Read the following passage and answer the questions that follow:
Suresh ran a small unit in Coimbatore manufacturing plastic components for consumer electronics since 1995. By 1999, he had grown his workforce to 18 workers and supplied to several regional television assembly firms. His difficulties began in 2003 when import duties on plastic components were reduced in line with India's trade liberalisation commitments. Cheaper Chinese imports flooded the market, and his buyers switched suppliers almost overnight. By 2006, Suresh's output had fallen by more than half and only nine workers remained. Several similar units in nearby towns had shut down entirely. Across India, sectors such as toys, batteries, tyres, and dairy products have seen similar trends, with small manufacturers losing market share to cheaper imports. Small and medium enterprises collectively employ the largest number of workers in India outside agriculture.
(i) What policy change directly caused the crisis for small producers like Suresh? (1 mark)
(ii) Why did Suresh's buyers switch to imported components even though they had an established relationship with him? (1 mark)
(iii) What does the large share of employment in small and medium enterprises tell us about the broader economic consequences when such units shut down? (1 mark)
(iv) Identify one type of government support that could help small producers like Suresh compete against cheaper imports. (1 mark)
Generated by claude-sonnet-4-6 · 2026-06-26 13:26 · grounding rag
Model Answer
(i) The reduction of import duties on plastic components as part of India's trade liberalisation policy directly caused the crisis for small producers like Suresh.
(ii) Cheaper Chinese imports became available in the market after import duties were reduced. Even though buyers had an established relationship with Suresh, they switched to save costs, as price is the primary concern for businesses.
(iii) Since small and medium enterprises employ the largest number of workers outside agriculture, widespread shutdowns lead to mass unemployment, reducing incomes and increasing economic hardship for a large section of the population.
(iv) The government could impose trade barriers such as import taxes (tariffs) on plastic components. This would make imports costlier, allowing small domestic producers like Suresh to compete on price.
Source: Liberalisation of foreign trade and foreign investment policy; Impact of Globalisation in India — Chapter 4
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Explanation
- (i) The passage directly states duties were reduced; link this clearly to liberalisation from the textbook.
- (ii) The textbook explains that lower import duties reduce prices of foreign goods, making them more attractive to buyers regardless of prior relationships.
- (iii) The key inference: largest employer outside agriculture → shutdowns = large-scale unemployment → broader economic harm. Examiners want this logical chain.
- (iv) The textbook explicitly uses the toy example to explain how import taxes protect domestic producers — apply that logic here. "Trade barrier / tariff" is the correct term to use.