Liberalisation, Privatisation and Globalisation: An Appraisal Class 12 Important Extra Questions Economics Chapter 3

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Class 12 Economics Chapter 3 Important Extra Questions Liberalisation, Privatisation and Globalisation: An Appraisal

Liberalisation, Privatisation and Globalisation: An Appraisal Important Extra Questions Very Short Answer Type

Question 1.
When were economic reforms introduced in India?
Answer:
Economic reforms were introduced in India in 1991. Economic reforms refer to all those measures that aim at rendering the economy more efficient, competitive and developed.

Question 2.
List any two reasons which led to economic reforms in India.
Answer:
The reasons which led to economic reforms in India include:
(i) Unfavourable Balance of Payment
(ii) Inflation
(iii) Falling foreign exchange reserves

Question 3.
What are the three broad components of New Economic Policy, 1991?
Answer:
The three broad components of New Economic Policy are:
(i) Liberalisation
(ii) Privatisation
(iii) Globalisation

Question 4.
Define liberalisation.
Answer:
Liberalisation means liberating the trade and industry of an economy from unnecessary restrictions and making the industries more competitive.

Question 5.
State any two reforms introduced under liberalisation.
Answer:
The reforms introduced under liberalisation include:
(i) Deregulation of industrial sector
(ii) Trade and investment policy reforms
(iii) Tax reforms

Question 6.
What is fiscal policy?
Answer:
It refers to the revenue and expenditure policy of the government to achieve balanced development in the economy.

Question 7.
Define direct tax. Give two examples.
Answer:
Direct taxes are those taxes levied immediately on the property and income of persons, and are paid directly by the consumers to the state. For example, income tax, property tax.

Question 8.
Define indirect tax. Give two examples.
Answer:
Indirect tax is a tax collected by an intermediary (seller) from the person who bears tne ultimate economic burden of the tax (buyer). For example, excise duty, sales tax.

Question 9.
What was the consequence of devaluation of rupee?
Answer:
Devaluation of rupee led to huge inflow of foreign exchange in India.

Question 10.
List the aims of trade policy reforms.
Answer:
The aims of trade policy reforms were:
(i) Removal of quantitative restrictions
(ii) Reduction in tariff rates
(iii) Removal of import licensing

Question 11.
For what categories of products was industrial licensing not abolished?
Answer:
Industrial licensing was not abolished for product categories such as alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs and pharmaceuticals.

Question 12.
Define privatisation.
Answer:
Privatisation means the induction of private management and control in the public sector enterprises.

Question 13.
What is disinvestment?
Answer:
Disinvestment involves selling a part of the Public Sector Undertaking’s equity to the public to promote privatisation.

Question 14.
State the purpose for undertaking disinvestment.
Answer:
Disinvestment was undertaken:
(i) to maintain fiscal discipline; and
(ii) to facilitate modernisation.

Question 15.
Define globalisation.
Answer:
Globalisation means unification or integration of the domestic economy with the world economy.

Question 16.
What is outsourcing?
Answer:
It is the practice of hiring external sources, mostly from other countries, for regular services.

Question 17.
List a few services which are being outsourced by companies in developed countries to India.
Answer:
A few services which are being outsourced by companies in developed countries to India are:
(i) Record keeping
(ii) Accountancy
(iii) Banking services
(iv) Music recording
(v) Film editing
(vi) Clinical advice

Question 18.
How are WTO and GATT related?
Answer:
GATT was established in 1948. WTO was founded in 1995 as the successor organisation to GATT.

Question 19.
Where is the headquarters of WTO?
Answer:
The headquarters of WTO is in Geneva.

Question 20.
What has been the impact of economic reforms on GDP?
Answer:
The overall GDP growth has increased as a result of economic reforms.

Question 21.
List the areas which were ignored during the reform period.
Answer:
The sectors which were ignored during the reform period are:.
(i) Agriculture
(ii) Industry
(iii) Employment
(iv) Infrastructure
(v) Fiscal management

Question 22.
Name the sector that benefited the most with the introduction of economic reforms in India.
Answer:
Service (tertiary) sector benefitted the most with the introduction of economic reforms in India

Question 23.
Define GST.
Answer:
GST (Goods and Services Tax) is an indirect tax for the whole nation, which will make India one unified common market.

Question 24.
Why is GST implemented?
Answer:
(i) GST will create a simpler tax system.
(ii) It increases overall transparency and compliance.

Question 25.
When was GST implemented in India?
Answer:
1st July 2017

Question 26.
Who is the head of the GST Council?
Answer:
Finance Minister

Question 27.
Which constitutional amendment is done to pass the GST bill?
Answer:
101 st

Question 28.
What type of goods are not covered under the GST bill?
Answer:
(i) Cooking gas
(ii) Liquor
(iii) Petrol

Question 29.
List the main categories of GST.
Answer:
(i) CGST
(ii) SGST
(iii) I GST

Question 30.
What is demonetisation?
Answer:
Demonetisation is the act of stripping a currency unit of its status as legal tender.

Question 31.
When did demonetisation take place in India?
Answer:
8th November, 2016

Question 32.
What was main motive behind demonetisation?
Answer:
To curb black money, terror funding and to stop the use of fake currency available in the market

Question 33.
When did demonetisation take place in India for the first time in history?
Answer:
In 1946

Question 34.
Which currency notes were affected due to demonetisation in November 2016?
Answer:
₹ 500 & ₹ 1,000 notes
(Liberalisation, Privatisation and Globalisation: An Appraisal)

Question 35.
Which currency notes were newly implemented after demonetisation in November 2016?
Answer:
X 200 & X 2,000 notes

Question 36.
What was the last date of tendering old currency?
Answer:
30th December, 2016

Question 37.
State one positive effect of demonetisation in India?
Answer:
Over fake currency

Liberalisation, Privatisation and Globalisation: An Appraisal Important Extra Questions Short Answer Type

Question 1.
Explain the occurrence of events which led to introduction of economic reforms in India.
Answer:
The inefficient management of the Indian economy led to huge amount of borrowings from national and international financial institutions. As a result, India met with an economic crisis in 1991 due to its failure to repay its borrowings from abroad. Crisis led to rise in prices of essential goods. In order to overcome the crisis, India approached IMF and World Bank for loan. The IMF and World Bank announced New Economic Policy as a condition to support Indian economy. Thus, India needed to introduce economic reforms:

• To maintain sufficient foreign exchange reserves
• To keep inflation under control
• To improve economic efficiency
• To remove rigidities in various areas
• To increase international competitiveness

Question 2.
Discuss the nature of government’s revenue and expenditure prior to economic reforms in India.
Answer:
The government was not able to generate sufficient revenue from taxation. Lack of revenue was accompanied by problems such as unemployment, poverty and population explosion. The income from PSUs was also not very high to meet the growing expenditure. On the other hand, the government was spending a large share of its insufficient income on areas which did not provide immediate returns.

Moreover, the foreign exchange borrowed from other countries and international financial institutions was spent on meeting consumption needs. The government neither made an attempt to reduce such reckless spending nor did it pay sufficient attention to increase its exports to meet growing imports’ expenditure.

Question 3.
Write a short note on New Economic Policy, India.
Answer:
The IMF and World Bank announced New Economic Policy as a condition to support Indian economy to overcome crisis. The NEP consisted of wide range of economic reforms. The core policies were intended to create a more competitive environment in the economy and remove the barriers to entry and growth of firms.

This set of policies can broadly be classified into two groups:

(i) Stabilisation Measures: These are short-term measures aimed to correct the weaknesses developed in the balance of payments and to bring inflation under control.

(ii) Structural Reform Measures: These are long-term measures initiated to improve economic efficiency and increase its international competitiveness by eliminating the rigidities in various segments of the Indian economy.

Question 4.
Explain the significance of liberalisation as an element of new economic reforms.
Answer:
Liberalisation means liberating the trade and industry of an economy from unnecessary restrictions and making the industries more competitive. It implies making the economy free from direct or physical controls imposed by the government. Partial liberalisation was started in India’s economy in the decade of eighties.

However, the New Economic Policy initiated in 1991 is more comprehensive and focused on reducing the controls by introducing liberal changes in both the external as well as domestic economy. Liberalisation process is based on the assumption that market forces could guide the economy in a more effective way than the government control.

Question 5.
State the salient features of trade policy reforms.
Answer:
The features of trade policy reforms are:

• There was moderation/reduction in import duty to enhance competitiveness in the domestic market.
• Import quotas had been completely abolished.
• Policy of import licensing had almost been scrapped.
• Export duty had been withdrawn to enhance competitiveness of Indian goods in the international market.

Question 6.
How were the Indian industries regulated prior to reforms?
Ans.
The Indian industries were regulated in the following ways prior to reforms:
(i) Obtaining industrial license from government officials was mandatcy for every entrepreneur to start a firm, close a firm or to decide the quantity of goods that could be produced.
(ii) Private sector was not allowed in many industrial categories.
(iii) Production o.f some goods was reserved for only in small scale industries.
(iv) Government controlled prices determination and distribution of selected industrial products.

Question 7.
Discuss the need for privatisation.What are the ways in which PSUs can be privatised?
Answer:
Privatisation means the induction of private management and control in the public sector enterprises. With a view to improve the performance of the public sector enterprises, the wave of privatisation has spread all over the world. Need for privatisation was felt mainly because of the inefficiency of the public sector enterprises. Thus, the private sector was given a larger space to operate in the areas reserved exclusively for the public sector.

Privatisation can be done by two ways:
(i) By withdrawal governmental control from the management and ownership of public sector companies; and
(ii) By outright sale of public sector companies.

Question 8.
How can the government improve efficiency of PSUs? Explain giving examples.
Answer:
The government has made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions. For example, to improve efficiency, promote professionalism and enable them to compete more effectively in the liberalised global environment, the government chose nine PSUs and declared them as Navaratnas.

The first set of navaratna companies is as under.

• BPCL
• HPCL
• IOCL (Indian Oil Corporation Ltd.)
• ONGC
• SAIL
• IPCL
• BHEL
• NTPC
• BSNL

Question 9.
Explain the significance of globalisation in the light of today’s modern world.
Answer:
Integration and unification of domestic economy with the world economy is known as globalisation. Globalisation is the outcome of liberalisation and privatisation. Due to the globalisation process, the unrestricted flow of goods and services, technology, capital and expertise was enabled among different countries of the world.

It helps in fostering healthy foreign competition among nations. As a result of globalisation process, the government of India has decided to increase the share of foreign investment up to 51% in Indian companies and provided automatic sanction to collaborations and foreign investors for this much of investment.

State the objective of WTO.
The WTO has the following objectives:

• To develop the multilateral trading system encompassing the GATT, the results of the Uruguay Round and all the agreements concluded under the GATT
• To raise standard of living, real income, employment through expansion of trade
• To promote optimum utilisation of the world’s resources
• To secure the share of developing countries in the growth of international trade
• To eliminate discriminatory treatment in international trade
• To ensure linkage among different trade policies, environmental policies and sustainable development

Question 10.
How important is the role of outsourcing in globalisation process?
Answer:
Outsourcing is the practice of hiring external sources, mostly from other countries, for regular senvices such as legal advice, advertisements, security, computer services, etc. With the adoption of globalisation, outsourcing has been intensified by the growth of fast modes of communication.

Many companies of developed nations are outsourcing a variety of services such as voice-based business processes, which are known as BPO or call centres, banking services, film editing, clinical advice, teaching, record keeping, accountancy, music recording, book transcription, etc. to India. Most of the multinational corporations and even small companies are outsourcing their services to India at a cheaper cost with reasonable degree of skill and accuracy.

Question 11.
Why do global countries prefer to outsource resources and services?
Answer:
At present, many global countries prefer to outsource resources and services because:
(i) Outsourcing increases efficiency.
(ii) It releases capital expenditure, which can be used for other productive activities.
(iii) It enables countries to focus on their primary activities.

Question 12.
Discuss the role of India as WTO member.
Answer:
Being a founder member of WTO, India has been in the forefront offraming fair global rules, regulations and safeguards and advocating the interests of the developing world. India has kept its commitments towards liberalisation of trade by removing quantitative restrictions on imports and reducing tariff rates.

Question 13.
Evaluate the process of disinvestment in PSUs undertaken during reforms.
Answer:
During reforms, PSUs had been undervalued and sold to the private sector. This resulted in a huge loss to the government. The government used the proceeds from disinvestment to offset the budget deficits rather than using it for the development of PSUs and country’s social infrastructure.

Question 14.
Discuss the impact of economic reforms on fiscal management.
Answer:
The following points explain the impact of economic reforms on fiscal management:
(i) Tax revenue did not increase.
(ii) Tariff revenue and custom duties were reduced.
(iii) Tax invectives were offered to foreign investors, which reduced the scope for raising tax revenues.

Question 15.
What is Goods and Services Tax (GST)?
Answer:
GST is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture upto final consumption with credit of taxes paid at previous stages available as set-off. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer. GST is one indirect tax for the whole nation, which will make India one unified common market.

Question 16.
What type of GST is prepared to be implemented?
Answer:
A dual GST system has been prepared with center and state simultaneously levying it on a common tax base. The GST to be levied by the center on intra-state supply of goods and/or services would be called the Central GST (CGST) and that to be levied by the states would be called the State GST (SGST). Similarly, Integrated GST (IGST) will be levied and administered by center on every inter-state supply of goods and services.

Question 17.
Why is dual GST required?
Answer:
India is a federal country where both the center and the states have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the constitutional requirement of fiscal federation.

Question 18.
What is IGST?
Answer:
Under the GST regime, an Integrated GST (IGST) would be levied and collected by the center on inter-state supply of goods and services. Under article 269A of the Constitution, the GST on supplies in the course of inter-state trade or commerce shall be levied and collected by the government of India and such tax shall be apportioned between the union and the states in the manner as may be provided by the Parliament by law on the recommendations of the Goods and Services Tax Council.

Question 19.
What are the components of GST?
Answer:
There are three taxes applicable under this system – CGST, SGST and IGST.
(i) CGST: It is collected by the central government on an intra-state sale. For example: transactions happening within Maharashtra

(ii) SGST: It is collected by the state governments on an intra-state sale. For example: transactions happening within Maharashtra

(iii) IGST: It is collected by the central government on an inter-state sale. For example: transactions happening between Maharashtra and Tamil Nadu

Question 20.
How is GST calculated?
Answer:
With the unified system of taxation, it is now possible for taxpayers to know the tax levied at different points for various goods and services under the GST regime. For the calculation of GST, the taxpayer should know the GST rate applicable to various categories. The different slabs for are 5%, 12%, 18% and 28%.GST calculation can be explained by simple illustration:
If a good or service is sold at ₹ 1,000 and the GST rate applicable is 18%, then the net price calculated will be:
= 1,000 + \(\left(1,000 \times \frac{18}{100}\right)\)
= 1,000 + 180 = ₹ 1, 180

Question 21.
What do you understand by the term demonetisation?
Answer:
Demonetisation is the act of stripping a currency unit of its status as legal tender. In other words, to withdraw (money or the like) from use. It occurs whenever there is a change of national currency. The current form or forms of money is pulled from circulation and retired often to be replaced with new notes or coins.

Sometimes a country completely replaces the old currency with new currency. India demonetized its ₹ 500 and ₹ 1,000 rupee notes on November 8, 2016. This action affected 86% of all cash in circulation.

Liberalisation, Privatisation and Globalisation: An Appraisal Important Extra Questions Long Answer Type

Question 1.
What was the need for economic reforms in India? Explain.
Answer:
At the time of independence, building a large public sector was almost unavoidable. The capabilities of India’s private sector could not be visualised at that time to make very large investments in the areas like infrastructure. However, by late 1980s the situation had completely changed. By that time, India had developed a strong private sector. Therefore, the argument of a large public sector was no longer valid. Need for economic reforms or New Economic Policy was observed mainly due to following reasons:

(i) Increase in Fiscal Deficit: By 1991, government expenditures began to exceed its revenue by such large margins, which became unsustainable. Fiscal deficit was increasing year after year due to increase in its non-developmental expenditure. Fiscal deficit was 5.4 percent of GDP in 1981 -82, which increased to 8.4 percent of GDP in 1990-91.

Interest payments on public debt were amounted to I0 percent of total government expenditure in 1980-81 which increased to 36.4 percent in 1991. Thus, government was fast heading for debt trap. India had lost the faith of international institutions like World Bank and IMF. Hence, it was necessary to begin new economic reforms in the country.

(ii) Adverse Balance of Payments: Balance of payments is an account of all the payments and receipts of one country with other countries. Imports grew at a very high rate unable to match growth in exports. Thus, India faced adverse balance of payment. The country needed foreign exchange to pay for the import of goods and services. The deficit in the balance of payment on current was ₹ 2,214 crore in 1980-81 which rose to ₹ 17,367 crore in 1990-91. Therefore, it was necessary to adopt New Economic Policy to correct the deficit in the Balance of Payment.

(iii) Gulf Crisis: Prices of petroleum increased in 1990-91 due to Iraq War. This Gulf crisis further worsened the balance of payment position of India.

(iv) Rise in Prices: During 1990-91, the level of inflation in the country reached to double digit. As a result, foreign investors had lost their confidence in Indian economy and national capital resources were flying out of the country. Cost of production had taken an upward jump due to high rate of inflation.

(v) Poor Performance of the Public Sector Undertaking: After 1980, most of the public sector undertakings had suffered huge losses. As a result, PSUs have become a liability to the nation. It became inevitable for the government to adopt New Economic Policy.

(vi) Fall in Foreign Exchange Reserves: During 1990-91, foreign exchange reserves declined to a level that was not adequate for imports worth more than two weeks; exports declined and industrial output of the country was crippled.

India had to approach the World Bank and IMF to provide huge loans of $7 billion to bail India out of the crisis. The IMF and World Bank announced New Economic Policy as a condition to support Indian economy to overcome crisis.

Question 2.
Explain the measures taken in various sectors for liberalisation of the economy.
Answer:
The following measures had been taken for liberalisation of Indian economy under New Economic Policy:
I. Industrial Sector Reforms
(i) The number of industries reserved for the public sector was reduced from 17 to 4 and in the areas reserved for public sector; private sector’s participation was to be allowed.

(ii) Monopolies and Restrictive Trade Practices (MRTP) Act was liberalised. According to the provision of MRTP Act, all those firms having assets worth more than 100 crore were used to be declared as MRTP firms and were subjected to many restrictions. Now, the concept of MRTP has been abolished. These firms are now free to expand themselves.

(iii) Under the policy of liberalisation, industries are now free for expansion and production. Producers are now free to produce anything on the basis of demand in the market. Licensing was abolished and as a result, firms are free to expand their production capacity.

(iv) Investment limit of the small scale industries has been raised to ₹ one crore to enable them for modernisation.

(v) Automatic approval was granted for Foreign Direct Investment up to 51 percent in a wide range of industries.

(vi) Under liberalisation, Indian industries were allowed to buy machinery and raw material from abroad. Government has also allowed the industries to import technology for their modernisation from abroad.

II. Financial Sector Reforms

• (i) RBI’s role had been changed from controller to facilitator in India to allow the financial sector to take decisions on various matters without consulting the RBI.
• (ii) The limit for foreign investment in banks was raised to around 50 percent.
• (iii) Foreign Institutional Investors such as merchant bankers, mutual funds and pension funds are now allowed to invest in Indian financial markets.

III. Foreign Exchange Reforms

• The rupee was devalued against foreign currencies to attract huge inflow of foreign exchange.
• The government adopted free market mechanism for the determination of rupee value in the foreign exchange market.

IV. Trade Policy Reforms

• There was moderation/reduction in import duty to enhance competitiveness in the domestic market.
• Import quotas had been completely abolished.
• Policy of import licensing had almost been scrapped.
• Export duty had been withdrawn to enhance competitiveness of Indian goods in the international market.

Question 3.
What were the measures taken under economic reforms to promote privatisation? Explain.
Answer:
The following measures were taken to promote privatisation under New Economic Policy:
(i) Contraction of Public Sector: Earlier for the economic development of India, great importance was given to public sector. However, most of the objectives of economic development have remained unfulfilled.

As a result, policy of contraction of public sector was adopted under economic reforms. Number of industries reserved exclusively for public sector was reduced from 17 to 8 and further to 2, viz. atomic energy and railways transport. All other industries form the part of private sector.

(ii) Disinvestments: In the liberalisation process, the part of the equity of inefficient public sector undertakings was sold to the private sector (public). This is also known as disinvestments. The purpose of disinvestments was mainly to improve financial position and facilitate modernisation.

It was thought that disinvestments could provide strong impetus to the inflow of Foreign Direct Investment. It should be remembered that all of our PSUs are not inefficient. Our Nine PSUs, which are known as ‘Navaratnas’ of Indian Economy are still playing a leading role in the world market.

Question 4.
Discuss the various strategies which laid the foundation stone for the process of globalisation in India.
Answer:
The various strategies which laid the foundation stone for the process of globalisation in India are discussed below:

(i) Foreign Exchange Reforms: In 1991, rupee had to be devalued against foreign currencies in order to correct the widening deficit in the balance of trade. That was the first and most important reform in the external sector which was made in the foreign exchange market. At present, the value of rupee is determined by market on the basis of demand and supply of exports and imports and by FDI or Fils.

(ii) Trade and Investment Policy Reforms: Since 1991, the door for foreign investment and technology transfer are opened. Foreign Exchange Regulation Act (FERA), which intended to control the inflow and outflow of foreign exchange, was replaced by a more liberal Foreign Exchange Management Act (FEMA).

Quantitative restrictions on imports of agricultural products and manufactured consumer goods were also fully removed from April, 2001. Since 1991, tariff rules are reduced and the licensing procedures for imports are removed.

(iii) Reduction in Tariff: In order to encourage competitiveness, tariff barriers have been withdrawn on most goods traded between India and rest of the world.

Question 5.
What are the merits and demerits globalisation?
Answer:
Merits of Globalisation
(i) Globalisation provides exposure to international economies and helps availing advanced technology and inputs from across the globe. This improves quantity as well as quality of production.

(ii) It helps in improving efficiency of allocation of resources due to more competitive environment.

(iii) It encourages healthy competition among nations, which helps in improving the quality of goods and services at a competitive price.

(iv) India’s share in the world trade has increased from 0.5 per cent in 1990-91 to 1.1 percent in 2005.

Demerits of Globalisation
(i) Many industries (especially small units) may not be able to compete at par with big MNCs. As a result, they might be forced to merge with global enterprises or face a closure.

(ii) Large scale establishment of MNCs in the developing countries like India might result in monopolies.

(iii) Globalisation may lead to income inequalities within the country as it will benefit only those who possess latest skills and technology.

Question 6.
Discuss the benefits of WTO to India.
Answer:
The following are the important benefits emerging from the WTO agreement:
(i) Due to reductions in tariff and non-tariff barriers, there will be development oftrading environment leading to dynamism.

(ii) Countries like India will be helped in their liberal economic policies due to increase in market access opportunities under the WTO.

(iii) It is estimated that world income from trade liberalisation could increase from $ II0 billion to $5 10 billion annually.

(iv) The WTO will strengthen the trade relations among member countries. It will lead to a new trade order.

(v) India will gain in the long run due to low duties on raw-material, components and capital goods.

(vi) The TRIPs are not going to harm India and other developing countries because of providing safeguards.

(vii) India, being a founder member country, has already started to assert itself in the meeting of the WTO council.

(viii) The WTO agreement will emphasise linkages between trade policies, environmental policies and sustainable development.

Question 7.
Discuss the positive impacts of New Economic Policy.
Answer:
The positive impacts of New Economic Policy are discussed below:
(i) Increase in the Rate of Economic Growth: The annual growth rate of GDP in 1991 -92 was slightly more than I percent, which rose to 7.6 percent in 2004-05. With the adoption of New Economic Policy, there has been increase in the rate of economic growth.

The rate of growth of per capita income in 1991-92 was 1.5 percent, which rose to 6.1 percent in 2004-05. However, in comparison to the growth rate of many other Asian or world countries, India’s performance has been rather dismal.

(ii) Increase in the Competitiveness of Industrial Sector: Indian industrial sector stood nowhere in the international world. After adoption of New Economic Policy, efforts were taken to stimulate the industrial activity so that it becomes competitive and profitable.

(iii) Control on Prices: With the adoption of New Economic Policy, annual rate of inflation has been reduced from 17 percent in 1991 to below 5 percent in 2005-06.

(iv) Fall in the Fiscal Deficit: Fiscal deficit as a percentage of GDP has fallen from 8.5 percent in 1990-91 to 4.3 percent in 2005 – 06.

(v) Reduction in Poverty and Inequality: Poverty and inequalities in the distribution of wealth: have not been reduced in India during the planning era. However, after the New Economic Policy regime, people are getting more opportunities of self-employment, which are expected to reduce these problems. Population below: poverty line was 36 percent in 1993-94, which reduced to 26.1 percent in 1999-2000. Twelfth plan projection is to reduce poverty below 10 percent.

(vi) Increase in the Efficiency: New Economic Policy is adding to the efficiency of the Indian economy in many ways viz., scientific management, improvement in technology, closure of inefficient units, freedom from controls and restrictions, competition and co-operation, etc.

(vii) Decline in Deficit of Balance of Payment: Current account deficit of balance of payment has been declined from 3.2 percent of GDP in 1990-91 to 1.8 percent in 2005-06. Thus, New Economic Policy has raised the global confidence in the Indian economy.

(viii) Increase in Investment: After adoption of New Economic Policy, the international copfidence on the economy has been restored. Foreign investors are now showing active interest : in investment in many sectors.

Question 8.
Explain the advantages of GST in India.
Answer:
Following are the advantages of GST in India:
(i) Mitigation of Cascading Effect: Under the GST administration, the final tax would be paid by the consumer for the goods and services purchased. However, there would be an unified tax credit structure in place to ensure that there is no slumping of taxes.

(ii) Evolution of Multiple Layers of Taxation: One of the advantages of GST is that it integrated different tax levied such as central excise, service tax, luxury tax, special additional duty of customs, etc. into one consolidated tax.

(iii) Enhanced Productivity of Logistics: The restriction on inter-state movement of goods has reduced earlier. Logistic companies had to maintain multiple warehouses across the country to avoid state entry tax on inter-state movements.

(iv) Reduction of Litigation: GST aids in reducing litigation as it establishes clarity towards the jurisdiction of taxation between the central and state governments

Question 9.
Explain the disadvantages of GST.
Answer:
Following are the disadvantages of GST:
(i) Negative Impact on Estate Market: Some economists say that GST in India would negatively impact the real estate market. It would add up 8% cost of new homes.

(ii) No Reduction in the Number of Tax Layers: Some experts say that CGST and SGST are nothing but new names for central excise/service tax, VAT and CST.

(iii) Expensive: Some retail products currently have only 4% tax on them. After GST, garments and clothes could become more expensive.

(iv) Bad Effects upon Industrial Sector: The aviation industry would be affected. Service taxes on airfares currently range from 6 to 9%. With GST, this rate will surpass 15% and effectively double the tax rate.

Question 10.
State the impacts of GST in India.
Answer:
The GST is one of the biggest tax reforms in India especially in the indirect tax structure after the independence of India. It was first implemented on 1st July 2017. Since then SMEs have sought clarity concerning the changed GST which the new four-tiered tax structure will bring into the taxation system.

Through the GSTN educational series, the government attempted to offer clarity on GST and the tremendous impact it will have on the Indian business owners as a whole. GST has far reaching implications for the concept of “One Nation – One Tax” legislation on SMEs is in India. The government has introduced the revised rates of indirect taxes for every good and service and specified all details along with the modifications for transactions.

Question 11.
What principles were adopted for subsuming all taxes under GST?
Answer:
The various central and local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:
(i) Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

(ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import or manufacture or production of goods or services.

(iii) This action should result in free flow of tax credit in intra and inter-state levies. The taxes, levies and fees that are not specifically related to supply of goods and services should not be subsumed under GST.

(iv) Revenue fairness for both the union and the states individually would need to be attempted.

Question 12.
What are the advantages of demonetisation in India?
Answer:
(i) Trace Black Money: A major achievement of demonetisation has been that it has helped the government in tracking black money. The government claimed that large sums of black money were kept hidden by tax evaders and demonetisation has helped it uncover the huge amount of accounted cash.

According to estimates made by RBI, during the demonetisation drive people had deposited more than rupees three lakh crores worth of black money in the bank accounts.

(ii) Increase in Tax Revenue: Another expected benefit was that due to people disclosing their income by depositing money in their bank accounts, government will get a good amount of tax revenue which can be used by providing good infrastructure, hospitals, national institutes, roads and many facilities for poor and needy sections of society.

(iii) Cashless Economy: Another major objective of the government achieved through demonetisation was to push the Indian economy towards becoming cashless. The government succeeded in encouraging people to use digital means for making transactions.

(iv) Increase the Number of Taxpayers: Economy has witnessed close to 20% decline in currency in circulation, number of taxpayers has considerably increased and a large number of shell companies have been identified.

Question 13.
What are the disadvantages of demonetisation in India?
Answer:
(i) Inadequate Supply of New Notes: The biggest disadvantage of demonetisation has been the chaos and frenzy it created among common people initially. Everyone was rushing to get rid of demonetised notes while inadequate supply of new notes affected the day to day budgets of citizens,

(ii) Destruction of Old Currency: Another disadvantage is that destruction of old currency units and printing of new currency units involve costs, which has to be borne by the government; and if the costs are higher than benefits, there is no use of demonetisation.

(iii) Failure to Recover Enough Black Money: Another problem is that this move was targeted towards black money but many who had not kept cash as their black money and used that money in other asset classes like real estate, gold and so on were not affected by demonetisation.

Liberalisation, Privatisation and Globalisation: An Appraisal Important Extra Questions HOTS

Question 1.
Is disinvestment really good for India?
Answer:
In the liberalisation process, the part of the equity of inefficient public sector undertakings was sold to the private sector (public). This is known as disinvestments. The purpose of disinvestments was mainly to improve financial position and facilitate modernisation. It was thought that disinvestments could provide strong impetus to the inflow of Foreign Direct Investment. Therefore, disinvestment has been a crucial step against inefficiency of PSUs.

Question 2.
India has reduced import restrictions several times in the 2000s, still it is evaluated as more restrictive than similar developing economies by the WTO in 2008. What can be the reason for this?
Answer:
Despite reducing import restrictions several times in the 2000s, India was evaluated as more restrictive than similar developing economies by the WTO. The possible reason can be electricity shortage and inadequate transportation infrastructure, which act as significant constraints on trade.