Industry and Trade, 1950–90 for CUET Economics

AnswerB · the public sector

1. The state would build and run heavy and basic industry; the private sector would work within the plan.

AnswerD · Industrialists lacked capital and the market was small

1. Heavy industry needs huge investment with a long wait for returns.

2. Indian industrialists did not have the capital, and the market was not big enough to encourage them to take the risk.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. The planners wanted the state to control key industries, which is why it built heavy industry itself.

2. R explains A.

AnswerA · many ran at a loss but were kept going

1. Many public sector firms made losses, but it is hard to close a government undertaking even when it drains the nation's limited resources.

AnswerA · Only I

1. I is true: capital was scarce.

2. The market was small, which is why the state stepped in. II is false.

AnswerA · Only I

1. The state stayed in fields long after private firms could serve them: I is true.

2. Many public firms were inefficient and loss-making, so II is false.

AnswerC · A is true, but R is false.

1. It is hard to close a government undertaking even when it drains resources: A is true.

2. Many did make losses, so R is false.

AnswerC · the Second Five Year Plan

1. IPR 1956 formed the basis of the Second Plan, which aimed to build a socialist pattern of society.

AnswerB · Three

1. Industries exclusively owned by the state; industries where the state would set up new units and the private sector would supplement it; and the rest, left to the private sector.

AnswerC · exclusively owned by the state

1. The first category (Schedule A), 17 industries, was to be owned exclusively by the state.

AnswerD · start a new industry or expand output

1. Private firms in the third category could work only with a licence: for a new unit or for more output.

AnswerC · Licences came more easily in backward regions

1. It was easier to get a licence for a unit in an economically backward area.

2. Such units also got tax benefits and electricity at a lower tariff.

AnswerA · So output did not exceed what the economy needed

1. The licence for expansion was meant to make sure the quantity produced was not more than the economy needed.

AnswerA · Only I

1. Licensing was the main tool of control: I is true.

2. IPR 1956 brought licensing in; it was largely abolished only in 1991. II is false.

AnswerC · A is true, but R is false.

1. The first category was the state's alone: A is true.

2. Private firms needed licences and were kept out of the first category, so R is false.

AnswerA · new units were set up by the state and supplemented by private firms

1. Schedule B: the state would generally take the initiative in new units, with private firms supplementing its effort.

AnswerB · keep out competitors rather than produce

1. Some obtained licences not to produce, but to stop rivals from getting them.

2. The heavy paperwork and delays earned the system the name 'permit licence raj'.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Delays and limits on expansion held back firms that could have grown.

2. R explains A.

AnswerC · A is true, but R is false.

1. Easier licences and concessions for backward areas did this: A is true.

2. IPR came in 1956, long before 1991, so R is false.

AnswerD · ₹5 lakh

1. A small-scale unit was defined by the value of its assets: at most ₹5 lakh in 1950. The limit has been raised several times since.

AnswerA · The Karve Committee

1. The Village and Small-Scale Industries Committee, known as the Karve Committee, reported in 1955.

AnswerD · use more labour per unit of capital

1. Small units are labour intensive: the same capital employs more people than in a large plant.

AnswerB · reserved some goods for small units

1. A list of goods could be made only by small units.

2. They also got concessions: lower excise duty and bank loans at lower rates of interest.

AnswerC · Both I and II

1. Big firms gain from scale, so small units need help: I is true.

2. Cheaper credit was one of the concessions: II is true.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. More workers per rupee of capital means more jobs for the same investment.

2. R explains A.

AnswerC · Freeing big firms from all licensing

1. Lower excise, cheaper loans and reserved goods all helped small units. Freeing big firms from licensing would have worked against them.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. SSI is defined by an investment limit; as the limit was raised, the definition changed.

2. R explains A.

AnswerC · A is true, but R is false.

1. Big firms could not make the reserved goods, so A is true.

2. Big firms usually have the cost advantage from scale; that is why reservation was needed. R is false.

AnswerC · A is true, but R is false.

1. They are labour intensive, so A is true.

2. They were promoted in villages and small towns too, for rural development, so R is false.

AnswerC · an inward-looking trade strategy

1. Trade policy looked inward: it aimed to replace imports with goods made in India.

AnswerB · producing at home the goods that were being imported

1. For example, making vehicles in India instead of importing them.

AnswerD · a tax on imported goods

1. A tariff makes imports dearer, so buyers turn to goods made at home.

AnswerA · fixes the quantity of a good that can be imported

1. A quota caps the quantity; a tariff taxes it.

AnswerD · ₹1,000

1. Tariff = 25% of 800 = ₹200.

2. Price to the buyer = 800 + 200 = ₹1,000.

AnswerD · new Indian firms could not yet compete with established foreign ones

1. An infant industry needs time to grow and cut its costs; protection gives it that time.

2. Planners also feared that imports would use up scarce foreign exchange.

AnswerA · save foreign exchange for essential imports

1. Foreign exchange was scarce; cutting imports of things India could make saved it for machinery and other essentials.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both kept foreign goods from competing freely with Indian ones.

2. R explains A.

AnswerA · Only I

1. Making goods at home means paying less foreign currency for imports: I is true.

2. It aimed at the opposite, self-reliance, so II is false.

AnswerC · A-II, B-IV, C-I, D-III

1. Tariffs and quotas were the tools of import substitution, the core of the inward-looking strategy.

AnswerB · Both A and R are true, but R is not the correct explanation of A.

1. Both are true definitions.

2. But what a tariff is does not explain what a quota does, so R does not explain A.

AnswerC · 25%

1. Tariff = 5,00,000 − 4,00,000 = ₹1,00,000.

2. Rate = 1,00,000 ÷ 4,00,000 × 100 = 25%.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Without competition at home, firms did not reach the costs and quality needed abroad.

2. R explains A.

AnswerD · A is false, but R is true.

1. It looked inward, to the home market, so A is false.

2. R is true.

AnswerB · roughly doubled

1. Industry's share of GDP rose from about 12% to about 25%, an important sign of development.

AnswerB · 6%

1. Industry grew at about 6% a year in this period, a commendable rate.

AnswerB · spread well beyond cotton and jute

1. In 1950 industry was mostly cotton and jute; by 1990 it included electronics, automobiles and much more.

AnswerA · firms had little reason to improve or cut costs

1. Shielded from competition, firms could sell goods of poor quality at high prices and still find buyers.

AnswerD · the New Economic Policy of 1991

1. Inefficiency, losses and the licence raj made the case for reform, which came with the New Economic Policy of 1991.

AnswerC · B, D, A, C

1. TISCO 1907, Karve Committee 1955, IPR 1956, New Economic Policy 1991.

AnswerC · A is true, but R is false.

1. A is true: from about 12% to about 25%.

2. Many public firms ran at a loss, so R is false.

AnswerA · Only I

1. Industry diversified well beyond cotton and jute: I is true.

2. Controls such as licences grew; they were removed only after 1991. II is false.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Competition pushes firms to cut costs and raise quality; without it they need not.

2. R explains A.

AnswerA · Only I

1. As economies develop, industry's share of output rises: I is true.

2. Many public firms were inefficient and made losses, so II is false.