If you are a Class XII student searching for high-quality AHSEC Class 12 Economics Chapter 7 Economic Reforms Since 1991 notes to improve your exam performance, then this Ready Guide is for you. It includes all the important question-answers prepared by a team of experts. Our language is very easy to understand and remember. Begin your study journey with us for a bright future.
Class 12 Economics Chapter 7 Economic Reforms Since 1991
Selected Questions & Answers
A. Very Short Answer Questions: (Marks for each – 1)
1. What is meant by globalization?
Ans: Globalization means the integration of a country’s domestic economy with the world economy.
2. In which year did India face a serious problem regarding external debt?
Ans: In the year 1991.
3. What is meant by liberalization?
Ans: Liberalization means removing government controls and licensing requirements in the fields of trade, commerce, and industrial establishment in order to create a competitive environment.
4. What was the main cause of the economic crisis in India during the eighties?
Ans: Inefficient management.
5. What is meant by privatization?
Ans: Privatization refers to the process of transferring public or government enterprises to the private sector.
6. In 1996, how many public sector enterprises were selected by the government and declared as “Navratna”?
Ans: 9.
7. In which year was the World Trade Organization formed?
Ans: In the year 1995.
8. What was the growth rate of Gross Domestic Product during the Tenth Five Year Plan?
Ans: 8 percent.
9. What is the name of the first member country of the World Trade Organization?
Ans: Tonga.
10. How many member countries are there in the World Trade Organization?
Ans: 164.
11. What is India’s position in the world in terms of accumulation of foreign exchange reserves?
Ans: Sixth.
12. During the period of restructuring, did the growth of agriculture and industry increase?
Ans: No, it declined.
13. What is the objective of the World Trade Organization?
Ans: To ensure maximum utilization of global resources and to establish a rule-based international trading system.
14. What is an important function of the Reserve Bank of India?
Ans: To regulate and control the financial sector of India.
15. Why are tariffs imposed?
Ans: Tariffs are imposed to protect domestic industries.
16. In which year did India adopt economic reforms?
Ans: In the year 1991.
17. What is the name of the central bank of the United States?
Ans: Federal Reserve System.
18. In the nineties, how much loan was provided to India by the World Bank and the International Monetary Fund to help it overcome the economic crisis?
Ans: 7 billion dollars.
19. When did the Gulf Crisis arise?
Ans: In 1990–91.
20. What is the investment limit of a small-scale industry?
Ans: 1 crore.
Note: The definition and investment limits of small industries in India have changed in recent years under MSME classifications.
21. Where is the headquarters of the WTO?
Ans: Geneva.
22. Write the name of a nationalized bank of India.
Ans: State Bank of India.
23. By whom are the banks and financial institutions of India regulated?
Ans: By the Reserve Bank of India.
24. What is meant by tax restructuring?
Ans: Tax restructuring refers to the reorganization of government taxation and public expenditure. It is collectively known as fiscal policy strategy.
25. What measure was taken in 1991 to remove the balance of payments crisis in India?
Ans: The Indian currency was devalued against foreign currencies.
26. Mention an important cause of tax evasion.
Ans: High rates of income tax.
27. What is a direct tax?
Ans: A direct tax is one whose burden must be borne by the same person on whom it is imposed.
28. How can public sector companies be privatized?
Ans: Public sector companies can be privatized in two ways. First, by selling them to an individual or private institution. Second, by withdrawing the government from ownership and management of those companies.
29. What is meant by outsourcing?
Ans: Outsourcing generally refers to the practice where a company regularly hires services from external sources or from foreign countries.
B. Short Question–Answers: (Marks for each – 2)
1. What is meant by the devaluation of currency?
Ans: Devaluation of currency means the reduction in the value of a country’s currency in relation to foreign currencies. Devaluation of currency helps to increase exports. As a result of devaluation, comparatively less foreign currency has to be paid for exported goods.
2. Distinguish between strategic sale and disinvestment.
Ans: Strategic sale is related to the long-term transfer of ownership and management. On the other hand, disinvestment is related to the short-term reduction of government shareholding. Disinvestment is more flexible compared to a strategic sale.
3. Why are tariffs imposed?
Ans: Tariffs are generally imposed as a barrier to foreign trade. Through tariffs, the government earns revenue from imported goods. When tariffs are imposed, the prices of foreign goods become comparatively higher than domestic goods. As a result, the market for domestic goods remains protected. In short, tariffs protect domestic trade.
4. Distinguish between bilateral trade and multilateral trade.
Ans: Trade that takes place between two countries is called bilateral trade. whereas trade that occurs among more than two countries is called multilateral trade.
5. Do you think that public sector enterprises which are earning profits should be privatized?
Ans: Yes, public sector enterprises that are earning profits should be privatized. Because privatization can make enterprises more self-reliant, increase production, and make them more competitive.
6. What is meant by quantitative restrictions?
Ans: In the case of quantitative restrictions, the government fixes themaximum limit of imports and exports. As a result, the volume of trade remains limited. Quantitative restrictions are imposed on the quantity of goods.
7. Distinguish between tariff and non-tariff barriers.
Ans: A tariff refers to the tax imposed on imports. On the other hand, nontariff barriers refer to restrictions other than taxes that are imposed on the import and export of goods in international trade.
C. Medium Length Questions &Answers: (Marks for each – 4)
1. Present arguments in favour of the New Economic Policy.
Ans: The Government of India adopted the New Economic Policy in 1991. The following arguments can be presented in favour of this policy.
(a) It increases the rate of economic growth.
(b) It creates competition in the industrial sector.
(c) It helps in controlling prices.
(d) It reduces fiscal deficit.
(e) It increases investment.
2. Present arguments against the New Economic Policy.
Ans: The Government of India adopted the New Economic Policy in 1991. The following arguments can be presented against this policy.
(a) The New Economic Policy gives less importance to agriculture.
(b) Foreign technology and investment have increased.
(c) The industrial sector has not received adequate importance.
(d) Dependence on foreign loans has increased.
(e) The pressure of the International Monetary Fund and the World Bank has increased.
3. Why are tariffs imposed?
Ans: Tariff is the tax imposed by the government on imported goods. The main reasons for imposing tariffs are:
(a) It increases government revenue.
(b) It increases domestic employment.
(c) It protects domestic goods from foreign competition and supports their development.
4. What are the objectives of restructuring the trade policy?
Ans: The objectives of restructuring the trade policy are:
(a) To remove barriers in the field of imports and exports.
(b) To reduce the rate of trade tariffs.
(c) To abolish the licensing system in imports.
5. Which industries were not deregulated under the New Economic Policy introduced in 1991?
Ans: In the New Economic Policy of 1991, deregulation was not removed from the following industries:
(a) Tobacco
(b) Liquor
(c) Electronics
(d) Hazardous chemicals harmful to health
(e) Industries producing pharmaceutical products
6. What are the Navaratna companies?
Ans: The Navaratna companies are:
(a) Bharat Petroleum Corporation Limited
(b) Indian Oil Corporation Limited
(c) Hindustan Petroleum Corporation Limited
(d) Oil and Natural Gas Corporation Limited
(e) Videsh Sanchar Nigam Limited
(f) National Thermal Power Corporation Limited
(g) Bharat Heavy Electricals Limited
(h) Indian Petrochemicals Corporation Limited
(i) Steel Authority of India Limited
D. Essay Type Questions and Answers (Marks for each – 6)
1. Mention the advantages and disadvantages of globalisation.
Ans: The advantages of globalisation are as follows:
(a) Due to globalisation, multinational companies enter developing countries, which leads to the development of technical skills.
(b) It encourages foreign direct investment.
(c) Due to competition, the quality of produced goods improves.
(d) Production increases, which improves the standard of living of the people.
(e) Globalisation brings foreign capital into the concerned countries, which increases international liquidity. Along with its advantages, globalisation also has some disadvantages. These are:
(a) Globalisation creates competition at the international level. As a result, Weaker business organisations suffer difficulties.
(b) Due to the use of advanced technology, unemployment problems may arise.
(c) Developed countries are able to invest more, which may harm the interests of poorer countries.
2. Discuss the steps taken in the Indian economy for privatisation.
Ans: Privatisation means transferring public sector industrial units into private ownership. The following steps have been taken in India for privatisation:
(a) The number of industries reserved for the public sector has been reduced from 17 to 8.
(b) The total volume of investment in the private sector has been increased.
(c) Formal financial assistance has been provided to the private sector to increase production in public sector enterprises.
3. Mention the steps taken in the Indian economy to promote globalisation.
Ans: The following steps have been taken in the Indian economy to promote globalisation:
(a) Automatic approval has been granted for agreements involving foreign technology up to one crore rupees in high-technology industries.
(b) Foreign direct investment has been allowed up to 51 percent equity participation.
(c) The Indian currency has been devalued to facilitate international transactions.
(d) Partial convertibility of the rupee has been introduced.
(e) Market forces have been strengthened by removing restrictions and controls in foreign trade.
(f) Foreign trade has been liberalised through the foreign trade policy.
4. Discuss the policies of the new economic reforms introduced in the Indian economy.
Ans: In 1991, new economic reform policies were introduced in India. The main aspects of these policies are:
(a) Liberalisation: The main aspect of the new economic policy is liberalisation. Through liberalisation, trade and industry have been freed from government control.
(b) Privatisation: According to this policy, public sector enterprises are transferred to private ownership.
(c) Globalisation: Under this policy, the economy of the country has been opened to the global market in order to achieve international competitiveness.
(d) New public sector policy: This policy changed the public sector policy by giving greater importance to the private sector. The number of industries reserved for the public sector has been reduced from 17 to 8.
(e) Modernisation: Emphasis has been given to the adoption of modern production methods.
(f) Financial reforms: These include reforms such as free determination of interest rates, reduction in liquidity ratio, and granting greater autonomy to banks.
5. What is disinvestment? Mention the objectives of disinvestment.
Ans: Disinvestment means selling a certain portion of the shares of public sector enterprises to small investors, mutual funds, and other individuals. The main objectives of disinvestment are:
(a) To pay the salaries and outstanding dues of employees who voluntarily retire from public sector enterprises.
(b) To provide necessary training for the rehabilitation of employees who are displaced from these enterprises.
(c) To take measures for reviving public sector enterprises.
(d) To increase the accountability of shareholders, improve the efficiency of the enterprise, and strengthen its financial condition.
6. Discuss the Industrial Policy adopted by the Government of India in 1991.
Ans: In 1991, the Government of India, under the leadership of P. V. Narasimha Rao, announced a new Industrial Policy. It was a liberal industrial policy. The main objective of this policy was to free the Indian industrial economy from bureaucratic control and to introduce a liberal economic system. The major provisions of this policy were as follows:
(a) Industrial licensing was abolished for all industries except a few specified ones.
(b) The number of industries reserved for the public sector was reduced from 17 to 8.
(c) Any enterprise having assets above the prescribed limit under the Monopolies and Restrictive Trade Practices Act was classified as an MRTP enterprise.
7. Discuss the role of cottage and small-scale industries in the economic development of India.
Ans: Cottage and small-scale industries play a very important role in the economic development of India. Up to 1965, about 32.5 percent of India’s total labour force was employed in small-scale industries. Their role in the Indian economy is discussed below:
(a) Employment generation: Compared to large industries, cottage and small-scale industries generate more employment opportunities. In 1951, about 20 million people were employed in small-scale industries. In 1980, around seven million people were employed in about eight lakh small-scale industries in India.
(b) Industrial decentralisation and removal of regional imbalance: Small-scale industries help reduce regional disparities by promoting decentralisation of industries.
(c) Proper utilisation of idle resources: Idle and neglected resources such as hidden savings, unused capital, and local raw materials, are utilised through small-scale industries.
(d) Contribution to national income: Cottage and small-scale industries contribute significantly to national income. The production value increased from 4050 crore rupees in 1971 to 11,000 crore rupees in 1980.
(e) Growth of exports: Goods produced in cottage and small-scale industries are exported abroad, earning foreign exchange for India. In 1981, Their export value was about 1,000 crore rupees.
8. Discuss the problems faced by the industrial development of India.
Ans: The obstacles to industrial development in India are as follows:
(a) Lack of capital: One of the main reasons for slow industrial development in India is the shortage of capital.
(b) Political factors: During the colonial period, India was developed mainly as a supplier of raw materials. As a result, the foundation of industrial development remained weak.
(c) Shortage of skilled labour: Due to the lack of technical education, India faces a shortage of skilled labour.
(d) Fluctuation in agricultural production: Instability in the agricultural sector increases production costs in industries and hampers industrial growth.
(e) Lack of transport and communication facilities: Inadequate transport and communication systems create difficulties in the movement of raw materials, labour, and finished goods, thereby affecting industrial development.
9. Suggest some measures to solve the problems faced by the agricultural sector of India.
Ans: The following suggestions may help solve the problems faced by the agricultural sector in India:
(a) Reduction of pressure on agricultural land: The excessive population pressure on agricultural land should be reduced and alternative employment should be created for surplus labour.
(b) Research and training: The government should give more importance to agricultural research and provide proper training to farmers.
(c) Consolidation of land holdings: Fragmented land holdings should be consolidated and cooperative farming should be encouraged to increase productivity.
(d) Development of proper markets: Better communication, planned markets, warehouses, and cold storage facilities should be developed for the sale and storage of agricultural products.
(e) Use of modern technology: Modern technology should replace traditional agricultural methods. Farmers should be provided with subsidised power tillers, fertilisers, agricultural credit, and modern equipment.
10. Mention the defects of the Green Revolution introduced in the agricultural sector.
Ans: Although the Green Revolution increased agricultural production, it also had certain drawbacks:
(a) The Green Revolution mainly focused on food grains, especially rice and wheat, and did not significantly improve the production of commercial crops.
(b) It was limited to a few states such as Punjab, Haryana, and Uttar Pradesh, leaving other states deprived of its benefits.
(c) The benefits were mainly enjoyed by farmers with large landholdings, while small farmers were often deprived of its advantages.
(d) The use of modern techniques sometimes created unemployment problems, and large landowners could exploit landless labourers.
