Test: Liberalisation, Privatisation And Disinvestment - UPSC MCQ

• Liberalisation: refers to relaxation of government restrictions usually in areas of social and economic policies.


• This process involves reducing government intervention and control in various sectors of the economy.


• Liberalisation aims to promote competition, efficiency, and innovation in the economy.


• It often involves deregulation, privatisation, and opening up of markets to foreign investment.


• Liberalisation is seen as a way to stimulate economic growth and development by allowing markets to operate more freely.

• FDI: Stands for Foreign Direct Investment.


• Definition: FDI refers to an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country.


• Importance: FDI plays a crucial role in the economic development of a country by providing capital, technology transfer, job creation, and stimulating economic growth.


• Types of FDI: FDI can be classified into different types based on the level of control and ownership, such as Greenfield investment, Mergers and Acquisitions, Horizontal FDI, Vertical FDI, etc.


• Benefits: FDI brings in new technologies, managerial expertise, access to new markets, and helps in the overall development of the host country's economy.


• Challenges: Some challenges associated with FDI include issues related to sovereignty, competition with local businesses, and potential negative impacts on the environment and labor standards.

The Correct Answer is A

• EFCG stands for Export Promotion Capital Goods.
• The acronym EFCG represents a program or initiative focused on promoting the export of capital goods.
• Capital goods are durable goods that are used in the production of other goods and services.
• Export promotion of capital goods involves efforts to increase the export of machinery, equipment, and other tools used in various industries.
• By promoting the export of capital goods, countries can boost their manufacturing sector, improve productivity, and strengthen their economy.
• It is essential for countries to focus on promoting the export of capital goods to drive economic growth and development.

• Year of Announcement: 1992


• Importance of EXIM Policy: The EXIM policy plays a crucial role in regulating India's import and export activities, ensuring smooth trade operations.


• Objectives of EXIM Policy: The main objectives of the EXIM policy include promoting exports, boosting the country's economy, and regulating foreign trade.


• Key Features of EXIM Policy:
  
  
  
  • Setting export targets and incentives to achieve them
  
  
  • Regulating imports to balance trade deficits
  
  
  • Promoting Special Economic Zones (SEZs) for export-oriented growth
  
  
  • Providing financial assistance and support to exporters
  
  
  
  


• Impact of EXIM Policy: The EXIM policy has had a significant impact on India's trade scenario, leading to growth in exports and a more regulated import system.

• Identified thrust areas for growth: The Foreign Trade Policy has identified certain sectors as thrust areas for growth, focusing on increasing exports and promoting these specific industries.


• Started "Served from India brand": The policy has introduced the concept of "Served from India" to promote the country as a global service hub, encouraging exports of services.


• Started duty free export credit: The Foreign Trade Policy has initiated duty-free export credit schemes to provide financial assistance to exporters, making it easier for them to compete in the international market.

Therefore, the Foreign Trade Policy has implemented various measures to boost exports, promote specific sectors, and provide financial support to exporters, aiming to enhance India's presence in the global market.

• Definition: Disinvestment refers to the process of selling a public investment to private enterprises.

• Government may choose to disinvest in order to reduce its financial burden and debt.


• It can also lead to increased efficiency and competitiveness in the industry.

• Encourages private sector participation and investment in the economy.


• Can lead to better management and performance of the disinvested entity.


• Generates revenue for the government which can be used for other developmental purposes.

• Government identifies the public investment to be disinvested.


• It appoints advisors to manage the disinvestment process.


• Shares of the public investment are offered to private enterprises through various methods like IPOs, OFS, etc.


• After the sale, the government no longer holds a majority stake in the entity.

• Disinvestment plays a crucial role in promoting privatization, efficiency, and revenue generation for the government.


• It is an important tool for economic reform and development.

Privatisation means a transfer of ownership, management, and control of public sector enterprises to the private sector. 
Ajit Kerkar's Tulip Hospitality acquired the Juhu Centaur the government under the privatisation programme.

• Cross Holding: Cross Holding is a method where companies hold shares in each other, creating a network of mutually owned companies.


• Disinvestment: In the context of the question, cross holding can be associated with disinvestment as it involves companies divesting their stakes in each other.


• Disinvestment Process: When a company decides to disinvest, it sells off its stake in another company, reducing its ownership in that entity.


• Benefits of Disinvestment: Companies opt for disinvestment to unlock value, improve financial performance, focus on core business, or comply with regulatory requirements.


• Impact on Shareholders: Disinvestment can impact shareholders of the company, as it may lead to changes in ownership structure, stock prices, and overall market perception.

• Cost, insurance, freight (CIF): CIF is a common trade term used in international shipping. It represents the total cost of goods from the seller's warehouse to the buyer's destination. The CIF price includes the cost of the goods, insurance, and freight charges.


• Cost: This refers to the actual cost of the goods being purchased.


• Insurance: This covers the cost of insuring the goods during transit to protect against any damage or loss.


• Freight: This includes the cost of shipping the goods from the seller to the buyer's destination.


• Answer choice: A: Cost, insurance, freight

Therefore, the correct answer is A: Cost, insurance, freight. This trade term is commonly used in international commerce to specify which party is responsible for the various costs associated with the shipment of goods.

• Leasing involves transferring the ownership of assets from the government to a private entity for a specific period of time.


• The private entity pays a lease rental to the government in exchange for the right to use the asset.


• At the end of the lease period, the ownership of the asset may or may not be transferred back to the government.

• Franchising allows the government to grant a private entity the right to operate a business using its brand, products, and services.


• The private entity pays a franchise fee and royalties to the government in exchange for the rights to operate under the government's brand.


• This model allows for private sector participation while maintaining control over the quality and standards of the business.

• Contracting involves outsourcing specific government functions or services to private companies through a contractual agreement.


• The private companies are responsible for delivering the services as per the terms of the contract.


• This model allows the government to focus on policy-making and regulatory functions while leveraging the efficiency and expertise of the private sector.

• Combining all these methods can help achieve comprehensive privatisation across various sectors and services.


• Each method offers unique advantages and can be tailored to suit the specific needs of different industries and services.


• By leveraging a combination of leasing, franchising, and contracting, the government can introduce competition, improve efficiency, and enhance service delivery in the economy.

• Globalisation: Globalisation refers to the process of increased interconnectedness and interdependence among countries through the exchange of goods, services, investments, and people.


• Movements in Globalisation: The past two decades have witnessed rapid movements in various aspects of globalisation.


• Goods: There has been a significant increase in the movement of goods between countries. This includes the import and export of physical products such as consumer goods, raw materials, and manufactured goods.


• Services: The movement of services, such as financial services, IT services, and consulting services, has also seen a surge in globalisation. This includes cross-border trade in services and outsourcing of services to other countries.


• Investments: Globalisation has led to increased movements of investments between countries. This includes foreign direct investment (FDI), portfolio investment, and other forms of capital flows across borders.


• Conclusion: Therefore, option B - "goods, services, and investments between countries" accurately reflects the rapid movements in globalisation over the past two decades.

The most common route for investments by MNCs in countries around the world is to buy existing local companies. To increase production, MNCs collaborate with some local companies as the production rate would rapidly increase. In most cases, the MNCs buy local companies and expand their production.

When countries open up to trade, they tend to grow faster and living standards tend to increase. Since dur to globalization, people with great wealth having higher purchasing power can will affect their standard of living. With globalization there will be more varieties of international brands in the market to purchase from. 

• Multinational Corporation: A multinational corporation is a company that owns or controls production in more than one nation.


• Characteristics:
  
  
  
  • Operates in multiple countries
  
  
  • Has a centralized management system
  
  
  • Engages in international business activities
  
  
  
  


• Benefits of Being a Multinational Corporation:
  
  
  
  • Access to new markets
  
  
  • Diversification of risks
  
  
  • Profit potential from different regions
  
  
  
  


• Examples of Multinational Corporations:
  
  
  
  • Apple Inc.
  
  
  • Toyota Motor Corporation
  
  
  • Samsung Electronics Co., Ltd.
  
  
  
  


• Conclusion: Multinational corporations play a significant role in the global economy by expanding their operations across borders and contributing to economic growth and development.

• Cheap labour resources: One of the main reasons why MNCs choose to set up production in certain locations is the availability of cheap labour resources. This helps in reducing production costs and increasing profit margins.


• Market access: MNCs also consider setting up production in locations where they have easy access to their target markets. This helps in reducing transportation costs and time-to-market.


• Infrastructure: Another important factor that MNCs consider is the availability of infrastructure such as transportation, communication, and utilities. Good infrastructure can help in smooth production operations.


• Government incentives: Many governments offer incentives such as tax breaks, subsidies, and favorable regulations to attract MNCs to set up production in their countries. This can be a major deciding factor for MNCs.


• Political stability: MNCs prefer to set up production in locations that are politically stable to avoid any disruptions in their operations due to political unrest or conflicts.