UPSC Prelims 2014 CSAT Paper II · Q30 of 65 Comprehension easy

Passage

It is often forgotten that globalization is not only about policies on international economic relationships and transactions, but has equally to do with domestic policies of a nation. Policy changes necessitated by meeting the internationally set conditions (by WTO etc.) of free trade and investment flows obviously affect domestic producers and investors. But the basic philosophy underlying globalization emphasizes absolute freedom to markets to determine prices and production and distribution patterns, and view government interventions as processes that create distortions and bring in inefficiency. Thus, public enterprises have to be privatized through disinvestments and sales; sectors and activities hitherto reserved for the public sector have to be opened to the private sector. This logic extends to the social services like education and health. Any restrictions on the adjustments in workforce by way of retrenchment of workers should also be removed and exit should be made easier by removing any restrictions on closures. Employment and wages should be governed by free play of market forces, as any measure to regulate them can discourage investment and also create inefficiency in production. Above all, in line with the overall philosophy of reduction in the role of the State, fiscal reforms should be undertaken to have generally low levels of taxation and government expenditure should be kept to the minimum to abide by the principle of fiscal prudence. All these are policy actions on the domestic front and are not directly related to the core items of the globalization agenda, namely free international flow of goods and finance.

According to the passage, under the globalization, government interventions are viewed as processes leading to

  1. (a) distortions and inefficiency in the economy. ✓ UPSC's answer
  2. (b) optimum use of resources.
  3. (c) more profitability to industries.
  4. (d) free play of market forces with regard to industries.

Why the answer is (a)

• The passage states that globalization’s basic philosophy emphasizes absolute freedom to markets to determine prices, production, and distribution patterns.

• It directly says this philosophy views government interventions as processes that create distortions and bring in inefficiency.

• Therefore, under globalization, government interventions are seen as causing distortions and inefficiency in the economy.

• Hence option (a) follows exactly from the passage.

Why the other options are wrong

(b) optimum use of resources.
The passage says government interventions create distortions and inefficiency, not optimum use of resources.
(c) more profitability to industries.
The passage does not say government interventions increase industry profitability; it says they create distortions and inefficiency.
(d) free play of market forces with regard to industries.
The passage presents free play of market forces as the desired outcome of globalization, not as a result of government interventions.

Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2014, held on 24 August 2014. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

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