Question 1

Read the following text carefully and answer the given questions on the basis of the same and common understanding. The stabilisation and structural adjustment measures, initiated under the 1991 "Economic Reforms" mark a watershed moment in India's economic policies. For almost three decades since independence, India's development strategy and economic policies were guided by the objectives of accelerating the growth of output and employment with social justice and equity. Ever since the 1970's, it was realised that many of the regulations on economic activities have outlived their usefulness and were in fact hampering economic growth and development. In response to this, the government initiated some milder liberalisation reforms for almost a decade since the early 1980's. However, the Indian economy soon had to face the Gulf crisis and consequently : (i) The uncertainties about the oil prices; (ii) The external payment problems; (iii) The serious inflationary pressures; (iv) The scarcities of essential commodities; (v) The deterioration of fiscal discipline, etc. These led to the Indian economy on the verge of Economic crisis. In response to this emerging crisis, the Government initiated a set of stabilisation and structural reforms like : (i) Reduction in fiscal deficit; (ii) Containment of growth in money supply; (iii) An exchange rate adjustment system etc. The key objective of stabilisation policy was to bring the growth of aggregate demand in line with long term growth path of the economy. In conjunction, the structural adjustment measures like; (i) industrial delicensing (ii) liberalisation of policy regime governing international trade (iii) deregulation of financial sector Were taken to improve the supply side of the economy. This shifted the long-term growth path of the economy itself completely. (Adapted and modified) Source : https://niti.gov.in/planningcommission.gov.in/docs/reports/genrep/arep9099/at94-95.htm (a) Discuss any two reasons behind the introduction of Economic Reforms in 1991. (b) "In response to the emerging crisis in 1991, the Government initiated a set of stabilisation and structural reforms". Briefly discuss any three of such measures.

Accepted Answer

The 1991 Economic Reforms introduced stabilisation and structural adjustment measures under the New Economic Policy (NEP). The NEP had three main components:

1. **Stabilisation Measures:** Short-term measures to correct macroeconomic imbalances.

2. **Structural Adjustment Measures:** Long-term measures to restructure the economy.

3. **New Economic Policy Components:**
   - **Liberalisation:** Removal of industrial licensing, reduction in role of public sector, financial sector reforms
   - **Privatisation:** Disinvestment of PSUs, granting Navratna/Miniratna status
   - **Globalisation:** Integration with world economy, reduction in trade barriers, promoting FDI

The impact included increased GDP growth, rise in foreign investment, improved foreign exchange reserves, and growth of service sector.

Question 2

"Many economists believe that the economic reforms process of 1991 had adversely affected the agricultural sector." Do you agree with the given statement ? Quote valid arguments in favour of your answer. (i) Explain any two shortfalls of the industrial policy under the British rule. (ii) Quote the four goals of the five year plans process of India.

Accepted Answer

I **agree** that the 1991 economic reforms adversely affected the agricultural sector. Valid arguments:

1. **Reduction in Public Investment:** Public investment in agriculture, especially in irrigation, power, roads, and research, was reduced. This affected agricultural infrastructure.

2. **Removal of Fertilizer Subsidy:** Removal of subsidy increased cost of production, adversely affecting small and marginal farmers.

3. **Liberalisation of Import Duties:** Reduction in import duties on agricultural products exposed Indian farmers to international competition.

4. **Removal of Minimum Support Price:** This left farmers vulnerable to market fluctuations.

5. **Shift to Cash Crops:** Export-oriented policies shifted production from food grains to cash crops, leading to rise in food grain prices.

6. **Neglect of Agriculture:** The new policy focused more on industry, trade, and services, neglecting agriculture.

Question 3

Discuss any two liberalisation measures pertaining to the financial sector, introduced by the Government of India during the economic reform process of 1991.

Accepted Answer

Two liberalisation measures pertaining to the financial sector:

1. **Change in Role of RBI:** The role of RBI was reduced from regulator to facilitator. As a regulator, RBI used to fix interest rate structure for commercial banks. After liberalisation, RBI facilitates free market forces to act. Greater autonomy was ensured for financial institutions.

2. **Origin of Private Banks:** The reform policies led to establishment of private sector banks, both Indian (like ICICI) and foreign (like HSBC). This increased competition and benefitted consumers through lower interest rates and better services.

3. **Increase in Foreign Investment Limit:** The limit of foreign investment in banks was raised to 74%. Foreign Institutional Investors (FII) were allowed to invest in Indian financial markets.

Question 4

Read the following statements – Assertion (A) and Reason (R). Choose one of the correct alternatives given below : Assertion (A) : License Permit Raj was a major obstacle for growth of private sector. Reason (R) : Private sector wasted huge amount in obtaining licences, rather than on improving the product, quality and international competitiveness. Alternatives :

Accepted Answer

(C) Assertion (A) is true, but Reason (R) is false.

Question 5

Read the following text carefully and answer the given questions on the basis of the same and common understanding. The stabilisation and structural adjustment measures, initiated under the 1991 “Economic Reforms” mark a watershed moment in India’s economic policies. For almost three decades since independence, India’s development strategy and economic policies were guided by the objectives of accelerating the growth of output and employment with social justice and equity. Ever since the 1970’s, it was realised that many of the regulations on economic activities have outlived their usefulness and were in fact hampering economic growth and development. In response to this, the government initiated some milder liberalisation reforms for almost a decade since the early 1980’s. However, the Indian economy soon had to face the Gulf crisis and consequently : (i) The uncertainties about the oil prices; (ii) The external payment problems; (iii) The serious inflationary pressures; (iv) The scarcities of essential commodities; (v) The deterioration of fiscal discipline, etc. These led to the Indian economy on the verge of Economic crisis. In response to this emerging crisis, the Government initiated a set of stabilisation and structural reforms like : (i) Reduction in fiscal deficit; (ii) Containment of growth in money supply; (iii) An exchange rate adjustment system etc. The key objective of stabilisation policy was to bring the growth of aggregate demand in line with long term growth path of the economy. In conjunction, the structural adjustment measures like; (i) industrial delicensing (ii) liberalisation of policy regime governing international trade (iii) deregulation of financial sector Were taken to improve the supply side of the economy This shifted the long-term growth path of the economy itself completely. (Adapted and modified) Source : https://niti.gov.in/planningcommission.gov.in/docs/reports/genrep/arep9099/at94-95.htm (a) Briefly outline any two reasons for the initiation of Economic Reforms in 1991. [2] (b) Government introduced a set of stablisation and structural reforms to solve the economic crisis. State the key initiatives and objectives of these policies adopted by the Government of India. [4]

Accepted Answer

The 1991 Economic Reforms introduced stabilisation and structural adjustment measures under the New Economic Policy (NEP). The NEP had three main components:

1. **Stabilisation Measures:** Short-term measures to correct macroeconomic imbalances like fiscal deficit, balance of payments crisis, and inflation.

2. **Structural Adjustment Measures:** Long-term measures to restructure the economy by removing rigidities and improving efficiency.

3. **New Economic Policy Components:**
   - **Liberalisation:** Removal of government controls and restrictions on private sector
   - **Privatisation:** Shedding ownership/management of government enterprises
   - **Globalisation:** Integrating national economy with world economy

The reforms were initiated due to balance of payments crisis, fiscal deficit, high inflation, and slow economic growth.

Liberalisation, Privatisation and Globalisation: An Appraisal

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