Globalisation and the Indian Economy Class 10 Important Questions

Class 10 Economics Chapter 4 Globalisation and the Indian Economy Important Questions and answers cover these topics and help students to understand the concepts better. Students can solve these for practice. They may come across some of these questions in the board exam.

Students can clear their doubts from the chapter by solving these CBSE Class 10 Economics Important Questions and prepare well for the board exams. The links to download the PDF version of these questions are given in a link in this article.

Class 10 Economics Chapter 4 Globalisation and the Indian Economy Important Questions

1. What are Multi-National Corporations (MNCs)?

Answer: A Multi-National Corporation (MNC) is a company that owns or controls production in more than one nation. The goods and services are produced globally. The production process is divided into small parts and spread out across the globe.

2. Explain ‘what is investment? Give a few examples of investment.

Answer: Investment is buying of an asset in the form of a factory, a machine, land and building, etc. (Physical assets) or shares (monetary assets) for the purpose of making or sharing profits of the enterprises concerned.

Common investments are: buying land, factories, machines for faster production, buying small local companies to expand production, cheap labour, skilled engineers, IT personnel, etc.

3. In which year did the government decide to remove barriers on foreign trade and investment in India? (2011 D)

Answer: 1991

4. Why is ‘tax’ on imports known as a trade barrier? (2011 OD)

Answer: Tax on imports is known as a trade barrier because it increases the price of imported commodities. It is called a barrier because some restriction has been set up.

5. Which organization lays stress on liberalization of foreign trade and foreign investment? (2014 D, 2012 OD)

Answer: World Trade Organization (W.T.O).

6. Give one characteristic feature of a ‘Special Economic Zone’?

Answer: Special Economic Zones or SEZs are industrial zones set up by the government having word class facilities such as electricity, water, roads, transport, storage, recreational and educational facilities. Companies who set up production units in SEZs are exempted from taxes for an initial period of five years.

7. Name an important barrier on foreign trade. (2013 D)

Answer: Tax on imports is an important barrier on foreign trade.

8. What is meant by “fair globalization’? (2013 OD)

Answer: Fair globalization means globalization that would create opportunities for all and ensure that its benefits are shared better.

9. What do you understand by the term ‘Foreign Direct Investment’? (2014 OD)

Answer: FDI is the investment of foreign capital in the economic and productive activities of a country by foreign companies or MNCs with the aim of expanding capacity and production to earn profits.

10. Why had the Indian Government put barriers to foreign trade and foreign investment after independence? State any one reason. (2015 D)

Answer: The Indian government after independence had put barriers to foreign trade and investment.

This was done to protect the producers within the country from foreign competition.
To protect the Indian economy from foreign infiltration in industries affecting the economic growth of the country as planned.

11. What is meant by trade barrier? (2015 OD)

Answer: Barriers or restrictions that are imposed by the government on free import and export activities are called trade barriers. Tax on imports is an example of a trade barrier because it increases the price of imported • commodities. The government can use a trade barrier like ‘tax’ to increase or decrease (regulate) foreign trade and to decide what kind of goods and how much of what should come into the country.

12. Differentiate between investment and foreign investment. (2016 D)

Answer: The money that is spent to buy assets (land, building, machines and other equipments) is called investment, while the investment made by the MNCs is called foreign investment.

13. Why do MNCs set up their offices and factories in those regions where they get cheap labour and other resources? (2016 OD)

Answer: MNCs set up offices and factories for products in regions where they can get cheap labour and other resources so that—

the cost of production is low
the MNCs can earn greater profits.

14. Explain the role of government to make globalization fair. (2011 D)

Answer: The government can play a major role in making fair globalization possible:
Fair globalization would create opportunities for all, and also ensure that the benefits of globalization are shared better. Government policies must protect the interests not only of the rich and the powerful, but also of all the people in the country.

Government should ensure that labour laws are implemented and workers’ rights are protected.
Government should support small producers to improve their performance till the time they become strong enough to compete with foreign competition.
If necessary, government should use trade and investment barriers.
It can negotiate with WTO for fairer rules.
It can also align with other developing countries with similar interests to fight against the domination of developed countries in the WTO.

15. Explain any three advantages of globalization. (2011 OD)

Answer: Globalization means integrating the economy of the country with the world economy.

Under this process, goods and services along with capital, resources and technology can move freely from one nation to another.
It has increased the movement of people between countries. People usually move from one country to another in search of better income, better jobs or better education. Earlier the movement of people between countries was less due to various restrictions.
Rapid improvement in technology has been one major factor that has stimulated the globalization process. For instance, advancement in transportation technology has made much faster delivery of goods across long distances possible at lower costs. Container services have led to huge reduction in port handling costs. The cost of air transport has fallen which has enabled much greater volumes of goods being transported by airlines.
Developments in information and communication technology (IT in short) has brought a revolution in telecommunications. It has made e-banking, e-commerce, e-leaming, e-mail and e-governance a reality.
Globalization has resulted in greater competition among producers and has been of advantage to consumers, particularly the well-off section. Rich people now enjoy improved quality and lower prices for several products.

16. What is a trade barrier? Why did the Indian Government put up trade barriers after Independence? Explain. (2011 OD)

Answer: The restrictions set by the Government to regulate foreign trade are called trade barriers. Tax on imports is an example of a trade barrier.

The Indian Government had put barriers to foreign trade and foreign investment after independence to protect the domestic producers from foreign competition. Imports at that stage would not have allowed local industries to come up. India allowed imports of only essential items such as machinery, fertilizers, petroleum, etc.

17. What would happen if Government of India puts heavy tax on import of Chinese toys? Explain any three points. (2012 D)

Answer: If Government of India puts heavy tax on import of Chinese toys

The cost of Chinese toys will increase.
Less Chinese toys would come in the Indian market.
Indian buyers would have lesser choice in the market and toys will become more expensive.
For Indian toy makers this would provide an opportunity to expand business as there will be less competition in the market.

18. How do Multinational Companies manage to keep the cost of production of their goods low? Explain with examples. (2013 D)
Or
Explain the conditions that determine MNCs setting up production in other countries? (2011 D)

Answer:

MNCs set up offices and factories for production in regions where they can get cheap labour and other resources. Example, Countries like China, Bangladesh and India. They also provide with the advantage of cheap manufacturing locations.
MNCs also need close-by markets for their manufacturing goods. Mexico and Eastern Europe are useful for their closeness to the markets in the US and Europe.
Besides these, MNCs also require skilled engineers and IT personnel and a large number of English speaking people who are able to provide customer care services (India possibly tops in this area).
All these factors help MNCs in saving costs of production by 50-60%.

19. How do we participate in the market as producers and consumers? Explain with three examples. (2013 D)

Answer: We participate in the market both as producers and consumers.

As producers of goods and services we could be working in any of the sectors like agriculture, industry or services.
For example, a farmer who sells wheat to a flour mill. The man at the mill grinds the wheat and sells the flour to a biscuit company. The biscuit company uses flour, sugar and oil to make packets of biscuits. It sells the biscuits in the market to the consumer. Biscuits are the final goods, i.e., the goods that reach the consumer and people as consumers buy.
We as producers in the market could be made to sell the produce to the moneylender at a low rate in return for a timely loan.
For example, in case of small farmers; the failure of crops often makes loan repayment impossible. They have to sell a part of their land to repay the loans.
As consumers we participate in the market when we purchase goods and services that we need. As individual consumers we often find ourselves in a weak position. Whenever there is a complaint regarding a good or service that had been bought, the seller tries to shift all the responsibility on to the buyer.
For example, a long battle had to be fought with court cases to make cigarette manufacturing companies accept that their product could cause cancer.

20. How are local companies benefitted by collaborating with multinational companies? Explain with examples. (2013 OD)

Answer: When local companies enter into a joint venture with MNCs:

First, the MNCs provide money for additional investments for faster production.
Second, MNCs bring with them the latest technology for enhancing and improving the production.
Some Indian companies have gained from successful collaborations with foreign companies.
Globalization has enabled some companies to emerge as multinationals.
Parakh Foods was a small company which has been bought over by a large American Company — Cargill Foods. Parakh foods had built a large marketing network in various parts of India as a well- reputed brand. Parakh Foods had four oil refineries whose control has now shifted to Cargill. Cargill is now the largest manufacturer of edible oil in India making five million pouches daily.

21. How has foreign trade been integrating markets of different countries in the world? Explain with examples. (2012 OD)
Or
“Foreign trade integrates the markets in different countries.” Support the statement with arguments. (2015 OD)

Answer: (i) Foreign trade creates opportunities for producers to reach beyond domestic markets. Producers can compete in markets located in other countries of the world. Similarly, for the buyers, import of goods from another country leads to expanding choice of goods beyond what is domestically produced. Buyers can thus choose from a wide range of products to suit their individual tastes.

(ii) With the opening of trade, goods travel from one market to another. Choice of goods in the market rises. Prices of similar goods in two markets tend to become equal, and producers in the two countries now closely compete against each other even though they are separated by thousands of miles. Foreign trade, thus, results in connecting the markets or integration of markets in different countries.

For example., There are endless number of footwear brands available in the Indian market. A consumer who is aware of international trends can choose between a local brand like Bata, Lakhani and international brands like Adidas, Nike, Reebok etc.

22. Define the term liberalization. Explain the reasons why the Indian Government started the policy of liberalization in 1991. (2014 D)
Or
‘Barriers on foreign trade and foreign investment were removed to a large extent in India since 1991’. Justify the statement. (2016 D)

Answer: Removing barriers or restrictions set by the government on foreign trade and foreign investment is what is known as liberalization. The Indian Government removed these barriers because:

Liberalization of trade and investment policies allows Indian producers to compete with producers around the globe leading to an improvement in performance and quality of products.
After the barriers on foreign trade and foreign investment were removed to a large extent, goods could be imported and exported easily and also foreign companies could set up factories and offices in India. This has led to an increase in trade with different countries.
Businesses are allowed to make decisions freely about what they wish to import or export due to the liberal policies of the government.
Doors of investment opened up for MNCs. They have been investing large sums of money in India and have been seeking to earn large profits.

23. How has information and communication technology stimulated globalisation process? Explain with examples. (2014 D)

Answer: Information and communication technology has helped globalisation in the following ways:

Rapid improvement in technology has contributed greatly towards globalisation. Advanced technology in transport systems has helped in the delivery of goods faster across long distances at lower costs.
Development in information and communication technology has also helped a great deal. Telecommunication facilities — telegraph, telephone, mobile phones, fax are used to contact one another quickly around the world, access information instantly and communicate from remote areas. This is possible due to satellite communication devices. Teleconferences help in saving frequent long trips across the globe.
Information technology has also played an important role in spreading out production of services across countries. Orders are placed through internet, designing is done on computers, even payment of money from one bank to another can be done through e-banking through internet. Internet also allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible cost.

24. Why had Indian government put barriers to foreign trade and foreign investment after independence? Explain. (2014 D)
Or
Why had the Indian government put barriers to foreign trade and foreign investments after independence? Analyse the reasons. (2016 OD)

Answer: The Indian government after independence had put barriers to foreign trade and investment. This was done to protect the producers within the country from foreign competition. Industries were just coming up in the 1950s and 1960s and competition from imports at that stage would not have allowed these industries to develop and grow. Imports of only essential items such as machinery, fertilisers, petroleum etc. was allowed.

Another reason was to protect the Indian economy from foreign infiltration in industries affecting the economic growth of the country as planned. India wanted to move faster to catch up with the main industries in the world market and therefore had to keep an extra watch on its progress in international trade and give incentives to the more rapidly growing industries through fiscal tariff and other means.

25. How are MNCs able to cope with large demands from all over the ivorld and control prices? (2014 OD)

Answer:

Large MNCs in developed countries place orders for production with small producers.
The MNCs sell these under their own brand names to the customers.
As they control the market with the huge demand, they are able to control prices.

26. “A wide ranging choice of goods are available in the Indian markets.” Support the statement with examples in context of globalisation. (2016 D)

Answer: Globalisation has led to integration of markets across countries. The Indian markets are now flooded with a wide ranging choice of goods. Import from other countries has led to an expanding choice of goods beyond what is domestically produced —

We have a wide variety of goods and services before us in the market.
The latest models of digital cameras, mobile phones and televisions made by leading manufacturers of the world like Sony, Samsung etc. are available in the market.
Every season, new models of automobiles can be seen on Indian roads. Today Indians are buying cars produced by nearly all the top companies in the world.
A similar explosion of brands can be seen for many other goods like footwear. For example, Adidas, Nike, Reebok, Puma and many more.

27. In spite of Globalization, creating good quality products and expanding market, how is it affecting the stability in jobs for the workers? (2014 OD)

Answer:

Employment of ‘flexible workers’.
Increased competition, objective to lower costs, the axe falls on the ‘labour costs’—temporary jobs given.
Longer working hours for labour to get suitable salaries.

28. Examine any three conditions which should be taken care of by multinational companies to set up their production units. (2017 D)

Answer:
Conditions:

MNCs set up offices and factories for production in regions where they can get cheap labour and other resources. Example, Countries like China, Bangladesh and India. They also provide with the advantage of cheap manufacturing locations.
MNCs also need close-by markets for their manufacturing goods. Mexico and Eastern Europe are useful for their closeness to the markets in the US and Europe.
Besides these, MNCs also require skilled engineers and IT personnel and a large number of English speaking people who are able to provide customer care services (India possibly tops in this area).
All these factors help MNCs in saving costs of production by 50-60%.

29. How do Multi-National corporations (MNCs) interlink production across countries? Explain with examples. (2017 OD)

Answer: MNCs set up production in various countries based on the following factors:

MNCs set up offices and factories for production in regions where they can get cheap labour and other resources; eg., in countries like China, Bangladesh and India. These countries also provide with the advantage of cheap manufacturing locations.
At times, MNCs set up production jointly with some of the local companies of countries around the world. The benefit of such joint production to the local company is two-fold. First, the MNCs can provide money for additional investments for faster production. Secondly, the MNCs bring with them the latest technology for enhancing and improving production.
Some MNCs are so big that their wealth exceeds the entire budgets of some developing countries. This is the reason why they buy up local companies to expand production.
eg. Cargill Foods, a very large American MNC has bought over smaller Indian companies such as Farakh Foods.
There is another way in which MNCs control production and that is by placing orders for production with small producers in developing nations; eg., garments, footwear, sports items etc. The products are supplied to these MNCs which then sell these under their own brand name to customers. MNCs also enter into close competition with local companies thereby influencing production in distant locations.

30. Give the meaning of WTO? What is the major aim of WTO? Mention any two shortcomings of WTO? (2011 D, 2012 OD)

Answer: WTO (World Trade Organization). WTO believes that there should not be any barriers between trade of different countries. Trade between countries should be free.
Aims of WTO:

To liberalize international trade.
To establish rules regarding international trade.

Two shortcomings of WTO:

Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed countries have unfairly retained trade barriers and continued to provide protection to their producers. For example, farmers in the US receive huge sums of money from the government and as a result can sell the farm products at abnormally low prices in other countries, adversely affecting farmers in those countries.
On the other hand WTO rules have forced the developing countries to remove trade barriers.

31. What is globalization? Explain with three examples how top Indian companies have benefitted from globalization. (2011 OD)

Answer: Globalization is the process of rapid integration or interconnection among countries. It is the integration between countries through foreign trade and foreign investments by multinational corporations. It means the coming together of various economies of the world to form a global economy.

The top Indian companies have benefitted from the increased competition and globalization.

They have invested in new technology and production methods and raised their production standards.
Some have gained from successful collaborations with foreign companies.
Moreover, globalization has enabled some large Indian companies to emerge as multinationals themselves. For example, Tata Motors, Infosys, Ranbaxy, Asian Paints, Sundaram Fasteners etc.

32. What is an MNC? Give two examples of Indian companies that have emerged as MNCs. What are the harmful effects of MNCs to a host country? Give three examples. (2012 OD)

Tata Motors (automobiles), Infosys (IT), Ranbaxy (medicines), Asian Paints (paints), Sundaram Fasteners (nuts and bolts), etc. are some of the Indian companies which are spreading their operations worldwide as MNCs.

Harmful effects of MNCs to a host country:

Small producers compete or perish. MNCs have posed major challenges for a large number of small producers and workers. The small manufacturers have been hit hard due to competition. Several of the units have shut down rendering many workers jobless. Batteries, taps, tyres, dairy-products, vegetable oil are some of the industries that are badly affected due to stiff competition from MNCs.
Uncertain employment. In order to maximize the profit MNCs look for a location with minimum labour costs. Faced with competition, most employers these days prefer to employ workers on temporary basis so that they do not have to pay workers for the whole year. This has changed the lives of workers and their jobs are no longer secure.
The Condition of employment. Workers also have to put in very long working hours and work night shifts on a regular basis during the peak season. Wages are low and workers are forced to work overtime to make both ends meet. The workers are denied their fair share of benefits and no longer get the protection that they enjoyed earlier, for example, the Indian garment export industry often deny their workers their fair share of benefits.

33. How has globalization been advantageous to both the producers as well as the consumers in India? Explain. (2012 OD)

Answer: To Producers. Several of the top Indian Companies have been able to benefit from the increased competition.

They have invested in newer technology and production methods and thereby raised their production standards.
They have gained from successful collaborations with foreign companies.
Globalization helped in the development of IT sector.
Good quality products are being produced at lower prices.
To Consumers. There is greater choice before consumers who can enjoy improved quality and lower prices for several products.
People today, enjoy much higher standards of living than was possible earlier.

34. How has globalization benefitted India? Explain with five examples. (2013 OD)

Answer: Globalization has benefitted India in the following ways:
1. People with education, skill and wealth have benefitted by globalization.

Greater competition among producers (both local and foreign) has been advantageous to consumers, particularly the well-off section. Rich people enjoy improved quality at lower prices for several products and enjoy a higher standard of living.
MNCs have increased their investments in India over the past 20 years in industries such as cell phones, automobiles, electronics, soft drinks, fast food and services such as banking.
New jobs have been created in all these industries and services.
Top Indian companies have benefitted from the increased competition. They have invested in newer technology and production methods.
Some Indian companies have gained from successful collaborations with foreign companies. Globalization has enabled some companies to emerge as multinationals.

35. How is the Government of India trying to attract more foreign investment? Explain with examples. (2013 OD)

Answer: In order to attract foreign investment, the Government has taken the following steps:

All the barriers and restrictions on foreign trade and investment have been removed to a large extent.
Liberalization of investment policies has allowed Indian producers to compete with the producers around the globe.
Allowing privatization of many public sector industries by the government.
Allowing businesses to make decisions freely about what they wish to import or export.
The government has allowed flexibility in labour laws to attract foreign investment for the benefit of companies.

36. What is the meaning of SEZ? Mention any three features of SEZ. (2011 D)

Answer: SEZ or Special Economic Zones are industrial zones set up by the Central and State Governments with world class facilities in electricity, water, roads, transport, storage, recreational and educational facilities. Three features of SEZ:

The companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.
Government has also allowed flexibility in the labour laws to attract foreign investment. This is done to reduce the cost of labour for the company.
These are being set up to attract foreign companies to invest in India.

37. “Advancement of international trade of a country is an index of its economic prosperity.” Justify the statement with five arguments. (2013 OD)

Answer: “Advancement of international trade of a country is an index to its economic prosperity”.

As no country is self-sufficient in all resources, it cannot survive without international trade.
If the balance of international trade is favourable, a country will be able to earn more foreign exchange.
International trade encourages a country to develop secondary and tertiary sectors for exporting goods which can fetch more foreign exchange.
A country’s economic prosperity can be gauged by the health of its international trade.
A country can earn large amounts of foreign exchange through international trade.

38. Explain the role of multinational corporations in the globalization process. (2014 D)

Answer: Globalization is the process of rapid integration or inter-connection among countries. MNCs have contributed greatly in the process of globalisation.

MNC’s have set up production centres in various countries and are supplying produced goods, services and technology to various countries.
The countries of the world have come closer. It has also increased the movement of people between countries.
The MNCs provide money for additional investments, for faster production. Also, MNCs bring with them the latest technology for enhancing and improving the production.

39. How has improvement in technology stimulated the globalization process? Explain with five examples. (2013 OD, 2012 D)

Answer: Improvements in technology have helped in globalization in the following ways:

Rapid improvement in technology has contributed greatly towards globalization. Advanced technology in transport systems has helped in the delivery of goods faster across long distances at lower costs.
Development in information and communication technology has also helped a great deal. Telecommunication facilities—telegraph, telephone (including mobile phones), fax are now used to contact one another quickly around the world, access information instantly and communicate from remote areas. Teleconferences help in saving frequent long trips across the globe.
Information technology has also played an important role in spreading out production of services across countries. Orders are placed through internet, designing is done on computers, even payment for designing and printing can be arranged through internet. Internet also allows us to send instant electronic mail (e-mail) and talk (face-to-face) across the world at negligible cost.
The cost of air transport has fallen which has enabled much greater volumes of goods being transported by airlines.
Technology has made e-banking, e-commerce, e-learning, e-mail and e-governance a reality.

40. What is globalisation? Describe the role of Multinational Corporations (MNCs) in promoting globalisation process. (2016 D)

Answer: Globalisation is the process of rapid integration or inter-connection among countries. Over the last 20-30 years, these has been a tremendous increase in globalisation with the increase in the number of MNCs.

MNCs set up production centres worldwide where cheap labour is available, markets are near and government policies are favourable.
They supply produced goods to different countries.
Countries of the world have come closer due to increased movement of people between countries.
MNCs provide money for additional investments for faster production.
MNCs bring with them the latest technology and know-how for enhancing and improving the production process.

41. What is trade? Explain the importance of international trade. (2015 OD, 2016 D)

Answer: The exchange of goods among people, states and countries is referred to as trade.
Importance of international trade:

International trade of a country is an index to its economic prosperity.
It is considered the economic barometer for a country. If the balance of international trade is favourable, a country will be able to earn more foreign exchange.
As no country is self-sufficient in all resources it cannot survive without international trade.
Countries have trade relations with the major trading blocks.
Exchange of commodities and goods have been superseded by the exchange of information and knowledge.

42. Describe the impact of globalisation on Indian economy with examples. (2016 OD)
Or, “Globalisation and greater competition among producers has been of advantage to consumers.” Justify the statement with examples. (2015 OD)

Answer: Impact of Globalisation on the Indian Economy:

Greater competition among producers (both local and foreign), has been advantageous to consumers, particularly the well-off section. There is greater choice before the consumers who now enjoy improved quality and lower prices for several products.
Globalisation has led to a higher standard of living especially in urban areas.
MNCs have increased their investments in India in industries such as electronics, automobiles, cellphones, soft drinks, fast food, banking services etc. thereby providing consumers with a vast variety of products. New job opportunities have been created in these industries and services, thereby increasing purchasing power.
Globalisation has enabled some large Indian companies to emerge as MNCs themselves like Tata Motors, Infosys, Ranbaxy, Asian Paints, etc.
Globalisation has also created new opportunities for companies providing services particularly those involving IT (Information Technology)- For example, call centres.
Top Indian companies have benefitted from the increased competition. They have invested in newer technology and production methods indirectly benefitting the consumers.
Local companies supply raw materials to foreign industries and have prospered.
However, for a large number of producers and workers the impact has not been uniform, and globalisation has posed major challenges.

43. How are MNCs spreading their products? Explain with examples. (2014 OD)
Or, How are multinational corporations (MNCs) controlling and spreading their production across the world? Explain. (2015 D)

Answer: MNCs set up production in various countries based on the following factors:

MNCs set up offices and factories for production in regions where they can get cheap labour and other resources; e.g., in countries like China, Bangladesh and India. These countries also provide with the advantage of cheap manufacturing locations.
At times, MNCs set up production jointly with some of the local companies of countries around the world. Such joint production also provides benefits to the local company.
MNCs with huge amounts of wealth sometimes buy up local companies to expand production, e.g., Cargill Foods, a very large American MNC has bought over smaller Indian companies such as Parakh Foods.
There is another way in which MNCs control production and that is by placing orders for production with small producers in developing nations; e.g., garments, footwear, sports items etc. The products are supplied to these MNCs which then sell these under their own brand name to customers. MNCs also enter into close competition with local companies thereby influencing production in distant locations.

40. How do banks play an important role in the economy of India? Explain. (2015 OD)

Answer:

Banks help people to save their money and keep their money in safe custody. To ensure safety of their money, people deposit their money with banks. Banks accept deposits and pay interest on deposits. People have the provision to withdraw their money as and when they require.
Banks also grant loans to people for a variety of purposes. In times of need individuals, business houses and industries can borrow money from the banks.
Credit provided by banks is crucial for the country’s growth and economic development. Credit is needed for all kinds of economic activities, to set up business, buy cars, houses, etc.
Banks also help people in obtaining cheap and affordable loans. This can help people to grow crops, do business, set up small-scale industries or trade in goods and also help indirectly in the country’s development. They should do so, so that relatively poor people do not have to depend on informal sources of credit (money-lenders).

41. Describe the vital and positive role of credit with examples. (2016 D)

Answer: In the festive season, a shoe manufacturer, Ram receives an order from a large trader in town for 3,000 pairs of shoes to be delivered in a month’s time. To complete production on time Ram has to hire workers for stitching and pasting work. He has to purchase the raw materials. To meet these expenses Ram obtains loans from two sources.

First, he asks the leather supplier to supply leather now and promises to pay him later. Second, he obtains loan in cash from the large traders as advance payment for 1000 pairs of shoes with a promise to deliver the whole order by the end of the month. At the end of the month, Salim is able to deliver the order, make a good profit and repay the money he had borrowed.

Salim obtains credit to meet the working capital needs of production. The credit helps him to meet the ongoing expenses of production, complete production on time and thus increase his earnings. Credit therefore plays a vital and positive role in this situation.

42. How can the formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures. (2016 OD)

Answer: Formal sector loans can be made beneficial for poor farmers and workers in the following ways:

Create greater awareness among farmers about formal sector loans.
Process of providing loans should be made easier. It should be simple, fast and timely.
More number of Nationalized Banks/cooperative banks should be opened in rural sectors. Banks and cooperatives should increase facility of providing loans so that dependence on informal sources of credit reduces.
The benefits of loans should be extended to poor farmers and small scale industries.
While formal sector loans need to expand, it is also necessary that everyone receives these loans. It is important that formal credit is distributed more equally so that the poor can benefit from cheaper loans.