Maharashtra Board Class 11 Economics Important Questions Chapter 9 Economic Policy of India Since 1991

Balbharti Maharashtra State Board Class 11 Economics Important Questions Chapter 9 Economic Policy of India Since 1991 Important Questions and Answers.

Maharashtra State Board 11th Economics Important Questions Chapter 9 Economic Policy of India Since 1991

1A. Complete the following statements by choosing the correct alternative:

Question 1.
The investment limit of small scale industries has been increasing up to __________ crores.
(a) 10
(b) 5
(c) 1
(d) 3
Answer:
(b) 5

Question 2.
The financial sectors became more competitive due to entry of __________ banks.
(a) public and private
(b) public and foreign
(c) private and foreign
(d) private and co-operative
Answer:
(c) private and foreign

Question 3.
The Government of India announced the NEP on __________
(a) 24th July 1991
(b) 24th Oct 1991
(c) 24th June 1991
(d) 20th June 1950
Answer:
(a) 24th July 1991

Question 4.
__________ is considered to be the father of NEP.
(a) Dr. Manmohan Singh
(b) Rajiv Gandhi
(c) Narsimha Rao
(d) Arun Jetly
Answer:
(a) Dr. Manmohan Singh

Question 5.
Licensing was made __________ under NEP.
(a) compulsory
(b) strict
(c) privatised
(d) liberal
Answer:
(d) liberal

Question 6.
Under NEP unemployment has __________ due to close down of some industries.
(a) declined
(b) increased
(c) stagnant
(d) no change
Answer:
(b) increased

Question 7.
__________ is included in Navratna status.
(a) ONGC
(b) HAL
(c) MTNL
(d) Railways
Answer:
(a) ONGC

1B. Complete the correlation:

Question 1.
Regulate the foreign exchange : FEMA : : Regulate security market : __________
Answer:
SEBI

Question 2.
Disinvestment : ITDC hotel : : Collaboration : __________
Answer:
Maruti-Suzuki

Question 3.
Abolition of MRTP Act : Liberalization : : Convertibility of rupee : __________
Answer:
Globalisation

Question 4.
Airport Authority of India (AAI) : Miniratna : : Hindustan Petroleum Corporation Ltd (HPCL) : __________
Answer:
Navratnas

Question 5.
Indian Oil Corporation : Navratnas : : Central Public Sector Enterprises : __________
Answer:
Maharatna Companies

Question 6.
SEZ : Trade Liberalisation : : IRDA Act : __________
Answer:
Reforms in Insurance Sector

Question 7.
Abolition of Government License : __________ : : Selling of shares of sick public sector : Disinvestment
Answer:
Delicensing

1C. Suggest the economic terms for given statements:

Question 1.
The transfer of ownership from the public sector to the private sector.
Answer:
Privatisation

Question 2.
Abolishment of the permission of Government for new industrial production etc.
Answer:
Delicensing

Question 3.
Selling public sector units to the private sector.
Answer:
Disinvestment

Question 4.
Interaction of the Indian economy with the rest of the world.
Answer:
Globalisation

Question 5.
To take the benefit of advanced technology the companies of two countries work together.
Answer:
Foreign Collaboration

Question 6.
Policy providing incentives to exporters.
Answer:
EXIM Policy

Question 7.
Companies are given full financial and managerial autonomy.
Answer:
Navratnas

Question 8.
Zone to encourage agricultural exports.
Answer:
Agro Export Zones

Question 9.
Act under which firms get the freedom to take investment decisions.
Answer:
MRTP Act

Question 10.
A board was set up to make decisions regarding sick units.
Answer:
Board of Industrial and Financial Reconstruction (BIFR)

Question 11.
Industry requiring compulsory licensing.
Answer:
Cigarettes

1D. Arrange in proper order:

Question 1.
(a) FERA was replaced by FEMA
(b) Shortage of foreign exchange
(c) Introduction of NEP
(d) Delicensing
Options:
(i) a, c, d, b
(ii) b, c, d, a
(iii) d, b, a, c
(iv) c, a, d, b
Answer:
(ii) b, c, d, a

Question 2.
(a) Poor performance of PSUs
(b) LPG policy
(c) Public sector was playing a dominant role
(d) Role of the private sector increased
Options:
(i) a, c, d, b
(ii) b, c, d, a
(iii) c, a, b, d
(iv) d, b, a, c
Answer:
(iii) c, a, b, d

Question 3.
(a) Demand for software engineers increased in developed countries
(b) Role of the private sector increased
(c) Help to earn foreign exchange
(d) Revolution in IT sector
Options:
(i) b, d, a, c
(ii) a, c, d, b
(iii) c, a, b, d
(iv) d, a, c, b
Answer:
(i) b, d, a, c

1E. Find the odd word out:

Question 1.
Indian companies into foreign collaboration- Maruti – Suzuki, Hero – Honda, Mahindra & Mahindra, Tata – Timken
Answer:
Mahindra & Mahindra

Question 2.
Encouragement to exports – EXIM, SEZ, AEZ, FERA
Answer:
FERA

Question 3.
Units in which disinvestment take place – Maruti, ONGC, ITDC, VSNL
Answer:
ONGC.

1F. Complete the following statements:

Question 1.
Before new economic policy, interest rate was determined by __________
Answer:
RBI

Question 2.
The NEP gave dominant position to the __________
Answer:
private sector

Question 3.
At present 100 percent FDI is allowed in __________
Answer:
electricity generation projects

Question 4.
A country may not attain self sufficiency in food production because of __________
Answer:
globalization

Question 5.
An adverse effect of NEP on farmers is __________
Answer:
indebtedness and poverty of poor farmer

Question 6.
The main objective of NEP, 1991 is to plunge India into __________
Answer:
arena of globalisation

Question 7.
Rapid industrial growth took place after abolition of __________
Answer:
MRTP Act

Question 8.
Two industries reserved for public sector are __________
Answer:
railways and atomic energy

Question 9.
National Renewal Board took the responsibility of providing __________
Answer:
compensation to retrenched workers

Question 10.
Public Sector Units (PSU’s) have been categorised into __________
Answer:
Miniratnas and Maharatnas.

1G. Choose the wrong pair:

Question 1.

Group – ‘A’	Group – ‘B’
(i) SEZ	Export promotion
(ii) IRDA	Regulate insurance activities
(iii) FDI	Promote imports

Answer:
Wrong Pair: FDI – Promote imports

Question 2.

Group – ‘A’	Group – ‘B’
(i) Globalization	Borderless economy
(ii) Disinvestment	Less investment
(iii) Privatization	Transferring ownership of PSUs.

Answer:
Wrong Pair: Disinvestment – Less investment

Question 3.

Group – ‘A’	Group – ‘B’
(i) FDI	Foreign Direct Investment
(ii) FEMA	Fund Exchange Management Act
(iii) IRDA	Insurance Regulatory Development Authority

Answer:
Wrong Pair: FEMA – Fund Exchange Management Act.

1H. Match the correct pairs:

Question 1.

Group – ‘A’	Group – ‘B’
1. BHEL	(a) Freedom for investment
2. Compulsory licensing	(b) Agriculture
3. Abolition of MRTP	(c) Navratnas
4. Primary sector	(d) Mixed economy
5. India	(e) Alcohol, Tobacco

Answer:
Correct Pairs: (1) – (c), (2) – (e), (3) – (a), (4) – (b), (5) – (d).

Question 2.

Group – ‘A’	Group – ‘B’
1. Liberalization	(a) 1991
2. NEP	(b) Profit motive
3. Public sector	(c) Removing restrictions
4. Private sector	(d) Service sector
5. Tertiary sector	(e) Welfare motive

Answer:
Correct Pairs: (1) – (c), (2) – (a), (3) – (e), (4) – (b), (5) – (d).

2. Identify and explain the concepts from the given illustrations:

Question 1.
It is the regulator of the securities market in India.
Answer:
Securities and Exchange Board of India (SEBI).
SEBI was established on 12th April 1992. SEBI has the power to approve bye-laws of Securities Exchanges, inspect the books of account of financial intermediaries, registration of brokers and sub-brokers.

Question 2.
Abolition of government license to carry any business or industrial activity.
Answer:
Delicensing.
Except for 18 specified industries of strategic importance, all industries required a license. Later on, only 4 industries required compulsory licensing. They are – Electronic Aerospace and defense equipment, Industrial Explosives, Hazardous chemicals, Drugs and Pharmaceuticals, and Cigarettes.

3. Assertion and Reasoning questions:

Question 1.
Assertion (A): The creation of NRB is an important measure of privatization.
Reasoning (R): To solve the problem of unemployment and poverty among the workers of closed public sector units.
(a) (A) is TRUE but (R) is FALSE
(b) (A) is FALSE but (R) is TRUE
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)
(d) (A) and (R) both are TRUE but (R) is not the correct explanation of (A)
Answer:
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)

Question 2.
Assertion (A): In India FDI has very limited scope since 1991.
Reasoning (R): Foreign capital is allowed in the Indian economy without any restrictions.
(a) (A) is TRUE but (R) is FALSE
(b) (A) is FALSE but (R) is TRUE
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)
(d) (A) and (R) both are TRUE but (R) is not the correct explanation of (A)
Answer:
(b) (A) is FALSE but (R) is TRUE

Question 3.
Assertion (A): In post NEP imports of the country has increased.
Reasoning (R): It helps to solve the problem of inflation.
(a) (A) is TRUE but (R) is FALSE
(b) (A) is FALSE but (R) is TRUE
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)
(d) (A) and (R) both are TRUE but (R) is not the correct explanation of (A)
Answer:
(c) (A) and (R) both are TRUE and (R) is the correct explanation of (A)

4. Distinguish between:

Question 1.
Privatisation and Globalisation.
Answer:

Privatisation	Globalisation
1. Privatisation refers to including private ownership in publicly owned enterprises.	1. Globalisation refers to the process of development of the world into a single integrated economic unit.
2. It leads to the transfer of ownership, management, and control to the private sector.	2. It involves the removal of quotas, tariffs, etc. to facilitate greater mobility of factors and goods.
3. It takes place within the country.	3. It takes place all over the world.
4. By privatisation the country is benefited.	4. By globalisation the whole world is benefited.
5. It helps the country’s economy to grow.	5. It helps the world as a whole to grow.

Question 2.
Liberalisation and Privatisation.
Answer:

Liberalisation	Privatisation
1. Economic reforms which liberalize the economy from government control are called liberalisation.	1. Privatisation refers to including private ownership in publicly owned enterprises.
2. It leads to the opening of the economy to international competition.	2. It leads to the transfer of ownership, management, and control to the private sector.
3. It gives the opportunity for technology improvement which benefits producers and consumers.	3. It encourages monopoly power and may lead to the exploitation of consumers and workers.
4. It ignores the welfare aspect in the whole world.	4. It ignores the welfare aspect within the country.

Question 3.
Agriculture and Industry.
Answer:

Agriculture	Industry
1. Any productive activity which is carried on by using land and another free gift of nature is considered as agriculture.	1. Any productive activity in which processing on manufacturing takes place is called as ‘Industry’.
2. It is our primary sector.	2. It is considered as our secondary sector.
3. It is also known as an unorganised sector.	3. It is also known as an organised sector.
4. Even the unskilled labourers also gain employment opportunity here.	4. Only skilled people will gain employment opportunities here.
5. As a result of NEP, yield per acre could increase (or) productive capacity increased when we started using HYV seeds.	5. As a result of NEP, India could not only export traditional goods but also machinery, chemicals, computers, etc.
6. The negative impact of NEP (globalisation) in this sector leads to poverty, unemployment, indebtedness, etc. among the rural poor.	6. The negative impact of NEP on this sector leads to the concentration of economic and political power in few hands.

Question 4.
Private Sector and Public Sector.
Answer:

Private Sector	Public Sector
1. Private sector is that sector where industries are owned and managed by private individuals or businessmen.	1. Public sector is that sector where industries are owned, managed, and operated by the government.
2. E.g. Most of the small-scale industries and cottage industries are owned by the private sector.	2. E.g. Bharat Petroleum Ltd., Indian railways, etc. are owned by the public sector.
3. Its main aim is to earn profit.	3. Its main aim is to promote social welfare.
4. Quick decisions can be taken and managerial efficiency is high.	4. There is a delay in decision making and efficiency is lower.
5. Exploitation of workers is more and inequality increases.	5. Exploitation of workers is less and inequality reduces.

5. Answer the following:

Question 1.
Explain any two positive effects or achievements of NEP.
Answer:

Improvement in educational standards: Standards of educational institutions are improving. Our students are getting opportunities to study abroad.
Diversification of cropping: Due to globalization, the farmers have shifted from practicing traditional cropping to non-traditional cropping patterns.

Question 2.
What is globalization? How does it help to increase foreign capital?
Answer:
Globalization means the interaction of the domestic economy with the rest of the world with regard to foreign investment, trade, production, and financial matters. The government has opened the economy to foreign investments. Foreign capital is allowed in India without any restrictions. This flow of foreign capital encouraged high-priority industries to boost their production.

Question 3.
What are the objectives of NEP 1991?
Answer:

To make the Indian economy market-oriented by introducing it in the arena of globalization. To bring down the rate of inflation.
To move towards a higher economic growth rate.
To build sufficient foreign exchange reserve.
To achieve economic stabilization.
To promote international trade by removing restrictions.
To increase the participation of private players in all sectors of the economy.
To reduce the reserved numbers of sectors for the government.
To reduce the gap between import and export (BOP).

Question 4.
What is Privatization?
Answer:
Privatisation means allowing the private sector to set up industries that were previously reserved for the public sector. Privatisation is the process of transferring ownership of Public Sector Units (PSUs) to the private sector. Privatisation led to disinvestment, dereservation, the establishment of BIFR and NRB, etc.

Question 5.
What are the negative effects of NEP 1991 on farmers?
Answer:
Due to a lack of capital, poor farmers were unable to grow exportable crops. They were forced to sell their land or take extreme steps. Thus, they faced the problem of indebtedness and poverty.

Question 6.
Explain any 4 features of Economic Policy, 1991.
Answer:
Features of Economic Policy, 1991:

Delicensing: The new industrial policy abolished all industrial licensing, except 18 specified industries related to security and strategic concerns and social reasons.
Abolition of MRTP Act: No prior approval of the MRTP commission is now required for setting up industrial units by the large business houses.
Encouragement to Small Scale Industries (SSI): The investment limit of the SSI has been increased up to 5 crores which will help to upgrade their machinery.
Encouraging Foreign Investment: Many industrial units were open to foreign investment under the 1991 policy. The limit was raised to 51% and 100% in some industries and 100% in mining, pollution control equipment, electricity generation projects, ports, etc.

Question 7.
State the measures taken for Liberalisation.
Answer:
Measures were taken for Liberalisation:

Banks are free to determine the rate of interest. Earlier it was determined by RBI.
The industries are free to expand and produce. The producers are now free to produce anything on the basis of demand in the market.
Companies falling under MRTP Act are given a concession. Firms are free to make decisions regarding investment.
FEMA (Foreign Exchange Management Act) was introduced in place of FERA.
Domestic and foreign investment is allowed in infrastructure to improve its quality.
SEBI was formed to secure the interest of the investors.

6. State with reasons whether you agree or disagree with the following statements:

Question 1.
Agriculture and industry are interdependent or complementary.
Answer:
Yes, I do agree with the statement.

In a country like India, there are many agro-based industries like sugar, textile, oil, etc.
These industries depend on agriculture for their raw materials.
Hence, agriculture supports industries.
Industries also support agriculture in the sense that new methods of agriculture require more use of pump sets, fertilizers, pesticides, agricultural implements, etc.
All these are produced and supplied by the industrial sector.
With the help of these inputs, farmers produce more output.
Hence, the statement agriculture and industry are interdependent is a true statement.

Question 2.
There are no benefits of globalisation.
OR
There is no impact of globalisation on the Indian economy.
Answer:
No, I do not agree with the statement.
Globalisation for any country is important and the benefits are as follows:

Globalisation helps developing countries to improve overall economic management and make their economies efficient.
An increase in competition reduces the cost and improves the quality of products.
More varieties are made available to consumers and at lower prices.
Countries can get access to foreign investment and keep interest rates low.
Political stability is established.

Question 3.
The NEP has not achieved anything in India.
Answer:
No, I do not agree with the statement.

NEP brought a revolution in the IT sector which helps to earn foreign exchange.
It strengthened the financial sector by raising the competition among the banks.
The standard of educational institutions is improving.
It helps to improve the conditions of the BOP.
It helped to increase the exports of our country.
It also helped farmers by diversifying their cropping pattern i.e. from traditional products to non-traditional products.

7. Answer in detail:

Question 1.
Explain the measures taken for Privatisation.
Answer:
Privatisation means allowing the private sector to set up industries that were previously reserved for the public sector. Privatisation is the process of transferring ownership of Pubilc Sector Units (PSUs) to the private sector.

Measures were taken for Privatisation:

Dereservation Policy: The number of industries reserved for the public sector has been gradually reduced to only two and all other industries are deserved i.e. opened up for the private sector.
Establishment of BIFR: Board of Industrial and Financial Reconstruction (BIFR) has been set up to make the decisions about sick public sector units i.e. whether to close or revive them.
Creation of NRB: National Revival Board (NRB) has been set up to take care of unemployed workers of the sick units.
Status of Navratna: On the basis of strategic importance, nine public sector enterprises were selected and given the status of ‘Navratnas’ i.e. they were given the full managerial and financial freedom to make them global giants. Some are ONGC, BHEL, HPCL, SAIL, etc.
Disinvestment: This was an important step undertaken to reform public sector. The Government started selling PSUs to the private sector, those are running at a loss. e.g. Maruti Udyog Ltd. VSNL, etc.

Question 2.
What is Liberalisation? Explain the measures taken for liberalisation.
Answer:
Liberalisation means ‘economic freedom’ or ‘freedom for economic decisions’. All economic units are free to take decisions for self-interest e.g. consumer, producer, owner of a factor of production, etc.

Measures were taken for Liberalisation:

The flexibility of Interest rate: Banks are free to determine the rate of interest. Earlier it was determined by RBI.
Freedom for expansion of industries: The industries are free to expand and produce. The producers are now free to produce anything on the basis of demand in the market.
Abolition of Monopolies and Restrictive Trade Practices: Companies falling under MRTP Act are given concession. Firms are free to make decisions regarding investment.
Reforms in FERA: FEMA (Foreign Exchange Management Act) was introduced in place of FERA. It will encourage international trade.
Investments in infrastructure: Domestic and foreign investment is allowed in infrastructure to improve its quality.
Encouragement to foreign technology: The use of foreign technologies allowed in high-priority industries resulting in cost cuts.
SEBI: SEBI was formed to secure the interest of the investors and to regulate the securities market.

Question 3.
Write about major achievements of the NEP of 1991.
Answer:
Major Achievements:

Revolution in the IT sector: The contribution of the IT sector to national income has considerably increased. The demand for software engineers has increased in the developed countries.
Improved financial facilities: The financial sector has become more competitive due to the entry of private and foreign banks.
Improvement in educational standards: Standards of educational institutions are improving and our students are getting more opportunities to study abroad.
Increase in exports: Due to rising in export, the conditions of our adverse balance of payment is improving.
Diversification of cropping: Due to globalization, the farmers have shifted from practicing traditional cropping to non-traditional cropping patterns.
Solves the problem of scarcity: Due to liberal imports, the economy can overcome the scarcity of goods and raw materials.

Question 4.
Critically evaluate the NEP of 1991.
Answer:
Though NEP, 1991 brought many achievements to the economy, it has also brought failures in many areas:
Failures of Economic Policy, 1991:

Lack of self-sufficiency: Globalisation led to the diversion of production to export-oriented products which were demanded globally. This failed to achieve self-sufficiency in the home country.
Adverse effect on the domestic market: Imported goods were cheaper and were flooded in the Indian market due to liberal import policy. Thus, domestic markets were adversely affected due to globalisation and liberalisation.
Affected poor farmers: Poor farmers were not able to produce goods as per the export standards due to a lack of capital. So, the benefits of globalisation and liberalisation reached rich farmers only. This led to the selling of lands by small farmers for their survival.
Unhealthy competition: Indian companies could not match the competition with multinational companies and as a result, many Indian Companies had to declare themselves as ‘sick units’ or had to close down the industry-leading to unemployment and poverty in the society.
Neglects welfare aspect: Privatisation led to an increase in prices of products and services, as private firms are profit-oriented and not welfare-oriented. They are more interested in their profits rather than the welfare of society. Thus, the economic policy of 1991 failed to achieve the welfare of the masses.
Unemployment: Closing down of companies due to unhealthy competition by multinational companies, led to unemployment in the economy. An increase in the unemployment level in the country led to poverty and inequality.

Question 5.
How globalization will help to increase foreign exchange reserves?
Answer:
Globalisation refers to a borderless economy having a free flow of goods and services, capital, labour, technology, etc.
In other words, it means integrating the economy of a country with the world economy.

Globalisation has helped the economy to increase foreign exchange reserve in the following ways:

Encouragement to Foreign Capital: Due to globalisation, foreign investors were allowed to invest in Indian companies. Thus, foreign capital started flowing into various sectors of the economy. This led to an increase in the earnings of foreign currency.
Convertibility of Rupee: Due to globalisation and new economic policy, Rupee was made fully convertible ‘ into all current account transactions. This made foreign transactions easy and hence, the foreign currency started flowing into our economy.
Foreign Collaboration: Due to liberalization and globalisation, any trade was possible throughout the world. Indian companies made foreign collaboration to increase their business. This led to the flow of foreign exchange currency in India. E.g. Maruti-Suzuki, Hero Honda, etc.
Encouragement to Export: Due to the introduction of the Exim Policy, various incentives were allowed to exporters which made exporters do business on a larger scale. This increased India’s export and foreign exchange currency reserves. Thus to conclude, globalisation has overall encouraged to increase the foreign exchange reserves.

8. Read the following passage and answer the questions given below:

In the Second Five Year Plan (1956), the public sector played a major role by setting up basic and heavy industries for the economic and industrial development of India. In India, most of the Public Sector Units (PSUs) were working inefficiently. So, many PSUs were running in loss. PSUs never have competitive nature. PSUs know that whenever they will go into loss, they will be bailed out by the government. This attitude kills that competitiveness and cost-effective working nature of the unit which is necessary to earn profit.

In 1991, the Government decided to transfer ownership to the private sector which is more efficient in management, allocation of resources, better services to its customers, etc. Also, it helps to develop the local capital market and source of revenue to the government. Videsh Sanchar Nigam Limited (VSNL) was established in 1986 by the Government of India to bring internet to our country. In 2002, the Government of India decided to disinvest its shareholdings. TATA group acquired a 45% stake in VSNL. On 13th February 2008, VSNL was completely acquired by TATA Group and renamed TATA Communications.

At present, TATA Communications connects its customers in global offices at speed of up to 10 Gbits. It delivers voice, video, and data connectivity through subsea cable networks in 200 countries and territories. In 2018, annual income is 5575.96 crores and net profit (after deducting taxes) is 266.63 crores.

Question 1.
In which five-year plan emphasis is given to developing the public sector?
Answer:
In the second five-year plan, emphasis was given to develop the public sector.

Question 2.
Identify the reasons for the poor performance of PSUs.
Answer:
PSUs were working inefficiently, lack of competitive nature, dependence on bailed out by the government, lack in cost-effective working nature, etc. led to poor performance of PSUs.

Question 3.
Find out the economic concepts from this case study.
Answer:
Privatisation and Disinvestment.

Question 4.
Explain the benefits of privatisation.
Answer:
Under privatisation, ownership is transferred from the public sector to the private sector because the private sector is more efficient in resource allocation, management and provides better services to the customers. Privatization can be an important source of revenue to the government and help to develop local capital markets.

Question 5.
Explain the growth of VSNL after privatisation.
Answer:
In 2008, privatisation of VSNL took place. VSNL was completely acquired by the TATA group and renamed TATA Communication. At present TATA Communication is providing internet services globally. Its cable network is in 200 countries and territories. The annual income is 5575.96 crores and the net profit is 266.63 crores in 2018.