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, in the process of globalization the State should have

(a) expanding role.
(b) reducing role. ✓ UPSC's answer
(c) statutory role.
(d) none of the above roles.

Why the answer is (b)

• The passage states that the basic philosophy of globalization emphasizes absolute freedom to markets and views government interventions as distortions and inefficiency.

• It says public enterprises should be privatized, reserved sectors opened to the private sector, and restrictions on workforce adjustments removed.

• It explicitly states that, in line with the overall philosophy of reduction in the role of the State, fiscal reforms should keep taxation and government expenditure low.

• Therefore, according to the passage, in the process of globalization the State should have a reducing role, which is option (b).

Why the other options are wrong

(a) expanding role.: The passage says the State's role should be reduced, not expanded, because market forces should determine prices, production, employment, and wages.
(c) statutory role.: The passage does not describe a statutory role for the State; it calls for privatization, deregulation, and minimum government expenditure.
(d) none of the above roles.: The passage clearly states that the overall philosophy is reduction in the role of the State, so option (b) is correct and not none of the above.

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.