(i) Discuss briefly, causes and consequences of tax reforms taken by the Indian Government during economic reforms. (ii) Distinguish between Multilateral Trade and Bilateral Trade. (i) "Import substitution policy, if not applied carefully, can prove to be a double-edged sword for any economy." Do you agree with the given statement ? Justify your answer with valid arguments. (ii) Distinguish between stabilising measures and structural measures, as taken up by the Government of India in 1991.

Question

Accepted Answer

(i) **Causes and Consequences of Tax Reforms:**

**Causes:**
- High tax rates were causing tax evasion
- Complex tax structure was hindering compliance
- Need to generate revenue for government
- Attract foreign investment through tax incentives

**Consequences:**
- Rationalisation of direct taxes reduced tax evasion
- Simplification of process improved compliance
- GST unified indirect tax system
- However, tax reductions affected developmental expenditure
- Tariff reduction decreased customs duty revenue

(ii) **Difference between Multilateral and Bilateral Trade:**

| Basis | Multilateral Trade | Bilateral Trade |
|-------|-------------------|------------------|
| **Definition** | Exchange between more than two nations | Trade between two countries |
| **Scope** | Wider, involves multiple countries | Narrower, involves two countries |
| **Example** | WTO agreements | Trade agreement between India and USA |

(iii) **Import Substitution:** Policy of replacing imports with domestic production to reduce dependence on foreign goods.