1. Economics Class 12
  2. Indian Economic Development
  3. Chapter 3 IED Liberalisation, Privatisation And Globalisation
Check sibling questions

Indian Economy During Reforms an Assessment

Last updated at Dec. 14, 2024 by Teachoo

POSITIVE EFFECT OF REFORMS

Increase in GDP

GDP Growth Rate increased from 5.6% during 1980-91 to 8.2% from 2007-12

Contribution of Different Sectors

Main contribution to GDP Growth has been Service Sector

Agriculture Sector suffered a decline

Industrial Sector's growth was Inconsistent

Increase in Foreign Investment

Foreign Investment is in form of

FII (Foreign Instituitional Investors)

FDI (Foreign Direct Investment)

This Foreign Investment has increased from 100 million in 1990-91 to 413 Billion in 2018-19

Increase in Exports

India has been a successful exporter in case of

Software,Textiles,Engineering Goods,Autoparts etc

Inflation

Ricing Prices have been kept in control by Govt due to various reform measures

 

CRITCISMS OF REFORMS

Growth and Employement

GDP Growth Rate increased after 1991

However sufficent employment oppurtunities have not been generated for the people

This is because there hasn't been much growth in industrial and agriculture sector, which generate maximum jobs

Reforms in Agriculture

Reforms made from 1991 have not benefitted agriculture sector

This is because of following reasons

Reforms in Industry

Industrial Sector also recorded a slowdown because of following reasons:

Disinvestment

It means Sale of Part of Equity of PSE to public by Government

Every year government fixes a budget for disinvestment

 

Effects of Disinvestment

Government Received funds from sale of PSE

In 1991, it was 2500 crore.

It increased to 1 lac crore in 2017-18

These funds should be ideally used for:

Development of Other PSE(Public Sector Enterprises)

Building Social Infrastructure in Country like Roads, Dams, Education

However, these funds are being used for

Meet shortage of Government Revenue

 

Also as per critics, these PSE are being sold at an amt much less than their actual value

This is causing loss to Govt

 

Effect of Tax Reforms and Fiscal Policies

Following Reforms were taken by Govt

NCERT Questions

Question 13

What are the major factors responsible for the high growth of the service sector?

View answer

Factors responsible for the high growth of the service sector:

1. New Economic Policy

The introduction of Liberalisation, Privatisation and Globalisation has enhanced the growth of the sector

2. Advancement in the IT sector

3. Good quality labour is available in India at a cheap rate

 

Question 14

Agriculture sector appears to be adversely affected by the reform process.

Why?

View answer

44

 

Question 15

Why has the industrial sector performed poorly in the reform period?

View answer

Industrial Sector also recorded a slowdown because of following reasons:

 

1. Cheaper imports

Due to Globalisation Developing Countries like India had to open up the economy and

allow import of goods from developed nations.

These goods were cheaper as compared to Indian goods.

So, people preferred these cheaper goods and Indian Industry suffered

 

2. Inadequate Investment in Infrastructure

There was inadequate Govt spending on infrastructure like Roads, Power supply,

 

Research and Development etc.

 

Hence, Indian companies had to suffer and were not able to grow

 

3. Restriction on Exports

Countries like USA continue to have Quota Restrictions like

 

Restriction on Import of textile from India

(Hence Indian business were not able to export goods upto full potential)

 

Question 16

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

View answer

The economic reforms in India in the light of social justice and welfare produced following results:

1. Increase in GDP

GDP Growth Rate increased from 5.6% during 1980-91 to 8.2% from 2007-12

 

2. Inflation

Ricing Prices have been kept in control by Govt due to various reform measures

 

3. Rising Unemployment

GDP Growth Rate increased after 1991

However sufficient employment opportunities have not been generated for the people

This is because there hasn't been much growth in industrial and agriculture sector, which generate maximum jobs

 

4. Partial Removal of Fertilizer subsidy

Cost of Production has increased as fertilizers have become expensive

This has effected small and marginal farmers

 

5. Quantitative Restrictions on Import Removed

Imported Agricultural Goods were cheaper and of better quality

Indian goods were not able to compete with them

 

6. Inadequate Investment in Infrastructure

There was inadequate Govt spending on infrastructure like Roads, Power supply,

Research and Development etc.

Hence, Indian companies had to suffer and were not able to grow

 

MCQ Other Books

Question 1

In the following questions, select the correct answers:

Cheaper Imported good was one of the reasons behind:

  1. Growing unemployment
  2. Unbalanced growth
  3. Low level of Indsutrial growth
  4. Spread of Consumerism

View answer

C. Low level of Indsutrial growth

Explanation

One of the reasons, Industrial Sector recorded a slowdown was:

1. Cheaper imports

Due to Globalization Developing Countries like India had to open up the economy and

allow import of goods from developed nations.

These goods were cheaper as compared to Indian goods.

So, people preferred these cheaper goods and Indian Industry suffered

 

Question 2

Read the following hypothetical text and answer question that follow:

India’s Micro, Small and Medium Enterprises (MSME) sector is poised for a mega transformation in 2020, with the launch of an Alibaba-like e-marketplace, trendy yet affordable khadi

products to appeal to the masses and digital data-based credit ratings to help entrepreneurs avail loans.

However, the MSME sector is often considered the bulwark of the economy as it contributes around 29% to the GDP and 48% to the Indian exports.

There is an urgent need of major reforms and policy interventions towards ensuring timely availability of low-cost credit, improving ease of doing business and technological

upgradation, to take on the formidable challenge of creating millions of jobs, ensure equitable distribution of national income and achieving large-scale import substitution.

The World Bank has recently approved loan worth $750 million to address the immediate liquidity and credit needs of India’s MSME sector that has been severely impacted by the

Covid-19 crisis.

This will give a push to the Atmanirbhar Bharat vision of the government. (CBSE Question Bank 2021)

Question 1

Identify which of the following is not an advantage of the MSME sector?

  1. It is suited for the utilization of local resources.
  2. It is helpful in creation of employment opportunities.
  3. It requires more capital than labour.
  4. It ensures equitable distribution of income in the country.

View answer

C. It requires more capital than labour.

Explanation

MSMEs don’t require heavy capital investment as they produce simple products by using simple technologies mainly labour-intensive production techniques.

 

Question 2

MSME sector suffered to a large extent in COVID-19 pandemic situation due to ________ .

  1. Liquidity crunch
  2. Obsolete technology
  3. Government Interventions
  4. All of the above

View answer

A. Liquidity crunch

Explanation

The World Bank has recently approved loan worth $750 million to address the immediate liquidity and credit needs of India’s MSME sector that has been severely impacted by the

Covid-19 crisis.

Question 3

Read the following statements - Assertion (A) and Reason (R).

Assertion (A): Small scale industries ensure a more equitable distribution of national income and wealth.

Reason (R): The ownership of small-scale industries is more wide spread than the ownership of large-scale industries.

  1. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
  2. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
  3. Assertion (A) is true, but Reason (R) is false.
  4. Assertion (A) is false, but Reason (R) is true.

View answer

A. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

Explanation

The ownership of small-scale industries is with one individual in sole-proprietorship or it can be with a few individuals in partnership.

 

Question 4

_______________ are the largest employer of the labour force in India.

  1. Agricultural Sector
  2. Small Scale Industries
  3. Cottage Industries
  4. Service Sector

View answer

A. Agricultural Setor

Explanation

The agricultural sector is the largest employer in the Indian economy. Nearly 51% of the population is engaged in this section in one way or the other.

Transcript

Positive Effect Of Reforms GDP Growth Rate of India Increased Earlier Now 1980-91 2007-12 5.00% 11.20% Increase in GDP increased the Income of Country and its People Contribution of Various Sectors to GDP Agriculture 3.60% 3.20% Industry 7.10% 7.40% Service 6.70% 10% Agriculture Sector Declined Industrial Sector Remained Inconsistent Most Growth in Service Sector Positive Effect of Reforms Increase in Foreign Investments and Reserves Earlier Foreign Investment 100 Million (1980-91) Forex Reserves 6 Billion Less Foreign Investment in India Low Forex Reserves No Funds to Pay for Imports for even 15 days Now Foreign Investment 30 Billion Dollars (2017-18) Forex Reserves 413 Billion Dollars More Foreign Companies Opening offices in Indian (FDI) and investing in Shares of Indian Companies (FII) More Forex Reserves India One of Largest Forex holders of Word Criticism of Reforms Measures GDP Increased but not jobs Earlier Now 1980-91 2007-12 5.00% 11.20% GDP Growth Rate increased after 1991 However, sufficient employment opportunities have not been generated for the people Reason for Less Creation of Jobs It is is because there has not been much growth in industrial and agriculture sector which generate maximum jobs. Agriculture 1980-91 2007-12 3.60% 3.20% Industry 7.10% 7.40% These 2 Sectors Provided Most Opportunities But not much growth in these 2 Sectors Majority of Growth in Service Sector Not enough to provide jobs to India's Huge population Not Much Benefit to Agricultural Sector from Reforms Reform Measure Taken Public Investment in Agriculture Decreased (Decrease in Govt spending) Partial Removal of Fertilizer subsidy Low Minimum Support Price Quantitative Restrictions on Import Removed Export Oriented Strategy in Agriculture Negative Effect Less Spending on Agricultural infrastructure (Irrigation, Power, Roads) Fertilizers became Expensive Affected small farmers Farmer Not Able to earn Decent Profit Imported Goods Cheaper, of better quality Indian Products couldn’t compete More Cash Crops grown like coffee, rubber Less food crops like Wheat, Rice This increased price of food grains Issues with Different Reforms of Industrial Sector Indian Toy Imported Toy Poor Infrastructure in India Textile industry Affected by Quota Restrictions of USA Limca India Acquired by Coca-Cola, USA Goldspot India Business Closed Restrictions on Imports Reduced, affected local industry Imported Goods Cheaper, of better quality Indian Products couldn’t compete Inadequate investment in Infrastructure Govt did not spend adequate money in Improving Infrastructure (Better Roads, Electricity etc.) Due to this, Indian Industry couldn’t prosper Restriction on Exports Continued Countries like USA continued Quota restrictions Like Quota (Max Limit of textile which could be purchased from India) Opening up of Economy caused loss to Indian Industry Many Foreign Companies Started business in India . Due to this, Many Indian Companies shut business or were acquired by Foreign Companies. Effect of Disinvestment Reform Measures Govt followed the Policy of Disinvestment Money Received from Sale (Sale of Shares of Public Sector Enterprises by Govt to Public is called Disinvestment) Effect This led to Increase in Availability of Funds to Govt Criticisms These Funds should be used for Development of Other PSU Development of Infrastructure of Country However, it was being used for Meeting Shortage of Revenue (From Other Sources like Taxation) As per critics PSU were sold for less than Market Price This lead to loss to Govt and Country Effect of Tax Reforms And Fiscal Policy Reform Name Tax Rates were Reduced Income Tax Rates Reduction in Tariff (custom duty) on Imports Custom Duty Price of Product 100 Add Custom Duty 200 Total Price 300 Tax incentives to Foreign investors for setting up business in India Foreign Co setting business in India Tax Rate No tax for 5 Years Because of all this, Revenue of Govt declined Hence, it had lesser revenue for Development and Welfare expenditure Also it had to do Disinvestment (Sale of PSU) to generate funds
  1. Economics Class 12
  2. Indian Economic Development

    3. Chapter 3 IED Liberalisation, Privatisation And Globalisation

    Chapter 4 IED Poverty →
Chapter 4 IED Poverty →
Economics Class 12
Indian Economic Development

About the Author

Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo