Q1. (A) What is a multinational corporation?

Discuss the beneficial and harmful effects

of multinational corporations on the Indian economy.

Multinational Corporation (MNC):

A Multinational Corporation is a company that operates in more than one country but is

managed from one (home) country. Generally, MNCs have their headquarters in one

nation and production or service facilities in other nations.

Beneficial Effects of MNCs on the Indian Economy:

1. Employment Generation: MNCs establish manufacturing units, call centers, and

services, creating jobs.

2. Technology Transfer: They bring advanced technology and innovation into India.

3. Foreign Direct Investment (FDI): Inflow of foreign capital helps boost India’s economic

development.

4. Improvement in Quality: Due to competition, Indian companies improve the quality of

their products.

5. Integration with Global Economy: Helps India connect with global supply chains and

markets.

Harmful Effects of MNCs on the Indian Economy:

1. Profit Repatriation: MNCs often send profits back to their home countries, reducing

India's foreign exchange reserves.

2. Local Business Impact: Small and local businesses may not withstand competition

from well-funded MNCs.

3. Cultural Erosion: They can influence local culture through western products and

media.
4. Resource Exploitation: MNCs may exploit India’s natural resources for their benefit.

5. Monopolistic Practices: They can dominate markets and fix prices once competitors

are eliminated.

Q1. (B) What is the policy of the government regarding multinational corporations?

The Indian government has adopted a liberal policy towards MNCs, especially since the

1991 New Economic Policy, which allowed:

1. 100% FDI in many sectors, especially in manufacturing and services.

2. Simplification of approval processes for foreign investments.

3. Privatization and deregulation, making it easier for MNCs to enter and operate.

4. Special Economic Zones (SEZs) to attract foreign companies with tax and regulatory

benefits.

The policy encourages MNCs as long as they align with national interest, create jobs,

and promote technology and infrastructure development.

Q1. (C) Write four names of Indian multinational corporations (M.N.Cs)

1. Tata Group (e.g., Tata Motors, Tata Consultancy Services)

2. Infosys Technologies

3. Mahindra & Mahindra

4. Reliance Industries Limited

Q2. (A) What are the common characteristics of Indian Foreign Trade Policy?

The Indian Foreign Trade Policy (FTP) lays out the strategies and guidelines for

promoting exports and regulating imports. The key characteristics include:

1. Export Promotion: Focuses on increasing exports through schemes like SEZs, MEIS

(Merchandise Exports from India Scheme), and RoDTEP (Remission of Duties and Taxes

on Export Products).

2. Liberalization: Encourages liberal trade practices, reduction in tariffs, and

simplification of procedures to integrate India with the global economy.

3. Diversification of Export Markets: Aims to reduce dependence on a few countries by

expanding to new markets in Africa, Latin America, and ASEAN.

4. Incentives and Subsidies: Offers financial incentives to exporters for specific sectors

to boost competitiveness.

5. Digitalization and Ease of Doing Business: Encourages the use of digital platforms for

licenses, documentation, and customs clearances.

6. Trade Agreements: Emphasizes bilateral and multilateral trade agreements to

promote international trade.

7. Sectoral Focus: Special attention to labor-intensive and high-potential sectors like

textiles, gems & jewelry, pharmaceuticals, and IT services.

Q2. (B) Discuss the size, trends, and patterns of Indian Foreign Trade since 1991.

Size of Indian Foreign Trade: Since the 1991 economic reforms, India’s trade has grown

substantially. Exports and imports have both increased in volume and value.

Trends and Patterns:

1. Rising Trade Volume: India’s total trade (exports + imports) has increased from

around $50 billion in 1991 to over $1 trillion in recent years.

2. Change in Export Composition:

From traditional goods (textiles, jute, tea) to value-added and manufactured goods

(engineering goods, chemicals, software).

 Growing importance of services exports, especially IT and BPO.

3. Diversification of Trade Partners:

Earlier dominated by USA and Europe. Now includes China, UAE, ASEAN, Africa, and

Latin America.

4. Import Dependence:

Heavy imports of crude oil, gold, electronics, and machinery.

Efforts like “Make in India” and “Atmanirbhar Bharat” aim to reduce import

dependency.

5. Trade Deficit:

India often runs a trade deficit due to higher imports than exports.

However, services surplus (especially IT exports) helps offset this.

Q3. (A) Critically discuss the New Economic Policy of India.

The New Economic Policy (NEP) of 1991 was introduced by the Government of India to

overcome the economic crisis caused by high inflation, fiscal deficit, and low foreign

exchange reserves.

Main Features of NEP:

1. Liberalization:

Removal of restrictions on industries and business activities.

Reduced licensing system, known as the “License Raj.”

Simplified tax structures.

2. Privatization:

Reduced role of the public sector.

Disinvestment in public sector undertakings (PSUs).

Encouragement of private investment.

3. Globalization:

Integration with the global economy.

Encouragement of Foreign Direct Investment (FDI).

Easing of import-export regulations.

Critical Evaluation:

Positives:

- Boosted GDP growth.

- Improved foreign exchange reserves.

- Increased competition and product quality.

- Expansion of service sectors (especially IT).

Negatives:

- Increased inequality between rich and poor.

- Agricultural and small-scale sectors neglected.

- Rising unemployment in certain sectors due to automation and restructuring.

Q3. (B) What are the macroeconomic stabilization measures taken under the new

economic policy?

The NEP included macroeconomic stabilization policies aimed at restoring internal and

external economic stability.

Key Measures:

1. Fiscal Consolidation:

Reduction in government spending.

Tax reforms and improved revenue collection.

2. Monetary Policy Reform:

Tight control over inflation through interest rate adjustments.

Strengthening of Reserve Bank of India’s (RBI) role.

3. Exchange Rate Management:

Devaluation of the rupee in 1991 to boost exports.

Adoption of a market-determined exchange rate system.

4. Trade Policy Reforms:

Reduced import duties.

Removal of quantitative restrictions.

Q3. (C) What are the structural changes in the Indian economy in the post-1991 period?

1. Shift in Sectoral Contribution:

Decline in agriculture’s share in GDP.

Growth of services and industry sectors.

2. Increase in Private Sector Role:

Expansion of private enterprises and reduction in PSUs’ dominance.

3. FDI Inflow and Global Trade:

Surge in foreign investment.

Integration into global value chains.

4. Expansion of Financial Sector:

Growth of banks, stock markets, and financial institutions.

5. Infrastructure Development:

Improvements in roads, telecom, power, and ports due to public-private partnerships.

Q4. (A) Discuss the causes and remedial measures of sick industries in India.
Industrial Sickness refers to the decline in the financial health of an industrial unit,

making it unable to pay debts or operate viably.

Causes of Industrial Sickness:

1. Internal Causes:

- Poor management: Inefficient planning, lack of vision.

- Financial mismanagement: Misuse of funds, over-borrowing.

- Lack of modernization: Outdated technology, poor productivity.

- Labor problems: Strikes, low morale, and absenteeism.

2. External Causes:

- Shortage of raw materials or power: Interrupts production.

- Policy-related issues: Delay in government approvals or policy changes.

- Recession in market: Reduced demand for products.

- Credit problems: Delay or denial of loans from financial institutions.

Remedial Measures:

1. Rehabilitation packages by BIFR (Board for Industrial and Financial Reconstruction).

2. Professional management teams to restructure and revive operations.

3. Technology upgradation through modernization incentives.

4. Merger with healthy units or privatization.

5. Government support such as tax relief, concessional loans, and policy reforms.

Q4. (B) Write four names of sick industries in the public sector of India.

Examples of sick public sector undertakings (PSUs):

1. Hindustan Cables Ltd.

2. HMT Watches Ltd.

3. Fertilizer Corporation of India (FCI)

4. Bharat Wagon and Engineering Ltd.

Q4. (C) “Industrial sickness is a serious problem in Indian economy.” Comment. Discuss

the causes of Industrial Sickness in India. Suggest the remedial measures to tackle this

problem.

Comment:

Yes, industrial sickness is a serious problem because it leads to job losses, wastage of

national resources, non-repayment of loans (NPAs), and underutilization of capital and

infrastructure.

Causes:

(As already discussed in part A – managerial inefficiency, outdated tech, policy delays,

market recession, etc.)

Remedial Measures:

(As listed above – restructuring, mergers, government packages, financial and tech

support.)

Q5. What do you mean by Sole-Proprietorship and Partnership? Mention the differences

and similarities between proprietorship and partnership.

Sole-Proprietorship:

A Sole Proprietorship is a form of business organization owned and operated by a single

individual. The owner provides capital, manages the business, and bears all profits and

losses.
Features:

- Owned by one person.

- Unlimited liability.

- Simple to start and dissolve.

- Full control and decision-making by the proprietor.

Partnership:

A Partnership is an association of two or more persons who come together to carry on a

business and share its profits and losses as per an agreement.

Features:

- Owned by two or more persons (maximum 50 for general business).

- Governed by the Indian Partnership Act, 1932.

- Shared capital and responsibilities.

- Profits and losses divided as per agreement.

- Unlimited liability for partners.

Differences between Sole-Proprietorship and Partnership:

Basis Sole Proprietorship Partnership

Ownership Single owner Two or more partners

Decision-making Complete control with the owner Joint decision-making

Capital Contribution Limited to personal savings Combined capital from partners

Liability Unlimited Unlimited (joint and several)

Legal Formalities Minimal Partnership deed may be needed

Continuity Ends with death or incapacity of owner May continue as per agreement
Similarities between Sole Proprietorship and Partnership:

1. Unlimited liability: Owners are personally responsible for debts.

2. Lack of legal entity: Neither has a separate legal identity from the owner(s).

3. Profit motive: Both aim to earn profits through business.

4. Ease of formation: Simple to start with less regulatory burden.

5. Direct control: Owners manage and operate the business directly.