BB0029 –Economic Reforms Process in India

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Winter/ Nov 2012

Bachelor of Business Administration-BBA Semester 6

BB0029 –Economic Reforms Process in India - 4 Credits

(Book ID:B0188 )

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q1. How can India be regarded as a developing economy?

Answer : An underdeveloped economy is defined as an economy which has got unexploited natural resources and unutilized human resources. In other words, it is an economy, having a potentiality to grow. An underdeveloped economy shows the following features:

(a) In the underdeveloped countries, natural resources remain unexploited and underexploited due to various reasons. Systematic utilisation of natural resources alone can lead to -economic development.

(b) An underdeveloped country is basically a primary producing country, engaging its factors of production to produce only raw materials and foodstuffs. The percentage of population engaged in. agricultural sector is very high (70% in Indian context) and a major part of total national income comes from agriculture and activities allied to agriculture (around 30% in India).

(c) In case of UDCs, the scarcity of capital is both the cause and effect of low productivity and underdevelopment. Due to scarcity of capital, a better technique of production cannot be adopted in India due to undeveloped technology total volume of production and productivity is low. Due to low production and productivity, level of income is less, and consequently, less amount of capital is available to adopt better technique of production. Thus, poverty is both the cause and the consequence.

Q2. What was the economic crisis of 1991 in India?

Answer : By 1985, India had started having balance of payments problems. By the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had reduced to such a point that India could barely finance three weeks’ worth of imports. India had to airlift its gold reserves to pledge it with International Monetary Fund (IMF) for a loan.

Causes and consequences

The crisis was caused by currency overvaluation; the current account deficit and investor confidence played significant role in the sharp exchange rate depreciation.

Q3. What is the problem regarding current account deficit in the Balance of Payment? How does the current account convertibility help this?

Answer : Many students get very confused with all the different names for the different deficits. This little section should clear things up.

The trade deficit

The trade deficit is the deficit on the 'trade in goods' section of the current account. Newspaper columnists often refer to it as trade deficit, or trade gap, because it is a shorter, more, user-friendly, term. Do not] confuse the term 'trade deficit' with 'budget deficit' (as many students do). Budget deficit is to do with government taxes and spending. If a government spends more than they collect in taxes over a given year, then their budget is in deficit (hence the term).

The current account deficit

Q4. What liberalization has taken place in the economy since 1991?

Answer : The liberalization has taken place in the economy since 1991 as follows:

1. Freer Imports and Exports: In the pre-reform period, India's trade policy regime was complex and cumbersome. There were different categories of importers, different types of import licenses, alternate ways of importing etc. Substantial simplification and liberalisation in all these respects has been carried out in the reform period. The tariff-line wise import policy was first announced on March 31, 1996 and at that time itself 6,161 tariff lines were made free.

2. Rationalisation of Tariff Structure: On the recommendations of the Celia Committee Report in January 1993, the Finance Minister announced substantial cuts in import duties in 1993 - 94, the 1994 - 95 and the 1995 - 96 budgets. The 1993

Q5. How do you see the role of public sector in India in the current scenario with many of the as good assort even better than the private sector?

Answer : Changing Role of Public Sector in India

Prior to Independence, there were few ‘Public Sector’ Enterprises in the country. These included the Railways, Posts and Telegraphs, Port Trusts, the Ordinance Factories, All India Radio, few enterprises like the Government Salt Factories, Quinine Factories, etc. which were departmentally managed.

Independent India adopted planned economic development policies in a democratic, federal policy. The country was facing problems like in-equalities in income and low levels of employment, regional imbalances in economy.

  

Q6. Differentiate the role of private sector and public sector in the Indian economy.

Answer : ROLE OF PUBLIC-PRIVATE SECTORS AND ECONOMIC REFORM

The focus of post-reform policy in India has been to attract private investments, mainly for expanding India’s infrastructure. This policy is supposed to catalyze the economic growth and poverty reduction. The results so far of these reforms measures have been rather mixed. Procedures followed by the financial sector impose constraints on the funding of projects in India. Also, the  slow pace of reforms in key infrastructure areas, critics point out, do not encourage private investor to come forward with heavy and long-term investment

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