ECO 13 Solved Assignment 2021 – 22

ECO 13 Solved Assignment 2021 – 22

IGNOU Free Solved Assignment 2021 – 22






Attempt all the questions:

1. What is meant by mixed economy? Highlighting its salient features, explain how it helped in developing industrial infrastructure in India? (5, 10, 5)

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2. What do you mean by fiscal policy? Describe various instruments of fiscal policy in India. (5, 15)

Ans: Meaning and Definition of Fiscal Policy

When the government of a country employs its tax revenue and expenditure policies to influence the overall demand and supply for commodities and services in the nation’s economy is known as Fiscal Policy. It is a strategy used by the government to maintain the equilibrium between government receipts through various sources and
spending over different projects.

If the revenue exceeds expenditure, then this situation is known as fiscal surplus, whereas if the expenditure is greater than the revenue, it is known as the fiscal deficit. The main objective of the fiscal policy is to bring stability, reduce unemployment and growth of the economy. The instruments used in the Fiscal Policy are the level of taxation & its composition and expenditure on various projects.

Instruments of Fiscal Policy: Following are the main instruments of fiscal policy:

1. Public Expenditure: Expenditure means expenditure incurred by the government of a country. It generates sufficient influence on aggregate demand and development activities of a country. The expenditure can be of two types:

a. Expenditure incurred by the government to get goods and services. It directly influences aggregate demand.

b. Public expenditure incurred on pensions, scholarships, educational and medical facilities to people etc. This expenditure is known as Transfer Payment. It also raises aggregate demand.

2. Public revenue and taxation: A government needs income for the performance of a variety of functions and meeting its expenditure. Thus, the income of the government through all sources like taxes, borrowings, fees, and donations etc. is called public revenue or public income. In a modern welfare state, public revenue is of two types:

(a) Tax revenue and

(b) Non-tax revenue.

(a) Tax Revenue: A fund raised through the various taxes is referred to as tax revenue. Taxes are compulsory contributions imposed by the government on its citizens to meet its general expenses incurred for the common good, without any corresponding benefits to the tax payer. Seligman defines a tax thus: “A tax is a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all, without reference to specific benefits conferred.

Examples of Tax Revenue 

Ø Income Tax (on income of the individual as well as joint Hindu families, Companies, AOP, BOI etc.) 

Ø Custom Duty, import and export duty.

Ø Goods and Services Tax

(b) Non Tax Revenue: The revenue obtained by the government from sources other than tax is called Non-Tax Revenue. The sources of non-tax revenue are: Fees, Fines or Penalties, Surplus from Public Enterprises, Special assessment of betterment levy, Grants and Gifts etc.

3. Public Debt: The third instrument of fiscal policy is public debt. Public debt refers to all types of borrowings by the govt. from among the institutions, organisations and the public. The government has to take the help of public debt if public expenditure exceeds public revenue. Public debt can be of:

a) Internal Debt: Internal debt comprises of all borrowings and market loans which were formerly called permanent or funded debt. In consists of all internal borrowings and market loans. It includes treasury bills issued by the govt. of India to the RBI, state govt., Commercial Banks and other parties.

b) External Debt: External debt includes loans taken by the govt. of India against the non – negotiable, non – interest hearing securities issued to international financial institutions like the IMF, IBRD, IDA, ADB, etc. Besides these the loans taken by the govt. of India from friendly countries are also included. External debt also includes loans taken from the IMF trust fund.

c) Other Outstanding Liabilities: This include all outstanding liabilities against the various small savings schemes, public provident fund and state provident fund contributions, income tax annuity deposit schemes, interest bearing reserve funds of the department of the Railways, Post and telegraphs, etc.

4. Deficit Financing: Deficit means an excess of public expenditure over public revenue. A public expenditure has to be incurred for economic development. This amount can be collected only through the public debt, taxation etc. So deficit financing has to be introduced. When there emerges a deficit due to excess of public expenditure over public revenue, this deficit is met with either by borrowing from the central bank or by issuing new notes. Deficit financing can be used to meet government expenditure. It increases aggregate demand.

3. (a) Outline the causes of industrial sickness. 10

Ans: Causes of Industrial Sickness

1) Internal Cause for sickness: Internal causes are those which are within the control of management.  This sickness arises due to internal disorder in the areas justified as following:

a) Lack of Finance:  This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds.

b) Bad Production Policies:  The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.

c) Marketing and Sickness: This is another part which always affects the health of any sector as well as SSI.  This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions. 

d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers.

e) Ineffective Corporate Management:  Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc.

2) External causes for sickness:

a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non-availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area.

b) Marketing Constraints: The second cause for the sickness is related to marketing. The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession.

c) Production Constraints:  This is another reason for the sickness which comes under external cause of sickness.  This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions.

d) Finance Constraints:  The external cause for the sickness of SSIs is lack of finance.  This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization.

(b) Evaluate the policy of public sector reforms.   10

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4. Distinguish between the following: (10, 10)

(a) Economic and non-economic environments of business

Ans: The business environment can be classified into two major categories:

1. Economic environment

2. Non-economic environment

ECONOMIC ENVIRONMENT: Economic environment consist of Grosse national product, corporate profits, inflation rate productivity, employment rates, interest rates, debt and spending economic environment has stronger influence over organization policies and action. The survival and success of each and every business enterprise depend fully on its economic environment. The three main factors/components that affect the economic environment are:

(a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital etc.

(b) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, Monetary policy, Foreign investment policy, Export –Import policy (Exim policy)

(c) Economic System: The world economy is primarily governed by three types of economic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.

(d) Economic Planning: The management of national economy must begin with national level economic planning within the framework provided by the general economic policy of the government. An economic planning is a mechanism for allocation of available resources and encourages efficient decision making process in an economy to achieve pre-determined objectives of plans like increasing growth rate, reducing inflation, creating employment, obtaining self-sufficiency etc. A government plays an important role as it has the authority of drafting and implementing financial plans keeping in mind the interest of various business industries and social welfare.

(e) Regional economic groups: They promote cooperation and free trade among members by removing tariff and other restrictions. They provide opportunities to member countries and threats to non-member counties. Examples are: SA ARC: South Asian Association for Regional Cooperation. ASIAN: Association of South East Asian Nations. EU: European Union.

NON-ECONOMIC ENVIRONMENT: Non-economic environment refers to social, cultural, political, legal, technological factor etc. that have a significant effect on the business activities of our country. The various elements of non-economic environment are as follow:

(a) Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The businessman cannot overlook the components of social environment of social environment as these components may not have immediate impact on the business but in the long run the social environment has great impact on the business.

(b) Political Environment: This includes the political system, the government policies and attitude towards the business community and the unionism. The political environment has immediate and great impact on the business transactions so businessman must scan this environment very carefully. All these aspects have a bearing on the strategies adopted by the business firms.

(c) Legal Environment: This refers to set of laws, regulations, which influence the business organisations and their operations.  Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include Companies Act, 1956; Foreign Exchange Management Act, 1999; The Factories Act, 1948 etc. Besides the above legislations, Provisions of the Constitution and Judicial Decisions are also form part of the legal environment of business.

(d) Technological Environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.

(e) Demographic Environment: This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.

(f) Natural Environment: The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment.

(b) Public sector and private sector

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5. Write short notes on the following: (4 x 5) = 20

(a) Main components of India’s exports

Ans: Components of Indian Exports

Commodity-wise exports data available up to March 2022, shows that the share of manufacturing sector in total merchandise exports declined marginally from 62.9% in 2020-21 to 61.3% in 2021-22. However, the respective share of petroleum products and primary products increased during the period (Table 2). Within exports of manufacturing sector, the share of engineering goods and textile & textile products declined while that of chemical and related products improved marginally.

Among the major sectors, growth in exports of manufacturing sector seems to have been affected significantly during 2021-22. Within manufacturing sector, growth in exports of engineering goods and textile products was lower as demand conditions in key markets like the US and Europe were sluggish. These two markets account for nearly 60% and 50% of total exports from engineering and textile sector. Within engineering sector, growth in exports of transport equipment, iron & steel, electronic goods and manufactures of metals was significantly hit while that of machinery and instruments moderated marginally. However, growth in exports of leather & manufactures and chemicals & related products witnessed higher growth during 2020-21 as compared with 2010-11.

Table 2: India’s Merchandise Trade

(US$ billion)








April – March

April – June







Oil Exports


Non-Oil Exports




Oil imports


Non-oil imports


Non-oil gold imports


Trial Balance

Oil Trade Balance

Non-Oil Trade Balance

































































Table 3: India’s Exports of Principal Commodities

(Percentage Share)

Commodity Group



April – March



I. Primary Products

Agriculture and Allied Products.

Ores and Minerals

II. Manufactured Goods

Leather and Manufactures

Chemicals and Related Products

Engineering Goods

Textiles and Textile Products

Gems and Jewellery

III. Petroleum Products

IV. Others

Total Exports

























An analysis of the shift in the composition of India’s commodity exports reveals some interesting facts. Before the reforms, India’s exports were significantly driven by exports of primary agricultural commodities and a few manufacturing commodities such as textiles, and gems and jewellery; whole the commodity composition at the global level was shifting to technology-intensive manufacturing commodities such as engineering goods and chemicals. The reforms and favourable trade policy brought a shift in the composition of India’s commodity exports. Technology-intensive exports comprising engineering goods such as metals, machinery and transport equipment, and chemicals, including pharmaceuticals emerged as the leading export sector for the country, signifying rising prominence of exports in India’s GDP growth. Besides a shift towards technology-intensive exports, exports of petroleum products (which showed spectacular growth) emerged as a major contributor to total exports, reflecting the impact of India becoming the sixth largest refinery in the world.

(b) Importance of small scale sector in India’s economy

Ans: Importance and role of small scale sector in Indian’s economy

Small Scale Industries in India enjoy a distinct position in view of their contribution to the socio-economic development of the country. The following points highlight their contribution.

(i) Small industries in India account for 95 per cent of the industrial units in the country. They contribute almost 40 per cent of the gross industrial value added and 45 per cent of the total exports (direct and indirect exports) from India.

(ii) Small industries are the second largest employers of human resources, after agriculture. They generate more number of employment opportunities per unit of capital invested compared to large industries. They are, therefore, considered to be more labour intensive and less capital intensive. This is a boon for a labour surplus country like India.

(iii) Small industries in our country supply an enormous variety of products which include mass consumption goods, readymade garments, hosiery goods, stationery items, soaps and detergents, domestic utensils, leather, plastic and rubber goods, processed foods and vegetables, wood and steel furniture, paints, varnishes, safety matches, etc. Among the sophisticated items manufactured are electric and electronic goods like televisions, calculators, electro-medical equipment, electronic teaching aids like overhead projectors, air conditioning equipment, drugs and pharmaceuticals, agricultural tools and equipment and several other engineering products. A special mention should be made of handlooms, handicrafts and other products from traditional village industries in view of their export value.

(iv) The contribution of small industries to the balanced regional development of our country is noteworthy. Small industries which produce simple products using simple technologies and depend on locally available resources both material and labour can be set up anywhere in the country. Since they can be widely spread without any locational constraints, the benefits of industrialisation can be reaped by every region. They, thus, contribute significantly to the balanced development of the country.

(v) Small industries provide ample opportunity for entrepreneurship. The latent skills and talents of people can be channelled into business ideas which can be converted into reality with little capital investment and almost nil formalities to start a small business.

(vi) Small industries also enjoy the advantage of low cost of production. Locally available resources are less expensive. Establishment and running costs of small industries are on the lower side because of low overhead expenses. Infact, the low cost of production which small industries enjoy is their competitive strength.

(vii) Due to the small size of the organisations, quick and timely decisions can be taken without consulting many people as it happens in large sized organisations. New business opportunities can be captured at the right time.

(viii) Small industries are best suited for customized production. i.e. designing the product as per the tastes/preferences/needs of individual customers, say for an example tailor-made shirt or trouser. The recent trend in the market is to go in for customized production of even non-traditional products such as computers and other such products. They can produce according to the needs of the customers as they use simple and flexible production techniques.

(ix) Last but not the least, small industries have inherent strength of adaptability and a personal touch and therefore maintain good personal relations with both customers and employees. The government does not have to interfere in the functioning of a small scale unit. Due to the small size of the organisation quick and timely decision can be taken without consulting many people as in large sized organisations. New business opportunities can be captured at the right time, thus providing healthy competition to big business which is good for the economy.

(c) The concept of collective bargaining

Ans: It was Adam Smith in the 18th Century who made the first reference to collective bargaining in the labour market. The Bargaining Theory Proponents have argued that short-run wages have always been determined by the process of bargaining. Collective bargaining is possible because there exists today the bilateral monopoly situation in the labour market. That is to say that labour market is neither perfectly competitive nor is it marked by monopoly conditions only. Both the employers and employees have now equal strength to negotiate on problems of wage settlement. This situation is called bilateral monopoly situation. Collective bargaining is conducted under bilateral monopoly.

Under bilateral monopoly conditions wages rate and volume of employment will depend on the relative bargaining strength of the Employer’s associations and Worker’s unions. If the Employer’s Association is stronger than Trade Union, it will push the wage below the competitive equilibrium level or very near to the subsistence level. On the contrary if the Trade Union is stronger than the Employers Association the wage rate will be pushed up above competitive equilibrium rate or to marginal productivity or at least to the level of the capacity to pay of the employers. Thus, there is no definiteness about the levels of wage under collective bargaining. In other words, wages under bilateral monopoly situation are indeterminate. We can only indicate the broad limits within which the wages rate and the volume of employment would come to be settled according to relative bargaining power of the parties.

Many mathematical models have been built by economists to determine the bargaining power of the parties. Of these Chamberlain’s explanation is more acceptable. He has tried to determine the bargaining power of the two parties of the two parties in terms of cost of agreement relative to the cost of disagreement to each party in collective bargaining process. Greater the cost for the employers of disagreeing (facing a strike) as opposed to the cost of agreeing (granting unions demand) greater will be bargaining power of union and vice versa.

(d) Consumer rights

Ans: Rights of Consumers:

a) The right to safety: It refers to the right to be protected against products, production processes and services which are hazardous to health or life. It includes concern for consumers immediate and long term needs.

b) The right to be informed: Consumers have a right to be informed about the quality, quantity, potency, purity, standard and price of goods or services so that they can make the right decision and protect themselves against malpractices.

c) The right of choice: The consumer has the right to be assured of a choice of various goods and services of satisfactory quality and competitive price.

d) Right to representation (or right to be heard): It is a right and the responsibility of civil society to ensure consumer interest prevails while formulating and executing policies which affect the consumers, as well as right to be heard while developing or producing a product or service.

e) Right to seek redressal of grievances: The consumer has the right go to court if he has been unscrupulously exploited against unfair or restrictive trade practices and receives compensation for supply of unsatisfactory or shoddy goods.

f) The right to consumer education: It is the right to acquire knowledge and skills to be an informed consumer because it is easier for the literate to know their rights and to take actions to influence factors that affect consumer’s decisions. The Union and State Governments have accepted the introduction of consumer education in school curriculum.


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