International Trade (Part – II)

Total Questions: 50

11. Assertion (A): The new EXIM policy is liberal, market- oriented and favours global trade. [I.A.S. (Pre) 2003]

Reason (R): GATT has played a significant role in the liberalization of the economy.

(a) Both A and Rare individually true and R is the correct explanation of A
(b) Both A and R are individually true, but R. is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true

Correct Answer: (b) Both A and R are individually true, but R. is not the correct explanation of A

Solution:The EXIM Policy 2002-07 was more liberal, market-oriented and favourable to global trade than the previous trade policies. General Agreement on Trade and Tariff (GATT) and subsequently the World Trade Organization (WTO) came to existence and has played a significant role in the liberalization of the economy. Hence, both statement and reason are correct but reason is not the correct explanation of statement.

12. Which one of the following has not been named as "Towns of Excellence' for exports upto March, 2014? [U.P.R.O/A.R.O. (Mains) 2013]

(a) Panipat
(b) Ludhiana
(c) Tirupur
(d) Madurai
(e) None of the above

Correct Answer: (e) None of the above

Solution:In the foreign trade policy 2009-14, the 21 towns were included in the list of Towns of Export Excellence'. All of the given cities were included in that list. In Foreign Trade Policy 2023 four new towns, namely Faridabad (for apparel), Moradabad (for handicrafts), Mirzapur (for handmade car- pet and dari) and Varanasi (for handloom and handicrafts) have been declared as Towns of Export Excellence in addi- tion to the already existing 39 towns. Thus, at present (as per Foreign Trade Policy 2023) the list of towns of export excellence has increased to 43 towns (for various export items).

13. A 'closed economy' is an economy in which: [M.P.P.C.S. (Pre) 2017, I.A.S. (Pre) 2011]

(a) the money supply is fully controlled
(b) deficit financing takes place
(c) only exports take place
(d) neither exports nor imports take place

Correct Answer: (d) neither exports nor imports take place

Solution:A closed economy does not engage in international trade, that is, one that does not import or export products and services from other countries. All commodities and services are generated inside the confines of a given economy in this scenario. Because they exclusively consume items/solutions created within their own country, closed economies expand more slowly than open economies. Sudan is the most modern version of a closed economy. Sudan is not legally closed to trade, yet trade accounts for a small percentage of GDP.
There are no entirely closed economies in practice. As a percentage of GDP, Brazil buys the least quantity of goods globally and has the world's largest, most closed economy. Exchange edged higher, and protective trade policies are among the obstacles that Brazilian companies confront in competitiveness.

14. The process of Globalization refers to: [U.P.P.C.S. (Mains) 2017]

(a) creation of global trading blocks
(b) dismantling barriers in international trade
(c) introduction of single currency in the world
(d) None of the above

Correct Answer: (b) dismantling barriers in international trade

Solution:Globalization is the word used to describe the growing interdependence of the world's economies, culture, and population, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information. The process of globalization generally refers to increasing free trade between countries and dismantling barriers in international trade.

Causes of Globalisation:

Technology will continue to play an integral role in supporting Globalisation. Telephones, the internet, and other innovations have transformed communication and facilitated links
Technological advancements have made it feasible for ideas, capital, commodities, and people to travel more readily from one corner of the world to another
People's realisation that the globe is interconnected and occurs in one location affects other politically different spaces

15. Globalization of Indian Economy means: [U.P.P.C.S. (Mains) 2017]

(a) stepping up external borrowings
(b) establishing Indian business abroad
(c) having minimum possible restrictions on economic relations with other countries
(d) giving up programmes of import substitutions

Correct Answer: (c) having minimum possible restrictions on economic relations with other countries

Solution:Globalization generally means integrating economy of our nation with the world economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. It refers to the free movement of people, goods, services and capital across boundaries. Hence, among the given options, globalization of Indian economy means having minimum possible restrictions on economic relations with other countries.

Globalisation: BENEFITS IMPACTING INDIA

Globalisation helps to boost the long-run average growth rate of the economy of the country through:
Improvement in the allocative efficiency of resources;
Increase in labor productivity
Globalisation attracts an entry of foreign capital along with foreign updated technology which improves the quality of production.
Globalisation usually restructure production and trade pattern favoring labor-intensive goods and labor-intensive techniques as well as the expansion of trade in services
Globalisation enhances the efficiency of the banking insurance and financial sectors with the opening up of those areas to foreign capital, foreign banks, and insurance companies.
Improved Standard of Living and Better Purchasing Power
In a globalized scenario, domestic industries of the developing countries become conscious about price reduction and quality improvement to their products so as to face foreign competition

16. Globalization does not include: [B.P.S.C. (Pre) 2017]

(a) reduction in import duties
(b) abolition of import licensing
(c) free flow of FDI
(d) disinvestment of Public Sector Equity
(e) None of the above/More than one of the above

Correct Answer: (d) disinvestment of Public Sector Equity

Solution:Globalization of economy include reduction in import duties, abolition of import licensing and free flow of FDI while it does not include disinvestment of Public Sector Equity which is a major step towards privatization and liberalization of the economy.

Globalisation refers to the increasing interconnectedness of the world's economies, cultures, and populations. This phenomenon results from cross-border trade in goods and services, technological advancements, and the movement of investment, people, and information.
While nations have been building economic partnerships for centuries, "globalisation" gained widespread recognition in the early 1990s, particularly after the Cold War, as these cooperative arrangements significantly influenced modern daily life. Many factors including the 1991 economic reforms have aided the rise of globalisation in India, which has had profound impacts on Indian society, both positive and negative.

17. Which one of the following statements about 'Globalization' is not correct? [U.P.U.D.A.L.D.A. (Mains) 2010]

(a) It has encouraged Indian industrialists to seek foreign investments.
(b) It has motivated top industrialists in India to buy large ventures in foreign countries.
(c) It has tempted foreign companies to buy Indian companies.
(d) It has created a sense of optimism among small entrepreneurs in India.

Correct Answer: (d) It has created a sense of optimism among small entrepreneurs in India.

Solution:Globalization is related to foreign investments and large companies. Hence, it has created a sense of optimism among small entrepreneurs in India, is not meaningful. Statements given in other options are correct about globalization.

18. Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R). [I.A.S. (Pre) 1996]

Assertion (A): An important policy instrument of economic liberalization is reduction in import duties on capital goods.

Reason (R): Reduction in import duties would help the local entrepreneurs to improve technology to face the global markets.

In the context of the above two statements, which one of the following is correct?

(a) Both A and R are true and R is the correct explanation
(b) Both A and R are true but R is not a correct explanation
(c) A is true but R is false
(d) A is false but R is true

Correct Answer: (a) Both A and R are true and R is the correct explanation

Solution:Liberalization is the process of elimination of the control of the State over economic activities. It provides greater autonomy to the business in decision making and eliminates interference of the government. After India adopted new economic policy in 1991, there has been a drastic change in the economy. An important policy instrument of economic liberalization is the reduction in import duty on capital goods, which makes free flow of capital. Reduction in import duties on capital goods would help the local entrepreneurs to improve technology to face the global markets. Hence, both statements are correct and explain one of the instruments to liberalize the Indian economy.

19. The first phase of liberalization was initiated in India under the regime of: [Uttarakhand P.C.S. (Pre) 2016]

(a) Rajiv Gandhi
(b) P.V. Narsimha Rao
(c) Atal Bihari Vajpayee
(d) H.D. Deve Gowda

Correct Answer: (b) P.V. Narsimha Rao

Solution:The first phase of liberalization was initiated in India in 1991 with the adoption of new economic policy under the regime of Prime Minister P.V. Narsimha Rao.

Objectives of Liberalization

To promote the involvement of private Indian businesses and multinational corporations.
To enable the Indian economy's internationalization.
Promote foreign trade in the nation to boost exports.
To resolve the balance of payments crisis facing India.
To increase the private sector's involvement in the growth of India's economy.
to boost foreign direct investment in the Indian industry.
To encourage domestic enterprises to compete with one another.

20. Encouraging more multinational companies in India is to promote the policy of: [M.P.P.C.S. (Pre) 2006, U.P.P.C.S. (Mains) 2004]

(a) Privatization
(b) Globalization
(c) Liberalization
(d) All of the above

Correct Answer: (d) All of the above

Solution:Promotion of multinational companies (MNCs) in India is related to the policy of privatization, globalization and liberalization.

When India under its New Economic Policy approached the International Banks for developing the country, they suggested that the government should open towards restrictions on trade which is mostly done by the private sectors in between India and other countries. After the suggestion put forward by the International Banks, the Indian Government announced New Economic Policy or NEP. This policy consisted of an extensive range of reforms. These measures are broadly classified into two groups- structural reforms and stabilisation measures.
The objective of structural measures was to develop international competitiveness. Moreover, the measures aimed to eliminate the rigidity in various sections of the country's economy. In stabilisation measures, the aim was to rectify and correct the existing weakness developed in controlling the inflation and balance of payments. Both sets of measures were taken for a short-term period.
The stabilisation measure included Liberalisation, Privatisation, and Globalisation. Under this measure, the balance of payment was enabled to record all forms of economic transactions of a country with the rest of the world in a year. In such a scenario, inflation refers to the growth of prices in goods and services over a particular period.

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