall in a year can be best represented by a bar diagram as only one variable i.e. monthly rainfall is to be compared visually. The highest bar diagram indicates the highest rainfall in the corresponding month that is plotted on the x-axis.

(ii)        Composition of the population of Delhi by religion can be represented by a simple bar diagram. Plotting different religion on the x-axis and the number of people on the y-axis, one can easily compare the number of the population religion-wise..

(iii)      In order to represent different components of cost in a factory, a pie chart is more effective. The entire circle represents the total cost and various components of costsare shown by different portions of the circle.

Q12 :

Suppose you want to emphasise the increase in the share of urban non-workers and lower level of urbanisation in India as shown in Example 4.2. How would you do it in the tabular form?

Answer :

 Share of Rural and Urban Non-workers in India

Non-workers in	Non-workers in Rural		Total Non-workers
Urban			Population
	(2)		(3) = (1) + (2)
(1)
19,31,38,837	42,96,00,032		62,27,38,869

Source: Census of India, 2001

We can infer from the above table that the absolute number of the rural non-workers is greater than the absolute number of the urban non-workers. The higher ( lower) share of the rural non-workers (urban non-workers) reveals lower degree of urbanisation in India.

NOTE: As there is no Example 4.2 in the book, so the following data have been adapted from Census of India, 2001.

Q13 :

How does the procedure of drawing a histogram differ when class intervals are unequal in comparison to equal class intervals in a frequency table?

Answer :

A Histogram of equal class intervals has equal width of all rectangles indicating the same class intervals. In contrast, a Histogram of unequal class intervals has rectangles of varying width as per their corresponding class intervals. Before constructing a Histogram, frequencies of unequal class intervals are to be adjusted. The adjustment factor of each class is calculated with the following formula.

And the adjusted frequency will be calculated by dividing the original frequency by adjustment factor.

Indian Economic Development Chapter 3

Unit II- Liberalisation, Privatisation and Globalisation

1.  Why were reforms introduced in India?

Since independence India followed mixed economic system. 

a)  It adopted centralized planning system,

b)  State interference in market,

 c)  Expansion of public sector and restriction of private sector,

d)  Protectionist policy in foreign trade etc

Over the years the above mentioned policies hindered economic growth and resulted in economic crisis.

In 1991 India was experiencing huge fiscal deficits, large balance of payment deficits, high inflation level and an acute fall in the foreign exchange reserves.

 Moreover, the gulf crisis of 1990-91 led to an acute rise in the prices of fuel which further pushed up the inflation level.

 Because of the combined effect of all these factors, economic reforms became inevitable and were the only way to move Indian economy out of this crisis.

2.  Why is it necessary to become a member of WTO?

It is important for any country to become a member of WTO (World Trade Organisation) for the following reasons:

*WTO provides equal opportunities to all its member countries to trade in the international market.

*It enables its member countries to produce on large scale to cater to the needs of people across the international boundaries. This provides ample scope to utilise world resources optimally and expands its market .

*It advocates for the removal of tariff and non-tariff barriers, thereby, promoting healthy and fair competition among different producers of different countries.

*The countries of similar economic conditions being members of WTO can raise their voice to safeguards their common interests.

3.  Why did RBI have to change its role from controller to facilitator of financial sector in India

Prior to liberalisation, RBI used to regulate and control the financial sector (financial institutions like commercial banks, investment banks, stock exchange operations and foreign exchange market). With the economic liberalisation and financial sector reforms, RBI shifted its role from a controller to facilitator of the financial sector so that the financial institutions were free to make their own decisions on many matters without consulting the RBI. The main objective behind the financial reforms was to encourage private sector participation, increase competition and allowing market forces to operate in the financial sector.

4.  How is RBI controlling the commercial banks?

RBI controls the commercial banks through 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. The rates that are fixed by RBI are mandatory for all the commercial banks to follow.   All these measures control the commercials banks' operations and also control money supply in Indian economy.

5.  What do you understand by devaluation of rupee?

Devaluation implies deliberate official lowering of the value of the country's currency with respect to the foreign currency.

This implies that value of rupee has fallen and the value of foreign currency has risen. It means after devaluation one US$ can be exchanged for more rupees.

This encourages exports and discourages imports as the former is cheaper now for foreign countries and the latter is expensive for Indians.

6.  Distinguish between the following

(i)             Strategic and Minority sale

(ii)          Bilateral and Multi-lateral trade

(iii)       Tariff and Non-tariff barriers.

Strategic sale refers to the sale of 51% or more stake of a PSU to the private

sector to the highest bidder  while minority sale refers to the sale of less than

49% stake of a PSU to the private sector.

Under strategic sale, the ownership of PSU is handed over to the Private sector while under minority sale the ownership remains with the government.

Trade agreement between two countries is known as bilateral trade

Trade agreement between more than two countries is known as multilateral trade.

Bilateral trade provides equal opportunities to both the countries where as Multilateral trade provides equal opportunities to all the member countries.

Tariff Barriers refers to the tax imposed on imports by a country to protect its domestic industries where as restrictions other than taxes imposed such as quotas and licenses are called Non-tariff barriers.

Tariffs includes custom duties and it is imposed on the value of goods while Non –tariff barriers is imposed on the quantity and quality of the goods imported.

7.  Why are tariffs imposed?

*Tariffs are imposed to make imports from foreign countries relatively expensive than domestic goods and it discourages imports indirectly.

*These are imposed to protect the infant domestic firms from foreign competition.

*Tariffs facilitate the domestic firms to survive and grow.

*Tariffs are also imposed on socially unwanted goods which will be a burden on the scarce foreign exchange reserves.

8.  What is the meaning of quantitative restrictions?

Quantitative Restrictions (QRs) refer to the restrictions in the form of quotas on the amount of commodities that can either be imported or exported. QRs usually on imports are imposed to discourage imports of foreign goods and to reduce Balance of Payment (BOP) deficits. The imposition of QRs protects and enables the domestic firms to survive, grow and expand in a protective and lesser competitive environment.

9.  Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why?

A loss making PSUs should be privatized since it exerts unnecessary burden on the government's scarce revenues and further may lead to budget deficit but It is not advisable to privatise a profit making PSU. 

Privatising a PSU may lead to concentration of monopoly power in the private hands.

Further some of the PSUs like, water, railways, etc. enhance the welfare of nation and is meant to serve general public at a very nominal cost.  Privatisation of such important PSUs will lead to loss of welfare of poor people.

Instead of privatisation of profit-making PSUs, government can allow more degree of autonomy and accountability in their operations, which will  increase their productivity, efficiency  and enhance their competitiveness .

10.  Do you think outsourcing is good for India? Why are developed countries opposing it?

Yes, outsourcing is good for India. The following points suggest that outsourcing is good for India.

1.   It leads to generation of newer and higher paying jobs.

2.    Outsourcing enables the exchange of ideas and technical know-how of sophisticated and advanced technology from developed to developing countries.

3.   Outsourcing earns foreign exchange to India .  It also enhances India's international worthiness credibility which increases the inflow of investment to India.

4.   Outsourcing not only benefits the service sector but also helps other related sectors like industrial and agricultural sector.

5.    Outsourcing helps in the development and formation of human capital by training

6.   By creating more and higher paying jobs, outsourcing improves the standard and quality of living of the people in the developing countries. It also helps in reducing poverty.

Demerits to the Developed countries:

Outsourcing leads to the outflow of investments and funds from the developed countries to the less developed countries.

MNCs contribute more to the development of the host country than the home country.

outsourcing reduces the employment generation in the developed countries as the same jobs can be done in the less developed countries at relatively cheap wages. Moreover, this leads to job insecurity in the developed countries as at a point of time jobs can be outsourced to the developing countries.

11.  India has certain advantages which make it a favourite outsourcing 

destination. What are these advantages?

The following points qualify India to be the favourite spot for outsourcing by various MNCs.

1.      Easy Availability of Cheap Labour.

2.     Indians have fairly reasonable degree of skills and techniques that need low training period and, thus, low cost of training.

3.     India has a fair international worthiness and also credibility. This enhances the faith of the foreign investors in India..

4.    The democratic political environment in India provides a stable and secured environment to the MNCs to expand and grow.

5.   MNCs gets various types of lucrative offers from the Indian government like tax holidays, low rate of tax, easy tax policies, etc. All these policies enable the MNCs to retain a major portion of their earnings in the form of savings that they can invest to grow and expand their business.

6. Indian government has invested heavily in the past two decades in the infrastructural sector. Various steps have been taken for connecting remote and rural areas to the metropolitan and other major cities. This has not only reduced the cost of production of the MNCs but also helped them operate efficiently and effectively.

12 .  Do you think the navaratna policy of the government helps in improving the performance of public sector undertakings in India?

How?

To improve efficiency, infuse professionalism and to enable PSUs to compete effectively in the market, government awarded the status of 'navaratnas' to the following nine PSUs:

1)               Indian Oil Corporation Ltd (IOCL)

2)               Bharat Petroleum Corporation Ltd (BPCL)

3)               Hindustan Petroleum Corporation Ltd (HPCL)

4)               Oil and Natural Gas Corporation Ltd (ONGC)

5)               Steel Authority of India Ltd (SAIL)

6)               India Petro-chemicals Corporations Ltd (IPCL)

7)               Bharat Heavy Electricals Ltd (BHEL)

8)               National Thermal Power Corporation (NTPC)

9)               Videsh Sanchar Nigam Ltd (VSNL)

These corporations were granted a greater degree of financial, managerial and operational autonomy.

This boosted their efficiency and effectiveness. They also became highly competitive and some of them are becoming the giant global players. Consequent to their better performance, government retained them under public sector and enabled them to grow themselves not only in the domestic market but also in the international market.

These corporations are self-reliant and financially self-sufficient. Thus, the navaratnapolicy has certainly improved the performance of these PSUs.

13.  What are the major factors responsible for the high growth of the service sector?

The major factors that led to the growth of service sectors in India are as follows;

1.  business outsourcing from the developed countries to India resulted in very high demand for  services especially for banking, computer service, advertisement and communication which led to a high growth rate of service sector.

2.  The liberalisation and various economic reforms that were initiated in 1991  led to huge inflow of foreign capital, foreign direct investments and outsourcing to India. This encouraged the service sector growth.

3.   Due to structural transformation (shift of economic dependence from primary to tertiary sector), there was increased demand of services by other sectors which  boosted the service sector.

4.  The advancements and innovations in the IT sector enabled the use of internet, telecommunication, mobile phone and electronic transactions across different countries. All these contributed to the growth of the service sector in India.

5.  Low tariff and non-tariff barriers on imports by India are also responsible for high growth rate of service sector. .

6.  Due to the availability of cheap labour and reasonable degree of skilled man power in India, developed countries found outsourcing to India feasible and profitable. This led to the growth of service sector.

14 . Agriculture sector appears to be adversely affected by the reform process. Why?

The economic reforms of 1991 did not benefit the agricultural sector significantly. The following are the reasons that explain the adverse effects of the economic reforms on India's agriculture sector:

a)  The removal of fertilizer subsidy resulted in rise in the cost of production which affected the small and marginal farmers.

b)  Reduction in import duties as well as lifting of quantitative restrictions on agricultural produce affected the Indian farmers.

c)  Export policy in agriculture encouraged the farmers to grow cash crops which have led to rise in prices of food grains.

15.  Why has the industrial sector performed poorly in the reform period?

a) On account of cheaper imports the demand for domestic industrial products fell.

b)  Globalization affected domestic industries and employment.

c)  Several SSI had to be closed.

16 .  Discuss economic reforms in India in the light of social justice and welfare.

*The economic reforms have enabled India to access and compete in the international markets.

*The increased inflows of foreign capital and investment to India have eliminated the shortage of foreign exchange to finance the imports of sophisticated and advanced technologies to India.

*Moreover, the boom in the outsourcing and the service sector led India's economic growth and GDP to increase by many folds.  But on the other side, *agriculture that employed a significant proportion of population, failed to be benefited by these economic reforms.

*The reforms favoured the high income group population at the cost of their poor counterparts. This resulted in wide and still increasing economic and social inequalities among different section of population.

*The economic reforms developed the areas that were well connected with the metropolitan cities leaving the remote and rural area undeveloped. Consequently, there were wide regional disparities.

*The boom in the service sector, especially in the form of quality education, superior health care facilities, IT, tourism, multiplex cinemas, etc. were out of the reach of the poor section of the population.

Thus, it can be concluded that the economic reforms failed to provide social justice and enhance welfare of the general public of India.

 Extra questions 

1. Answer the following questions in a sentence each:  1 mark

1.  What do you mean by economic reform?

Economic reforms refer to the changes in the economic policies introduced by the Indian government since 1991 to improve the economy of the country.

2.  What is meant by liberalization?

Liberalization refers to the removal of government’s control and restrictions on economic activities.  It implies allowing greater freedom to economic agents.

3.  State the meaning of devaluation of rupee.

Deliberate and official reduction in the external value of a currency

4.  What is Globalization?

Globalization means opening the economy of a country to the world market or greater integration between economies of the world.

5.  Who controls the financial sector?

The Reserve bank of India.

6.  Why are tariffs imposed?

Tariffs are imposed to protect the local industries as well as to earn revenue.

7.  Expand GATT.

General Agreement on Tariffs and Trade.  It came into existence in 1948.

8.  Give an example of direct tax.

Income tax, corporation tax, wealth tax, profession tax, capital gains tax.

9. Expand WTO

World Trade Organization.  It came into existence on 1^st January1995.

10. Define outsourcing.

Outsourcing refers to the practice of having certain job functions done outside a company or in other words a company hires a service from external sources.

11. Define privatization.

Privatization refers to transfer of ownership of public enterprises to private people. 

12. Expand LPG

Liberalization, Privatization, Globalization.

13, Define a multi-national corporation

A company or a corporation which functions and operates in many nations is called a multi-national corporation.

14.  Define direct tax

Direct taxes are those which are directly paid to the government by the tax payer.

15.  Define indirect tax

Indirect taxes are collected indirectly from consumers by the government through intermediaries.

16. Define a Tax.

Tax is a compulsory contribution made by every citizen of a country without expecting any direct benefit for the amount paid.

17.  Give examples of indirect taxes.

Central Sales Tax, GST( Goods and services Tax), Service Tax, STT (Security Transaction Tax), Excise Duty, Custom Duty.

II. Answer the following questions in four sentences each:  4 marks.

1.  What are the major reforms of financial sector?

a) The main aim was to reduce the role of RBI from a regulator to facilitator of financial sector.

b) Banks were given freedom to fix their own interest rates, to open new branches as well as to raise funds within the country and abroad.

c) New private banks and foreign banks were allowed to function.

d) Foreign investment limit in banks was increased to 50%

e) Foreign institutional Investors are allowed to invest in Indian financial markets.

2.  Why did the government remove trade barriers?

The government removed trade barriers since it felt that competition would improve the quality of the goods within the country.

3.  Do you think FDI is necessary for India? Why?

Some scholars argue that FDI is necessary since it brings capital, technical expertise and access to foreign markets.  Others feel that FDI destroys local industries.

4.  What do you mean by Structural adjustment programmes?  Name any two of them.

Programmes which bring structural change in the economy to improve its productivity are called Structural adjustment programmes.  Example:  Industrial sector reforms, trade reforms, public sector reforms and so on.   These are micro in nature which affects only the concerned sectors.

5. Agricultural sector appears to be adversely affected by the reform process why?

a)  The removal of fertilizer subsidy resulted in rise in the cost of production which affected the small and marginal farmers.

b)  Reduction in import duties as well as lifting of quantitative restrictions on agricultural produce affected the Indian farmers.

c)  Export policy in agriculture encouraged the farmers to grow cash crops which have led to rise in prices of food grains.

III. Answer the following questions in about 15 sentences each:  6marks

1. Explain the background of economic reforms in India.

a) During 1980’s the government’s expenditure exceeded its revenue. 

b) The revenue was spent to meet the problems like poverty, unemployment and rapid growth of population.

c) The development programmes did not result in revenue generation

d) Profit from public sector was insufficient.

e) This forced the government to borrow from Public banks and International financial institutions.

f) At times external borrowing was spent on consumption.

g) Our imports could not be reduced and exports could not be increased.

h) Inflation increased and foreign exchange reserves decreased.

i) India approached the World Bank and IMF for a loan.

j) India received $7 billion to manage the crisis with a direction to liberalize and open the economy.

k) The then Prime minister, Sri P.V. Narasimha Rao along with Finance Minister Dr. Man Mohan Singh formulated a package of economic reforms called “The New economic policy” which was announced in July 1991.

2.  Explain the liberalization measures introduced since 1991.

Liberalization refers to the removal of government’s control and restrictions on economic activities.  It implies allowing greater freedom to economic agents.

The important areas where liberalization measures were introduced during and after 1991 are as follows:

1.  Deregulation of Industrial sector:

a) Industrial licensing was abolished for all industries except for few industries related to security, strategic and environmental concerns.

b)  The number of industries reserved for the public sector has been reduced from 17 to 2(atomic energy and railway transport)

c) Goods meant to be produced by the small scale industries were de -reserved.

2.  Financial Sector reforms:

a) The main aim was to reduce the role of RBI from a regulator to facilitator of financial sector.

b) Banks were given freedom to fix their own interest rates, to open new branches as well as to raise funds within the country and abroad.

c) New private banks and foreign banks were allowed to function.

d) Foreign investment limit in banks was increased to 50%

e) Foreign institutional Investors are allowed to invest in Indian financial markets.

3.  Tax Reforms include reforms in taxation and public expenditure policy:

a) Since 1991 the rates of individual income tax have been greatly reduced.

b)  The rate of corporation tax has been slowly reduced.

c) Many tax procedures have been simplified.

d) VAT has replaced sales tax.

4.  Foreign exchange reforms: 

a) To solve the balance of payments crisis, the rupee was devalued against foreign currencies in 1991.As a result exports increased with a inflow of foreign exchange.

b) Exchange rate of rupee is allowed to be determined by demand and supply of foreign currencies in the foreign exchange market.

5.  Reforms in Trade and investment:

a)  Since 1991 the government removed trade barriers and liberalized foreign trade and investment.

b) All quantitative restrictions on exports and imports have been reduced.

c) Tariff rates have been reduced.

d) Import licensing has been abolished

e) Export restrictions have been liberalized.

3.  Write a short note on outsourcing.

a) Outsourcing refers to the practice of having certain job functions done outside a company or in other words a company hires a service from external sources.

b) Out sourcing has increased with the growth of Information technology.

c) Many services such as voiced based business process, record –keeping, accountancy, music recording, teaching, banking services etc are being outsourced to India by companies in Developed countries due to lower cost, better skill and accuracy.

d) The availability of skilled manpower at lower wages has made India a desired destination for global outsourcing.

4.  Analyze the performance of the economy during the reform period.

Let us assess the performance of the economy during two decades:

a)  The growth rate of GDP increased from 5.6% during 1980-81 to 7.92% during 2007 -12.

b)  The growth of agricultural sector declined, industrial sector fluctuated and service sector increased.

c) Foreign investment and foreign exchange reserves increased.

d)  Export of auto parts, engineering goods IT software and textiles increased sharply.

e)  Employment opportunities increased for the skilled personnel and unskilled could not get better jobs.

f)  The removal of fertilizer subsidy resulted in rise in the cost of production which affected the small and marginal farmers.

g)  Reduction in import duties as well as lifting of quantitative restrictions on agricultural produce affected the Indian farmers.

h)  Export policy in agriculture encouraged the farmers to grow cash crops which have led to rise in prices of food grains.

i)  On account of cheaper imports the demand for domestic industrial products fell.

j)  Globalization affected domestic industries and employment.  Several SSI had to be closed.

k)  The government policy of disinvestment has been criticized in view of undervalue of the shares sold to the private sector.  Further the proceeds are used to cover the deficit in the revenue and not for development purposes.

l)  Tax and tariff reductions have reduced the revenue of the government substantially affecting the development and welfare expenditure.

5.  What are the objectives of WTO?

World Trade Organization came into existence on 1^st January1995.

The Objectives of WTO are:

1. To reduce Tariffs and other barriers to trade.

2. To eliminate discriminatory treatment in international trade.

3. To facilitate higher standards of living, full employment and increase in production and trade in goods and services.

4. To ensure that least developed countries secure level of share in the growth of international trade.

5.  Optimal use of the world’s resources for sustainable development.

6. To ensure that linkages trade policies, environmental policies with sustainable growth and development are taken care by the member countries.

6.  Write a note on privatization.

Privatization refers to transfer of ownership of public enterprises to private people.  It is done with the following objectives:

a) To improve the productive efficiency

b) To facilitate Modernization

c) To improve the performance

d) To earn more profit.

e) To attract FDI.

Some scholars argue that loss making public sector units can earn profit when privatized.  While others feel that there would be no job security and it would concentrate just on profit rather than social justice.