Easy2Siksha.com
GNDU Question Paper-2022
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 and the
Fifth question may be attempted from any of the Four sections. All questions carry equal marks
SECTION-A
1. What is Business Environment? How does it affect a business? What are its
components?
2. State the present position and causes of urban and farm unemployment in India.
Explain the efforts undertaken by Government to eradicate such unemployment.
SECTION-B
3. Explain salient features of Industrial policy of 1991. What main changes are made in
Industrial policy after 1991? What impact have these changes made on business and
industry?
4. What are the objectives of monetary policy in India? Also examine critically the working
of monetary system in India.
Easy2Siksha.com
SECTION-C
5. Discuss the importance of economic planning in India. Also evaluate the role of
economic planning in market driven economy.
6. Differentiate between deficit budget and deficit linancing. Explain the role and
limitations of deficit financing for promoting economic development of developing
economy like India.
SECTION-D
7. Write notes on:
(a) Main features of latest Foreign Trade policy of India (2015-20).
(b) Main provisions of Competition Act, 2002.
8. What is Consumer Protection Act, 1986? Discuss the need and importance of Consumer
protection in the modern business environment.
Easy2Siksha.com
GNDU Answer Paper-2022
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 and the
Fifth question may be attempted from any of the Four sections. All questions carry equal marks
SECTION-A
1. What is Business Environment? How does it affect a business? What are its
components?
Ans: Imagine You’re Starting a Café…
Suppose one fine day, you decide to open your own café. You’re full of excitement – you
have recipes, a small rented shop, and even a friend who is ready to help. You think: “If my
coffee tastes good, people will surely come. Simple, right?”
But as soon as you start planning, you realize it’s not that simple.
• The landlord increases the rent because property prices are going up.
• A new tax on beverages is introduced by the government.
• People nearby are becoming more health-conscious and prefer green tea over
coffee.
• Another café opens just across the street with trendy interiors and live music.
• Suddenly, the price of milk and sugar rises in the market.
• A popular food delivery app approaches you, offering to list your café online.
Now, tell me honestly, are these things under your control? Not really. They are happening
around you, and yet they directly affect your little café. This entire “world” of external
forces around your business is what we call the Business Environment.
Easy2Siksha.com
Definition in Simple Words
The Business Environment means everything that surrounds a business and influences its
operations – both positively and negatively. It includes factors that are outside the
business but still affect decisions, growth, and survival.
In other words, your business doesn’t run in isolation; it lives in a society, in an economy, in
a political system, and in a world that keeps changing. These changes create opportunities
for growth or threats for survival.
Why Business Environment Matters?
Think again about your café. If you ignore what’s happening around you – competitors,
customer trends, new laws, technology – your café might fail no matter how good your
coffee is. But if you stay alert, you can grab opportunities (like joining the delivery app) and
avoid risks (like adjusting to rising sugar prices).
So, the business environment:
1. Guides Planning – Helps you make future strategies.
2. Identifies Opportunities & Threats – Lets you spot chances of growth and dangers.
3. Shapes Decision Making – Decisions are more realistic if you know the environment.
4. Ensures Survival & Growth – Adapting to the environment keeps you alive in the
long run.
In short, understanding the environment is like keeping your eyes open on a busy road – you
can avoid accidents and find the best path.
Components of Business Environment
Now let’s break this “environment” into parts. Just like our planet has atmosphere,
hydrosphere, and biosphere, the business world also has different spheres.
We divide it mainly into two broad categories:
1. Internal Environment (Inside the Business)
This includes factors within the business that you can control to some extent. For your café,
this includes:
• Employees – Their skills, motivation, and teamwork.
• Management – How decisions are taken and how effectively the café is run.
• Resources – Money, raw materials, equipment.
Easy2Siksha.com
• Company Culture – The vibe your café creates for customers and staff.
Internal environment is like the strength of your team in a football match. If your players are
united and trained, you have higher chances of winning.
2. External Environment (Outside the Business)
This is the real challenge – things outside your control that still affect you. It’s further
divided into two layers:
(A) Micro Environment (Immediate Surroundings)
These are forces close to your business that directly impact day-to-day operations:
1. Customers – They decide whether your café will succeed or not. Their preferences
keep changing.
2. Competitors – Rival cafés, restaurants, or even online coffee delivery brands.
3. Suppliers – Provide milk, sugar, coffee beans. If they increase prices, your cost rises.
4. Intermediaries – Delivery apps, wholesalers, or agents that connect you to
customers.
5. Public/Local Community – The neighborhood’s opinion about your café also
matters.
Think of micro environment as the “weather in your city” – it changes often and directly
affects your daily life.
(B) Macro Environment (Larger Forces)
These are broad external factors that don’t affect you instantly but shape the long-term
direction of your business. They are remembered as PESTLE factors (Political, Economic,
Social, Technological, Legal, Environmental):
1. Political Environment – Government policies, stability, trade restrictions, taxes.
Example: GST on food services affects your café’s pricing.
2. Economic Environment – Inflation, interest rates, economic growth, employment
levels. If people have more disposable income, they spend more at cafés.
3. Social Environment – Culture, traditions, lifestyles, demographics. A trend toward
healthy eating may reduce coffee demand but increase herbal tea demand.
4. Technological Environment – New machines, online ordering systems, digital
payments, AI-driven marketing. If you adopt them early, you gain an edge.
5. Legal Environment – Laws related to food safety, labor, hygiene, and consumer
protection. Ignoring them could shut down your café.
Easy2Siksha.com
6. Environmental/Natural Factors – Climate change, sustainable packaging, eco-
friendly products. Customers now prefer cafés that care for nature.
Macro environment is like the “climate of the world” – it may not change your daily plan
immediately but affects your long-term future.
An Engaging Example
Let’s return to your café again. Imagine:
• The government announces subsidies for organic products. You introduce organic
coffee and attract health-conscious customers.
• The economy slows down, people cut down on luxury spending, and your sales dip.
• A new technology allows online pre-ordering. You adopt it and reduce waiting time.
• The society develops a craze for Korean culture, and suddenly Korean-style cafés
trend. You adapt and decorate accordingly.
This story shows how external factors keep influencing business every single day.
Conclusion – The Dance Between Business and Environment
Running a business is like sailing a boat. Your boat (the business) is strong only if you know
how to handle the winds, tides, and storms (the environment). Sometimes the wind pushes
you forward (opportunities), and sometimes it resists you (threats). But you can’t control
the wind – you can only adjust your sails.
That’s exactly what the Business Environment is: a mix of internal strengths and external
forces that constantly shape the journey of a business. The smart businessman is not the
one who complains about the wind, but the one who adjusts the sails and finds the right
direction.
So, whether it’s a small café or a multinational company, success depends on how well we
understand and adapt to this ever-changing environment.
2. State the present position and causes of urban and farm unemployment in India.
Explain the efforts undertaken by Government to eradicate such unemployment.
Ans: Urban and Farm Unemployment in India – Causes, Present Situation, and
Government Efforts
Imagine a young boy named Ravi who grows up in a small village in Bihar. His family has
been farming for generations. After finishing his basic schooling, Ravi dreams of working in
Easy2Siksha.com
the city, earning a good salary, and supporting his family. But when he reaches Delhi, he
discovers that jobs are scarce, and the few jobs that exist require skills he doesn’t have.
Meanwhile, back in the village, his father still struggles with low farm income because
farming has too many people depending on it and very little modern machinery.
This little story of Ravi is actually the story of millions of Indians today. It explains the two
sides of unemployment in our country – farm (rural) unemployment and urban
unemployment. To understand the present position, causes, and government’s efforts to
solve it, let’s go step by step.
Present Position of Unemployment in India
India is the world’s most populated country, with over 1.4 billion people. Every year, millions
of youngsters complete their education and step into the job market. But here comes the
challenge – there are not enough jobs for everyone.
1. Farm (Rural) Unemployment:
o A large portion of India’s population (around 40%) is still dependent on
agriculture.
o But farming does not need so many people anymore. Landholdings are small,
productivity is low, and technology is outdated in many areas.
o As a result, many people remain disguisedly unemployed. This means even if
5 people are working on the same small farm, only 2 are actually needed; the
rest are technically “unemployed” though they appear to be working.
2. Urban Unemployment:
o Cities attract youth with dreams of better jobs, but industries and offices
cannot absorb everyone.
o Educated unemployment is a big problem in cities – graduates and
postgraduates are often sitting at home because the jobs available do not
match their skills.
o The rise of automation and artificial intelligence has also reduced the need
for low-skill labor in cities.
Recent surveys by government bodies show that India’s overall unemployment rate hovers
between 6% to 8%, but the hidden unemployment in villages makes the situation far worse
than it appears on paper.
Causes of Farm (Rural) Unemployment
Now, let’s visit Ravi’s village again to see why rural areas face unemployment:
1. Over-dependence on Agriculture: Too many people rely on farming because there
are limited industries in villages.
Easy2Siksha.com
2. Small Landholdings: Most farmers own less than 2 hectares of land, which cannot
provide enough work or income for the whole family.
3. Seasonal Nature of Agriculture: Farmers are busy during sowing and harvesting
seasons, but in between, they have no work. This creates seasonal unemployment.
4. Low Use of Technology: Unlike developed countries, Indian farming still uses
traditional methods in many areas. This reduces productivity and income.
5. Lack of Non-farm Opportunities: Villages often lack factories, workshops, or service
centers where rural youth could find alternative employment.
Causes of Urban Unemployment
Now shift the lens to Ravi’s life in Delhi city:
1. Migration from Villages: Every year, thousands migrate to cities hoping for jobs, but
urban centers cannot accommodate such a large inflow.
2. Mismatch of Skills: Education in India often focuses on theory rather than practical
job skills. So, a graduate in history or political science may not find a relevant job in
the market.
3. Slow Industrial Growth: Manufacturing industries have not expanded fast enough to
provide large-scale jobs.
4. Use of Technology: Automation, digital tools, and artificial intelligence are replacing
human labor in many industries.
5. Population Pressure: India adds millions of job seekers every year, but new job
creation is slower compared to the demand.
Government Efforts to Eradicate Unemployment
The Indian government is well aware of this challenge and has introduced several programs,
policies, and missions to fight unemployment. Let’s break them into rural efforts and urban
efforts.
Efforts in Rural Areas (Farm Unemployment Solutions):
1. MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act, 2005):
o This scheme promises 100 days of guaranteed wage employment to rural
households.
o It not only provides jobs but also helps in creating rural infrastructure like
roads, ponds, and wells.
2. PM-KUSUM Scheme:
o Promotes solar irrigation pumps for farmers.
o Helps farmers reduce costs and creates opportunities in renewable energy-
related jobs.
3. Pradhan Mantri Gram Sadak Yojana (PMGSY):
Easy2Siksha.com
o Better rural roads connect villages to markets, encouraging rural industries
and creating jobs.
4. Skill Development in Agriculture:
o Programs like “Skill India” also cover training for modern farming techniques,
food processing, and allied activities (dairy, poultry, fisheries).
Efforts in Urban Areas (Urban Unemployment Solutions):
1. Skill India Mission (2015):
o Aims to train millions of youth in practical, job-oriented skills.
o Courses cover IT, retail, hospitality, construction, and more.
2. Make in India (2014):
o Encourages domestic manufacturing and foreign investment.
o If successful, it can create large-scale employment in industries.
3. Start-up India (2016):
o Promotes entrepreneurship by providing funding, tax benefits, and support
for start-ups.
o Instead of job seekers, young people become job creators.
4. Digital India:
o Expands IT infrastructure and digital services.
o Creates new job avenues in e-commerce, app development, and digital
services.
5. Atmanirbhar Bharat Abhiyan:
o Focus on self-reliance by boosting local industries.
o Provides relief packages, loans, and support for MSMEs (Micro, Small, and
Medium Enterprises), which are the largest job providers in India.
Way Forward
While government efforts are significant, solving unemployment requires a multi-pronged
approach:
• Modernizing agriculture so that fewer people depend on it while others shift to non-
farm jobs.
• Expanding industries in rural areas so that villages also become centers of
employment.
• Reforming education to make it skill-based and aligned with market demand.
• Encouraging entrepreneurship and small businesses as they can employ large
numbers of people.
• Supporting sectors like tourism, healthcare, and renewable energy that have huge
job potential.
Easy2Siksha.com
Conclusion
Coming back to our friend Ravi – his story will have a happy ending only if both his village
and his city provide fair opportunities. In villages, modern farming and rural industries
should give him a secure livelihood. In cities, better skill training and industrial growth
should open doors to meaningful jobs.
Unemployment in India is not just a number – it is a human challenge that affects millions of
families. But with consistent efforts, right policies, and youth participation, India can convert
its vast population from being a problem into its biggest strength.
SECTION-B
3. Explain salient features of Industrial policy of 1991. What main changes are made in
Industrial policy after 1991? What impact have these changes made on business and
industry?
Ans: The Background: Why Did India Need a Change?
Imagine a family running their household in a very strict and controlled way. Every small
purchase, every job, every decision required approval from the head of the family. That’s
how India’s economy was working before 1991.
From independence till the late 1980s, India followed a very socialist model of
development. The government controlled most industries, private businesses had limited
freedom, and entrepreneurs had to get endless licenses and approvals (famously called the
“License Raj”) to start or expand a company.
By the late 1980s, this system started showing cracks. India was facing:
• A severe financial crisis in 1991 (foreign reserves were so low that India could barely
pay for 2 weeks of imports).
• High fiscal deficit (government was spending far more than it earned).
• Inefficient industries due to over-regulation.
• Rising inflation and unemployment.
India was almost like a person drowning and in urgent need of help. At this moment, the
government under Prime Minister P.V. Narasimha Rao and Finance Minister Dr.
Manmohan Singh introduced the New Industrial Policy of 1991. It was nothing less than a
turning point in India’s economic journey.
Salient Features of Industrial Policy 1991
Easy2Siksha.com
Let’s now open the “toolbox” of this policy and see what changes it brought.
1. Abolition of Industrial Licensing (End of License Raj):
Before 1991, if someone wanted to start even a simple factory, they needed
government licenses for almost everything. The 1991 policy scrapped licensing for
most industries (except a few like defense, railways, and hazardous chemicals). This
gave entrepreneurs freedom to start businesses without begging for government
approval.
2. Reduction in Public Sector Dominance:
Earlier, the government reserved many industries only for the public sector (like
steel, airlines, power, telecommunications). The new policy reduced this drastically,
keeping only a handful of areas (like defense and atomic energy) exclusively for
government control. This opened the door for private companies to enter previously
restricted fields.
3. Encouragement to Foreign Investment (FDI):
India was earlier very hesitant to allow foreign companies. But in 1991, the policy
allowed Foreign Direct Investment (FDI) in many sectors. For example, foreign
companies could now collaborate with Indian firms, bring in money, advanced
technology, and global business practices. This was like opening windows in a closed
room to let fresh air come in.
4. MRTP Act Changes (Curb on Monopoly Restrictions):
The Monopolies and Restrictive Trade Practices Act (MRTP Act) earlier restricted
big companies from expanding too much. The 1991 policy relaxed these rules, giving
large firms more freedom to grow, merge, or diversify.
5. Modernization and Technology Upgradation:
The policy encouraged industries to adopt new technology, modern machines, and
better methods of production. Earlier, outdated technology was a big hurdle, but
now modernization was actively supported.
6. Liberalization of Import Policies:
Import restrictions were eased. Indian companies could now import machinery,
technology, and raw materials more easily, which made production more efficient.
7. Disinvestment in Public Sector Enterprises (PSUs):
Many government-owned companies were not performing well. The policy
introduced the idea of disinvestment—selling part of the government’s share in
these companies to private investors.
In short, this policy can be remembered by three key words: Liberalization, Privatization,
and Globalization (LPG).
Main Changes Made After 1991
The 1991 policy was the starting point, but reforms continued in the following decades.
Some important changes after 1991 were:
Easy2Siksha.com
1. Further Liberalization of FDI:
Initially, foreign investment was allowed in some sectors with limits. Later, many
sectors were opened up completely, like telecom, retail, and aviation, making India
more globally connected.
2. Disinvestment Push:
Over the years, the government continued selling stakes in public sector companies
(like Air India, VSNL, Maruti) to reduce its burden and improve efficiency.
3. GST and Tax Reforms:
Though GST came in 2017, it was a continuation of the reform spirit. It simplified
India’s tax system and created a single national market.
4. Banking and Financial Reforms:
To strengthen the financial system, banking norms were modernized, private banks
were allowed, and stock market regulations were tightened (after scams like
Harshad Mehta’s).
5. Digital and Service Sector Boost:
With liberalization, the IT and service sector flourished. Policies encouraged
outsourcing, software exports, and digital startups.
6. Make in India & Start-up India (Post-2014):
The government has focused on promoting manufacturing and supporting start-ups
through policies that make doing business easier.
Impact on Business and Industry
Now comes the most exciting part—how did these reforms actually change India? Let’s see.
1. Explosion of Entrepreneurship:
After the License Raj ended, entrepreneurs no longer had to waste years chasing
government approvals. This created a boom in new businesses and start-ups.
2. Rise of Indian Giants:
Companies like Infosys, Wipro, Tata, Reliance, and Mahindra expanded rapidly after
1991 because they had more freedom to grow and access foreign technology.
3. Foreign Companies in India:
Brands like Coca-Cola, Pepsi, McDonald’s, Hyundai, and Amazon entered India,
creating jobs, modern retail systems, and consumer choice.
4. Boost to Employment:
With new industries, IT sector growth, and foreign companies coming in, millions of
jobs were created. India became a global hub for outsourcing and software services.
5. Improved Technology and Quality:
Indian industries adopted global technologies, improved product quality, and
became competitive in the world market.
6. Increased Exports and Global Trade:
India moved from being an isolated economy to becoming part of global trade.
Sectors like IT, pharmaceuticals, textiles, and automobiles saw huge export growth.
7. Challenges Too:
Of course, not everything was rosy. Liberalization increased competition, and many
Easy2Siksha.com
small-scale industries could not survive. Income inequality also widened as urban
areas benefited more than rural areas.
Conclusion
If we look back, the Industrial Policy of 1991 was like a key that unlocked India’s closed
economy. It gave freedom to businesses, welcomed foreign investment, and connected
India with the global market.
The main message is simple: before 1991, India’s economy was like a bird in a cage, and the
1991 policy opened the cage door. The bird was hesitant at first, but slowly it learned to
fly—and today India is one of the fastest-growing economies in the world.
Yes, there are challenges like inequality, unemployment, and the need for further reforms,
but the transformation that began in 1991 laid the foundation of modern India’s business
and industry.
4. What are the objectives of monetary policy in India? Also examine critically the working
of monetary system in India.
Ans: The Story of Money in India: Understanding Monetary Policy
Imagine for a moment that you are the captain of a ship. This ship is India’s economy, and
the passengers are more than 1.4 billion people. The sea is the market, with waves of
inflation, unemployment, trade fluctuations, and global crises. Now, what would you use to
steer this massive ship safely?
That steering wheel is monetary policy, and the captain’s guiding hand is none other than
the Reserve Bank of India (RBI). Just like a captain adjusts the direction depending on
storms, winds, or calm seas, the RBI uses monetary policy to keep India’s economy stable,
growing, and safe.
But what exactly are the objectives of monetary policy in India, and how well has our
monetary system worked? Let’s explore.
Objectives of Monetary Policy in India
The goals of monetary policy are like milestones on the road of development. They are not
random; they are deeply connected to the needs of a developing country like India.
1. Price Stability
Easy2Siksha.com
o Imagine you are planning a monthly household budget. If sugar costs ₹40 one
month and suddenly ₹80 the next, it creates chaos in your planning.
o Price stability means controlling inflation (rise in prices) while also avoiding
deflation (fall in prices). Both extremes hurt the common man and
businesses.
o The RBI’s primary responsibility today is to keep inflation under control. Since
2016, India follows an inflation-targeting framework where the goal is to
keep inflation around 4% (with a margin of ±2%).
2. Economic Growth
o A stable price level is good, but growth is essential for a developing country
like India.
o Growth means more factories, more jobs, more income, and ultimately
better living standards.
o Through credit policies, interest rates, and availability of money, the RBI tries
to ensure that entrepreneurs and businesses have enough funds to expand.
3. Employment Generation
o India has a huge young population. Without jobs, growth becomes
meaningless.
o Monetary policy indirectly affects employment. For example, when RBI
lowers interest rates, borrowing becomes cheaper, industries invest more,
and jobs are created.
4. Exchange Rate Stability
o India does not live in isolation; it trades with the world. If the value of the
rupee keeps fluctuating wildly against the US dollar, it affects exporters,
importers, and foreign investors.
o A stable exchange rate makes India more reliable in the global market.
5. Balance of Payments Equilibrium
o Balance of Payments (BoP) is like India’s international account book, showing
what we earn from and spend on foreign trade.
o A deficit here means more money is going out than coming in, which
weakens the economy. Monetary policy helps in maintaining this balance by
influencing imports, exports, and foreign investments.
6. Control of Inflationary and Deflationary Cycles
o When the economy overheats (too much money, too few goods), RBI
tightens the money supply.
o When the economy slows down (less demand, unemployment rising), RBI
injects more money to revive activity.
7. Promoting Financial Inclusion
o In the past, only the wealthy had access to banks and credit. Today, with
schemes like Jan Dhan Yojana, monetary policy supports financial inclusion
so that even the poorest can use banking services.
Easy2Siksha.com
Critical Examination of the Working of the Monetary System in India
Now that we understand the objectives, let’s critically see how the system has performed.
Like any story, there are strengths, weaknesses, and challenges.
1. Achievements of India’s Monetary System
• Control over Hyperinflation: Unlike some countries (e.g., Zimbabwe or Venezuela),
India has never faced complete price collapse or uncontrollable inflation. The RBI has
generally managed to keep inflation within a tolerable range.
• Support to Growth: By adjusting repo rates (the rate at which RBI lends to banks),
India has been able to encourage borrowing and investment in critical times. For
example, during the 2008 global financial crisis and the COVID-19 pandemic, RBI
reduced interest rates and injected liquidity to protect the economy.
• Development of Financial Institutions: India’s monetary system has supported the
growth of commercial banks, regional rural banks, microfinance institutions, and
cooperative credit societies. This has expanded credit to farmers, small businesses,
and industries.
• Digital Push: The monetary system today is not just about coins and notes. With
initiatives like UPI, digital banking, and fintech support, the RBI has modernized the
payment ecosystem, making money more accessible and secure.
2. Limitations of Monetary Policy in India
• Dual Nature of Inflation in India: Unlike developed countries where inflation is
mostly due to too much money in circulation, in India inflation is often caused by
supply-side problems (like poor harvests, rising oil prices, or logistics issues). Here,
monetary policy has limited impact.
• Time Lag Problem: Changes in monetary policy take time to show results. If RBI
reduces repo rate today, businesses won’t invest instantly—it may take months or
even years.
• Informal Sector Challenge: A large part of India still depends on the informal
economy (moneylenders, unregistered businesses, cash transactions). This limits the
reach of formal monetary tools.
• Conflict of Objectives: Sometimes the goals clash. For example, if RBI focuses on
controlling inflation by increasing interest rates, it may slow down growth and
reduce job creation.
• Dependence on Fiscal Policy: Monetary policy alone cannot carry the burden of
development. It works best when supported by government spending and policies.
3. Recent Developments
• Inflation Targeting Framework (2016): This has given a clear direction and
accountability to RBI. Now, instead of vague goals, the central bank has a
measurable target.
Easy2Siksha.com
• Crisis Management: During COVID-19, RBI launched several measures like loan
moratoriums, liquidity infusion, and reduced interest rates to keep the economy
afloat.
• Digital Revolution: India is moving towards a cashless economy, and RBI is even
experimenting with a Central Bank Digital Currency (CBDC), also called the digital
rupee.
Conclusion
Think again of the ship analogy. The Indian economy is like a massive ship navigating
uncertain waters. The Reserve Bank of India, through monetary policy, keeps adjusting the
sails and steering the wheel to balance growth, stability, and employment.
The objectives of monetary policy—price stability, growth, employment, balance of
payments, and inclusion—are ambitious and necessary for a country of India’s size and
diversity. While the system has had its successes in controlling inflation, ensuring financial
stability, and pushing digitalization, it also faces limitations like supply-side inflation, time
lags, and the dominance of the informal sector.
In simple words, the monetary system in India is not perfect, but it has been a strong
guardian of our economy. It works like a doctor—sometimes prescribing medicines (interest
rate cuts), sometimes applying restrictions (tightening liquidity), always aiming to keep the
patient—the Indian economy—healthy and moving forward.
So, the story of India’s monetary policy is one of balance, learning, and adaptation. It may
not solve every problem, but without it, steering the world’s fifth-largest economy would be
like sailing blindly in a storm.
SECTION-C
5. Discuss the importance of economic planning in India. Also evaluate the role of
economic planning in market driven economy.
Ans: The Story of India’s Economic Planning
Imagine a family trying to run its household. If the parents earn a certain amount, they must
decide how to spend it wisely — how much for food, how much for children’s education,
how much to save for emergencies, and how much to invest in the future. Without such
planning, the family may spend recklessly on unnecessary items and later struggle even for
essentials.
Easy2Siksha.com
Now, think of India as one huge family of more than a billion people. Right after
independence in 1947, India was like a family with very limited income and a lot of
responsibilities. The country was poor, agriculture was weak, industries were
underdeveloped, and millions were unemployed. At that point, India needed a clear
roadmap to move forward — and that is how economic planning entered the picture.
What is Economic Planning?
Economic planning simply means preparing a systematic roadmap for the country’s
economic development. Just like a school timetable tells us what subject to study in which
period, economic planning tells the government where to focus its resources — agriculture,
industries, infrastructure, education, health, or technology — and in what order.
India started this journey with the First Five-Year Plan in 1951, and since then, planning has
shaped almost every sector of the economy.
Why Was Economic Planning Important for India?
Let’s explore the importance step by step, almost like turning the pages of a storybook:
1. A Guiding Map for Growth
After independence, India was like a car standing at a crossroads. Without a map, it could
have wandered aimlessly. Planning gave direction. For example, the early plans focused
heavily on agriculture and irrigation because the country had faced terrible famines and
food shortages. Later plans shifted focus towards industries, infrastructure, and
modernization.
2. Balancing Between Rich and Poor
In India, some regions were rich in resources, while others lagged far behind. Without
planning, only certain cities like Bombay (now Mumbai), Calcutta (now Kolkata), or Madras
(now Chennai) might have developed, leaving rural areas in darkness. Planning helped
distribute industries, schools, and hospitals across the country to reduce inequality.
3. Creating Jobs and Reducing Poverty
Unemployment was one of the biggest challenges. By planning big irrigation projects, dams,
roads, railways, and industries, the government created millions of jobs. Schemes like rural
employment programs were designed through careful planning to uplift the poor.
Easy2Siksha.com
4. Building a Self-Reliant Nation
In the 1950s and 1960s, India imported almost everything, even food grains. But through
planned efforts, India launched the Green Revolution, which made the country self-
sufficient in food. Similarly, setting up industries like steel plants and oil refineries made
India less dependent on foreign countries.
5. Encouraging Social Development
Economic growth alone is not enough. People also need education, health care, clean water,
and housing. Through planning, the government invested in schools, universities, hospitals,
and rural development schemes. This ensured that development touched ordinary lives.
A Turn in the Story: Liberalization and Market Economy
For nearly four decades, India followed a strict planned economy, where the government
decided almost everything: how much steel should be produced, how many scooters should
be manufactured, even how many cloth mills should run. This worked to some extent, but
by the 1980s, cracks began to show.
Industries were slow, bureaucracy was heavy, and India faced a serious balance-of-payment
crisis in 1991. That’s when India turned towards liberalization, privatization, and
globalization (LPG).
From then onwards, India became more of a market-driven economy — where private
businesses, competition, and consumer choices started shaping the economy rather than
only government plans. But here comes an interesting question:
If markets are running the economy, is planning still necessary?
The Role of Planning in a Market-Driven Economy
Even in a free-market system, planning doesn’t lose relevance. Instead, its role simply
changes. Let’s see how:
1. From Controller to Facilitator
Earlier, planning used to “control” — deciding how much production should happen in
which sector. Now, planning acts as a facilitator — guiding policies, setting goals, and
creating a healthy environment where markets can function smoothly. For example, the
government doesn’t produce mobile phones anymore, but it plans policies that encourage
companies like Samsung, Apple, or Indian start-ups to invest and manufacture in India under
“Make in India.”
Easy2Siksha.com
2. Correcting Market Failures
Markets often chase profits and may ignore social needs. For example, private companies
may not want to build roads in remote villages or provide affordable housing to the poor
because it doesn’t bring quick profits. This is where planning steps in — the government
designs welfare schemes, rural projects, and subsidies so that growth is not only for the rich.
3. Long-Term Vision
Markets usually think short-term: quarterly profits, yearly targets. But a nation needs long-
term vision — like energy security, climate change action, digital infrastructure, or education
for the next generation. Planning provides that bigger picture. Institutions like NITI Aayog
(which replaced the Planning Commission in 2015) now play this role of futuristic policy-
making.
4. Balancing Globalization with National Interests
With globalization, India is part of the world market. Foreign companies enter India, and
Indian companies go abroad. Without proper planning, foreign giants could dominate, and
local industries might collapse. Planning ensures that while India welcomes globalization, it
also protects its farmers, small industries, and workers.
5. Crisis Management
During crises like COVID-19, free markets alone could not manage the situation. It was
government planning that helped in distributing vaccines, running relief programs, and
ensuring essential supplies. This shows that even in a market-driven system, planning is like
a safety net.
A Living Example: NITI Aayog
Today, instead of rigid Five-Year Plans, India has NITI Aayog, which acts like a think tank. It
doesn’t dictate production but gives policy suggestions, works with states, promotes
innovation, and sets goals like “Digital India,” “Startup India,” and “Sustainable
Development.”
This shows the evolution: from old-style central planning to new-age strategic planning.
Conclusion: A Story Still Unfolding
So, the story of economic planning in India is like the journey of a family growing from
poverty to stability, and then to ambition. In the beginning, strict planning was like strict
parental control — necessary to bring discipline and direction. Later, as the children grew,
Easy2Siksha.com
the family allowed them more freedom — just like India allowed markets more space after
1991. But even today, the parents (government) keep a watchful eye, guiding the family
towards long-term dreams.
In simple words, planning in India is not a relic of the past, but a compass for the future. It
ensures that while markets drive growth, development remains balanced, inclusive, and
sustainable.
6. Differentiate between deficit budget and deficit linancing. Explain the role and
limitations of deficit financing for promoting economic development of developing
economy like India.
Ans: Imagine a family sitting together at the dining table. The father is explaining to his
children how the household money is managed. He says:
“Every month I get my salary, and from that, I have to take care of groceries, school fees,
electricity bills, and other expenses. But sometimes, the expenses turn out to be more than
the income. That’s when I either borrow from my friend, or I withdraw money from the
savings kept in the bank. This difference between my income and expenses is what the
government also faces at a national level. We call it deficit.”
This simple family example is a good way to enter into our discussion on deficit budget and
deficit financing.
1. Deficit Budget – What Does It Mean?
Let’s first talk about the budget. Every year, just like a family plans its income and expenses,
the government too prepares a plan. This is called the Union Budget in India.
• When the government’s planned expenditure is greater than its expected revenue,
the situation is called a deficit budget.
• In simple words, the government is spending more than it is earning.
For example: If the government collects ₹10 lakh crore in taxes and other revenues but
plans to spend ₹12 lakh crore on welfare, defence, education, and infrastructure, then there
is a deficit of ₹2 lakh crore. This is known as a deficit budget.
So, deficit budget = a budget where expenditure > revenue.
2. Deficit Financing – How Is It Different?
Easy2Siksha.com
Now comes the next part. If the government is facing a deficit, the natural question is: From
where will the extra money come?
This is where deficit financing enters.
• Deficit financing means the government covers its budget deficit by borrowing or
by printing more currency.
• In India, historically, the concept was defined by Prof. J.M. Keynes and further
adapted by Indian economists. According to the traditional definition, it means
“financing the deficit through borrowing from the Reserve Bank of India, which
ultimately leads to creation of new money.”
So, while deficit budget is the situation of having more expenses than income, deficit
financing is the method adopted to meet that gap.
In simple words:
• Deficit Budget = The problem
• Deficit Financing = The solution (but not always a healthy one)
3. Role of Deficit Financing in Developing Economies like India
Now, let us enter into the bigger picture. India, like many developing nations, has always
faced the challenge of limited resources but unlimited needs. To build schools, hospitals,
industries, and infrastructure, the government needs money. But the tax collection in
developing countries is usually low because a large population is poor and outside the tax
net.
So, deficit financing plays a role like a stepping stone for development. Let us see how:
(a) Promotes Economic Growth
In developing economies, private investors are often hesitant to invest in large-scale
projects like highways, dams, or power plants. The government, through deficit financing,
can spend on such projects. This creates infrastructure which later attracts private
investment and accelerates growth.
(b) Mobilises Idle Resources
In many developing countries, there are idle resources like unemployed labor or unutilized
land. When the government spends more money, it creates demand for goods and services,
which in turn activates these idle resources. This helps in better utilization of the country’s
potential.
(c) Generates Employment
Easy2Siksha.com
Through deficit financing, the government can invest in public works programs (roads,
bridges, irrigation canals, etc.). These projects provide immediate employment
opportunities to people and also create long-term assets for the economy.
(d) Encourages Industrialization
Developing countries need a push for industrial growth. With deficit financing, the
government can invest in heavy industries, provide subsidies, or support small industries.
This helps in structural transformation of the economy from agriculture to industry.
(e) Supports Welfare Schemes
Deficit financing allows the government to spend on health, education, and poverty
reduction programs. In a country like India, where social inequality is high, such welfare
spending is necessary for inclusive development.
4. Limitations and Risks of Deficit Financing
While deficit financing sounds attractive, it is like a painkiller medicine – useful in
emergencies but harmful if overused. Let’s see the limitations:
(a) Inflationary Pressure
When the government prints more money to finance its deficit, there is more money
chasing the same amount of goods. This leads to inflation. In India, deficit financing during
the 1970s and 1980s contributed to rising prices. Inflation hurts the poor the most because
their incomes do not rise as fast as prices.
(b) Fiscal Imbalance
Continuous deficit financing increases the fiscal deficit of the government. A very high fiscal
deficit creates a negative image of the country’s financial discipline and may reduce investor
confidence.
(c) Debt Burden
If deficit financing is done through borrowing instead of printing money, it increases the
public debt. The government then has to pay interest on this debt, which reduces the
resources available for development in the future.
(d) Balance of Payments Problem
Excessive deficit financing can lead to higher imports (as demand increases). If exports do
not rise at the same pace, it creates a balance of payments deficit, which weakens the
country’s currency.
Easy2Siksha.com
(e) Misuse of Funds
In some cases, deficit financing is used not for productive development activities but for
unproductive expenses like political subsidies or populist schemes. This reduces its
effectiveness and increases risks.
5. Balancing the Role of Deficit Financing
For a developing economy like India, the role of deficit financing is like walking on a
tightrope. On one hand, it provides the much-needed push to accelerate growth, create
jobs, and develop infrastructure. On the other hand, excessive use may lead to inflation and
fiscal instability.
Therefore, economists suggest:
• Deficit financing should be used only for capital formation (building assets like
roads, dams, factories) and not for routine expenditure.
• The government should gradually focus on improving tax collection, encouraging
savings and investments, and reducing dependency on printing money.
• There should be transparency and strict monitoring to ensure funds are not wasted.
6. Conclusion
To conclude, let us go back to the family story. If the father borrows money every month
just to spend on luxuries, soon the family will fall into debt and misery. But if he borrows to
buy a sewing machine for his wife or pay for his child’s education, then this borrowing
becomes an investment that can improve the future income of the family.
In the same way, a deficit budget shows that the government’s expenses are greater than
its income, while deficit financing is the method to bridge this gap. For a developing country
like India, deficit financing has been a powerful tool to push growth, build infrastructure,
and reduce poverty. But like medicine, its dosage must be carefully controlled. If used wisely
for productive purposes, it can be a blessing. If misused, it can lead to inflation, debt, and
instability.
Thus, deficit financing is both a friend and a danger – its impact depends on how
responsibly it is used.
Easy2Siksha.com
SECTION-D
7. Write notes on:
(a) Main features of latest Foreign Trade policy of India (2015-20).
(b) Main provisions of Competition Act, 2002.
Ans: Act 1 — The Foreign Trade Policy (2015-20): India’s Global Invitation
Scene opens: It’s April 1, 2015. The Commerce Minister stands at a podium in New Delhi.
Behind her is a banner with the words “Make in India, Digital India, Skill India”. The room is
full of exporters, industry leaders, and journalists.
She announces a five-year roadmap — the Foreign Trade Policy (FTP) 2015-20 — designed
to make India a bigger player in global trade, aiming to almost double exports and raise
India’s share in world exports to 3.5% by 2020.
Main Features — The Highlights of the Script
1. Unified Policy for Goods and Services
o Earlier, separate policies existed for merchandise and services.
o FTP 2015-20 merged them into one framework, recognising that India’s IT,
tourism, and healthcare exports are as important as its textiles or engineering
goods.
2. Two Flagship Schemes
o MEIS (Merchandise Exports from India Scheme): Incentives for exporting
specific goods to specific markets, replacing older schemes like FMS and FPS.
o SEIS (Service Exports from India Scheme): Incentives for export of notified
services from India, replacing the Served from India Scheme.
3. Focus on Ease of Doing Business
o Simplified procedures, online filing, and reduced paperwork.
o Exporters could self-certify their status for certain benefits.
4. Boost to ‘Make in India’
o Encouraged manufacturing for export by allowing duty-free import of inputs
under schemes like EPCG (Export Promotion Capital Goods).
o Promoted value-added exports rather than just raw material exports.
5. Support for Special Economic Zones (SEZs) and EOUs
o Continued incentives for units in SEZs, Export Oriented Units, and other
export parks.
6. Market and Product Diversification
o Incentives targeted at new markets in Africa, Latin America, and CIS
countries.
o Encouraged exports of high-value products like electronics, pharmaceuticals,
and engineering goods.
7. Niryat Bandhu Scheme
o Mentoring new and potential exporters through training and counselling.
Easy2Siksha.com
8. Digital Push
o DGFT (Directorate General of Foreign Trade) moved many services online —
from application to grievance redressal.
Story takeaway: The FTP 2015-20 was like India sending out a beautifully designed
invitation card to the world: “Come trade with us — we’ve made it easier, faster, and more
rewarding.”
Act 2 — The Competition Act, 2002: The Marketplace Referee
Scene opens: Imagine a giant Indian bazaar. Stalls line the streets, each selling something
different — from spices to smartphones. The crowd is buzzing. But what if one big trader
starts bullying smaller ones, fixing prices, or blocking new entrants?
That’s when the Competition Act, 2002 steps in — like a fair but firm referee — to ensure
the market stays healthy, competitive, and fair for both businesses and consumers.
Purpose of the Act
• To prevent practices that have an adverse effect on competition.
• To promote and sustain competition in markets.
• To protect the interests of consumers.
• To ensure freedom of trade for all participants.
Main Provisions — The Rules of the Game
1. Prohibition of Anti-Competitive Agreements (Section 3)
o Any agreement between businesses that causes or is likely to cause an
appreciable adverse effect on competition is prohibited.
o Includes:
▪ Horizontal agreements (between competitors) like price-fixing,
bid-rigging, market sharing.
▪ Vertical agreements (between different levels of the supply chain)
like exclusive supply or resale price maintenance.
2. Prohibition of Abuse of Dominant Position (Section 4)
o A company with significant market power cannot:
▪ Impose unfair prices or conditions.
▪ Limit production or technical development.
▪ Deny market access to others.
o Dominance itself isn’t illegal — abusing it is.
3. Regulation of Combinations (Mergers & Acquisitions) (Sections 5 & 6)
o Large mergers, acquisitions, or amalgamations that may harm competition
must be approved by the Competition Commission of India (CCI).
o The aim is to prevent creation of monopolies.
4. Establishment of the Competition Commission of India (CCI)
o An independent body to enforce the Act, conduct inquiries, and impose
penalties.
Easy2Siksha.com
o Has powers to investigate, summon witnesses, and order corrective
measures.
5. Penalties and Remedies
o Heavy fines for anti-competitive practices.
o Orders to cease and desist, modify agreements, or break up dominant
structures.
6. Advocacy Role
o CCI also advises the government on competition policy and spreads
awareness among businesses and consumers.
Story takeaway: If the FTP 2015-20 was about inviting more players into the market, the
Competition Act, 2002 is about making sure those players compete fairly — no elbows, no
tripping, no secret deals behind the referee’s back.
Quick Recap Table
Part
Key Points
FTP 2015-20
Unified goods & services policy, MEIS & SEIS incentives, ease of doing
business, Make in India push, SEZ/EOU support, market diversification,
Niryat Bandhu, digitalisation
Competition
Act, 2002
Bans anti-competitive agreements, prevents abuse of dominance,
regulates mergers, sets up CCI, imposes penalties, promotes
competition culture
Closing Scene — The Big Picture
In our two-act play, Act 1 (FTP 2015-20) is about opening the gates — making India an
attractive, efficient, and competitive player in global trade. Act 2 (Competition Act, 2002) is
about keeping the field fair — ensuring that once the players are in, they play by the rules
so that consumers, small businesses, and the economy all benefit.
Together, they tell a story of ambition balanced with fairness — the hallmark of a healthy,
growing economy.
8. What is Consumer Protection Act, 1986? Discuss the need and importance of Consumer
protection in the modern business environment.
Ans: Opening Scene — The Marketplace Drama
Picture this: It’s a bustling Indian bazaar in the late 1980s. The air is thick with the smell of
spices, the sound of bargaining, and the sight of colourful stalls.
A woman named Meera buys a pressure cooker from a shopkeeper who swears it’s “the
best in the market.” She takes it home, but the first time she uses it, the lid bursts open,
damaging her kitchen and injuring her hand.
Easy2Siksha.com
She goes back to the shop, but the seller shrugs:
“Madam, once sold, no return. You must have used it wrong.”
In those days, Meera had no quick, affordable way to fight back. Going to a civil court
meant years of delay, high legal fees, and endless paperwork.
This is the kind of injustice that led to the birth of the Consumer Protection Act, 1986 — a
law that gave ordinary people like Meera a voice, a shield, and a sword.
What is the Consumer Protection Act, 1986?
The Consumer Protection Act, 1986 was a landmark legislation passed by the Indian
Parliament to protect the interests of consumers against unfair trade practices, defective
goods, and deficient services.
Its core purpose was simple yet revolutionary:
• Make justice accessible — quick, inexpensive, and without the intimidating
formalities of regular courts.
• Empower consumers with rights and remedies.
• Hold businesses accountable for what they sell and how they sell it.
It applied to all goods and services, whether provided by public or private enterprises,
unless specifically exempted.
Key Features — The Law’s “Superpowers”
Think of the Act as a superhero with a few special abilities:
1. Three-Tier Redressal System
o District Forum — for claims up to ₹20 lakh.
o State Commission — for claims between ₹20 lakh and ₹1 crore.
o National Commission — for claims above ₹1 crore. This meant you didn’t
have to travel to Delhi for every complaint — justice was decentralised.
2. Recognition of Consumer Rights The Act gave consumers six fundamental rights:
o Right to Safety — protection from hazardous goods/services.
o Right to Information — full disclosure about products/services.
o Right to Choice — access to a variety of goods/services at competitive prices.
o Right to be Heard — your grievance must be considered.
o Right to Redressal — fair settlement of claims.
o Right to Consumer Education — awareness about rights and remedies.
3. Coverage of Goods and Services From a faulty washing machine to a misleading
insurance policy — both products and services came under its scope.
4. No Heavy Legal Formalities Consumers could file complaints without hiring a lawyer,
and without paying heavy court fees.
Easy2Siksha.com
Why Was It Needed? — The Backdrop
Before 1986, the Indian market was largely seller-dominated. The old principle was Caveat
Emptor — “Let the buyer beware.”
This meant the burden was on the buyer to check quality, safety, and fairness. But in a
growing economy with complex products, this was unrealistic.
Problems consumers faced included:
• Unfair trade practices — false advertising, fake discounts, misleading labels.
• Defective goods — unsafe electrical appliances, adulterated food, expired
medicines.
• Deficient services — poor after-sales service, negligence in healthcare, delayed
deliveries.
• Lack of awareness — many didn’t know their rights or how to enforce them.
• Cumbersome legal process — civil courts were slow, costly, and intimidating.
The Act flipped the script to Caveat Venditor — “Let the seller beware” — making
businesses responsible for what they sell.
Importance in the Modern Business Environment
Fast-forward to today’s world — the marketplace has changed dramatically. We now have
malls, e-commerce giants, global brands, and digital services. But the need for consumer
protection is greater than ever.
Here’s why:
1. Explosion of Choices and Complexity
• From smartphones with dozens of features to financial products with fine print,
consumers face overwhelming complexity.
• The Act ensures sellers can’t hide behind jargon or technicalities.
2. Rise of E-Commerce
• Online shopping brings convenience but also risks — fake websites, counterfeit
goods, misleading product images.
• Consumer protection laws extend to online transactions, making them safer.
3. Aggressive Marketing and Misleading Ads
• Influencer promotions, celebrity endorsements, and targeted ads can mislead
buyers.
• The law acts as a check against false claims.
Easy2Siksha.com
4. Globalisation
• Products and services now cross borders. Consumer protection ensures imported
goods meet Indian safety and quality standards.
5. Service-Dominated Economy
• Banking, insurance, healthcare, education — services now dominate spending.
• The Act covers service deficiencies, not just defective goods.
6. Consumer Awareness and Empowerment
• Social media amplifies consumer voices, but legal backing is still essential for real
remedies.
Why It’s a Win-Win
Consumer protection isn’t just good for buyers — it’s good for business too.
• For Consumers: Builds trust, ensures safety, and gives confidence to try new
products/services.
• For Businesses: Encourages fair competition, improves quality, and enhances brand
reputation.
• For the Economy: A fair marketplace attracts investment, fosters innovation, and
promotes sustainable growth.
Closing Scene — Justice for Meera
Let’s return to Meera from our opening scene. Under the Consumer Protection Act, she
could now file a complaint at her District Forum without a lawyer, present her case, and get
compensation for her injury and loss.
The shopkeeper, knowing the law, would think twice before selling defective goods again.
That’s the quiet power of this Act — it doesn’t just punish wrongdoing, it changes behaviour
and builds a culture of fairness.
Final Thought: In the modern business environment — whether it’s a street vendor or a
multinational e-commerce platform — the Consumer Protection Act’s spirit remains vital:
The market exists to serve the consumer, not the other way around.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
