Students must start practicing the questions from CBSE Sample Papers for Class 12 Economics with Solutions Set 11 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Economics Set 11 with Solutions
Time Allowed: 3 Hours
Maximum Marks: 80
General Instructions:
- This question paper contains two sections
Section A – Macroeconomics
Section B – Indian Economic Development - This paper contains 20 Multiple Choice Questions of 1 Mark each.
- This paper contains 4 Short Answer Questions of 3 Marks each to be answered in 60 to 80 words.
- This paper contains 6 Short Answer Questions of 4 Marks each to be answered in 80 to 100 words.
- This paper contains 4 Long Answer Questions of 6 Marks each to be answered in 100 to 150 words.
Section A
(Macroeconomics)
Question 1.
Complete the table (1)
Alternatives
(a) 4,000, 20,800, 4,000, 8,800
(b) 8,000, 20,800, 8,000, 8,800
(c) 8000, 10,400, 4,000, 8,800
(d) 4,000, 20,800, 8,000, 88,000
Answer:
(b) Gross Value Added = Value of Output Intermediate Consumption
(i) Farmer
4,000= Value of Output – 4,000
∴ Value of Output = 8,000
(ii) Total Value of Output = 4,000 + 8,000 + 8,800 = 20,800
(iii) Total of Intermediate Consumption = Baker + Farmer + Retail Seller
12,000 = 0 + 4,000 + Retail Seller
∴ Retail Seller = 12,000 – 4,000 = 8,000
(iv) Total Value Added = 4,000 + 4,000 + 800 = 8,800
Question 2.
The money multiplier in an economy increases with …….. . (1)
(a) increase in cash reserve ratio
(b) increase in statutory liquidity ratio
(c) increase in banking habits of the population
(d) increase in the population of the country
Answer:
(c) Money multiplier in an economy increases with the increase in the bariking habits of the population. It measures the amount of money that commercial banks would create out of their deposits after keeping certain fractions as reserve. So, as the banking habits of the people increase, the deposits will aiso increase leading to an increase in the value of money multiplier.
Question 3.
In the Covid-19 times, many economists have raised their concerns that Indian economy may have to face a deflationary situation, due to reduced economic activities in the country. Suppose you are a member of the high powered committee constituted by the Reserve Bank of India (RBI). You have suggested that as the supervisor of commercial banks, …….. of the money supply be ensured, by the Reserve Bank of India (RBI). (1)
(a) restriction
(b) release
(c) contraction
(d) None of the above
Answer:
(b) release
Question 4.
Statement I Autonomous transactions are independent of the state of BoP account. Statement II Balance of payments is an accounting statement that records monetary transactions between residents of a nation and the rest of the world. (1)
Alternatives
(a) Statement I is true and Statement II is false
(b) Statement I is false and Statement II is true
(c) Both the statements are true
(d) Both the statements are false
Answer:
(c) Both the statements are true
Question 5.
The shaded part given in the diagram represents the situation of …….. . (1)
(a) inflationary gap
(b) deflationary gap
(c) deficient demand
(d) None of the above
Answer:
(a) inflationary gap
Question 6.
Which of the following is not a tool of monetary policy? (1)
(a) Tax rate
(b) Interest rate
(c) Cash reserve ratio
(d) Open-market operations of the central bank
Answer:
(a) It is not a tool of monetary policy as it does not affect the demand and supply of money.
Question 7.
Foreign exchange transactions which are independent of other transactions in the balance of payments account are called (1)
(a) current transactions
(b) capital transactions
(c) autonomous transactions
(d) accommodating transactions
Answer:
(c) autonomous transactions
Question 8.
If total expenditure is ₹ 2,000 and total receipts is ₹ 1,500, fiscal deficit will be equal to (1)
(a) ₹ 2,000
(b) ₹ 1,500
(c) ₹ 500
(d) Can’t be determined
Answer:
(d) Total receipts are comprised of debt creating capital receipt, which are excluded from fiscal deficit. Thus, in this case fiscal deficit can’t be caiculated.
Question 9.
Deficit in Balance of Payment (BoP) refers to the excess of
(a) current account payments over current account receipts
(b) capital account payments over capital account receipts
(c) autonomous payments over autonomous receipts
(d) accommodating payments over accommodating receipts
Answer:
(c) autonomous payments over autonomous receipts
Question 10.
The government budget has a revenue deficit. This gets financed by (1)
(i) borrowing
(ii) disinvestment
(iii) tax revenue
(iv) indirect taxes
Codes
(a) (i) and (iv)
(b) (iii) and (iv)
(c) (i) and (ii)
(d) (iii) and (ii)
Answer:
(c) (i) and (ii)
Question 11.
“India’s balance of payments is in disequilibrium”. Enumerate some of the factors, which according to you, can be the causes of disequilibrium. (3)
Answer:
India’s Balance of Payments (BoP) is in disequilibrium as payments on account of foreign transactions exceed the receipts on account of foreign transactions. (1)
Some of the causes of disequilibrium are enumerated below (any two)
(i) Inflation Changes in price and cost structure of a country’s export industries affect the volume of export and the balance of payments position.
Increase in price due to higher wages and higher prices of raw material makes export costlier and results in deficit in balance of payments.
(ii) Expenditure on Developing Relations Newly independent countries, in order to develop relations with other countries, have to spend huge amount of money on ambassadors, missions, etc. This has adverse relation on balance of payments.
(iii) Import Services Underdeveloped countries, import capital and other services from developed countries results in deficit in BoP.
(iv) Demonstration Effect People of underdeveloped countries imitate the consumption pattern of the people of developed countries leading to an increase in the level of imports. This increase results in a deficit balance in the BoP account. (2)
Question 12.
Calculate net national product at market price from the following data (3)
Items | ₹ (in crores) |
Net factor income from abroad | (-) 5 |
Private final consumption expenditure | 100 |
Personal tax | 20 |
Gross national disposable income | 170 |
Government final consumption expenditure | 20 |
Corporation tax | 15 |
Gross domestic capital formation | 30 |
Personal disposable income | 70 |
Net exports | (-) 10 |
Savings of private corporate sector | 5 |
Net national disposable income | 145 |
Or
What type of data is required to measure national income at each of the three phases of circular flow?
Answer:
Here,
NNPMP = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation + Net Export – Depreciation + NFIA
= 100 + 20 + 30 + (-10) – 25 + (-5) = ₹ 110 crore
Depreciation = Gross National Disposable Income – Net National Disposable Income
= 170 – 145 =₹ 25 crore
Or
The following data is required
(i) Production Phase The data relating to net value added at factor cost in primary. secondary and tertiary sectors and net factor income from abroad.
(ii) Income Phase The data relating to net interest, net rent, net profit, net wages and net factor income from abroad.
(iii) Expenditure, Phase The data relating to private final consumption expenditure, government final consumption expenditure, gross domestic capital formation, net exports, depreciation, net indirect taxes and net factor income from abroad.
Question 13.
In an economy, the equilibrium level of income in ₹ 12,000 crore. The ratio of marginal propensity to consume and marginal propensity to save is 3: 1. Calculate the additional investment needed to reach new equilibrium level of income of ₹ 20,000 crore. (4)
Answer:
Here, ΔY = 20,000 – 12,000 = ₹ 8,000 crore
∴ Additional investment required =₹ 2,000 crore
Question 14.
The given excerpt has been taken from the article “Can barter system work in today’s India?” published by The Times of India on 15th January, 2022.
“When Covid-19 hit in early 2020, it affected every aspect of people’s lives. Communities had to look for alternative modes of survival.
One approach that some of them took was a return to the barter system – a solution they were familiar with. People bartered perishable goods such as vegetables, kirana stores in villages provided essentials in exchange for wheat, and food grains became a currency to pay children’s tuition fees”.
Inilight of the given excerpt, define what you mean by barter system and explain three of its limitations. (4)
Answer:
Before evolution of money. commodities were exchanged for commodities. This system of exchange was known as C-C economy or barter system. (1)
The major limitations of the C-C economy are given below
(i) Lack of Double Coincidence of Wants it is the major drawback of the barter system. It is very rare, when the owner of some good or service could find someone who wanted his goods or services and also possessed the same goods or services that the first person wanted.
No exchango was possible in the absence of double coincidence of wants.
(ii) Lack of Common Measure of Value In barter system, there was absence of a common unit of measurement in which the value of goods and services could be measured. In the absence of a common unit, proper valuation was not possible.
(iii) Lack of Standard for Deferred Payments Deferred payments means future payments. in barter system of exchange, it was very difficult to make deferred payments in the form of goods as the quality of goods was subject to change. (3)
Question 15.
‘Mission Develop India’ is the plan of government to create basic infrastructure. It comprises of projects on irrigation, roads, housing, water supply and telecommunication connectivity. Above stated example is a government expenditure or government revenue. Elaborate it. Also, state the impact of this programme on rural growth. (4)
Or
“The government budget plays a crucial role in promoting economic stabilisation in an economy”.
In what ways does the government budget contribute to achieving economic stabilisation in the economy.
Answer:
It is an example of government expenditure, the principle component of fiscal policy. Such expenditure of government on construction of roads, education, defence of the country are made by the government to correct the situation of excess demand or deficient demand in the economy. When there is excess demand, government expenditure is reduced and when there is a deficient demand, government expenditure is increased. It is a flagship programme by the government of India. This project is an imvestment in rural infrastructure which will unlock the growth potential of rural India.
Or
Government budget can be helpful in bringing economic stabilisation in the economy by checking inflationary and deflationary tendencies.
To curb the inflationary tendency, the government can prepare a surplus budget. Such a budget reduces the money supply in the economy, leading to a fall in the level of aggregate demand.
As aggregate demand falls, the price level or the rate of inflation also falls. To curb the deflationary tendency, the government can prepare a deficit budget.
Such a budget increases the money supply in the economy, leading to an increase in the level of aggregate demand. As aggregate demand rises, the price level also rises and rate of deflation begins to fall.
Question 16.
(i) There are only two producing sectors A and B in an economy. Calculate
(a) Gross value added at market price by A and B (3)
(b) National income (2)
S.NO | Items | ₹ (in crores) |
i. | Net factor income from abroad | 20 |
ii. | Sales by A | 500 |
iii. | Sales by B | 600 |
iv. | Indirect tax by A and B | 80 |
v. | Depreciation by A and B | 30 |
vi. | Exports by A | 45 |
Vii. | Net change in stock of A | 10 |
Viii. | Intermediate consumption of A | 200 |
ix. | Net change in stock of B | (-) 10 |
x. | Intermediate consumption of B | 300 |
(ii) Define primary sector.
Or
(i) Explain the circular flow of income.
(ii) “Real gross domestic product and nominal gross domestic product are two measures used to assess the economic performance of a country.”
Distinguish between real GDP and nominal GDP on any three basis.
Answer:
(i) (a) GVAMP by A = Sales by A + Net Change in Stock of A – Intermediate
Consumption of A
= 500 + 10 – 200 = ₹ 310 crore
GVAMP by B = Sales by B + Net Change in Stock of B – Intermediate Cons u nption of B
= 600 + (-10) – 300 = ₹ 290 crore
GVAMP by A and B = 310 + 290 = ₹ 600 crore
(b) National Income (NNPFC) = GVAMP by A and B – Indirect Taxes by A and B-Depreciation by A and B + Net Factor Income from Abroad
= 600 – 80 – 30 + 20
= 620 – 110 = ₹ 510 crore
(ii) It is the sector that produces goods by exploiting natural resources like land, water, forests, mines, etc. This sector includes agricultural and allied activities, fishing, mining and quarrying.
Or
(i) Circular flow of income refers to the continuous circulation of production, income generation and expenditure involving different sectors of the economy.
Phases of circular flow of income are There are three different phases (generation, distribution and disposition) in circular flow of income, as shown in the given diagram
(a) Production Phase In this phase, firms produce goods and services with the help of factor services.
(b) Income Phase This phase involves the flow of factor income (rent, wages, interest and profits) from firms to the households.
(c) Expenditure Phase In this phase, the income received by factors of production, is spent on the goods and services produced by firms.
Income is first generated in production units, then distributed to households and finally spent on goods and services produced by these units to make the circular flow complete its course.
(ii) Difference between real GDP and nominal GDP (any three)
Basis | Real GDP | Nominal GDP |
Price | It is the value of current output at base year prices. | It is the value of current output at current year prices. |
Other Name | It is also known as GDP at constant price. | It is also known as GDP. |
Rise | It can increase only when output of goods and services rise in the current year. | It can rise either when output of goods and services rise or when current prices rise. |
Reliability | It is a reliable index of economic growth. | It is not a reliable index of economic growth. |
Question 17.
(i) Giving reasons, state whether the following statements are true or false.
(a) When MPC is zero, the value of investment multiplier will also be zero.
(b) Value of average propensity to consume can never be less than zero.
(ii) “High propensity to consume is a virtue, while high propensity to save is not”. Do you agree, why or why not? (3)
Answer:
(i) (a) No, the statement is false. When MPC is zero, the value of investment multiplier will be 1 .
K = \(\frac{1}{1-MPC}\) ⇒ K = \(\frac{1}{1-0}\) = \(\frac{1}{1}\) = 1
(b) Yes, the statement is true. As consumption can never be zero or negative. Hence, APC is always positive.
(ii) The above statement is correct that high propensity to consume is a virtue as consumption is considered as an injection to the circular flow of income by increasing demand, as increased demand leads to increased. production of goods and services, leading to increase in induced investment and hence, national income.
On the other hand, savings are considered as leakages from the circular flow of income by reducing consumption demand and hence production, investment and national income also fall.
Section B
(Indian Economic Development)
Question 18.
Which of the following is/are examples of physical capital? (1)
(i) Machine
(ii) Skill
(iii) Building
(iv) Talent
Codes
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i) and (iii)
(d) (ii) and (iv)
Answer:
(c) (i) and (iii)
Question 19.
An adulterated element leak into the ground filtration, and carried into a ground water reservoir is known as … . (1)
(a) land contamination
(b) noise pollution
(c) water pollution
(d) air pollution
Answer:
(c) water pollution
Question 20.
is the most preferred form of employment among women in India. (1)
(a) Self-employment
(b) Technical employment
(c) Both (a) and (b)
(d) Wage employment
Answer:
(a) Self-employment
Question 21.
Which of the following is/are institutional source(s) of rural credit?
(i) Commercial banks
(ii) Cooperative credit societies
(iii) Regional Rural Banks (RRBs)
Codes
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i) and (iii)
(d) (i), (ii) and (iii)
Answer:
(d) (i), (ii) and (iii)
Question 22.
State the correct combination between the following columns
Column I | Column II |
A. 1850 | (i) Introduction of railways by the British |
B. 1921 | (ii) Establishment of TISCO |
C. 1907 | (iii) First railway bridge linking Bombay with Thane |
D. 1854 | (iv) The year of Great Divide |
Codes
(a) A-(i)
(b) B-(ii)
(c) C-(iii)
(d) D-(iv)
Answer:
(a) A-(i)
Question 23.
Above image indicates which of the following source of human capital formation? (1)
(a) Investment in health
(b) Migration
(c) Investment in education
(d) On-the-job training
Answer:
(d) On-the-job training
Question 24.
Statement I Education is a wider concept and encompasses literacy.
Statement II A person is considered literate if he/she has ability to read and write in any language. A person is educated if he/she can find a work and can earn some income. (1)
Alternatives
(a) Statement I is true and Statement II is false
(b) Statement I is false and Statement II is true
(c) Both the statements are true
(d) Both the statements are false
Answer:
i(a) Literacy refers the ability to read and write. Education considers three parameters: primary, secondary and higher education.
Question 25.
……… is a form of market intervention by the Government of India to insure agricultural produces against any sharp fall in farm prices.
(a) Minimum Support Prices (MSP) (1)
(b) Adequate Prices
(c) Quality Assured Prices (QAP)
(d) Structural Adjustment Prices (SAP)
Answer:
(a) Minimum Support Prices (MSP)
Question 26.
Assertion (A) Railways brought a significant change in the structure of the Indian economy.
Reason (R) It enabled people to break geographical and cultural barriers and promoted commercialisation of agriculture. (1)
Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true
Answer:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Question 27.
Which of the following countries are not able to save women from maternal mortality? (1)
(i) India
(ii) China
(iii) Pakistan
Codes
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i) and (iii)
(d) (i), (ii) and (iii)
Answer:
(c) (i) and (iii)
Question 28.
“Indian education system is considered faulty from the employment angie.” Do you agree? Explain. (3)
Answer:
Yes, I agree with this statement. Indian education system is largely irrelevant to the needs of Indian economy. There is no linkage between education and employment opportunities. (1)
After completing their school and college education, for a number of years, men and women remain unemployed because they do not have practical training and useful skills.
Most of the students do not gain any occupational and vocational training. Hence, the Indian education system is considered faulty from the employment angle. (2)
Question 29.
Defend or refute the following statement with valid explanation ‘Chinese structural reform process have always been appreciated for its success with no failures’. (3)
Or
Critically evaluate various strategies that have been adopted by the Chinese government for its growth and development.
Answer:
I refute the given statement. Following are the failure of structural reforms in China
(i) There was slow pace of growth and lack of modernisation in the Chinese economy under the Maoist rule.
(ii) Maoist vision of economic development based on decentralisation, self-sufficiency and shunning of foreign technology had failed.
(iii) Despite extensive land reforms, collectivisation, the great leap forward and other initiatives, the per capita gain in output in 1978 was the same as it was in the mid-1950s.
Or
Certain development strategies of China are discussed below (any three)
(i) Great Leap Forward (GLF) Campaign This campaign, initiated in 1958, aimed at industrialising the country on a massive scale. People were encouraged to setup industries in their backyards. In rural areas, communes were started. Under the commune system, peoplecollectively cultivated land.
(ii) Great Proletarian Cultural Revolution (1966-76) In 1965, Mao Tse Tung started a ; cultural revolution on a large scale. In this revolution, students and professionals were sent to work and learn from the countryside.
(iii) 1978 Reforms Since 1978, China began to introduce many reforms in phases. The reforms were initiated in agriculture, foreign trade and investment sector. In agriculture, lands were divided into small plots which were allocated to individual households.
They were allowed to keep all incorne from the land after paying taxes. In later phase, reforms were initiated in industrial sector. All enterprises which were owned and operated by local collectives in particular, were allowed to produce goods.
(iv) One-Child Norm The Chinese government introduced one-child norm to check its growing population. Couples were allowed to have only one child. In case, they gave birth to second child, social assistance was stopped.
Question 30.
Based upon the image given below, briefly explain the problems of agricultural marketing. (4)
Answer:
Following are the problems related to agricultural marketing
(i) Inadequate Transport Facilities Transport facilities are highly inadequate in India. Only a small number of villages are joined by railways and metalled (pucca) roads to mandies. Produce has to be carried on slow moving transport vehicles like bullock carts. Such means of transport cannot be used to carry produce too far-off places and the farmer has to dump his produce in nearby markets even if the price obtained in these markets is considerably low.
(ii) Malpractices in Unregulated Markets Even now the number of unregulated markets in the country is substantially large. Middleman and brokers taking advantage of the ignorance and illiteracy of the farmers, use unfair means to cheat them.
(iii) Lack of Grading and Standardisation Different varieties of agricultural produce are not graded properly, Goods are generally measured in local units that are not standardised.
Question 31.
“India, China and Pakistan have many similarities in their development strategies.” Elaborate. (4)
Answer:
India, China and Pakistan have many similarities in development strategies which are as follows
(i) All the three countries had started planning their development strategies in similar ways. India announced its Five Year Plan in 1951-56, while Pakistan announced its First Five Year Plan in 1956, which is called Medium Term Plan. China announced its First Five Year Plan in 1953.
(ii) India and Pakistan adopted similar strategies such as creating a large public sector and raising public expenditure on social development.
(iii) Till the 1980 s, all the three countries had similar growth rates and per capita incomes.
(iv) Economic reforms took place in all the three countries. Reforms started in India in 1991, in China in 1978 and in Pakistan in 1988.
Question 32.
State whether the following statements are true or false, with valid arguments
(i) There has been a decline in growth rate of agricultural sector during the reform period. (2)
(ii) There were several hurdles faced by the land reform and the land ceiling legislation during the pre-reform period. (2)
Or
“The Industrial ‘Policy Resolution, 1956 has categorised industries on the basis of ownership”. Discuss.
Answer:
(i) The given statement is true. The major reasons explaining the decline in growth rate of agricultural sector during the reform period are (any two)
(a) Decline in public investment in this sector.
(b) Removal of fertilizer subsidy increased the cost of production which significantly affected small farmers.
(c) Reduction in export duties resulted Indian farmers to face international competition.
(ii) The given statement is true. The major hurdles faced include (any two)
(a) Big landlords registered their land in the name of close relatives, thus escaping from the land ceiling legislation.
(b) There have been cases in which tenants were evicted and landlords claimed to be the actual tillers.
(c) Landlords used loopholes in the legislation to their comparative advantage to own large areas of land.
(d) The goal of equity was not served fully because of serious loopholes in the legislation.
Or
According to the Industrial Policy Resolution, 1956. industries were classified into three categories on the basis of ownership. These were as follows
(i) The first category consisted of industries which could be established and developed exclusively as public sector enterprises.
(ii) The second category consisted of industries in which public sector will be in leading role while private sector will be in supportive role.
(iii) The third category consisted of all industries other than those specified in the above categories and was open for private sector.
Question 33.
(i) “Buffer stock plays a crucial role in agricultural marketing by acting as a reserve supply of essential commodities, such as foodgrains, that are procured by the government”.
What is the primary role of buffer stock in agricultural marketing?
(ii) “Economists believe that India should spend atleast 6% of its GDP on education of achieving desired results”. Justify the statement with valid reasons.
Or
(i) Read the given lines taken from the article on ‘Sustainable human development means living in harmony with nature’ published by International Science Council on 17th July, 2020.
“We cannot be developed unless our lives become reconnected and in balance, cooperation and harmony with nature.” In light of the given statement, explain how development has become a burden on the environment?
(ii) “Micro credit has an important role to play in meeting the credit requirements of the poor”. Defend or refute the statement with valid explanation.
Answer:
(i) The government of India has adopted the policy of buffer stocks to minimise the fluctuations in the food prices
Buffer stocks serve as shock absorbers in the economy and provide a defence mechanism against the widely fluctuating price levels.
Under the buffer stock policy, the government builds up stocks of food through direct purchases from the farmers and releases these stocks for sale in the domestic market where prices are increasing. Buffer stock operations also aim at eliminating unduly low prices consequent to bumper crops.
(ii) Yes, the current level of education expenditure is inadequate. It is only 4.13% in comparison to the desired ievel of 6% of GDP. More than 50 years ago, the education commission has recommended that atleast 6% of GDP should be spent on education, so as to make a noticeable rate of growth in educational achievements. However, the investment in education expenditure has not been uniform and is marked with regional and gender inequalities. India has also not been able to achieve the objective of providing free and compulsory education to all children in the age group of 6 to 14 years.
Government’s unwillingness to spend 6% of GDP on education has affected this sector adversely. as is enumerated with the help of given statistics.
(a) In India, about 30.3 crore people are still illiterate.
(b) The female literacy rate is 65.46%, which is quite low as compared to male literacy rate of 82.14%.
(c) There is disparity in education levels of urban and rural areas.
The above said points highlight the need for India to spend atleast 6% of its GDP on education.
Or
(i) Following are the some important reasons responsible for the heavy burden on nature
(a) Rise in human population in underdeveloped countries.
(b) Affluent consumption style in developed countries.
(c) Misuse of production technology in almost all the countries and poor planning of development.
(ii) I defend this statement. Micro-credit plays an important role in meeting the credit requirements of the poor. Under micro-credit programmes farmers gets adequate credit at cheaper rates. Micro-credit programme promotes thrift in small proportions by a minimum contribution from each member. From the pooled money, credit is given to the needy members which is repayable in small installments at reasonable interest rates. Micro-credit programme abandons the need of any kind of collateral. It has helped in the empowernment of women.
Question 34.
Read the following text carefully and answer the given question on the basis of the same and common understanding India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP). The NEP consisted of wide ranging economic reforms. The thrust of the policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. This set of policies can broadly be classified into two groups: the stabilisation measures and the structural reform measures. Stabilisation measures are short-term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control.
On the other hand, structural reform policies are long-term measures, aimed at im. roving the efficiency of the economy and increasing its international competitiveness by remov. ng the rigidities in various segments of the Indian economy. The government initiated a variety of policies which fall under three heads viz., liberalisation, privatisation and globalisation.
Another reform measure taken to simplify the tax structure and avoid cascading of taxes has been taken in the new millennial, in particular the Goods and Services Tax (GST). The genesis of the introduction of GST in the country was laid down in the historic Budget Speech of 28th February 2006, wherein the then Finance Minister laid down 1st April, 2010 as the date for the introduction of GST in the country. Thereafter, there has been a constant endeavor for the introduction of the GST in the country whose culmination has been the introduction of the Constitution (122nd Amendment) Bill in December, 2014.
(i) Justify the following statement with valid explanation
“Economic reforms have restricted the role of Public Sector Units (PSUs) in the country.” Discuss.
(ii) On the basis of your knowledge and understanding, can you think of some reasons how GST is beneficial from trade and industry’s perspective. (4)
Answer:
(i) Economic reforms have definitely reduced the role of public sector in the Indian economy. Privatisation was the major component of economic reforms programme.
Privatisation means a greater role for private capital and enterprise.
The main objective of economic reforms is to make use of privately owned resources for collective welfare of the people.
It has restricted the areas of public sector to the following areas
(a) Essential manufactured goods
(b) Exploration and exploitation of oil and mineral resources.
(c) Strategic areas, i.e. defence equipments etc.
(ii) Following are the advantages to trade and industry from the introduction of GST(any four)
(a) Increased ease of doing business;
(b) Reduction in multiplicity of taxes that are at present governing our indirect tax system, leading to simplification and uniformity:
(c) Elimination of double taxation on certain sectors like works contract, software, and hospitality sector;
(d) Helpful to mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply:
(e) Reduction in compliance costs as there is need of multiple record keeping for a variety of taxes. Thus, lesser investment of resources and manpower in maintaining records;
(f) More efficient neutralisation of taxes, especially for exports thereby making our products more competitive in the international market and give boost to Indian Exports.