B.Com Ist Year International Monetary Fund Short Question Answer Notes

Q.73. What do you understand by Open Market Operations?

Ans. It means that the bank controls the flow of credit through the sale and purchase of securities in the open market. When securities are purchased by central bank, then RBI makes payment to commercial banks and public. So, public and commercial banks now have more money with them. It increases money supply with commercial banks and public. This will further expand credit in the economy. When securities are sold by central bank, then public and commercial banks make payment to RBI, so they are left with less money and their credit creation capacity is reduced. Thus, money supply in the economy decreases.

Q.74. What do you mean by ‘REPO’ and ‘Reverse REPO’?

Ans. Repurchase Auction Rate (repo’) and Reverse Repurchase Auction Rate (reverse repo’) are the main monetary policy rates. “Repo’ rate means the interest rate at which commercial banks can borrow funds from RBI. ‘Reverse Repo’ rate means the interest rate given by RBI on deposits made by commercial banks with it. Increase in ‘Repo’ rates will contract credit as now commercial banks get funds from RBI at higher rate of interest.

Similarly, increase in ‘Reverse Repo’ rates will also co es commercial banks are more inclined to deposit their OBI to earn higher interest. Depositing more funds by com hanks with RBI reduces their loan giving capacity.

Q.75. What do you understand by Selective Credit Control?

Ans. This refers to the control of specific credit meant for certain specific objectives. It refers to regulating and credit to a specific sector/commodity/area. It is discriminatory in nature as it is not applicable to the whole economy. For the government wants to check the rising prices of wheat in India, the Reserve Bank may instruct the member banks not to against the security of wheat. Traders will not get credit purchase of wheat and, therefore, they will not be able to buy quantities of wheat. This will reduce demand pressure on wheat This measure would bring down wheat prices only as the squeeze is directed towards wheat alone. It is thus called Selective Control’.

Q.76. Write short note on the present monetary policy. (Meerut, 2013 Back)

Ans. The new monetary policy of India has aimed to meet the growing demands of credit with the increase in growth rate of economy. Achieving price stability, financial stability and adequate availability of credit for growth are the key objectives of new monetary policy. RBI has reduced bank rate and CRR to increase liquidity in the market. Repo and Reverse Repo rates are constantly reviewed by the RBI to check inflation. In order to impart flexibility in interest rate structure, banks have given freedom to fix interest rates upto some extent. Limit on investment in foreign countries is increased. To focus on credit requirements of export sector, liberal finance will be made available to exporters.

Q.77. Write the limitations of monetary policy of India.

Ans. Some limitations of monetary policy of India is as follows:

• Monetary policy is proved ineffective in controlling prices as prices is affected by many factors and money supply is only one of them.  
• Indian people have poor banking habits. This reduces the credit creation capacity of the banks.
• A vast part of Indian money market is unorganised and under developed which limits the efficient working of monetary policy.

(iv) The existence of black money in the economy limits the working of monetary policy.

Q.78. What is Fiscal Policy? (Meerut, 2012)

Ans. Fiscal policy refers to the government’s tax, expendi public debt and budgetary policies designed to intl national income, production, prices, employment etc. ofth Under this policy, the government determines that commodities and services tax to be imposed ? What shoula rate of taxes and on which sectors the revenue should be What arrangements should be made by the governme expenditure exceeds its revenue ? Thus fiscal policy include matters related to taxation, public expenditure, public debt oma budget.

Q.79. Describe the main components of fiscal policy. (Meerut, 2013 Back)

Ans. See Page No.97 and 98.

Q.80. Write the main objectives of fiscal policy of India.

Ans. The main objectives of fiscal policy are as follows:

• To mobilise resources for rapid economic development of the country.
• To increase the rate of savings in the country so that sufficient financial resources can be obtained from within the economy.
• To increase the rate of investment in the economy, so as to promote capital formation.
• To remove poverty and unemployment.

(v) To reduce economicinequality and regional disparities.

(vi) To achieve economic stability.

B.Com Ist Year International Monetary Fund Short Question Answer Notes

Q.81. Give main drawbacks of Indian Fiscal Policy.

Ans. See Page No.98 and 99.

Q.82. What is meant by Fiscal Deficit ?

Ans. Fiscal deficit means excess of government expenditure over the government income. Amount of loans raised by the government are not included in the government income. Fiscal deficit reflects the extent of borrowing by the government in a fis year.

Fiscal Deficit = Total Expenditure – Total Receipts (Excep loans raised by the government),

Q.83. What do you understand by deficit financing?

Ans. Deficit financing refers to financing the budgetary Budgetary deficit Budgetary deficit means excess of government. Expenditure over government income (including borrowings). Deficit financing in India means, “Taking loan from the Reserve Bank of India by the government to meet the budgetary deficit.” Reserve Bank gives the loan by issuing new currency notes. Deficit financing increases money supply in the economy which leads to increase in price level.

Q. 84. Evaluate Fiscal policy of India.

Ans. Since independence, government of India has been

making use of fiscal policy to mobilise resources for econom development. Industries of India have witnessed rapid development. Considerable expansion of means of communication and transport, roads, railways, canals, power projects, etc.has taken place. However, due to increasing burden of taxation, peop mapacity to save and produce has been adversely affected. Bisa policy has failed to check economic inequality and solve the problem of unemployment in an effective manner. Instead of checking rise in prices, fiscal policy has fuelled inflation.

Q.85. What do you mean by Industrial Policy?

Ans. Industrial policy refers to government’s policy towards industries: their establishment, functioning and growth. The policy also covers all those principles, rules and regulations which control and direct the pattern of industrial development of a country. The industrial development of a country is directed by the industrial policy. Thus, the industrial policy of the government must be well defined, clear and progressive.

Q.86. What are the main objectives of New Industrial Policy? (Meerut, 2013)

Ans. See Page No. 103 and 104.

Q.87. Express your ideas on the ‘Industrial Policy, 1991’ of the government of India. (Meerut, 2013 Back)

Ans. On July 24, 1991, the government announced a new industrial policy which was altogether different as compared with all previous policies in this regard. This policy laid emphasis on increasing foreign collaboration, setting economy free from unnecessary controls, and making public sector competitive. This policy gave opportunity to private sector to work in a free environment. This policy is also known as open, liberal and revolutionary policy.

Q.88. What are the main features of new industrial policy?

Ans. main features of new industrial policy are ast

• The number of industries reserved reduced to two.
• The number of industries in respect of licensing is compulsory, has been reduced to 5 only

(iii) Some of the areas reserved for small scale industries are opened for large scale industries.

 (iv) Encouragement to foreign investment and exports are given emphasis in this policy.

(v) Government encouraged private sector to participate in the development of infrastructure like power, roads, airports, telecommunication etc.

Q.89. Write the merits of new industrial policy.

Ans. See Page No. 106 and 107.

Q.90. What are the main drawbacks of new industrial policy?

Ans. See Page No. 107 and 108.

Q.91. What do you understand by Industrial Licensing?

Ans. An industrial licence is a written permission from the government to an industrial unit to manufacture goods specified in the permission letter. A licence to run an industry also specifies such particulars as the location of the goods to be produced, the capacity of the unit, period within which the industrial capacity is to be established, etc. The purpose of industrial licensing is to make an optimum use of the scarce resources, redress the various imbalances and reduce inequalities to the possible extent. It heps in the implementation of industrial policy by giving it practical shape and also helps to achieve the objective of industrial development.

Q.92. What are the main objectives of Licensing policy?

Ans. See Page No. 109 and 110.

Q.93. Define Privatisation. Write its two ways. (Meerut, 2013)

Ans. Privatisation means transfer of ownership management of an enterprise from the public sector to the pray sector, partially or fully. Through privatisation, ecom democracy is being established by reducing government com economic activities.

MAIN METHODS OF PRIVATISATION STUDY MATERIAL NOTES

Main methods of privatisation are as follows:

(i) Transfer of ownership and management of a put enterprise to the private sector.

(ii) Denationalisation.

(iii) Reduction in the number of industries reserv sector.

(iv) Ban on the growth of public sector.

Q.94. What is meant by disinvestment? (Meerut, 2012)

Ans. When some part of capital of public enterprises 1 to Mutual Funds or Financial or Investment institutions, wo and general public in order to raise resources and to encourage wider participation, is known as disinvestment in public sector.

Q.95. Write the main features of privatisation.

Ans. See Page No.113.

Q.96. What are the main objectives of privatisation ?

Ans. See Page No. 113.