Important Questions Class 11 Economics Indian Economic Development Chapter 3

Important Questions Class 11 Economics Indian Economic Development Chapter 3- Liberalisation, Privatisation, Globalisation: An Appraisal

India post-1947 started following a mixed economic system. The government of India established reforms to control and regulate the economy with various rules and laws. This led to hampering the growth and development of India’s Economy. By 1991, India landed in a state of economic crisis where it did not have enough money to pay for its imports. It was then the revolutionary policies of privatisation, liberalisation, and globalisation were introduced in the country. 

Chapter 3 of Unit 2 in Class 11 Economics goes in-depth to explain to students about these reforms, understanding the mechanisms used to bring about these reforms, comprehending the process of globalisation and the implications it had on India and the impact that the reforms had on various sectors of the Indian economy. This chapter holds significant importance for students in understanding why India had to open its economy to the world. Studying from the Important Questions Class 11 Economic Development Chapter 3 provided by Extramarks can be a helpful aid to students while they are preparing this chapter for their examinations. 

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Important Questions Class 11 Economics Indian Economic Development Chapter 3 with Solutions

A  list of Important Questions Class 11 Economics Indian Economic Development Chapter 3 has been compiled by Economics faculty experts with years of experience utilising various sources. Students can also review the chapter while practising these questions because the questions cover all the crucial parts of the chapter.  

For students to practice, here is a list of Important Questions Class 11 Economics Indian Economic Development Chapter 3 with solutions:

Question 1. What is privatisation?

Answer 1: Privatisation is moving a business or industry from the public to the private sector. This is referred to as privatisation. .

Question 2. What is another name for the World Bank? 

1. a) Federal Bank 
2. b) ICICI 
3. c) IBRD 
4. d) Bank of America 

Answer 2: c) IBRD

Explanation: The World Bank is also known as the International Bank for Reconstruction and Development.

Question 3. What do economic reforms mean?

Answer 3: Economic reforms are classified as government policy adjustments intended to increase economic effectiveness. These processes are adjusted for production efficiency, competitive markets, and rapid economic growth.

Question 4. Industrial growth in India has recorded a slowdown in the period of economic reforms. What are the reasons for this? 

• Decreasing demand for domestic industrial products 

• Globalisation 

• India does not have access to different markets because of high non-tariff barriers. 

• All the above 

Answer 4: d) All of the above

Explanation: Due to various factors, including cheaper imports, insufficient investment, weak infrastructure, etc., the industrial sector has underperformed during the reform period. In India, the demand for domestic products has been substituted by cheaper imports. Since little investment has been made in infrastructure facilities, particularly power supply, domestic industries have not found favourable market situations to compete with foreign goods. Globalisation has resulted in the unrestricted flow of products and services from abroad, contributing to the decline of local industries and job possibilities in a developing country like India.

Question 5. Why has the growth of the industrial sector slowed down in India?

• Due to the availability  of cheaper imports and lower investments

• Due to the increase in public income

• Due to the good response from exports

• Due to the decreased workforce in industries

Answer 5: a) Due to the availability  of cheaper imports and lower investments.

Explanation: Because of the effects of globalisation, developing nations are forced to expand the flow of capital and goods into their economies from industrialised countries, making their industries more vulnerable to imports. Cheaper imports have consequently substituted the need for domestic goods.

Question 6. Why is it necessary to become a member of WTO?

Answer 6: Being a member of the World Trade Organisation (WTO) has many benefits for the following reasons:

1. Every country gets equal rights to trade in the international market when they become part of the WTO. This can ensure visibility to nations while also making sure no country is left out of the market.
2. It allows its member countries to produce on a grander scale to meet people’s demands across international borders. This gives enough opportunity to make the most use of global resources and increases market accessibility.
3. The WTO strives to eliminate tariff barriers to promote healthy competition among producers from various nations.
4. Members of the WTO from nations with similar economic conditions can sort out their problems to protect their shared interests.

Hence the nations can significantly benefit from being a part of the World Trade Organisation (WTO). 

Question 7. What is outsourcing? How has  India benefited from it?

Answer 7: India is the top location for outsourcing because it has been able to grow in response to changing needs. India’s share of the worldwide outsourcing market moved from 51% to 55%, according to the National Association of Software and Services Companies (NASSCOM), the apex body for the country’s top IT software and service (IT and BPO) companies. India excels at providing excellent customer service and effectiveness, attracting many companies to outsource to India.

Here is a list of benefits India has due to  outsourcing:

1. Customers today are looking for business outsourcing solutions that are not only cost-effective but also excellent in terms of service quality, productivity growth, and business processes. India will continue to be the preferred destination for backend and frontend outsourcing due to its large population and experienced and skilled workforce.
2. India continues to lead the world with a talented and skilled workforce. Roughly 1.2 billion people live there, and over 3.1 million graduates start working every year. India is also the largest English-speaking nation in the world, more significant than the combined populations of the United States and the United Kingdom.
3. One of the reasons India continues to be a top outsourcing supplier is the considerable cost reductions that businesses can accomplish in the nation. The significant difference in personnel expenses between India and industrialised countries is the leading cause. For instance, a good developer might bill between $50 and $80 per hour in the United States (for a full-time staffer depending on skills and experience). In contrast, companies may negotiate down the developer’s hourly pricing in India to as little as $15.
4. The Indian outsourcing sector is encouraged by a stable pro-IT administration, whose policies on GDP development, taxation, power, telecom, industrial parks, and special zones have helped strengthen the country’s infrastructure and communications networks.
5. The Information Technology Act was passed by the Indian government, which recognises electronic contracts, outlaws cybercrime, and promotes document e-filing and other tax-related and non-tax benefits.

Question 8. Why did RBI have to change its role from the controller to facilitator of the financial sector in India?

Answer 8: The financial sector in India is regulated by the Reserve Bank of India. The various norms laid down by the RBI control the functioning of the country’s banks and financial institutions. The Reserve Bank decides the interest rates, the amount of money that the bank can keep with itself and the nature of lending to various sectors. 

Before liberalisation, the RBI governed and had authority over the financial sector, which comprises institutions like commercial and investment banks, stock exchanges, and the foreign exchange market. The RBI had to change its focus from being a controller to a facilitator of the financial industry in light of the economic liberalisation and financial sector reforms. This suggests that the financial institutions were free to decide on their own regarding various issues without consulting the RBI. As a result, private players had access to the financial sectors. The primary goals of the economic reforms were to boost competition, promote private sector involvement, and let market forces take effect in the banking sector.

Question 9. Distinguish between the following

(i) Strategic and Minority sales

(ii) Bilateral and Multilateral trade

(iii) Tariff and Non-tariff barriers.

Answer 9: 

1. The differences between Strategic and Minority Sales:

1. The differences between bilateral and multilateral trade are as follows:

1. The differences between tariff and non-tariff barriers:

Question 10. What are the main factors that are responsible for the high growth of the service sector?

Answer 10: The services industry in India includes a wide range of activities, including trade, hotel and restaurant operations, transportation, storage, communication, financing, insurance, real estate, business services, community, social and personal services, and construction-related services. India’s dominating services industry is often referred to as the country’s economic engine for a good reason. Globalisation and greater manufacturing automation have reduced the relative demand for manufacturing jobs in advanced economies. The rise in supply frees up labour for the service sector, which drives down wages in the lower-skilled segments.

The main factors that are responsible for the high growth of the services sector in India are:

1. Economic Reforms in 1991:

Following the implementation of economic reforms in 1991, MNCs could access the Indian market. It allowed for the entrance of international capital and reduced barriers to foreign investment. As a result of the government’s liberalised policy, foreign direct investment has expanded significantly. Numerous changes were brought about in the Indian market as a result.

1. Low Labour Cost:

India had cheaper labour expenses than Western nations. Due to this, international firms choose India as the location of their offshored business services. As a result, businesses that understood the benefits of business outsourcing operations like training, teaching, and marketing in enhancing business performance helped the service industry expand quickly.

1. Growth of Information Technology (IT):

The development of the service sector in India has been significantly boosted by the rise of information technology (IT). IT benefited the nation’s crucial service industries. The country is also home to a sizable number of highly qualified software professionals. Numerous state governments have emphasised the importance of the IT industry, including those in Andhra Pradesh, Madhya Pradesh, Karnataka, Maharashtra, and Delhi.

1. Market Orientation:

The market’s competitive landscape and supply and demand forces underwent various changes in the industrial sector. Due to this, they began to concentrate more on the market than production. Additionally, it mandated that manufacturing firms carry out marketing research, accounting, auditing, human resource management, and market analysis through R&D groups. All of these tasks were service-oriented.

1. Structural Changes:

The tertiary sector replaced the primary sector as the Indian economy underwent structural changes. As a result of this shift, demand in the service sector increased.

Question 11. Why were reforms introduced in India?

Answer 11: The reforms were introduced for the following reasons:

1. To manage the country’s current economic difficulties.
2. During that time, the fiscal deficit saw its worst phase, leading to national debt growth.
3. India was experiencing a poor situation with its Balance of Payments (BOP). The former Soviet Union’s collapse and the Gulf War prompted borrowing from the international market. To have a balanced economy, a new economic policy was created as a result of this.
4. PSUs were created to eradicate poverty and create jobs. However, the PSUs were loss-making organisations, which weighed down the nation’s fragile economy.
5. A high degree of budget imbalance caused the RBI to raise the inflation rate, which increased the cost of products and sparked an internal movement.

Question 12. What do you mean by the term disinvestment? How is it done in public sector enterprises in India?

Answer 12: Disinvestment is the term for reducing the government’s ownership position in a public company. There are two ways to do this. Disinvestment occurs when the government sells less than 50% of its shares in a public company; in this case, the government retains control and management of the company. When the government sells more than 50% of its equity or disinvests, the firm is privatised, giving the private sector predominant ownership and control and management. As a result, in many disinvestment schemes, the government keeps ownership and management of public firms while holding onto 51% or more of the total equity capital. Because of the limited resources available to the government, the public sector is underinvested.

To close its fiscal deficit, the government needs resources. Second, the government desperately needs funding for investments in infrastructure, public health and education, and initiatives to combat poverty. Many economists have suggested paying off a portion of the national debt using the income from disinvestment. Disinvestment, especially the privatisation of public-sector businesses, will ensure that professionals will run them under the guidance of market forces rather than bureaucrats. 

The disinvestment of public enterprises can be made in several ways:- 

• The entire public company may be sold to the highest bidder or to a different company in the private sector. In this scenario, the private firm acquires both ownership and control or management.
• Selling a portion of the government ownership to a  private company is the second way to withdraw from a public enterprise. A strategic business can effectively manage the public sector and has a strategic interest in it.
• Finally, a small number of government shares in a public company may be sold through a share auction between a small number of private companies. A company’s shares for auction may have a reserve price that merchant bankers can help set.

Question 13. Discuss economic reforms in India in the light of social justice and welfare.

Answer 13: India can now access worldwide markets and engage in competition thanks to economic reforms. This made it easier for commodities and services to go across international borders. The lack of foreign currency needed to finance the importation of complex and advanced technology into India has also been eliminated due to the growing inflows of foreign money and investment into India. Moreover, India’s economic growth and GDP increased by multiples due to the boom in outsourcing and the service industry. However, on the flip side, the agricultural sector, which employed a sizable section of the population, did not reap the benefits of these economic changes. The reforms also favoured the high-income group population at the expense of their less fortunate counterparts.

The following points can summarise the effects of the economic reforms:

1. During the 10th five-year plan, the GDP rose to 8 per cent from 6.1 per cent.
2. Small-scale industries witnessed growth as well.
3. India became a pioneer in producing engineering goods, telecommunications, readymade clothes, etc.
4. The economic reforms saw that inflation came into control.
5. The economic reforms also widened inequalities between people as well as certain states.
6. The agricultural sector was also affected severely due to the reforms.
7. The economic reforms also resulted in the growth of the service sector. Due to this, India saw a structural transformation from the primary to the services sector. 

Question 14. The agricultural sector appears to be adversely affected by the reform process. Why?

Answer 14: The agricultural sector was adversely affected by the Economic Reforms of 1991 because of the following reasons:

1. After 1991, there was a decline in public investment in the agricultural sector. The Indian government also cut back on funding for rural Research & development activities and supported services that had a negative impact on agriculture.
2. Fertiliser subsidies were withdrawn, which increased the cost of production, increased the cost of farming and impacted impoverished farmers.
3. The Indian government decreased import taxes on agricultural items due to adherence to WTO agreements, forcing poor and marginal farmers to compete with foreign competitors on global marketplaces. The poor farmers suffered greatly from traditional farming practices and fierce competition on the worldwide market.
4. The production of food grains was replaced by cash crops, including cotton, jute, and other fibres, resulting from export-oriented production techniques. As a result, food grains were less readily available and had lesser nutritional contents, which further decreased their productivity.
5. The production of food grains was subjected to inflationary pressures due to the switch to cash crops and the elimination of subsidies. In turn, this had a negative impact on the performance of the agriculture sector which increased the cost of producing food grains.

Question 15. Do you think the navaratna policy of the government helps in improving the performance of public sector undertakings in India? How?

Answer 15: In 1997, Navaratna designation was granted to PSEs or PSUs (Public Sector Enterprises or Public Sector Undertakings) that were profitable in the market and had a comparative advantage. The government gave these organisations complete freedom regarding finances, operations, and management. As a result of this decision, the business increased its market share globally and achieved operational and financial independence. Receiving navaratna rank encouraged them to perform better.

The following nine Public Sector Undertakings were awarded the navratna status:

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. Indian Petro-chemicals Corporation  Ltd (IPCL)
7. Bharat Heavy Electricals Ltd (BHEL)
8. National Thermal Power Corporation (NTPC)
9. Videsh Sanchar Nigam Ltd (VSNL)

Question 16. Explain briefly the merits and demerits of the economic reforms introduced in 1991.

Answer 16: In India’s post-independence economic history, 1991 is a pivotal year. A significant Balance of Payments scenario led to a severe financial crisis in the nation. The economic crisis catalysed some significant shifts in the nature and technique of economic policy. India’s government implemented policies aimed at stabilisation and structural transformation to respond to the problem. The New Economic Policy in India is mainly credited to former prime minister Manmohan Singh. The main goal of the NEP, or New Economic Policy, has been to increase economic competition to raise overall efficiency and effectiveness. This was to be accomplished by reducing entry obstacles and constraints on business expansion.

The merits of the New Economic Policy are as follows:

1. The New Industrial Policy destroyed the system of industrial licensing through a number of provisions. There has been a move away from strict physical constraints and a focus more on the function of financial incentives in steering investments in the right direction.
2. Significant internal deregulation was occurring to support more effective domestic businesses and motivate them to invest and grow.
3. The gradualist nature of India’s policy change process, as opposed to other countries’ “big bang” methods, makes it unique. Although at a slower rate, the system is under considerably greater effort to become more efficient and contemporary.
4. Additionally, efforts have been undertaken to improve the legal system. The Securitization, Reconstruction of Financial Assets, and Enforcement of Security Interest Act of 2002, or SARFAESI Act, 2002, gives banks and other financial institutions the authority to enforce their claims on collateral for past-due secured credit without having to go through a drawn-out and time-consuming legal process.

The demerits of the New Economic Policy are as follows:

1. The slow rate of investment in several fundamental and important industries, including engineering, power, machine tools, and others, is causing concern. This is primarily because of these sectors’ low rates of return, which are lower than rates of return in emerging or “sunrise” businesses (e.g. IT sectors).
2. Labour displacement usually happens due to the new industrial policy’s restructuring and modernisation of industries. This would call for the redistribution of work through rehabilitative initiatives.
3. As a result of the new industrial policy, industries routinely undergo restructuring and modernisation, frequently resulting in workforce displacement. Redeploying workers through rehabilitation programmes would be necessary as a result.
4. Instead of “investment-led growth” or “export-led development,” “consumption-led growth” was the result of a concentration on internal liberalisation without placing enough attention on trade policy reforms. As a result, the growth process that followed was not long-term sustainable.
5. One of the key objectives of the liberalisation strategy was the growth of innovative enterprises. This appears to have not been achieved.

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The government introduced economic reforms in the year 1991 with the policies of Liberalisation, Privatisation, and Globalisation. This ushered India into a new phase of development. The policies had merits and demerits, and students need to understand their implications on various sectors. Hence, studying Chapter 3 is essential for students to understand what happened to the Indian Economy post the year 1991. Not only this, but chapter 3 is also necessary from the point of view of examinations, and having a good understanding of the concepts can help students get good grades. Along with this, students can take help from the Important Questions Class 11 Economics Indian Economic Development Chapter 3 provided by Extramarks. The essential questions will help the students practice and prepare well for their examinations.

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