Worksheet Solutions: Liberalisation, Privatisation and Globalisation- 1 | Economics Class 12 - Commerce PDF Download

Section 1: Fill in the Blanks

Q1: The basic aim of liberalization was to put an end to restrictions that hindered __________ and growth of the nation.
Ans: development
The primary objective of liberalization was to remove restrictions and barriers that hindered the development and growth of the nation. These restrictions included regulations on trade, investment, and other economic activities that were impeding the overall progress and advancement of the country.

Q2: Name two objectives of liberalization related to foreign trade.
Ans: encourage foreign trade, enhance foreign capital and technology
Liberalization aimed to encourage foreign trade by reducing barriers and restrictions, making it easier for businesses to engage in international trade. Additionally, it sought to enhance foreign capital and technology inflow by attracting foreign investment and technological advancements.

Q3: __________ industries were exempted from industrial licensing during liberalization.
Ans: Five
Five industries were exempted from industrial licensing during the liberalization period. These industries were identified as areas where the government aimed to promote growth and development by reducing bureaucratic controls and encouraging private sector participation.

Q4: During liberalization, the role of RBI changed to a __________.
Ans: facilitator
During liberalization, the role of the Reserve Bank of India (RBI) shifted to that of a facilitator. It aimed to facilitate economic growth and development by adopting policies that encouraged investment, financial stability, and market efficiency.

Q5: Devaluation of the rupee was done to encourage __________ and discourage imports.
Ans: exports
Devaluation of the rupee involved reducing the value of the Indian currency in relation to other currencies. This was done to encourage exports by making Indian goods more competitive in international markets. Additionally, it discouraged imports by making them relatively more expensive.

Q6: The World Trade Organization (WTO) acts as a watchdog for __________.
Ans: international trade
The World Trade Organization (WTO) acts as a global organization that oversees and regulates international trade. It ensures that trade between countries is conducted in a fair, predictable, and transparent manner, promoting a level playing field for nations participating in global trade.

Q7: The number of public sector industries reduced from 17 to __________ during liberalization.
Ans: 8
During the liberalization phase, the number of public sector industries reduced from 17 to 8. The government aimed to streamline and privatize public sector enterprises to improve efficiency and competitiveness in the market.

Q8: __________ was abolished on various imports during liberalization.
Ans: Quota system
The quota system, which imposed restrictions on the quantity of imports, was abolished on various imports during liberalization. This was done to promote free and open trade, allowing for greater market access and competition.

Q9: Name one sector impacted by liberalization related to reforms.
Ans: Financial Sector
The financial sector was significantly impacted by liberalization reforms. Liberalization brought about changes in regulations, opening up the financial markets, encouraging competition, and attracting foreign investment, leading to a transformation in the financial landscape of the country.

Q10: SLR, in the context of financial reforms, stands for __________.
Ans: Statutory Liquidity Ratio
SLR, or Statutory Liquidity Ratio, is a requirement set by the Reserve Bank of India (RBI) that mandates banks to maintain a certain percentage of their deposits in the form of liquid assets like cash, gold, or government-approved securities. It is a tool used by the RBI to control credit in the economy.

Section 2: Assertion and Reason

Q1: Assertion: Liberalization aims to increase competition among domestic industries.
Reason: Competition fosters innovation and efficiency in the market.
(a) Both Assertion and Reason are true and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Assertion is false, but Reason is true.
Ans: a. Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.

Q2: Assertion: Devaluation of the rupee was done during liberalization.
Reason: Devaluation helps in boosting exports and discouraging imports.
(a) Both Assertion and Reason are true and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Assertion is false, but Reason is true.
Ans: a. Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.

Q3: Assertion: The role of RBI changed to a facilitator during financial sector reforms.
Reason: This change aimed at promoting competition in the banking sector.
(a) Both Assertion and Reason are true and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Assertion is false, but Reason is true.
Ans: a. Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.

Q4: Assertion: Import duties were reduced during foreign exchange reforms.
Reason: This was done to encourage imports and boost international trade.
(a) Both Assertion and Reason are true and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Assertion is false, but Reason is true.
Ans: c. Assertion is true, but Reason is false.

Q5: Assertion: Industrial licensing was abolished for most industries during liberalization.
Reason: This was aimed at promoting entrepreneurship and reducing bureaucratic hurdles.
(a) Both Assertion and Reason are true and Reason is the correct explanation of the Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of the Assertion.
(c) Assertion is true, but Reason is false.
(d) Assertion is false, but Reason is true.
Ans: a. Both Assertion and Reason are true, and Reason is the correct explanation of the Assertion.

Section 3: Very Short Answers

Q1: Name one objective of liberalization related to foreign trade.
Ans: Encourage foreign trade.

Q2: Name one sector impacted by liberalization related to reforms.
Ans: Tax Reforms / Fiscal Reforms.

Q3: What is SLR in the context of financial reforms?
Ans: Statutory Liquidity Ratio.

Q4: Name one area where industrial licensing was still required after liberalization.
Ans: Defense equipment.

Q5: How many public sector industries were reduced during liberalization?
Ans: From 17 to 8.

Q6: What was the role of RBI during liberalization?
Ans: Facilitator.

Q7: Name one area where production areas were de-reserved during liberalization.
Ans: Small Scale Industries.

Q8: Name one industry where licensing requirements were not abolished during liberalization.
Ans: Cigarettes.

Q9: What was the aim of devaluing the rupee during liberalization?
Ans: Encourage exports and discourage imports.

Q10: Name one sector where there was an expansion of production capacity during liberalization.
Ans: Industrial Sector.

Section 4: Short Answers 

Q1: Explain the objective of devaluation of the rupee during liberalization.
Ans: Devaluation of the rupee was done to encourage exports by making domestic products cheaper for foreign buyers and to discourage imports by making foreign products more expensive for domestic consumers. This was aimed at improving the balance of trade and increasing foreign exchange reserves.

Q2: Describe the impact of liberalization on the industrial sector.
Ans: Liberalization had a significant impact on the industrial sector by abolishing industrial licensing for most industries, allowing producers to expand production capacity, and promoting flexibility in choosing crops and products based on market demand. It also led to the de-reservation of production areas and encouraged imports of capital goods to upgrade technology.

Q3: Explain how liberalization impacted the financial sector.
Ans: Liberalization impacted the financial sector by reducing various ratios like SLR and CRR, allowing competition from new private banks, changing the role of RBI to a facilitator, and deregulating interest rates. These changes aimed to enhance efficiency, encourage competition, and provide more autonomy to banks in setting interest rates.

Q4: Describe the reforms related to the external sector during liberalization.
Ans: Reforms related to the external sector during liberalization included devaluation of the rupee to boost exports and discourage imports, abolition of the quota system on imports, reduction of import duties, and withdrawal of export duties. These reforms were aimed at promoting international trade and increasing foreign exchange reserves.

Q5: Explain the concept of the World Trade Organization (WTO) and its functions.
Ans: The WTO is a global trade organization that facilitates and administrates international trade agreements, ensuring equal opportunities for countries in international markets. Its functions include trade review mechanisms, administration of trade agreements, dispute settlement, monitoring trade regimes, and providing economic studies on global issues.

Q6: Describe the impact of liberalization on the agricultural sector.
Ans: Liberalization positively impacted the agricultural sector by allowing farmers and producers to expand production capacity, choose crops based on market demand, and import advanced technology. It led to increased productivity per acre, improved efficiency, and facilitated exports of agricultural products.

Q7: Explain the changes in the tax structure during liberalization.
Ans: The tax structure was simplified during liberalization with reduced taxation rates. This simplification aimed to increase tax revenue for the government by reducing tax evasion and promoting compliance. The increased revenue was then utilized for the development of underdeveloped areas and sectors.

Q8: Describe the changes in the role of the Reserve Bank of India (RBI) during financial sector reforms.
Ans: During financial sector reforms, the role of RBI shifted from being a regulator to a facilitator. RBI focused on promoting competition and efficiency in the banking sector, allowing banks to set their own interest rates and reducing various ratios like SLR and CRR. This change aimed to create a more competitive and dynamic financial market.

Section 5: Long Answers

Q1: Discuss the objectives and impact of liberalization on the Indian economy.
Ans:

• Objectives of Liberalization: Liberalization aimed to increase competition among domestic industries, encourage foreign trade, enhance foreign capital and technology, expand global market frontiers, and diminish the debt burden of the country.
• Impact on the Indian Economy: Liberalization brought about a significant transformation in various sectors. It led to deregulation of the industrial sector, reduction in public sector control, expansion of production capacity, de-reservation of production areas, and freedom to import capital goods. In the financial sector, it resulted in reduced ratios, competition from new private banks, and deregulation of interest rates. Tax and fiscal reforms simplified the tax structure, increased tax revenue, and supported development in various areas. The external sector reforms, including devaluation of the rupee and policy changes related to imports and exports, aimed to boost international trade and foreign exchange reserves.

Q2: Discuss the reforms in the industrial sector during liberalization.
Ans:

• Abolition of Industrial Licensing: Except for a few specified industries, industrial licensing was abolished, promoting entrepreneurship and reducing bureaucratic hurdles.
• Contraction of Public Sector: The number of public sector industries reduced significantly, enhancing efficiency and competitiveness in the sector.
• De-reservation of Production Areas: The production areas reserved for Small Scale Industries were de-reserved, promoting efficient land use and farming.
• Expansion of Production Capacity: Producers were allowed to expand production capacity based on market demand, encouraging growth and development in the industrial sector.
• Freedom to Import Capital Goods: Businesses were permitted to import advanced technology and capital goods, facilitating technological upgradation and enhancing productivity.

Q3: Explain the reforms related to the financial sector during liberalization.
Ans:

• Reduction of Ratios: Ratios like SLR and CRR were reduced, providing more liquidity to banks and promoting lending and investment activities.
• Competition from New Private Banks: Entry of new private banks increased competition in the banking sector, leading to improved services and efficiency.
• Role Change of RBI: RBI's role shifted to being a facilitator, focusing on promoting competition and efficiency in the banking industry.
• Deregulation of Interest Rates: Banks were allowed to set their own interest rates, enhancing market dynamics and customer choice.
• Enhanced Autonomy: The reforms aimed to provide greater autonomy to financial institutions, fostering innovation and growth.

Q4: Describe the reforms related to tax and fiscal policies during liberalization.
Ans:

• Tax Structure Simplification: The tax structure was simplified with reduced taxation rates, making it easier for taxpayers and increasing compliance.
• Increased Tax Revenue: The simplification of tax structure and reduced tax evasion strategies resulted in increased tax revenue for the government.
• Utilization for Development: The increased revenue was utilized for the development of underdeveloped and undeveloped areas, supporting overall economic growth.
• Promotion of Economic Growth: The reforms aimed to promote economic growth by creating a conducive tax environment, attracting investment, and stimulating various sectors of the economy.