Economics - II : Previous Year Questions (2013)

PART – A

Q1. What are Unfair Trade Practices?

Ans. An Unfair Trade Practice is defined as any trade practice which, for the purpose of promoting the sale, use, or supply of any goods or services, adopts an unfair method or deceptive practice.

Q2. What do you mean by Balance of Payment?

Ans. The Balance of Payments, also referred to as the Balance of International Payments, is an accounting statement that summarizes all economic transactions between the residents of a country and the rest of the world during a given period. It captures imports and exports of goods and services, capital flows, foreign investments, loans, and transfers. Transactions are recorded from the perspective of the home country, including those undertaken by government bodies, private firms, and individuals.

Q3. Define Public Finance.

Ans. It is an enquiry into the techniques, principles, and policies that govern the use of scarce resources by the government to maximize social benefit.

According to Hugh Dalton, “public finance is the science concerned with the income and expenditure of public authorities and with the adjustment of one to the other.”

Q4. What is Deficit Financing?

Ans. This refers to the practice where the government spends more than its revenue, often by printing new money or borrowing from the central bank. It is frequently used in developing countries to finance developmental activities that cannot be funded through taxes alone. If not managed carefully, excessive deficit financing can lead to high inflation.

Q5. What do you mean by Foreign Direct Investment?

Ans. FDI refers to a long-term investment made by a foreign individual or company in the physical assets or business operations of another country. Because it involves physical assets and long-term commitments, FDI is considered a stable and "sticky" form of capital that is difficult to withdraw quickly during economic downturns.

Q6. Explain Centre - State financial relations.

Ans. The fiscal relationship between the Centre and States in India (Articles 268-293) is characterized by a structural imbalance where the Centre holds higher revenue-generating powers, while States bear greater expenditure responsibilities. This asymmetry is managed through tax devolution and grants recommended by the Finance Commission to ensure financial autonomy and balance.

Q7. Define Small Industry.

Ans. Small Scale Industries (SSI) are those industries in which the manufacturing, production and rendering of services are done on a small or micro scale. These industries make a one-time investment in machinery, plant, and equipment, but it does not exceed Rs. 10 crore and annual turnover does not exceed Rs. 50 crores.

Q8. Explain NBFI?

Ans. Non-Banking Financial Institutions are entities that offer various banking-like services, such as loans, investments, and asset financing, without holding a formal banking license. In India, these are typically incorporated under the Companies Act, 1956. They operate as specialized intermediaries that cater to specific financial needs or underserved segments of the population.

Q9. Define Globalisation.

Ans. Globalisation is the process of integrating a nation's economy with the world economy. It involves the conscious movement towards greater interaction with other countries through the removal of barriers to trade and investment.

Q10. What do you mean by Commercialisation of Agriculture?

Ans. Commercialization is the transition from subsistence farming (growing food for one’s own family) to market-oriented production (producing crops primarily for sale). This shift is characterized by the use of modern inputs and the integration of the farm into wider economic value chains.

PART – B

Q11. Differentiate between fixed and flexible exchange rates.

Ans. The primary difference between fixed and flexible exchange rates lies in how the value of a currency is determined and the extent of government intervention involved.

Q12. What is tax? Explain its classification.

Ans. Taxation is a mandatory financial charge or levy imposed by the government on individuals, businesses, or other entities to generate revenue for public expenditures and to finance various government functions and services. In a modern economy, taxes are not just revenue tools but also instruments for income redistribution and economic stabilization.

1. Classification Based on Incidence and Impact (Form)

The most common classification of taxes is based on whether the tax burden can be shifted from the original taxpayer to others.

1.1 Direct Taxes

A direct tax is one where the person who pays the tax to the government also bears the ultimate economic burden (incidence). The impact and incidence fall on the same person, and the tax cannot be shifted to others.

Examples Include: Personal Income Tax, Corporate Tax, Capital Gains Tax, and Wealth Tax.

• Merits:
  • Equity: Direct taxes are generally progressive, meaning they are based on the "ability to pay" principle.
  • Certainty: The taxpayer knows exactly how much they have to pay and when.
  • Civic Consciousness: Since people feel the pinch of direct taxes, they are more likely to monitor how the government spends their money.
• Demerits:
  • Evasion: High direct tax rates often lead to tax evasion and the creation of black money.
  • Inconvenience: The process of filing returns can be complex and time-consuming for taxpayers.

1.2 Indirect Taxes

An indirect tax is levied on goods and services rather than on income or profit. The person who pays the tax to the government (e.g., a shopkeeper) can shift the burden to the final consumer by including the tax in the price of the commodity.

Examples Include: Goods and Services Tax (GST), Customs Duty, and Excise Duty.

• Merits:
  • Convenience: They are paid in small amounts at the time of purchase, making them less burdensome to the taxpayer at once.
  • Broad Base: They cover everyone, including those whose income is below the direct tax threshold.
  • Discouragement of Harmful Consumption: High indirect taxes (sin taxes) can be used to discourage the consumption of harmful goods like tobacco and alcohol.
• Demerits:
  • Regressive Nature: Since the tax rate is the same for everyone regardless of income, it takes a larger percentage of a poor person's income than a rich person's.
  • Inflationary: They increase the price of goods and services directly.

2. Classification Based on Tax Rates (Method)

This classification looks at how the tax rate changes as the tax base (income or value) increases.

2.1 Proportional Taxation

Under this system, the tax rate remains constant regardless of the size of the income or tax base. Everyone pays the same percentage of their income.

• Example: If the tax rate is 10%, a person earning Rs. 10,000 pays Rs. 1,000, and a person earning Rs. 100,000 pays Rs. 10,000.

2.2 Progressive Taxation

A progressive tax is one where the tax rate increases as the income or tax base increases. It is based on the principle of "vertical equity," where those with higher income pay a higher proportion of their income in taxes.

• Example: Income tax slabs where higher income brackets attract higher tax rates (e.g., 5%, 20%, 30%).

2.3 Regressive Taxation

In a regressive tax system, the tax rate decreases as the income increases. Although the absolute amount might be the same or higher, the tax as a percentage of income falls as income rises.

• Example: A flat tax on essential goods (like salt or bread). A poor person spending a large portion of their income on these items pays a much higher percentage of their total income in tax than a wealthy person.

2.4 Degressive Taxation

Degressive taxation is a blend of progressive and proportional taxation. The tax rate increases up to a certain limit (progressive), after which it remains flat or constant (proportional). It ensures that the burden increases with income but not indefinitely.

Classification Based on Tax Unit

This relates to how the tax is calculated on the product.

• Specific Taxes: These are levied based on the physical unit of the commodity, such as weight, length, or volume (e.g., a tax per liter of petrol or per meter of cloth).
• Ad-Valorem Taxes: The term "ad valorem" is Latin for "according to value". These taxes are calculated as a percentage of the assessed value of the item being taxed, such as a 12% GST on the price of a laptop.

Q13. Describe various phases of business cycle.

Ans. A business cycle (or trade cycle) refers to the "wave-like" deviations in the level of business activities from a long-term equilibrium or trend line. It is a complex phenomenon that embraces the entire economic system rather than a single industry.

According to J.M. Keynes, a trade cycle is composed of "periods of good trade characterized by rising prices and low unemployment percentages with periods of bad trade characterized by falling prices and high unemployment percentages".

Phases of the Business Cycle

An economy typically passes through several distinct phases in a complete cycle.

1. Expansion (Boom or Prosperity):

This phase is marked by a consistent increase in output, employment, and demand.

Its Features Include: Rising GDP, increased capital expenditure, higher sales, and growing profits. Businesses often operate at or above full capacity, leading to inflationary pressures as demand begins to exceed supply.

2. Peak:

The peak is the highest point of economic activity and marks the saturation point of the expansion.

Its Features Include: Unemployment is at its lowest level, and wages and prices reach their peak. At this stage, economic indicators stop growing further, signalling an impending reversal.

3. Recession (Contraction):

A recession begins when the peak is passed and economic activity starts to decline.

Its Features Include: Demand for goods and services turns downward. Manufacturers may face oversupply as they fail to recognize the drop in demand, leading to an accumulation of inventory. Real GDP typically falls for at least two consecutive quarters.

4. Depression:

This is the most severe form of recession, characterized by a negative growth rate and a continuous decrease in demand.

Its Features Include: Stock prices take a sharp downturn, and many companies may go bankrupt or shut down. Unemployment reaches critically high levels.

5. Trough:

The trough is the lowest point of the cycle, where economic indicators reach a "negative saturation point".

Its Features Include: This phase marks the end of the recession and the beginning of a potential turnaround.

6. Recovery:

The recovery phase follows the trough as the economy starts to turn upward.

Its Features Include: Demand for goods and services begins rising again, followed by a rise in prices and production. The economy continues to grow until it reaches steady growth, eventually leading back into the expansion phase to complete the cycle.

Q14. Explain basic features of an underdeveloped economy.

Ans. An underdeveloped economy (often referred to as a developing or emerging economy) is characterized by a specific set of structural and economic challenges that hinder high levels of per capita income and quality of life.

Here are four basic features typically found in such economies:

1. Low Per Capita Income

The most prominent feature is a significantly low level of real per capita income compared to developed nations. This results in a low standard of living for the general population, characterized by poor housing, inadequate clothing, and a lack of access to basic amenities.

2. Excessive Dependence on Agriculture

Underdeveloped economies are usually agrarian. A vast majority of the population (often 60–80%) depends on agriculture for their livelihood. However, despite the large workforce, agricultural productivity remains low due to outdated farming techniques and fragmented land holdings.

3. Rapid Population Growth

High birth rates, coupled with declining death rates due to basic medical improvements, lead to a population explosion. This high growth rate puts immense pressure on existing resources, dilutes the benefits of economic growth, and increases the dependency ratio (the number of non-working individuals supported by the working population).

4. Chronic Unemployment and Underemployment

These economies struggle with "disguised unemployment," particularly in the rural sector. This occurs when more people are working on a piece of land than are actually required; if some workers were removed, the total output would remain unchanged. Additionally, there is often a lack of industrial jobs to absorb the growing urban workforce.

PART – C

Q15. Describe the problems faced in the estimation of National Income in India.

Ans. The estimation of National Income is a complex statistical and conceptual exercise, particularly in developing economies like India. These difficulties are broadly classified into two categories: Conceptual (Theoretical) Difficulties and Practical (Statistical) Difficulties.

I. Conceptual (Theoretical) Difficulties

These pertain to the logical and definitional challenges in deciding what should be included in the national income and how it should be valued.

1. Non-Market (Non-Monetized) Activities

Economic activities occurring outside the formal market, such as household production (housewives' services), volunteer work, and informal services, are often excluded. While these activities significantly contribute to societal well-being, they are challenging to quantify and include in traditional measures. In countries like India, a vast amount of production (e.g., kitchen gardening, child-rearing) never enters the market, leading to a systematic underestimation of the true economic output.

2. The Problem of Double Counting

Double counting occurs when the value of intermediate goods (goods used to produce other goods) is included alongside the final product's value. To avoid overestimation, only the value-added at each stage of production must be counted. For example, if the value of wheat is counted, and then the value of flour made from that wheat is also counted, the national income will be artificially inflated.

3. Price Level Fluctuations

National income is often measured at current market prices. However, prices fluctuate over time due to inflation. If prices rise without an increase in actual production, the "Nominal National Income" increases while "Real National Income" remains stagnant. Measuring real growth requires adjusting current prices using a price index (deflator).

4. Rapid Technological Change & New Economies

Modern advancements, such as the digital economy and the sharing economy (e.g., Uber, Airbnb), often do not fit neatly into traditional national income frameworks. Capturing the economic impact of these rapidly evolving industries remains a conceptual challenge for statisticians.

II. Practical (Statistical) Difficulties

These involve the actual hurdles faced during data collection and the reliability of the figures obtained.

1. Incomplete Coverage & The Informal Sector

National income relies on data from surveys, tax records, and official statistics. Ensuring complete coverage is difficult, especially in the informal sector, which comprises unregistered businesses and informal employment. These activities often go unrecorded and do not contribute to official figures, leading to a distorted picture of the economy.

2. Quality and Reliability of Data

Data collection processes are frequently subject to errors, inconsistencies, and sampling biases. In many regions, flawed or outdated data leads to inaccurate estimations. This is compounded in developing nations by a lack of trained enumerators and low levels of literacy among respondents who cannot maintain accurate accounts of their income or expenditure.

3. International Transactions & Complexities

National income must account for exports, imports, and income from foreign investments. These are subject to complexities such as exchange rate fluctuations, transfer pricing (where MNCs manipulate prices to minimize tax), and intricate corporate structures, making accurate measurement difficult.

4. Lack of Occupational Specialization

In agrarian economies like India, many individuals do not have a single, specialized occupation. A farmer might also work as a seasonal labourer or a small-scale trader. This lack of clear occupational boundaries makes it difficult to categorize and estimate income based on the "Productive Method" or "Income Method."

III. Impact of Estimation Errors on Policy

1. Distorted Fiscal Policy: Inaccurate national income figures can lead to flawed government policies regarding taxation and public expenditure.
2. Misleading Growth Indicators: If the informal sector's contribution is ignored, the growth rate may appear lower than it actually is, affecting international competitiveness and investor confidence.
3. Ineffective Deficit Financing: The government uses national income data to plan deficit financing (spending more than revenue) for infrastructure and human capital development. Faulty data can lead to excessive money supply, triggering high or "galloping" inflation.

Q16. Explain the objectives and instruments of Fiscal Policy.

Ans. Fiscal policy refers to the budgetary policy of the government, which involves controlling its level of spending and taxation within the economy to regulate aggregate demand. By adjusting spending and tax rates, the government can influence the level of economic activity, employment, and inflation. While monetary policy is managed by a country's central bank (like the RBI), fiscal policy is entirely regulated by the government. 

Fiscal Policy is of two types:

• Expansionary: Used during recessions to stimulate growth by increasing spending or cutting taxes.
• Contractionary: Used to cool an overheating economy and curb inflation by reducing spending or increasing taxes.

Objectives of Fiscal Policy

The objectives of fiscal policy vary depending on the economic state of a country (developed vs. developing).

1. General Macroeconomic Objectives

1. Economic Growth: A primary goal is to maintain a sustained and balanced rate of economic growth. It encourages investment in productive sectors.
2. Full Employment: Governments aim to achieve and maintain full employment or near-full employment to ensure citizens have work and livelihoods.
3. Price Stability: It helps control inflationary and deflationary trends, ensuring stable purchasing power for the population.
4. Reduction of Inequality: Fiscal policy serves as a tool for the redistribution of wealth, minimizing disparities through progressive taxation and social welfare programs.

2. Objectives in Developing Economies (e.g., India)

1. Capital Formation: In developing nations, the priority is often to increase the rate of investment and capital formation to break the "vicious circle of poverty".
2. Mobilization of Resources: Mobilizing financial resources through taxation and public borrowing to fund infrastructure and development projects.
3. Regional Development: Implementing programs to mitigate regional imbalances and ensure development in backward areas.
4. Balance of Payments Equilibrium: Reducing dependence on foreign capital and ensuring external stability.

Instruments of Fiscal Policy

Governments utilize several key instruments to implement fiscal policy effectively.

1. Taxation

Taxation is a powerful tool to influence disposable income, consumption, and investment.

• Direct Taxes: Taxes levied directly on individuals or corporations (e.g., Income Tax). They are often progressive, meaning the rate increases with income, helping reduce inequality.
• Indirect Taxes: Taxes on goods and services (e.g., GST). They can be used to regulate consumption (e.g., high taxes on luxury goods).
• Impact: Lowering taxes increases disposable income and spurs demand; raising taxes helps curb excessive demand and inflation.

2. Public Expenditure

Government spending on goods, services, and infrastructure is a direct component of aggregate demand.

• Developmental Expenditure: Spending on education, healthcare, and infrastructure (roads, dams) which builds the economy's long-term capacity.
• Non-Developmental Expenditure: Spending on defence, administration, and interest payments.
• Welfare Payments: Subsidies, pensions, and unemployment benefits act as a buffer for the vulnerable sections of society.

3. Public Borrowing (Public Debt)

When government expenditure exceeds revenue, it borrows funds internally or externally.

• Internal Borrowing: From citizens, commercial banks, and financial institutions within the country.
• External Borrowing: From foreign governments or international organizations like the World Bank.
• Purpose: Borrowing is used to fund large-scale infrastructure projects or to cover budget deficits during economic slowdowns.

4. Deficit Financing

This refers to the practice where the government spends more than its revenue, often by printing new money or borrowing from the central bank. It is frequently used in developing countries to finance developmental activities that cannot be funded through taxes alone. If not managed carefully, excessive deficit financing can lead to high inflation.

Discretionary vs. Non-Discretionary Policy

• Discretionary Fiscal Policy: Deliberate changes in tax rates or spending levels through legislative action to manage economic conditions. Examples include new infrastructure bills or tax reform packages.
• Non-Discretionary (Automatic Stabilizers): These are built-in features of the budget that automatically respond to economic changes without new legislation. Examples include unemployment benefits (increase during recessions) and progressive income taxes (collections drop when incomes fall, leaving more money in people's pockets).

Role and Importance

Fiscal policy remains the most powerful economic instrument for a government. It not only manages short-term fluctuations (like the COVID-19 economic impact) but also plays a transformative role in achieving long-term social equity, poverty alleviation, and sustainable development.

Q17. Explain the functions of RBI. Also explain the methods of credit control by RBI.

Ans. The Reserve Bank of India (RBI) is the central bank of India and the apex regulatory authority for the nation's banking sector. Established on April 1, 1935, under the Reserve Bank of India Act, 1934, it serves as the "Banker to the Government" and the "Banker’s Bank". The RBI’s primary objective is to maintain monetary stability, manage the currency system, and ensure the overall financial health of the economy while supporting economic growth.

Functions of the RBI

The functions of the RBI can be broadly categorized into traditional, supervisory, and developmental roles.

A. Monetary Authority

The RBI formulates and implements India's monetary policy with the primary goal of maintaining price stability (controlling inflation). While controlling inflation, the RBI ensures that there is enough credit available for productive sectors to foster economic development.

B. Issuer of Currency

The RBI has the sole authority to issue banknotes in India, except for the one-rupee note and coins (which are issued by the Ministry of Finance). It is responsible for the design, production, and distribution of currency, as well as the withdrawal of unfit notes from circulation to ensure the integrity of the currency system.

C. Banker to the Government

It maintains and manages the accounts of both the Central and State Governments. The RBI acts as a financial advisor to the government on matters of economic policy, public debt management, and international finance. It provides short-term credit to the government through "Ways and Means Advances" to bridge temporary mismatches in receipts and payments.

D. Banker’s Bank and Lender of Last Resort

Every scheduled bank is required to maintain a portion of its deposits (CRR) with the RBI. The RBI acts as a clearinghouse for banks, facilitating the settlement of inter-bank transactions. In times of extreme liquidity crisis or financial stress, when a bank cannot raise funds from other sources, the RBI provides emergency financial assistance to prevent systemic failure.

E. Custodian of Foreign Exchange Reserves

The RBI manages India's foreign exchange reserves (Forex) to maintain the external value of the Indian Rupee. It buys or sells foreign currency in the market to stabilize the exchange rate against volatility.

F. Supervisory and Regulatory Role

It issues licenses for setting up new banks, opening branches, and conducts periodic inspections of bank operations to ensure compliance with the Banking Regulation Act, 1949. It sets standards for capital adequacy and management to protect the interests of depositors.

Credit Control Policy (Monetary Policy Instruments)

The RBI controls the volume and direction of credit in the economy using two types of instruments: Quantitative (General) and Qualitative (Selective) methods.

I. Quantitative Instruments

These tools aim to regulate the overall volume of money supply and credit in the entire banking system.

1. Repo Rate (Repurchase Rate): The rate at which the RBI lends money to commercial banks for short-term periods against government securities. If the RBI wants to control inflation, it increases the Repo Rate. This makes borrowing expensive for banks, leading to higher interest rates for consumers, which reduces the money supply.
2. Reverse Repo Rate: The rate at which the RBI borrows money from commercial banks, or effectively, the rate at which banks "park" their excess funds with the RBI. An increase in the Reverse Repo Rate encourages banks to park more funds with the RBI instead of lending to the public, thereby reducing liquidity in the economy.
3. Cash Reserve Ratio (CRR): The specific percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be kept as cash with the RBI. By increasing the CRR, the RBI reduces the amount of "loanable" funds available with banks, thereby contracting credit.
4. Statutory Liquidity Ratio (SLR): The percentage of NDTL that banks must maintain with themselves in the form of liquid assets like gold, cash, or unencumbered government securities. A higher SLR forces banks to invest more in government securities rather than lending to the private sector, which helps control credit expansion.
5. Bank Rate: The standard rate at which the RBI is prepared to buy or rediscount bills of exchange or other commercial papers. Unlike the Repo rate, this is usually for long-term lending and does not involve collateral.
6. Open Market Operations (OMO): The buying and selling of government securities by the RBI in the open market. To reduce money supply (Inflation control), the RBI sells securities, absorbing cash from the banking system. To increase money supply (Recession control), the RBI buys securities, injecting cash into the system.
7. Marginal Standing Facility (MSF): A window for banks to borrow from the RBI in an emergency (overnight) when inter-bank liquidity dries up, by dipping into their SLR portfolio up to a certain limit.

II. Qualitative (Selective) Instruments

These tools are used to regulate the direction or use of credit to specific sectors of the economy.

1. Margin Requirements: The "margin" is the difference between the market value of the security offered for a loan and the actual loan amount granted. To discourage credit to a specific sector (e.g., real estate), the RBI increases the margin requirement, meaning the borrower must provide more collateral for the same loan amount.
2. Rationing of Credit: The RBI may fix a "ceiling" or limit on the amount of credit that can be granted to specific industries or sectors.
3. Moral Suasion: This is a psychological tool where the RBI uses informal means like meetings, letters, and speeches to persuade or "request" commercial banks to follow certain credit policies (e.g., reducing lending during inflation).
4. Direct Action: If a bank fails to comply with RBI directives, the RBI can take direct action, such as imposing penalties, refusing to rediscount their bills, or even cancelling their license.

Q18. Write a note on new industrial policy of India.

Ans. The New Economic Policy (NEP) of 1991 was a watershed moment in Indian history. Faced with a severe Balance of Payments (BoP) crisis and soaring inflation, the government moved away from the "License Raj" toward a more market-oriented economy.

The policy is famously summarized by the trio: LPG (Liberalization, Privatization, and Globalisation).

Liberalization: Removing the "License Raj"

Liberalization aimed to end the unnecessary bureaucratic controls that stifled private industry.

• Abolition of Industrial Licensing: Licensing was abolished for almost all industries, except for a few sensitive sectors (e.g., liquor, cigarettes, hazardous chemicals, electronics, and defence equipment).
• Expansion of Production Capacity: Companies no longer needed government permission to expand their production scale or diversify their product lines.
• Financial Sector Reforms: The role of the Central Bank (RBI) shifted from a regulator to a facilitator. This allowed for the entry of private and foreign banks, increasing competition.
• Tax Reforms: Significant reductions in personal income tax and corporate tax rates were implemented to encourage better compliance and higher revenue.

Privatization: Reducing the Role of the Public Sector

Privatization involved giving the private sector a larger role in nation-building while reducing the dominance of Public Sector Undertakings (PSUs).

• Disinvestment: The government sold a portion of its equity in PSUs to the private sector or the general public.
• Reduced Public Sector Reservation: The number of industries reserved exclusively for the public sector was slashed from 17 to just a few (currently limited mainly to Atomic Energy and Railway operations).
• Autonomy to PSUs: To improve efficiency, the government granted "Navratna" and "Maharatna" status to high-performing PSUs, giving them greater financial and operational autonomy.

The Central Public Sector Enterprises are designated with different status. A few examples of public enterprises with their status are as follows:

1. Maharatnas –

• Indian Oil Corporation Limited (IOCL)
• Steel Authority of India Limited (SAIL)

2. Navratnas –

• Hindustan Aeronautics Limited (HAL)
• Mahanagar Telephone Nigam Limited (MTNL)

3. Miniratnas –

• Bharat Sanchar Nigam Limited (BSNL)
• Airport Authority of India (AAI)
• Indian Railway Catering and Tourism Corporation Limited (IRCTC)

Globalisation: Integrating with the World

Globalisation aimed to open the Indian economy to the global market, making it more competitive and technologically advanced.

• Reduction in Tariffs: Import duties and customs taxes were drastically reduced to allow foreign goods to enter the market easily.
• Foreign Investment (FDI & FII): The limit for Foreign Direct Investment (FDI) was raised in many sectors, allowing foreign companies to own a majority stake in Indian ventures.
• Currency Devaluation & Partial Convertibility: The Indian Rupee was devalued to make Indian exports cheaper and more competitive. Later, the rupee was made partially convertible to facilitate easier international trade.
• Removal of Quantitative Restrictions: Limits on the volume of goods that could be imported or exported were largely removed.

Some crucial aspects/outcomes of globalisation are as follows: -

Outsourcing

In outsourcing, a company hires regular service from external sources, mostly from other countries, which was previously provided internally or from within the country (like legal advice, computer service, advertisement etc.) Many of the services such as voice-based business processes (popularly known as BPO or call centres), record keeping, accountancy, banking services, music recording, film editing, book transcription, clinical advice or even teaching are being outsourced by companies in developed countries to India. Most multinational corporations, and even small companies, are outsourcing their services to India where they can be availed at a cheaper cost with reasonable degree of skill and accuracy. The low wage rates and availability of skilled manpower in India have made it a destination for global outsourcing in the post-reform period.

World Trade Organisation (WTO)

The WTO was founded in 1995 as the successor organisation to General Agreement on Trade and Tariff (GATT). GATT was established in 1948 with 23 countries as the global trade organisation to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market for trading purposes. WTO is expected to establish rule-based trading regime in which nations cannot place arbitrary restrictions on trade. Its purpose is also to enlarge production and trade of services, to ensure optimum utilisation of world resources and to protect the environment. The WTO agreements cover trade in goods as well as services to facilitate international trade through removal of tariff as well as non-tariff barriers and providing greater market access to all member countries.

India as a member of WTO, has been in the forefront of framing fair global rules, regulations and safeguards and advocating the interests of the developing world. India has kept its commitments towards liberalisation of trade, made in the WTO, by removing quantitative restrictions on imports and reducing tariff rates.

Major Objectives of the NEP

1. Economic Growth: To increase the GDP growth rate.
2. Modernization: To bring in world-class technology and management practices.
3. Fiscal Discipline: To reduce the fiscal deficit and manage the BoP crisis.
4. Competitive Market: To break domestic monopolies and offer better quality goods to consumers at lower prices.

The NEP 1991 shifted India from a "Command and Control" model to a "Market-Driven" model, paving the way for the high growth rates seen in the subsequent decades.

Conclusion:

The new economic policy of 1991 hauled India out of the license-permit-quota raj, breathing new life to the stagnating economy. It was a significant step taken by the government, which launched India onwards onto the path of globalisation. As the LPG regime unleashed itself, a plethora of changes took place. The stronghold of bureaucracy loosened; public-private partnerships emerged loosening the shackles of government over the suffocated private sector.

The process of Globalisation through liberalisation and privatisation policies has produced positive, as well as, negative results both for India and other countries.