Chapter-3 LIBERALISATION, PRIVATISATION AND GLOBALISATION @ Why weve veborms introduced. in Incba? A- New Econom'e Polfay (NEP) was Inbroduced. In Indéq, to ov eveome economic aviges. following ax the reasons for Inbroduckfon ot reforms ‘in lodia + - 1) Ror perhormance oF public Sector Undertakings CPSU%).ln the Last four decades, the overall pertormance otpublit secloy ‘as very Poor and huge Losses cere incurred 492. good numbey of publ. seclov undertakings. Bg ii) Deticctin balance obpayments :- Balance of payments fs Che Ep dittevence between Mow ot favelgn exchange and ebetoe fovefgn excosange. When outtlowot fore’gn exchange Psmove than ‘ntlow oF hoveign exchanges balance of payments become adverse Even aber Imposing heavy toxtlts and Atcing quotes there was a Shaxp ¥?ge In ?mports, dn the other hand ytheve wag slow growth of exports dite t Low qualtty and Mgbprices of Indéargoacs fn the hreign mart. this ded, to de Prett in Bor, Ib9s an untwourasle i) lntlaHfonary Fessures There war a. consistent vise In ageceval Shale price Leved tn the economy due t increase money supply and shorlage oF essential goook,. One of the mafor veasons fo Sntlation wos debtert financing ire borrowings by the gout: from the RB) to meet the government dehietls. Pabtest financing teads tomove money suppdyin the economy. which Focveases the Level of aggregate demand and tt aggregate supply cannot increase atthe game vale, prices axe bound to vise. te) Fally feveign excchange veserves - ln 1941, foreign exchange Yeserves fell tthe Aowest Level. Foxeign exchange vesevves declined tea Level that was notadequate :~ 44) i btoance Imports for move than hoo weeks and te pay the fotevest 12) to pay the tolnest that needls tobe paldl totatenakional Lenders. D Hage burden oF debts :. The expenditure of Mhe gout.wasmuch Siphe) thon revenue, aha-vesult gout. bad to bervew money Prom barks Publ | and from international toanctal tastituttons - | IneFFceat management:- The origin eb Ananda extsie can be aced tron! the tnetPicent management tn the 1980%s. Gouts expendi furs was constantly greakev than its sevenue, Due to faulty ronagement, the Aulesand the Laws which atmed ab contyolling ard xegulabing Hy econon.yanded up in hampering theprocess ot growth and develop me, ok. vi Ga) How many countries axe membess of the Wid > Aos- Currently theve ave ISQccuntries who ae members oF Wid $ @3) Why tet rececsany 1 become amemberot Wid? Ans- Ibe necestany % become amembevol Wid because IHbelps In enlevtay ‘nfo agreements among membey countries. Wi0 vegulates fradeand tawit agreements of membey countries Allowing axe the hunckions done by Wid :- Wi0 esteblisha rule bared trading velaime in which nabions connect Place axdelory vestrictlons on trade. 1) th taciletate tokernaktonod trade (ot btlaberal and multilaberal trade) Prreagh vemoval of tavitty as well as non-tavibt barriers, iti) fo en large produckionand trade of services ¥) feensuxe optioumn ubilcgakton otworld vesources and ») Te protect the environments +) Grants each member Most Favoured Nakion slatus wwhtch meant | Hhak Wi0 members must treal cacholher the Same. i vil) hey give no pretereatial trade benctit to ary mernber eatthouk . gieing It too all. vit) Wid prides its member countries with darger scope 42 produce tn lactqer scale which gives ample scope toutilize would source plimally and provides. greaker market access thilety. i) Wid members have hower trade havrhys with each other. lower Trade Barvrers allow members larger market for the? goods which head to greater tales, more jobs and faster economic growth. » The devedgoing counties being members of WD can varre pele ooice tosakeguand there common fn kevsect. £9 hy ded RBI have bo change tH: vole thom controller te tackletale a hinanctol seokor in Indéa ? Ans- Prior ty keberaltrabton, RBI uscd to regulate and control the francéal instifations kthe commertal banks, Investment harks, Stock exchange operations and forelyn exchange Markel, _Atler the cconomte Liberalisation and Ananaal sector ve terms 5 R81 Sbitfed its role trom controll to factlefator oF neh aval seckrre ic reales aubromy was granted to the trancal. seckoy in taking decisions on various matters without consulting the RBI. The mato objeckive bebtnd the Mandal reforms ewas te encourage Private selov eof pavbapation, increase competition and. allowing _vnacket tovees te operate tn the tinanctal sector. Ganksutve given treedom to setup Pew branches (able Aulbillment-ol cerbain cond:bion wtthouk the approval of RBI. 9-3) How was RBI contrathing the commereiol bank e.? Ans the Financial Secker tn India ts controlled by the Central Bunk Reserve Bank of India (R81). RBI t Known as the aperc (supreme)body as itoccupter the top most posibion fn themontlery and hankeng Sysheom of the county. The vey tatroduced andey MBI ave ~ Bange In vole of RBI~ The vole oF RBI was recluced trom vigulaev t hcthttatey of Financial Sector. As ovesedly Hoancial | sector wasallewed totake decisions en many matters cwitbout consulting the RBI. Av a vegulaley (prior bo Bhevalésabion) P3/ usedd te be Infovest vale shrackuve By Poe commercial baok- Attercharging Be wk asa treclila tov (post -Jibevalitetien) RB1 now Pacilctates the Kee market povces toack according y- In Phe post Liberoltsabten eva, 9vealer autonomy bas beer insured for Financial Instthattons for thety hunctioning. The vebyry polites led + breech bithment of privele teoler banks (a8 well as hore. foreign Invesbment Amit tn India. oas Hy hr. Those banks are given treelom to set up new branches without the approval oF AB) and vationalise their existing branch netoovhs. Though banks hwe been given permission te generale yesounces Krom Indig and abroad, cevfain Mmanager//| aspecli have Been retained! with the RBI to Sahguondl the Foretgn Inslitubioral Investors ~ Foreign lnstitubional Avestrs such 03 Mubeal Fands and Pasion Funds 2% 20 | allowed fo invest to Inclian Anancial markets: » Oyigin of Pifvate Banks ~Inelian Banks Like re1c1 and foxetgn banks dihe HSBe incvease the conpethion and benebited the consemert Porough dower fateres? vate and health sevices | , om 60) What do you undevsfand by devaluation of Meaney Yupee, Ans Pevaluation velers to veduckton in the value ot domeste carseney against foreign curxency fn Phe country. Te overcome balance of payment crisis, the rupee war devalued against “ovefan cunmenctes » This ted boar Incvease Inthe Inklos of boreign exchange. 8) Listing uich bebween tavilt and non tavil4 barrie ve, dtlakeval trade and maltt-lakeval fade ? Ans 2 The barriers cobtehare tmpesed on Imports ot goods and servicer te make then velabtuel costlier and toprobedt the de meshie producers hom the HUE tafernalional compebtion are haoun as tit barriers for eg. Import dabies > Onthe obser handy nen tavit#é barriens dre Prete bavrlete which ave Imposed on guantily oCimport andexpart oF goods andservicer . fev e.g - Quotas and impoxt hiseeasing, The trade (export and fmpovt)behween two countries fs known as bilakeval tade whereas multilateral trace is fhe trade between more than two countries CO” Why ave Avil imposed? Ans Tasitts ave imposed. on imports te make them relatively costly + and fe prohet the domes: produchon. @-Y What tt the meantng of guankthtive veshfetfons 2 fos Quantitative veshtotons ave non tavilt barriers Imposed oo theamount ot-tmports and exports,G9) Those Public Seckor undertakings hichave making probity should be privatised Poyou agree with this vFew? Ans. them more compelitive and ebfteent. Houseve %, ita P80 tea ineHrent and lose making then St maybe privatised, provided, such PEO 75 nof Meant le sere Cwellave of geneval public. Piraktsalton of such !mpovtank Pur will dead tedosy of welfare ob poor people. Hence, only Less Impovlant Pivs should be privalited and core PSUs Should canttoue te be ewned by the public secber. Qe) Po yon Mink eubsourcing ts good toy India $ Why ave developed counletes opposing #2 ns- The allowing potnts fastity oF:- 1) Employment Ikprovides emphyment toa large noo unempoyed hdltane, Juksoureing Aas Intensitred tn veaton times Secause of the growth oF pst modes eXcomarunrsabion, particularly the prot of ) Becharge of tech nteal know-how ~Outsourcing enabler te exchange ct ideas and teconical know ~haw ob sophisticated munication Link $ the tet orice and vtsual date tn Yespo clot continents and nabional best boundaries, Tonal worthiness and evedibilety. Nut de nok agree with th's view. Probit making public geefov unde rth! (ts)ave Phe Yevenve generatev and geut. needs their prov tomake } and advancecl tebnolagy. With the help of modern the com. these Se voices Fs digitised and. trans matted in veod Fines ove | Gi) Jabrvnatinral Whuthiness- Ouksouset ing alse enbances India’s fatevna.| hy) Betlerstandaxd obLiving $ Brradcabfon ot poverty ~Bq éveakt more and higher paid fobs, outsourcing Improves the 3h oF quadity of Utotng of the pegole. However deLeloped counties opposed cutsewseing te ladda becouse of the hollowing reason : Ouksouncing Leads fo att low cttunds Form which Yeduces the “nconre despant the develozed countries generat fon ond Creates job ) Oubsouning reduces He en oppont Insecunity fo the ved oped countries. re oubscuncing destin ation Whalave the: advantages? fren ofthe worl. India had Certain advantage $ which makes tha Faveunite hodga. is otter called ay out souriny cles Hn, Discuss the prime veasons for this © | Ans- India has become a main destipakien tov subsouseerny box rostel the MNCs becauce ot the Bilowtng reasons: - D fay autlat lity ofcheap Laboue- nthe wage vatesin Indig avecompanitive'y dower than thaket the developed Gounteles, As avesulé,YNCs ouftouvee thety business Sn India Tp Avatlability of skilled man Power ~ ~ Indéa bas vast skilled manpower, which enpances the tat ok MNCs Ti) favourable govt. polesées ~ ~HNCs getr vasfous hyper of Lucrative offers trom the Indian govt tke fax holidays, low tax. vales , ets 3) Internahional worthiness ~ India has a fair inkerrabionas certhine and credihiléty .ed) og fa thy wre developed coorrtetrs Bo you thitth fhe Mavavatna policy ot the ove Yamext hilpsto tmproutag the pevbormance of PSUs ta Indies © Hows 2 os. pedovirance of public Reduclion in Import duties 07 agy. prods > Rermaval bmintmure sapportprice | 2 Biting ot faantitotive veston agn pr 15) ny hae Povdasteial seckow performed poorly 5 the reform pricy Bi) ung na ¥ : 2) Gabe? Yh oF goods -Leveloping counteies a fo Penge Beit ceonomies trom developed Coumtrtes vender ing Todt, wulnerable fe Temperled goocks. Cheaper imports replaced 2 deme, ae ohdemeshie goods. Vomeshic industries Faceh@O™pebition trom inser i) Inteastruckare cthshes -The tabrastrackure tuililies tneladin power supply, bave remained inadequate dur te ack oF Hnvestmess Neon -taritt bawiers 4, deve lped countries - A developed country & bodi« does not have access te developed countries market bea oF ABb n0n- farrit barriers . Although lk quotas yestviebrons o, ““portot texttlerand clothing hus been verroved t0 lode, A Ukikin balance ot payments arises oben Avelyn payments Ly txted. bien vecdepte Sam : A) Import, Export Kianom*. velox? have wi He valeokpabhi. recor. tedsced. means vemoval oh entry and growth restr on the private gechey A) hibevalesalion ts one of the taxes Liminabeol abbey implemen tion of GST A) VAT As per Pirancial sechoy retovms, the vole 0-781 wag veducok from to facthiboy of Arartial seckov A) Regulalor Die aim of & SF fs te fateg vale Indlian ccaneny with ghebal economy relevs % contracting oul some obits ackivifies tea Aid parly which weve earlier performed by the og. 4) Ouksccreing means transkr tf ownership, maragemen(andk control ot PSE te the enbveprencurs Io the Privake sec’ A) Piuabrrakiondue domesltewene rcs vehers % the redsecllor D Besluation Rooretivation led te channel 2 ing Sasirgs tats te system. (Brarcial 01 000- A) Foanctal Rorwebsalier 5 Urewed as measure ! » hax adminthabior frretyn, ox Paage vabe ts debroairad by A Preand arcl Spal AU indivecl taxes have been subsumed under fem | 1 tues | i | | A) ost Why do developed coustvies eppese cub ectxcing workte Indi? | A) D1 results i> unemployment in Bvelgn countries dt veduce come Litparities between countries @ Peeuss economic reforms fo tadig in the Aightot cial justice aod sselhave & Growing w wh, o har 7 Removal Ot Subsidy ~ Femoval of heyliliter subsidy Srcreased thecostot Proeducion which adversely abheled tmall and varih Bic tn he pre of frac grains: Lue be expert ~oBlenhd polity shrahgie Lure, theprodaclion thi Red Bom fod grains fe cashergs, qn Ihled t0 rise inthe prices af food rains be Cheapev Imported lrvads - ue to globalesaliarrs Ol adeasllel Pte deacired adarviesan fh domeshe industries were exported te Imperled goocks Phere was ag coals dasa ves 5 Spread OF levserne rim - Ihe new poly has been encouraging a lees trend ob consum eritm by encouraging the produdbion of deruries and thems at Superior ontumplien 6 Unbalanced brrath - Crrowth has been concen traled on ly faseme seleckaveas tn the service tector such as tele-communicotian, Inbromabten techreleg y, Unance, entertainment, travel ard Paspthalily services, real estake and trade rather tharvital sectovs suchas qgdeulbire and industry which provide Lsve lshood millisas oF poplin the courhy.ifxpora Chaplet furan Catton. Forwarion ly ino bk DiHagutsh behoven Physical capttal and human capital Praca Cpttal 4 Physical Copttal nclucles all those Inputs which ave Yequtved hy hurthey production. y- Falory, butldings, machinery, land, ra. onafertal ek, 9 The Phystcal capftal fs needed % make use otphysical resources. Mts aceuroalatton ts qulebimportant for the economic development of the county, 2 Mhytteal Capital % tangible and can be easily sold tn the market. 2 Iedepreciates with the passage of time, » Mtis more mobile bebween countries ) Prystealeapttal Ltke machinery canbe seperated ham thewnev 2 Physical Capel tethe cultome of physical concious decision ot paces ovine and tP mainly an economies and technfeal process. 2 Mean be built rough Importr. Human Capital 2 Ib velers fe Be shille aperton aaguives through educakion,training oy experience, adding % hi/ber value t the preduchon procere 2 Ahura capital ts needed ts make eheckive use of physital capital 2) Human capital fe falangible aod cannotbe sald in the market. Only the services cb human capitelean be sted | 2 Rpreciabion In human capital canbe reduced by making continuous | favestment in education and health. There fs a need fer Investment in heeman capital te produce move human capital ou oF human vesouvees Manan capital fs less mobile bebween countries eh compa b ph sal cyottl as meverrcal te vestrictedlby nathnallyan, 2 Kagan capital cannot be Seperabed tromthe cuner. 2 hemabion otbuman capital hr partly a socal ptocers and partly a antics decison 04 He portesstor of the buman. cypited.. 2 Ie toomabign xe be clone trough contioas poltey tormidabien ot Hegs. Honan Capitan. Fornariont D Kumar piled brppalton velers tothe process ofaddition made le oe shek of hited 0 and capable people Inthe country over pervied oF time, the ditherent Sources of human capital termation ave as Allows :~Surces Or Horan Carian. The tae mafer Sources of human capital amet 2 Investmenk tn educabten 2 Iuestment in healkh tnpicarars OF FoucaTioniat. Acie VEMENT 2 Adult Literacy Hate 2 Youkh Ubrracy Rate 2 Pierary Completion Rake @ Wry do we observe regional differences in educaltoral Hainmrent in Keflonal dtberences in edeabtonal abla Sament-tn tndba can bedue ke 9 Regtonal By Inequallt ty tn Income 9 Diparibies In expendtbure by govetament en dwelapment of educabional hetlitiesBring ouk the dithvences between human cartel ard Pamar pd ee cducabton even tt they de aol vesull tn higher Labour aleve. at anne tle ihe hbhrnnces bebseen busmen capital and burran devel) — 44) ent ave :- ov Exphiin the dithrent sources a haman capital prmabor 9 Human capt considers education aad heat asa oa te ineveage Labour prodychotly .00 Me other hand, according 4. Lee ee PG dpa ond health cringed there coef being. 2 Human captlal heoks human Seings as a means toincvease in 3 bavthy, Any ioveshment % education and. healbr Fs, cnproductive if tt doee nok enbante cfg z sevvtees. However; azeezding 30 duran alévelepments buna beings ave hence In Yoemgeloer. Human welfare should be | ‘ncreased Yorough Investment in edusalfon even th hey bo nok rebull fn bighev Labour productitly. ~ hake fos Human development ta broad ferm a8 compared to buman capital because t- Yeoran cape tals human beings asa means foanend, | Aicovding Yo Auman developments hum@n betngs "arg hence in Mearselocs. : RS yet | the concept oF buman capital asse rle ary | GLH does notenhance output of | goods, and serotces According %e huran development, buran we Ve should. be Beveaseol trough Investment o Se alee el. Sf Picats the bllowing a1 4 tource stbuman cepted bamnalion ‘Vealth inbraslracture it) Expenditure on rmigeation fy Ans | @ Flucalton te consideved + bean Tenportant tnpul fy the G Bithblish te reed by acquiring nhrmatt development of a nabion. How 2 dns Education is considered 10 bean Important input ty the Ans the expendturee on educalien and health make substantial Long town tmpack and they cannot be easily reversed. br eg~ tha child i election nies Muherouinten coach on park. eadedlld th ethetl ghee con bev, and veyud 2 gives beer soctal standing and pride servtees ave not provided. then subshotial amount of- derrage 3D Itenables one 4 make belter chofees fo Lite | would have been done bebore the decteion ts taken to shit the 4 Ut provides knowledge % arderstind He charges Hat take child ty anothey institution. Place inthe Sociely. | F Ikalso stimulates Tonovakiont 6 bhiihlater adaptabion otnews technedegites,a The fa libres he thefemation of hua capital remain inadequate - Tetnug IncMeoney ~ There ra totol exashge oA toc Fes veiours as capact lites Peducaled people ave eter aobmade usec, (to case of unemp hypnentlov are undov ubjlizedtin cate of uadeverrply ots ce Wry, ran elanben ory Hilden, I ded Uy SOMch have not been ended to ‘adequerbely and propeely.| mpalgo ‘Bet Bachaa, Bet fadahet abi sfavted in 2S bythe Intuc io Pepceotied of Grender Based, See Stats) Ey W, insuring Svctoal § Retection at tee Gil Ci DBiouctrg ahecbre tp Me pctinn oot CaP 2D) Brin Peain ~Feople migrate tom ene place to oncthev in searboh « SEER IT a ES baller job oppurtunthies and har Exp Wheads be the Lose oF auality people tthe dock, eyineevs, ek whe have high caliber ard are van | 3 f | 75 adeveleplag country. The WB ot such losse, | \ EPicdica useol physteal copttal ~The preducltuthy of buco physical | copths 2) High Grats of Rpulaion~ The conttoucus vise Mn poplabion bay 2. Higher Reduclituity § Freduckion Dortely Machete quality athaman avill reduces pev head anilebtleby of hdlibies - Invent tons, nnovalan Flechnolag ical Improvements — 4 Swemal Inbal aces A greaker proporttan ob Yetouvees havebeen 3 towent é eae diverted tusavde higher ecleccabtor, which te meant bow Food Peeple 03 compsred t pinay | 4% Hodernisabion OF Attitudes ~ and tecpndary educabion lee te Wis reaseo, | gereral productivity of the economy has vematred dows 5: Ineveases Kite kxpeclency ~ hack of proper - ~ Theve 4 an Imbalance beposen the demand and syapy oFresouren| b+ Improves Gualthy dt kite ~ Pravious cabggovies especially in case of Dighly shille perce, absence oF Steck balancing Pas res, in wastage oFvesouvcet + Gntol ot fpulalion Growth - weak Stence $ Tecbroligy —~ In vespeck-ol eclucation, Whe perfey. Maree & in Me Fields ok | Séence and develspraen t of prodeva tebrolagy.A) Educabion contvtbubes to economic grout —_—_— A) Education contives higher earning capacity on per le Ans- Both Nad R ave true, avd R the covreck exp. OF A. “apthad formabon hab nspovtabton Fon niigmbed places A) Exp. on miyralion %¢ a Source of hurvan 8) Migvabton % ofbev countries touolves cstol tra one place another and highevcosbot ting in Yhe hos- Both are tru ey bul Ris nokthe cove” eel ion 0. D) Spread at cducabion % necessary + contral the populabion 9 vou 2) Harman capitol kmabion decreases qualtly ob Leh € | Ans: A fs Prue bul _ See S eee | { how expendelure onmigration fs a 80urce ot human cap. br inabs, Fay. on migration 3s a Source of hunan capital hroalien ag j enhanced earnings in the migrated place fs move Voan Me acreage in cost due fo migration. How ts on the fob training a source oF humen eagpitel ‘Symation bn the fobtraining fea source of Hef as ttiocreases the shill and cHicerey oF He worhers and Leads an increase fo seat dhe te raigrabien priducbion and producltetty. ; vehirs * the shch of shill, ability, expertise, ediscallon ard Knowledge, enbe to He people — Ans Human lapihl ‘ Theexp. by the gout: on education Zs expressed as i) rentage ot gat. exp. ‘)fercentage of GLP ii) Percentage of NI iv)Both ASB fas Both Aand B