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GNDU Question Paper-2021
Bachelor of Commerce
(B.Com) 3
rd
Semester
BUSINESS ENVIRONMENT
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt five questions in all, selecting at least one question from each section. The
fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Outline and explain the different environmental factors that create a profound impact
on business. Why should the business policy of a firm be dynamic ?
2. What is Industrial Sickness? What should be done with sick industries, they should be
locked or removed? Give reasons for your answer.
SECTION-B
3. Critically evaluate Fiscal Policy of India. Also discuss it in the context of current scenario
of pandemic.
4. What economic changes were initiated by the Government under Industrial Policy.
1991? What impact have these changes made on business and industry?
SECTION-C
5. What are the main objectives of Indian Planning? How far these objectives have been
achieved?
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6. Differentiate between deficit budget and deficit financing. Explain the role and
limitations of deficit financing for promoting economic development of developing
economy like India.
SECTION-D
7. (a) What is the nature and scope of remedies under Consumer Protection Act?
(b) What are the major trade reforms of India's Foreign Policy, 1991?
8. Discuss the provisions of the Foreign Exchange Management Act (FEMA), 1999.
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GNDU Answer Paper-2021
Bachelor of Commerce
(B.Com) 3
rd
Semester
BUSINESS ENVIRONMENT
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt five questions in all, selecting at least one question from each section. The
fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Outline and explain the different environmental factors that create a profound impact
on business. Why should the business policy of a firm be dynamic ?
Ans: A Different Kind of Beginning…
Picture this: You’re the captain of a grand ship, setting sail on the vast ocean of commerce.
Your ship is sturdy, your crew is skilled, and your cargo is valuable. But the ocean is
unpredictable — sometimes calm and sunny, sometimes stormy and wild.
The waves, winds, and currents you face are not random — they are the environmental
factors that surround your business. You can’t control them, but you must understand and
adapt to them if you want your ship to reach its destination safely.
This is exactly how businesses operate in the real world — surrounded by forces that can
either propel them forward or push them off course.
The Environmental Factors That Shape Business
The “business environment” is everything outside (and sometimes inside) the company that
influences its decisions, performance, and survival. These factors can be grouped into
external and internal forces, but here we’ll focus on the major external environmental
factors — the ones you can’t control but must navigate.
Let’s walk through them like different “zones” your ship sails through.
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1. Economic Environment — The Tide of Money
The economic environment includes inflation rates, interest rates, GDP growth,
unemployment levels, and consumer purchasing power.
Story lens: Imagine the tide — when the economy is booming, the tide is high, and ships sail
faster with more trade. When there’s a recession, the tide goes out, and ships scrape the
seabed, struggling to move.
Impact on business:
• High inflation can increase costs and reduce consumer spending.
• Low interest rates can encourage borrowing and expansion.
• Economic downturns may force businesses to cut costs or innovate to survive.
2. Political and Legal Environment — The Lighthouse and the Law
This includes government policies, political stability, taxation rules, trade regulations, and
labour laws.
Story lens: The lighthouse represents the government — guiding ships safely but also
setting boundaries. If the lighthouse changes its signals suddenly, captains must adjust their
course.
Impact on business:
• A stable political climate attracts investment.
• Sudden changes in trade policy can disrupt supply chains.
• Strict regulations may increase compliance costs but also ensure fair competition.
3. Social and Cultural Environment — The Winds of People’s Beliefs
This covers demographics, lifestyle trends, education levels, cultural values, and social
attitudes.
Story lens: The wind direction changes with people’s tastes and values. If you catch the
wind right, your ship speeds ahead; if you sail against it, progress is slow.
Impact on business:
• Changing lifestyles can create new markets (e.g., demand for organic food).
• Cultural differences affect marketing strategies.
• Ageing populations may shift demand from youth-oriented products to healthcare
services.
4. Technological Environment — The Engine Upgrade
Technology includes innovations, automation, digital platforms, and R&D developments.
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Story lens: A ship with a modern engine can outpace competitors. But if you ignore new
technology, you risk being left behind in the harbour.
Impact on business:
• Automation can reduce costs and improve efficiency.
• E-commerce platforms open global markets.
• Failure to adopt new tech can make products obsolete.
5. Competitive Environment — The Other Ships in the Sea
This refers to the number and strength of competitors, market share distribution, and
industry rivalry.
Story lens: You’re not the only ship on the ocean — others are racing for the same ports.
Some are faster, some carry better goods, and some have loyal customers waiting.
Impact on business:
• High competition pushes innovation and better customer service.
• Monopolies may reduce consumer choice.
• New entrants can disrupt established markets.
6. Natural and Environmental Factors — The Weather and Climate
This includes climate change, natural disasters, resource availability, and environmental
regulations.
Story lens: Storms, fog, and changing currents represent environmental challenges. A
sudden storm (like a flood or drought) can delay your journey or damage your cargo.
Impact on business:
• Extreme weather can disrupt supply chains.
• Scarcity of raw materials can increase costs.
• Environmental laws may require cleaner production methods.
7. Global Environment — The Entire Ocean
Globalisation, international trade agreements, global pandemics, and geopolitical tensions
all form part of this.
Story lens: Sometimes, events far away — like a storm in another ocean — can send waves
that rock your ship.
Impact on business:
• Global recessions affect exports.
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• International conflicts can disrupt trade routes.
• Global trends (like sustainability) influence local business strategies.
Why Should a Business Policy Be Dynamic?
Now, here’s the key: The ocean is never still. If the environment keeps changing, your ship’s
route and strategy must change too. That’s why a business policy — the guiding plan for
decisions and actions — must be dynamic.
1. Adapting to Change
A static policy is like a captain who refuses to change course even when a storm is ahead.
Dynamic policies allow quick adjustments to new realities — whether it’s a tech
breakthrough, a new law, or a sudden market shift.
2. Staying Competitive
Competitors are constantly innovating. If your policy doesn’t evolve, you risk losing
customers to faster, smarter rivals.
3. Managing Risks
Dynamic policies help businesses respond to crises — from economic downturns to supply
chain disruptions — before they cause serious damage.
4. Seizing Opportunities
A changing environment isn’t just about threats — it’s also full of opportunities. A flexible
policy lets you grab them before others do.
5. Long-Term Survival
History is full of companies that failed because they stuck to outdated policies. Dynamic
policies ensure relevance and resilience.
Closing the Story
As the captain of your business ship, you can’t control the ocean — but you can read the
skies, adjust your sails, and steer wisely.
A business that understands its environment and keeps its policies dynamic is like a ship
with a skilled crew, a flexible route, and a captain who knows when to change course. It
doesn’t just survive the journey — it thrives, reaching new ports with confidence and
purpose.
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2. What is Industrial Sickness? What should be done with sick industries, they should be
locked or removed? Give reasons for your answer.
Ans: In a small industrial town, there once stood a proud textile mill. Its chimneys puffed out
clouds of steam, its machines hummed like a well-rehearsed orchestra, and hundreds of
workers poured in every morning with lunchboxes and laughter.
But over the years, the hum turned into a groan. Orders slowed, machines aged, debts piled
up, and the once-busy gates now opened to fewer and fewer workers. The mill was still
standing — but it was no longer healthy.
This is what we call Industrial Sickness — when an industry is alive in name, but too weak to
function effectively.
What is Industrial Sickness?
In simple terms, Industrial Sickness is like a prolonged illness in a business. It’s when an
industrial unit suffers continuous losses over a period of time, its financial health
deteriorates, and it can no longer sustain itself from its own earnings.
According to the Sick Industrial Companies (Special Provisions) Act, 1985, a medium or
large company is considered “sick” if:
1. It has been registered for at least 5 years.
2. It has incurred cash losses in the current and previous financial year.
3. Its net worth (capital + reserves) has been completely eroded.
In everyday language: If a factory keeps losing money year after year, can’t pay its bills, and
its value has sunk below zero, it’s a sick industry.
Causes of Industrial Sickness — Why Do Industries Fall Ill?
Just like a person can fall sick due to internal weaknesses or external infections, industries
too have internal and external causes.
1. Internal Causes (Inside the Factory Walls)
• Poor Management: Wrong decisions, lack of planning, or weak leadership.
• Financial Mismanagement: Overspending, poor cost control, or bad debt handling.
• Outdated Technology: Using old machines that produce less and cost more to
maintain.
• Labour Issues: Strikes, low productivity, or lack of skilled workers.
• Faulty Product Strategy: Making products that no one wants or pricing them
wrongly.
2. External Causes (Outside the Factory Walls)
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• Economic Slowdown: Reduced demand due to recession.
• Government Policy Changes: Sudden changes in tax, trade, or environmental laws.
• Raw Material Shortages: Scarcity or high prices of essential inputs.
• Power Cuts & Infrastructure Gaps: Interruptions in electricity, transport, or logistics.
• Global Competition: Cheaper imports or better-quality foreign products.
Impact of Industrial Sickness — Why It’s a Big Deal
When an industry falls sick, the effects ripple far beyond its gates:
• Job Losses: Workers lose livelihoods.
• Loss to Banks: Loans turn into bad debts.
• Wasted Resources: Machinery, land, and skills lie unused.
• Economic Slowdown: Local businesses that depend on the industry also suffer.
• Social Impact: Unemployment can lead to poverty, migration, and unrest.
The Big Question — Should Sick Industries Be Locked or Revived?
This is where the debate begins. Some say, “Close them down — they’re a drain on
resources.” Others argue, “Revive them — they can still contribute to the economy.”
Let’s explore both sides before deciding.
Argument for Locking/Removing Sick Industries
• Avoid Wasting Resources: If revival costs are higher than starting fresh, it’s better to
shut down.
• Stop Financial Drain: Sick units often survive on government subsidies or bank loans,
which could be used elsewhere.
• Encourage Efficiency: Closing inefficient units sends a message that only competitive
businesses survive.
• Free Up Assets: Land, machinery, and labour can be redirected to healthier
industries.
Argument for Reviving Sick Industries
• Protect Jobs: Reviving a unit saves hundreds or thousands of jobs.
• Utilise Existing Infrastructure: The factory building, machinery, and trained
workforce are already in place.
• Regional Development: In small towns, one big industry often supports the entire
local economy.
• Emotional & Cultural Value: Some industries are tied to the identity of a place (e.g.,
jute mills in Bengal, textile mills in Ahmedabad).
• Environmental Considerations: Reviving an existing plant may be more sustainable
than building a new one from scratch.
My Reasoned Stand — Revive Where Possible, Close Where Necessary
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The smartest approach is not one-size-fits-all.
• If the sickness is curable — caused by poor management, outdated machinery, or
temporary market issues — revive it with better leadership, modern technology, and
financial restructuring.
• If the sickness is terminal — caused by a dying product market, irreparable debt, or
obsolete location — close it and redeploy resources.
How to Revive a Sick Industry — The Treatment Plan
Think of it like a hospital for industries:
1. Diagnosis: Identify the real causes — internal mismanagement, external shocks, or
both.
2. Financial Restructuring: Renegotiate loans, reduce interest burdens, and bring in
fresh capital.
3. Technological Upgradation: Replace outdated machinery with modern, efficient
systems.
4. Management Overhaul: Bring in skilled leadership with a turnaround plan.
5. Government Support: Tax reliefs, subsidies, or training programs for workers.
6. Market Repositioning: Change product lines, explore exports, or tap into new
customer segments.
7. Partnerships & Mergers: Merge with healthier companies to share resources and
expertise.
Why a Balanced Approach Works Best
• Economic Sense: Reviving viable industries is cheaper than building new ones.
• Social Stability: Saves jobs and prevents economic distress in industrial towns.
• Sustainability: Reduces waste of existing infrastructure.
• Competitiveness: Forces industries to modernise and adapt.
Closing the Story
Back in our small industrial town, the textile mill’s fate hung in the balance. A new
management team stepped in, replaced the old looms with modern machines, trained the
workers in new techniques, and found fresh markets overseas.
The chimneys began to puff again — not as much as in its glory days, but enough to keep
the gates open and the lunchboxes filled.
And that’s the lesson: Industries, like people, deserve a chance to recover — but only if the
cure is possible and worth the effort. If not, it’s wiser to let them go and channel the energy
into building something new.
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SECTION-B
3. Critically evaluate Fiscal Policy of India. Also discuss it in the context of current scenario
of pandemic.
Ans: A Different Kind of Beginning…
It’s a chilly winter morning in New Delhi. Inside the grand Parliament building, the Finance
Minister stands at the podium, holding a thick bundle of papers — the Union Budget.
Outside, millions of people — shopkeepers, farmers, factory owners, students — wait to
hear what’s inside.
Why? Because hidden in those pages is the Fiscal Policy — the government’s master plan
for how it will earn money, how it will spend it, and how it will balance the two.
In a way, Fiscal Policy is like the household budget of an entire nation — except the “house”
is 1.4 billion people, and the stakes are unimaginably high.
What is Fiscal Policy?
In simple terms, Fiscal Policy is the use of government spending and taxation to influence
the economy.
• When the government spends more — on roads, schools, hospitals — it pumps
money into the economy.
• When it collects more taxes, it pulls money out, often to control inflation or reduce
debt.
The aim is to balance growth with stability — like a tightrope walker balancing between two
extremes.
Objectives of India’s Fiscal Policy
Think of these as the “missions” the government tries to achieve through its budget:
1. Economic Growth – Boosting GDP by investing in infrastructure, industry, and
innovation.
2. Price Stability – Controlling inflation so that everyday goods remain affordable.
3. Employment Generation – Creating jobs through public works and incentives for
industries.
4. Reducing Inequality – Using welfare schemes, subsidies, and progressive taxation to
bridge the rich-poor gap.
5. Regional Development – Ensuring backward areas get special attention.
6. Maintaining Fiscal Discipline – Keeping deficits and debt under control for long-term
stability.
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Tools of Fiscal Policy
The government uses two main levers:
• Revenue Policy – Deciding how to collect money (taxes, duties, fees).
• Expenditure Policy – Deciding where to spend (infrastructure, defence, welfare,
subsidies).
Critical Evaluation of India’s Fiscal Policy
Let’s walk through the strengths and weaknesses — like a film critic reviewing a blockbuster.
Strengths
1. Growth-Oriented Budgets – In recent years, India has focused heavily on capital
expenditure (roads, railways, digital infrastructure), which creates long-term growth.
2. Targeted Welfare – Schemes like PM-KISAN, MGNREGA, and free food grain
distribution have supported vulnerable groups.
3. Tax Reforms – Introduction of GST simplified indirect taxation, and corporate tax
cuts aimed to boost investment.
4. Crisis Response – During the pandemic, fiscal policy was used to provide relief
packages, credit guarantees, and health spending.
Weaknesses
1. High Fiscal Deficit – India’s fiscal deficit shot up to 9.5% of GDP in 2020-21 due to
pandemic spending, and though it’s declining, it’s still above the ideal 3% target
under the FRBM Act.
2. Debt Burden – Government debt remains high (over 56% of GDP in 2025-26
estimates), limiting future spending flexibility.
3. Revenue Constraints – Tax-to-GDP ratio is still low compared to developed
economies, meaning less money to spend.
4. Subsidy Dependence – Large subsidies (food, fuel, fertiliser) strain the budget and
sometimes distort markets.
5. Implementation Gaps – Even well-designed policies sometimes fail due to
bureaucratic delays or leakages.
Fiscal Policy During the Pandemic — A Special Chapter
The COVID-19 pandemic was like a sudden storm hitting the ship of the Indian economy.
Factories shut, migrant workers walked home, demand collapsed, and health systems were
stretched thin.
The government’s fiscal policy response came in two waves:
Wave 1: Immediate Relief (2020-21)
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• Free Food & Cash Transfers – Under the Pradhan Mantri Garib Kalyan Yojana, free
food grains were given to over 80 crore people.
• MGNREGA Boost – Extra funds for rural employment.
• Health Spending – Emergency funds for hospitals, PPE kits, and vaccines.
• Credit Support – Loan guarantees for MSMEs to prevent closures.
Wave 2: Recovery & Stimulus (2021-23)
• Infrastructure Push – Higher capital expenditure to create jobs and demand.
• PLI Schemes – Incentives for manufacturing in sectors like electronics, pharma, and
textiles.
• Digital Initiatives – Boost to digital payments and e-governance to keep the
economy running remotely.
Impact:
• These measures prevented a deeper economic collapse and supported vulnerable
groups.
• However, they also widened the fiscal deficit and increased borrowing needs.
• Critics argue that the direct cash support was smaller compared to some other
countries, limiting the immediate demand boost.
Post-Pandemic Fiscal Challenges
Even as the economy recovers, the government faces a balancing act:
1. Fiscal Consolidation vs. Growth – Reducing the deficit to the target of 4.5% of GDP
by 2025-26 while still investing in growth.
2. Debt Management – Ensuring interest payments (already 25% of total expenditure)
don’t crowd out development spending.
3. Revenue Mobilisation – Expanding the tax base without overburdening citizens.
4. Social Spending – Continuing welfare schemes without unsustainable borrowing.
The Way Forward — My Balanced Take
Like a good doctor treating a recovering patient, India’s fiscal policy now needs careful
dosage:
• Gradual Deficit Reduction – Stick to the fiscal glide path without sudden spending
cuts that could hurt growth.
• Boost Revenue – Through better tax compliance, rationalising GST rates, and
monetising public assets.
• Prioritise Productive Spending – Focus on infrastructure, education, and health
rather than excessive subsidies.
• Strengthen Federal Cooperation – Work with states for coordinated fiscal
management.
• Crisis Preparedness – Build fiscal buffers for future shocks.
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Closing the Story
As the Finance Minister closes the budget speech, the nation’s economic ship sails into
calmer waters — but the waves of debt, deficit, and global uncertainty still lap at its sides.
Fiscal Policy, like a skilled captain, must now steer with both courage and caution —
investing enough to keep the engines running, but not so much that the ship becomes too
heavy to move.
Because in the end, a nation’s budget is not just about numbers — it’s about the lives,
dreams, and futures of its people.
4. What economic changes were initiated by the Government under Industrial Policy.
1991? What impact have these changes made on business and industry?
Ans: It’s July 24, 1991. The Indian economy is gasping for breath. Foreign exchange reserves
are so low that the country can barely pay for two weeks of imports. Inflation is rising,
industries are sluggish, and the government is drowning in debt.
In the Parliament, the newly appointed Finance Minister, Dr. Manmohan Singh, rises to
speak. His words are calm but carry the weight of history:
"No power on earth can stop an idea whose time has come."
That day, India decided to change course — from a tightly controlled, inward-looking
economy to one that embraced competition, private enterprise, and the global market. This
shift was captured in the New Industrial Policy of 1991.
Why the Change Was Needed
Before 1991, India followed a License Raj system — industries needed multiple government
approvals for almost everything: starting a factory, expanding capacity, importing
machinery, or even changing product lines.
While the intention was to protect domestic industries, over time it led to:
• Inefficiency – Companies had little incentive to innovate.
• Low Growth – Industrial growth averaged around 4–5% per year.
• Corruption – Licenses became a tool for political and bureaucratic control.
• Isolation – India was cut off from global competition and technology.
The 1991 crisis forced the government to rethink — and reform.
Economic Changes Introduced Under Industrial Policy 1991
Let’s walk through the reforms as if we’re opening locked doors one by one.
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1. Liberalisation — Removing the Shackles
• End of Industrial Licensing: Except for a few industries related to security, strategic
concerns, and environmental safety, most sectors no longer needed government
licenses to start or expand.
• Freedom in Capacity Expansion: Companies could decide how much to produce
without government interference.
• Abolition of Monopoly Restrictions: The MRTP Act’s asset limit for large firms was
removed, allowing them to grow without prior approval.
Story lens: Imagine a runner who had been racing with heavy chains on their legs —
suddenly, the chains are gone. They can now run at their own pace.
2. Privatisation — Redefining the Role of the Public Sector
• Reduction in Reserved Sectors: Earlier, 17 industries were reserved exclusively for
the public sector. This was reduced to just 8 in 1991, and later to 3 (atomic energy,
railways, and defence).
• Disinvestment: The government began selling shares in public sector enterprises to
raise funds and improve efficiency.
• Greater Autonomy: Public sector units were given more freedom in decision-making.
Story lens: The government stepped back from being the sole shopkeeper in town, allowing
private players to open their own stores.
3. Globalisation — Opening the Gates to the World
• Foreign Direct Investment (FDI): Automatic approval for up to 51% foreign equity in
high-priority industries (later increased in many sectors).
• Technology Imports: Easier rules for importing advanced technology.
• Trade Policy Reforms: Gradual reduction of import tariffs and removal of
quantitative restrictions.
Story lens: The high walls around the city were lowered, allowing traders, investors, and
ideas from across the world to enter — and letting Indian businesses explore global
markets.
4. Financial Sector and Policy Support
• Reforms in Banking and Capital Markets: Encouraging private banks, modernising
stock exchanges, and improving credit availability.
• Industrial Location Policy: Only industries with large environmental impact needed
location clearance; others had freedom to set up anywhere.
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Impact on Business and Industry
The reforms of 1991 were like planting a new seed in India’s economic soil. Over the next
three decades, the plant grew — sometimes with thorns, but undeniably stronger.
Positive Impacts
1. Higher Growth Rates
Industrial growth accelerated, and India’s GDP growth moved into the 6–8% range in the
2000s, compared to the “Hindu rate of growth” (~3.5%) earlier.
2. Increased Competition
Domestic companies had to improve quality, reduce costs, and innovate to survive against
global players.
3. Technology Upgradation
Access to foreign technology and investment modernised manufacturing, IT, telecom, and
pharmaceuticals.
4. Rise of New Sectors
IT services, automobiles, telecom, and consumer goods industries boomed, creating millions
of jobs.
5. Global Integration
Indian companies like Tata, Infosys, and Mahindra became global brands; exports diversified
beyond traditional goods.
Challenges and Criticisms
1. Uneven Growth
Urban areas and certain states benefited more, widening regional disparities.
2. Jobless Growth
While GDP rose, manufacturing jobs didn’t grow as fast, leading to concerns about
employment quality.
3. Vulnerability to Global Shocks
Greater integration meant that global recessions, oil price hikes, or financial crises had a
bigger impact on India.
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4. Decline of Some Public Sector Units
Without protection, many inefficient PSUs struggled or closed, leading to job losses.
In the Context of Today
Even in 2025, the 1991 reforms remain the foundation of India’s economic structure. The
private sector dominates most industries, FDI continues to flow, and India is a major player
in global services and manufacturing.
However, the challenges of inequality, job creation, and balancing global integration with
domestic resilience are still very real — reminding us that reforms are not a one-time event,
but an ongoing journey.
Closing the Story
That day in July 1991 was like opening a window in a stuffy room. Fresh air rushed in —
bringing both opportunity and challenge.
For Indian business and industry, it was the moment the race truly began — no longer
running in circles within a fenced track, but sprinting on an open field, with the whole world
watching.
And just like any great race, the winners were those who adapted fastest, ran smartest, and
kept their eyes on the horizon.
SECTION-C
5. What are the main objectives of Indian Planning? How far these objectives have been
achieved?
Ans: A Different Kind of Beginning…
It’s 1950. India is just three years old as an independent nation. The wounds of Partition are
fresh, poverty is widespread, industries are few, and agriculture depends entirely on the
mercy of the monsoon.
In a modest office in New Delhi, a group of leaders, economists, and visionaries gather
around a large wooden table. They have one question:
"How do we rebuild a nation of 350 million people, with scarce resources, and give them a
better life?"
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Their answer is Planning — a systematic way to decide where to invest, what to prioritise,
and how to grow. And so, the Planning Commission is born in March 1950, with Jawaharlal
Nehru as its first chairman.
From that moment, India’s economic journey would be guided by Five-Year Plans — each
like a new chapter in a long novel.
Main Objectives of Indian Planning
Over the decades, the objectives of Indian planning have evolved, but certain core goals
have remained constant — like the pillars of a house that’s being renovated over time.
1. Economic Growth
The first and most obvious goal was to increase the nation’s production of goods and
services — measured by GDP. Why? Because without growth, there’s no extra wealth to
improve living standards, build infrastructure, or fund welfare. Example: The First Five-Year
Plan (1951–56) focused heavily on agriculture and irrigation to boost food production — the
foundation for growth.
2. Modernisation
Modernisation meant adopting new technology, improving productivity, and changing
outdated social and economic practices. Why? A modern economy is more efficient,
competitive, and capable of meeting people’s needs. Example: The Second Plan (1956–61)
pushed for heavy industries like steel, machine tools, and power plants — the backbone of
industrial modernisation.
3. Self-Reliance
India wanted to reduce dependence on foreign aid and imports, especially for essential
goods. Why? To protect the economy from external shocks and maintain sovereignty.
Example: Early plans encouraged domestic production of machinery, fertilisers, and
consumer goods instead of importing them.
4. Equity and Social Justice
Growth alone wasn’t enough — the benefits had to be shared fairly. Why? To reduce
poverty, bridge the gap between rich and poor, and ensure regional balance. Example:
Programmes like MGNREGA (later years) and rural development schemes aimed to bring
jobs and infrastructure to villages.
5. Employment Generation
With millions entering the workforce every year, creating jobs was a constant priority. Why?
Employment is the most direct way to reduce poverty and improve dignity of life. Example:
The Fifth Plan (1974–79) emphasised “Garibi Hatao” and rural employment schemes.
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6. Regional Balance
Some states and regions were far more developed than others. Why? Balanced growth
prevents migration pressures, social unrest, and uneven development. Example: Special
area development programmes targeted the North-East, hilly areas, and drought-prone
regions.
How Far Have These Objectives Been Achieved?
Let’s walk through each objective and see how the story has unfolded — with its wins,
setbacks, and unfinished chapters.
1. Economic Growth — From Scarcity to Surplus
Achievement:
• In the early years, growth averaged around 3–4% (“Hindu rate of growth”).
• Post-1991 reforms pushed growth to 6–8% in the 2000s.
• India is now the world’s fifth-largest economy (2025).
Gaps:
• Growth has been uneven — urban areas and certain states have surged ahead, while
others lag behind.
• Agriculture’s share in GDP has fallen sharply, but it still employs a large share of the
population, often in low-productivity jobs.
2. Modernisation — A Mixed Picture
Achievement:
• India has world-class IT, telecom, pharma, and space sectors.
• Modern infrastructure — highways, metros, airports — has expanded rapidly.
Gaps:
• Manufacturing still lags behind global leaders.
• Many small industries and farms still use outdated methods.
3. Self-Reliance — Redefined
Achievement:
• India is self-sufficient in food grains thanks to the Green Revolution.
• Strong domestic industries in steel, cement, and pharmaceuticals.
Gaps:
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• Heavy dependence on imports for crude oil, high-end electronics, and defence
equipment.
• Globalisation has shifted the focus from complete self-reliance to strategic self-
reliance.
4. Equity and Social Justice — Progress, But Inequality Persists
Achievement:
• Poverty rate has fallen from over 50% in the 1950s to below 15% (multidimensional
poverty index, 2020s).
• Welfare schemes have improved access to education, healthcare, and housing.
Gaps:
• Income inequality has widened — the top 10% hold a large share of wealth.
• Rural-urban and gender disparities remain significant.
5. Employment Generation — The Job Challenge
Achievement:
• Millions of jobs created in services, construction, and small industries.
• Rural employment schemes have provided a safety net.
Gaps:
• Unemployment and underemployment remain high, especially among youth.
• Many jobs are informal, with low wages and no social security.
6. Regional Balance — Still a Work in Progress
Achievement:
• Special focus on backward regions has improved connectivity and basic services.
• States like Himachal Pradesh and parts of the North-East have seen targeted
development.
Gaps:
• Large disparities remain between states like Maharashtra/Gujarat and Bihar/UP.
• Migration from poorer to richer states continues.
Closing the Story
If Indian planning were a novel, it would be an epic — spanning decades, full of triumphs,
setbacks, and plot twists.
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The first chapters were about survival and self-sufficiency. The middle chapters brought
modernisation and global integration. The latest chapters are about balancing growth with
inclusion, and preparing for challenges like climate change, technology disruption, and
global competition.
The story isn’t over. The objectives remain the same — growth, modernisation, self-reliance,
equity, jobs, and balance — but the strategies keep evolving.
Because in the end, planning is not just about numbers in a document. It’s about shaping
the lives of millions, and ensuring that the promise made in 1950 — of a prosperous, fair,
and self-reliant India — is not just a dream, but a reality.
6. Differentiate between deficit budget and deficit financing. Explain the role and
limitations of deficit financing for promoting economic development of developing
economy like India.
Ans: Imagine you’re running a big household — not just for your family, but for an entire
village. Every year, you sit down with a notebook to plan your income and expenses. You
know how much you’ll earn from farming, renting out land, and selling goods. You also know
how much you’ll spend on food, repairs, festivals, and helping neighbours in need.
But one year, you realise something: your expenses are going to be more than your income.
You have two choices — cut down on spending (which might hurt the village’s progress) or
find a way to cover the gap.
This is exactly the situation governments face. And in economics, we call this gap a deficit.
How the government manages this gap — and whether it’s healthy or risky — is where
deficit budget and deficit financing come into play.
Deficit Budget vs. Deficit Financing — The Difference
Let’s break it down simply:
Term
Meaning
Key Point
Deficit
Budget
A situation where the government’s planned
expenditure is greater than its expected revenue in
a financial year.
It’s the condition —
the shortfall itself.
Deficit
Financing
The method the government uses to meet that
shortfall — usually by borrowing or creating new
money.
It’s the action taken
to fill the gap.
Story lens:
• Deficit Budget is like saying, “I need ₹1,00,000 this year, but I’ll only earn ₹80,000.”
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• Deficit Financing is deciding, “I’ll borrow ₹20,000 from a friend or take it from my
savings to cover the gap.”
How Deficit Financing Works in India
In India, deficit financing usually means the government covers its budget shortfall by:
1. Borrowing from the public (through bonds and securities).
2. Borrowing from the Reserve Bank of India (RBI) — which may involve printing new
currency.
3. Using accumulated cash balances.
When the RBI lends to the government by creating new money, it increases the money
supply in the economy — which can stimulate growth, but also risks inflation if overdone.
Role of Deficit Financing in Economic Development (Especially in Developing Economies
like India)
In a developing country, deficit financing can be like giving the economy a much-needed
energy drink — it provides the funds to build, grow, and modernise when private
investment alone isn’t enough.
1. Funding Infrastructure
Roads, railways, ports, power plants — these are the backbone of development. Private
investors may hesitate to fund them because returns take years. Deficit financing allows the
government to step in and build them, creating jobs and boosting productivity.
2. Kickstarting Industrial Growth
By financing new industries, technology parks, and manufacturing hubs, the government can
create a base for long-term economic expansion.
3. Generating Employment
Public works programmes funded through deficit financing can absorb unemployed labour,
especially in rural areas (e.g., MGNREGA).
4. Supporting Social Welfare
Deficit financing can fund education, healthcare, and poverty alleviation schemes —
improving human capital, which is essential for sustained growth.
5. Stimulating Demand
When the economy slows down, deficit financing can inject money into the system,
encouraging people to spend and businesses to invest — a Keynesian approach to reviving
growth.
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Story lens: Think of a farmer who borrows money to buy better seeds and tools. The loan
increases his debt, but if it leads to a bigger harvest, he can repay it and still be better off.
Similarly, if deficit financing is used for productive purposes, it can pay for itself over time.
Limitations and Risks of Deficit Financing
Like that energy drink, deficit financing can give a quick boost — but too much can cause
side effects.
1. Inflationary Pressure
Printing more money without a matching increase in goods and services can push prices up.
In India, excessive deficit financing in the 1980s contributed to high inflation.
2. Debt Burden
Borrowing to finance deficits increases public debt. Interest payments then eat into future
budgets, leaving less for development.
3. Misallocation of Funds
If borrowed or newly created money is spent on unproductive subsidies or wasteful
projects, it won’t generate returns — leaving only debt behind.
4. Balance of Payments Problems
Higher domestic demand from deficit financing can increase imports, worsening the trade
deficit and putting pressure on foreign exchange reserves.
5. Risk of Dependency
If governments rely too heavily on deficit financing year after year, it can become a habit —
making fiscal discipline harder to maintain.
The Balanced Approach for India
For a developing economy like India, deficit financing is neither a villain nor a hero — it’s a
tool. Used wisely, it can accelerate development; used carelessly, it can destabilise the
economy.
Best practices include:
• Using deficit financing mainly for capital expenditure (infrastructure, productive
assets) rather than recurring expenses.
• Keeping the fiscal deficit within sustainable limits (as per the FRBM Act targets).
• Strengthening tax collection to reduce the need for excessive borrowing.
• Monitoring inflation closely and adjusting spending accordingly.
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Closing the Story
Picture India’s economy as a young tree. Deficit financing is like adding fertiliser — it helps
the tree grow faster when the soil is poor. But too much fertiliser can burn the roots.
The art of economic management lies in knowing how much is enough — using deficit
financing to build roads, schools, and industries that will bear fruit for decades, while
avoiding the trap of inflation, debt, and waste.
In the end, the goal is not just to fill the gap in the budget, but to fill the gap between where
the nation is today and where it dreams to be tomorrow.
SECTION-D
7. (a) What is the nature and scope of remedies under Consumer Protection Act?
(b) What are the major trade reforms of India's Foreign Policy, 1991?
Ans: Picture two very different scenes.
Scene 1: A young man named Arjun walks into a shiny electronics store in Delhi to buy his
first smartphone. He spends half his savings on it, dreaming of video calls with his family and
online classes. But within a week, the phone starts heating up, the battery drains in hours,
and the seller refuses to replace it. Arjun feels cheated — until a friend tells him, “You know,
there’s a law that can help you fight this.” That law is the Consumer Protection Act.
Scene 2: It’s 1991. In the corridors of power in New Delhi, the air is tense. India’s foreign
exchange reserves are so low that the country can barely pay for two weeks of imports. The
government is on the brink of default. In an emergency meeting, leaders decide: “We must
change the way we trade with the world — or we will sink.” That decision leads to sweeping
trade reforms that will transform India’s economy forever.
Two different stories — one about protecting rights, the other about opening doors — but
both about empowerment.
Let’s explore them one by one.
Part (a) – Nature and Scope of Remedies under the Consumer Protection Act
The Consumer Protection Act (originally 1986, updated in 2019) is like a shield and sword
for ordinary people who buy goods or services. It recognises that in the marketplace, the
consumer is often the weaker party — and needs a legal framework to ensure fairness.
Nature of Remedies
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The remedies under the Act are:
1. Protective in Spirit – They are designed to protect consumers from exploitation,
fraud, defective goods, and poor services.
2. Compensatory, Not Vindictive – The aim is to restore the consumer to the position
they would have been in if the wrong hadn’t occurred — not to punish
unnecessarily.
3. Accessible and Affordable – The process is simple, with minimal fees, so even an
individual without a lawyer can file a complaint.
4. Speedy in Delivery – Special consumer commissions at district, state, and national
levels ensure faster resolution than regular courts.
5. Wide in Coverage – It covers goods, services, and even digital transactions in the
2019 update.
Scope of Remedies
The Act empowers consumer commissions to order a wide range of reliefs. Think of it as a
toolbox — each tool designed for a specific kind of problem.
1. Removal of Defects
If a product is faulty, the seller/manufacturer must fix it. Example: A washing machine that
stops working within a week must be repaired at no extra cost.
2. Replacement of Goods
The defective item can be replaced with a new one. Example: A cracked helmet delivered via
an online order must be replaced with a new, safe one.
3. Refund of Price
The consumer can get their money back. Example: If a tour package is cancelled due to the
organiser’s fault, the full amount must be refunded.
4. Compensation for Loss or Injury
If the defect or deficiency causes harm, the seller must pay for it. Example: A faulty gas
cylinder that causes injury can lead to compensation for medical expenses and suffering.
5. Removal of Deficiency in Service
If a service is substandard, the provider must fix it. Example: An insurance company delaying
a claim without reason must process it promptly.
6. Discontinuance of Unfair/Restrictive Trade Practices
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Practices like forcing a customer to buy an unwanted product along with the desired one
can be stopped. Example: A gas agency making it compulsory to buy a stove with a gas
connection.
7. Stopping the Sale of Hazardous Goods
Dangerous products can be banned from sale. Example: Toys with toxic paint can be
removed from the market.
8. Withdrawal of Hazardous Goods from the Market
Already-sold harmful goods can be recalled. Example: A batch of contaminated packaged
food being pulled from shelves.
9. Payment of Adequate Costs
The trader may be ordered to pay the consumer’s legal costs.
Story lens: If Arjun from our opening scene files a complaint, the commission could order
the seller to replace his phone, refund his money, or even compensate him for the trouble
caused. The law gives him the power to stand up to big companies without fear.
Part (b) – Major Trade Reforms of India’s Foreign Policy, 1991
Now, let’s step back into that tense 1991 meeting room.
India’s economy was in crisis:
• Foreign exchange reserves could barely cover two weeks of imports.
• The government had to pledge gold to borrow money.
• The old trade policy — focused on import substitution and heavy restrictions — had
created inefficiency and isolation.
The New Economic Policy of 1991 brought sweeping trade reforms as part of the broader
Liberalisation, Privatisation, and Globalisation (LPG) strategy.
Major Trade Reforms
1. Dismantling Import Licensing
Before 1991, importing many goods required special licenses — a slow, bureaucratic
process. Reform: Most import licensing was abolished, except for a short list of restricted
items. Impact: Businesses could import raw materials and machinery more easily, boosting
productivity.
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2. Reduction in Import Tariffs
Import duties were extremely high (sometimes over 300%), making foreign goods
unaffordable. Reform: Tariffs were gradually reduced to encourage competition and lower
prices. Impact: Consumers got access to better-quality goods at competitive prices.
3. Export Promotion
The focus shifted from import substitution to export-led growth. Reform: Incentives for
exporters, easier access to imported inputs, and creation of Export Processing Zones (EPZs).
Impact: Sectors like textiles, IT, and pharmaceuticals expanded rapidly.
4. Devaluation of the Rupee
The rupee was devalued to make Indian exports cheaper and more competitive in global
markets. Impact: Boosted export earnings, though it made imports costlier.
5. Encouraging Foreign Investment
Reform: Automatic approval for foreign direct investment (FDI) in many sectors; simplified
procedures for technology imports. Impact: Brought in capital, technology, and global
business practices.
6. Trade Policy Simplification
Multiple export promotion schemes were merged into simpler, more transparent policies.
Impact: Reduced red tape and improved ease of doing business.
Impact on Business and Industry
• Greater Competition: Indian companies had to improve quality and efficiency to
survive against global players.
• Technology Upgradation: Easier access to foreign technology modernised industries.
• Export Growth: India’s share in world trade improved; IT services became a global
success story.
• Consumer Choice: Wider variety of goods and services became available.
• Global Integration: India became a significant player in the global economy.
Story lens: It was like opening the windows of a long-closed house — fresh air (global trade)
rushed in, bringing both opportunities and challenges. Some industries flourished, others
struggled, but the overall economy became more dynamic.
Closing the Story
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In the market, Arjun gets his faulty phone replaced — justice served without endless court
battles. In the corridors of power, the 1991 reforms set India on a new path — from a
closed, cautious economy to one that engages with the world.
Both stories remind us of a simple truth: laws and policies are not just words on paper —
they are tools to protect, empower, and transform lives.
8. Discuss the provisions of the Foreign Exchange Management Act (FEMA), 1999.
Ans: A Completely Fresh Beginning…
It’s the late 1990s. India has already taken its first big leap into economic liberalisation after
the 1991 reforms. The country is no longer the closed, cautious economy it once was —
foreign companies are investing, Indian businesses are exporting, and people are travelling
abroad more than ever.
But there’s a problem. The law that governs foreign exchange — the Foreign Exchange
Regulation Act (FERA), 1973 — was written in a different era, when India’s foreign exchange
reserves were scarce and the government’s main aim was to control and restrict. Under
FERA, even small violations were treated as criminal offences. It was like trying to run a
modern marathon while wearing heavy chains.
The government realises: “We need a new law — one that doesn’t just control, but
facilitates trade, investment, and payments in a globalised world.”
And so, in 1999, Parliament passes the Foreign Exchange Management Act (FEMA), which
comes into force on 1st June 2000. It’s not just a change of law — it’s a change of mindset.
The Spirit of FEMA
If FERA was about control, FEMA is about management. Its objectives are clear:
1. Facilitate external trade and payments.
2. Promote the orderly development and maintenance of the foreign exchange market
in India.
3. Consolidate and amend the law relating to foreign exchange in a liberalised
economy.
Key Provisions of FEMA — The Story in Chapters
Let’s walk through FEMA’s provisions as if we’re flipping through chapters in a handbook for
India’s engagement with the world.
1. Applicability — Who and Where?
FEMA applies to:
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• The whole of India — every state and union territory.
• All branches, offices, and agencies outside India that are owned or controlled by a
person resident in India.
• Any contravention committed outside India by such persons or entities.
Story lens: If an Indian company’s branch in London violates FEMA rules, it’s still answerable
under Indian law.
2. Capital Account vs. Current Account Transactions
FEMA makes a clear distinction between two types of cross-border transactions:
• Current Account Transactions: Day-to-day transactions like payments for imports,
travel expenses, education abroad, remittances, and services. Rule: Generally free,
except for a few restricted items that need RBI approval.
• Capital Account Transactions: Transactions that change the assets or liabilities of a
person in India or abroad — like buying property overseas, foreign direct investment
(FDI), or borrowing from abroad. Rule: Regulated more strictly; require RBI
permission or must follow prescribed limits.
Story lens: Think of the current account as your monthly expenses — flexible and frequent
— and the capital account as your big investments — carefully monitored.
3. Regulation of Foreign Exchange
FEMA empowers the Reserve Bank of India (RBI) to regulate:
• How foreign exchange is acquired, held, or transferred.
• Who can deal in foreign exchange (only “authorised persons” like banks and money
changers).
• The limits and conditions for different transactions.
4. Authorised Persons
Only those authorised by the RBI — such as banks, dealers, and money changers — can
legally deal in foreign exchange. Story lens: It’s like having licensed ticket counters at an
international railway station — only they can sell you a valid ticket (foreign currency).
5. Prohibition on Certain Transactions
FEMA prohibits:
• Dealing in foreign exchange without RBI permission.
• Making payments to non-residents without approval (unless allowed by rules).
• Receiving payments from non-residents without approval (unless allowed).
• Entering into financial transactions outside India that are not permitted.
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6. Enforcement and Penalties
• Civil, Not Criminal: Unlike FERA, violations under FEMA are treated as civil offences.
• Penalties: Up to three times the sum involved in the contravention, or up to ₹2 lakh
if the amount is not quantifiable.
• Adjudication: The Directorate of Enforcement (ED) investigates and enforces
compliance.
7. Compounding of Offences
FEMA allows for compounding — meaning that certain offences can be settled by paying a
fee, avoiding lengthy legal proceedings. Story lens: It’s like paying a fine for a traffic
violation instead of going through a full court trial.
8. Appeals
If someone is unhappy with an order under FEMA, they can appeal to:
1. The Special Director (Appeals).
2. The Appellate Tribunal for Foreign Exchange.
3. Finally, the High Court.
9. Powers of the RBI and Central Government
• The RBI frames regulations for capital and current account transactions.
• The Central Government frames rules for the overall implementation of FEMA.
Why FEMA Was a Game-Changer
1. From Control to Facilitation: It shifted the approach from policing every transaction
to enabling legitimate trade and investment.
2. Boost to Global Integration: Made it easier for Indian businesses to invest abroad
and for foreign companies to invest in India.
3. Investor Confidence: Civil penalties instead of criminal charges reassured foreign
investors.
4. Clarity and Transparency: Clear rules for different types of transactions reduced
confusion.
Limitations and Challenges
Even though FEMA is more liberal than FERA, it’s not without challenges:
• Complex Compliance: Businesses still need to navigate multiple RBI notifications and
circulars.
• Discretionary Powers: RBI and government retain significant control over capital
account transactions.
• Enforcement Delays: Investigations by the ED can be slow.
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• Global Risks: Liberalisation also means vulnerability to global financial shocks.
Closing the Story
FEMA 1999 is like India’s passport to the global economy. It doesn’t just guard the gates — it
manages the flow of money, goods, and services in and out of the country, ensuring that
trade is smooth, investments are safe, and the market remains stable.
If FERA was a strict gatekeeper, FEMA is a smart manager — one who knows when to say
“yes,” when to say “no,” and when to say “yes, but with conditions.”
And in a world where economies are more connected than ever, that balance between
openness and oversight is exactly what keeps the system running.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
