Comprehensive CBSE Question Bank in Social Science X (Term-II)

120 Social Science–X 13. Who gives recognition to national parties or regional parties in India? Ans. Election Commission of India 14. Which is given a unique symbol by the Election Commission of India? Ans. A recognized party is given a unique symbol by the Election Commission of India. 15. What are national parties? Ans. National parties are country-wide parties. These parties have their units in various states. A party that secures at least six per cent of the total votes in Lok Sabha elections or Assembly elections in four States and wins at least four seats in the Lok Sabha is recognized as a national party. 16. Which are the seven national recognised parties in India in 2018? Ans. The seven national recognised parties in India are: All India Trinamool Congress (AITC), Bahujan Samaj Party (BSP), Bharatiya Janata Party (BJP), Communist Party of India (CPI), Communist Party of India - Marxist (CPI-M), Indian National Congress (INC), and Nationalist Congress Party (NCP). 17. Name the party whose symbol is grass and flower. Ans. All India Trinamool Congress (AITC) 18. Name the political party that seeks to represent and secure power for Dalits, OBCs and Adivasis. Ans. Bahujan Samaj Party (BSP) 19. When was Bahujan Samaj Party formed? Who was its founder? Ans. In 1984, Kanshi Ram founded the Bahujan Samaj Party (BSP). 20. What is the guiding philosophy Bharatiya Janata Party? Ans. (i) Cultural nationalism (or ‘Hindutva’) and (ii) India’s ancient culture and values 21. Name the political party/parties that believe(s) in Marxism-Leninism. Ans. Communist Party of India (CPI) and Communist Party of India-Marxist (CPI-M) 22. Name the national party that had been in power in West Bengal for 30 years. Ans. Communist Party of India-Marxist (CPI-M) 23. When was Communist Party of India-Marxist (CPI-M) formed? Ans. 1925 24. Which is the oldest national party of India? Ans. Indian National Congress (INC) 25. When was Nationalist Congress Party (NCP) formed? Ans. 1999 26. How many votes and seats should a party need to be a recognised state party? Ans. A party that secures at least six per cent of the total votes in an election to the Legislative Assembly of a State and wins at least two seats is recognised as a State party. 27. List some state parties in India. Ans. Some of the state parties in India are: Biju Janata Dal, Sikkim Democratic Front, Mizo National Front and Telangana Rashtra Samithi. 28. Name the four states where regional parties (state parties) do not exist. Ans. Himachal Pradesh, Rajasthan, Gujarat and Madhya Pradesh.

Political Parties 121 29. Which political party grew out of a movement? Ans. Asom Gana Parishad (AGP) 30. If all the decisions of a political party are made by a single family and all other members are neglected, then what challenge is being faced by that party? Ans. Challenge of dynastic succession 31. What is anti-defection law? Ans. The law says that if any MLA or MP changes party, he or she will lose the seat in the legislature, is known as anti-defection law. Short Answer Type-I Questions 1. How do political parties help in shaping public opinion? Explain. Ans. Role of political parties in shaping public opinion as: (i) They raise and highlight issues. (ii) They form pressure groups as an extension. (iii) They launch movement for the resolution of problems faced by the people. (iv) They have lakhs of members and activists. 2. Political parties make a decisive role in making laws for a country. Explain. Ans. Parties play a decisive role in making laws for a country. Formally, laws are debated and passed in the legislature. But since most of the members belong to a party, they go by the direction of the party leadership, irrespective of their personal opinions. 3. What are the characteristics of a political party? Ans. Following are the characteristics of a political party: (i) A political party has members who agree on some policies and programmes for the society with a view to promote common good. (ii) It seeks to implement the policies by winning popular support through elections. (iii) There is a presence of a leader, the party workers and supporters. (iv) It is a group of people who come together to contest elections and hold power in the government. 4. Can you find the names of at least two States for each of these types? (a) Two-party system (b) Multiparty system with two alliances (c) Multiparty system Ans. (a) Two-party system: Tamil Nadu and Kerala (b) Multiparty system with two alliances: Bihar and Maharashtra (c) Multiparty system: Andhra Pradesh and Chhattisgarh 5. What is one-party system? Also mention one merit and one demerit of one party system. Ans. In some countries only one party is allowed to control and run the government, e.g., communist party in China. Merit: When the party is good, it make policies and programmes in favour of the people. Demerit: Single party system is not a democratic option. There is no freedom to form political parties and there is no choice for the people to elect an alternate government.

122 Social Science–X 6. What is a bi-party system? What are the advantages of bi-party system? Ans. A bi-party system is one in which power is changed between two major political parties. Bi-party system has certain advantages, these are: (i) Bi-party system simplifies the elector’s choice. (ii) It provides stability to government of the country or the states. 7. State reasons why India adopted a multi-party system. Ans. India adopted a multi-party system due to the following reasons: (i) The social and geographical diversity is complex. (ii) It ensures a healthy competition between different parties and prevents dictatorship of a single party. 8. What is meant by an alliance? Give three examples. Ans. When several parties in a multi-party system join hands for the purpose of contesting elections and winning power, it is called an alliance or a front. For example, the National Democratic Alliance (NDA), the United Progressive Alliance (UPA) and the Left Front. 9. Mention the guidelines laid by the Election Commission of India to recognise the National Parties. Ans. Following are the guidelines laid by the Election Commission of India to recognise the National Parties: (i) A party that secures at least six per cent of the total votes in Lok Sabha elections or Assembly elections in four States. (ii) A party that wins at least four or more seats in the Lok Sabha. 10. Describe the main objectives of the Bahujan Samaj Party (BSP). Ans. Following are the main objectives of the Bahujan Samaj Party (BSP): (i) Seeks to represent and secure power for the bahujan samaj which includes the dalits, adivasis, OBCs and religious minorities. (ii) Draws inspiration from the ideas and teachings of Sahu Maharaj, Mahatma Phule, Periyar Ramaswami Naicker and Babasaheb Ambedkar. (iii) Stands for the cause of securing the interests and welfare of the dalits and oppressed people. 11. What is meant by a regional (or state) party? List the conditions required to be recognised as a regional (state) party. Ans. A regional (state) party is a party that is present in only some states. The conditions required to be recognised as a regional (state) party are: (i) A party that secures at least 6% of the total votes in an election to the legislative assembly of the state. (ii) A party that wins at least two seats in the concerned state. 12. Name some regional parties (state parties) which are predominant in Odisha, Maharashtra, Jharkhand and Telangana. Ans. Odisha—Biju Janata Dal Maharashtra—Maharashtra Navnirman Sena (MNS), Shiv Sena (SS), National Congress Party (NCP) Jharkhand—Jharkhand Mukti Morcha (JMM) Telangana—Telangana Rashtriya Samithi (TRS)

Political Parties 123 Short Answer Type-II Questions 1. Explain two functions each of the ruling party as well of the opposition parties. Ans. Functions of the ruling parties are: (i) They play a major role in making laws for the country. (ii) They form the government and run the country. (iii) They recruit leaders, train them and then make ministers to run the government. Functions of the opposition parties: (i) They oppose the government by voicing different views. (ii) They criticise government for its failure and wrong policies. (iii) They mobilise opposition to the government. 2. Why are symbols allotted to political parties by the Election Commission of India? Ans. The Election Commission of India allotted symbols to the political parties due to the following reasons: (i) For the recognition of the political parties the symbols are required. (ii) It means the party is established. (iii) Only the official candidates of that party can use that election symbol. (iv) Voters can easily recognise the party and cast their votes. 3. Give two merits and demerits of one-party system. Ans. Two merits of one-party system are: (i) Strong and stable government: Since there is no opposition party, Government is strong and cannot be removed or voted out of power. (ii) Less expensive: Since there is one party and one candidate who contests election, that also within members of the party, not much money is spent on the election. T wo demerits of one-party system are: (i) Undemocratic: Government can become dictatorial. (ii) No choice before the voters. 4. State two advantages of multi-party system. Ans. Two advantages of multi-party system are: (i) Wider choices before the voters: Under this system, election contests are generally multi-cornered. This is because there are many parties in the election fray. Citizens can contest as independent candidates also. Consequently, voters have a wider choice before them and they can vote for the candidate of their choice. (ii) No fear of dictatorship: Under this system, generally coalition governments are formed. Since no party enjoys absolute majority in the legislature, the government cannot function as dectator. 5. Name the National Political Party which gets inspiration from India’s ancient culture and values. Mention four features of that party. Ans. The National Political party which gets inspiration from India’s ancient culture and values is Bhartiya Janata Party (BJP). Its four main features are as follows: (i) Cultural nationalism (Hindutva) is an important element in its conception of Indian nationhood and politics.

124 Social Science–X (ii) The BJP is against giving special recognition and status to Jammu and Kashmir at the political level. (iii) Its motto is that all religions and people of India have same and uniform rights. In 1996, party was widely supported and accepted for governance. (iv) On the basis of its ideology, this party got recognition from all states of India at National level. 6. Discuss the main policies of the Communist Party of India and the Communist Party of India (Marxist). Ans. Following are the main policies of the CPI and CPI-M: (i) These parties are against Imperialism and Capitalism. (ii) They want to establish democracy of the type in which there should be the government of the peasants and labourers, i.e., proletariats. (iii) To nationalise all the banks, insurance companies and big industries. (iv) To provide free and compulsory education. (v) To provide equal democratic rights to women. 7. Name the national party that espouses secularism and welfare of weaker sections and minorities. Mention features of that party. Ans. There are several parties which follow this principle. But the biggest party is the Indian National Congress (INC). The features of the party are: (i) The party believes in democracy, socialism, and secularism. (ii) It believes in decentralization of power with giving more power to Panchayati Raj institutions. (iii) It supports new economic reforms. (iv) To maintain and consolidate India’s close relations with its traditional ally-Russia. (v) To increase the income of farmers, farm labourers and other weaker sections of the society. 8. Distinguish between a national and a state party. Ans. Difference between National level political party and State level political party National Level Political Party State Level Political Party (A) A party that secures at least (A) A party that secures at least 6% of 6% of total votes in Lok Shabha the total votes in an election to the elections. legislative assembly of the state. (B) A party that wins at least four (B) A party that wins at least two seats seats in the Lok Sabha elections in the concerned state. (Lok Sabha). (C) Examples: Congress, BJP, BSP, (C) Examples: Shiromani Akali Dal, CPI CPI (M), etc. Telugu Desam Party, Nagaland People Front, etc. 9. “Nearly every one of the state parties wants to get an opportunity to be a part of one or the other national level coalition.” Support the statement with arguments. Ans. State parties seeking national level coalition: Before general election of 2014, in three general elections no one national party was able to secure on its own a majority in Lok Sabha. With the result, the national parties were compelled to form alliances with state or regional parties. Since 1996, nearly every one of the state parties has got an opportunity to be a part of one or the other national level coalition government. This has contributed to the strengthening of federalism and democracy.

Political Parties 125 10. Why is there a lack of internal democracy within the political parties in India? Explain with examples. Ans. There are various reasons for lack of democracy within the political parties in India. These are: (i) Concentration of power in one or few leaders at the top. (ii) Details of membership are not registered in the parties. (iii) No organizational meetings. (iv) No internal elections for membership within the party. (v) Top leaders have unanimous power of decision-making. 11. “All over the world, people express their dissatisfaction with the failure of political parties to perform their functions well.” Analyse the statement with arguments. Ans. Popular dissatisfaction and criticism has focused on four areas in the working of political parties. Political parties need to face and overcome these challenges in order to remain effective instruments of democracy. (i) Lack of internal democracy within parties. (ii) Dynastic succession. (iii) Growing role of money and muscle power in parties. (iv) There is not a meaningful choice to the voter. 12. In what way is an alliance different from a coalition government? Ans. Difference between alliance and coalition government Alliance Coalition Government (A) When several political parties (A) When no single party is able to get a join hands for the purpose of clear majority in the legislature and is fighting an election, it is called not able to form the government, the an alliance. government is formed by two or more parties coming together, it is known as coalition government. (B) Examples: National (B) Example: The Government at Centre Democratic Alliance (NDA) and with Manmohan Singh as Prime United Progressive Alliance Minister was a coalition government (UPA). before 2014. 13. How do money and muscle power play an important role in elections? Explain. Ans. Money and muscle power play an important role in elections because: (i) Role of money and muscle power in parties especially during elections is growing. (ii) Parties tend to nominate those candidates who have or can raise lots of money. (iii) Rich people and companies who give funds to the parties tend to have influence on the policies and decisions of the party. (iv) In some cases, parties support criminals who can win election. (v) Democrats all over the world are worried over the increasing role of rich people and big companies in democratic politics.

126 Social Science–X Long Answer Type Questions 1. Why are political parties necessary in a democracy? Or Why cannot modern democracies exist without political parties? Ans. Political parties are necessary in a democracy for the following reasons: (i) Political parties unite and aggregate like-minded people from diverse backgrounds, religions, regions, languages, etc., to form a wide coalition of people and give unity and diversity. (ii) They contest elections, win a majority, form the government and undertake socioeconomic and cultural reforms to try and establish a welfare state. The parties, which get a minority of votes, form the opposition and check the government through different means. (iii) Political parties provide an important two-way link between the government and the people. In this way they keep the government in close touch with the people. (iv) Political parties also impart political education to the people by popularising their manifesto and through other means, like posters, demonstrations, etc. All these factors support the statement that political parties are necessary and modern democracy cannot exist without political parties. 2. Political parties are rightly called the government in disguise. Explain with arguments. Ans. The main aim of every political party is to capture power and run the administration of the country according to its policies and programmes. To achieve this aim, political parties do the following: (i) They try to form the public opinion in its favour. For this, they use all means of propaganda to propagate their policies regarding the problems facing the country. (ii) They put up candidates for the election and try to get them elected to the legislature. (iii) The party/parties which get(s) majority in the legislature form(s) the government and take(s) the responsibility of running the administration. (iv) The party/parties which fail(s) to get majority in the legislature, form(s) the opposition and criticize(s) the government. So they are also the part of the government. In this way the political parties are rightly called the government in disguise. 3. What is the importance of opposition parties in a democracy? Ans. Opposition parties are important due to the following reasons: (i) Opposition parties play a crucial and vital role in the democratic set up of the government. (ii) It ensures that the ruling party doesn’t misuse its powers. (iii) Opposition parties also expose the weakness of the ruling party. These keep a close watch on the bills and expenditure of the government. (iv) They also ensure that the rights and liberties of the people are not curtailed and encroached upon by the government. (v) They expose the anti-people policies of the government outside the parliament through demonstrations and inside the parliament through various questions and motions. Opposition asks questions concerning the working of various departments, misuse of power by the civil servants and lapses on the parts of the government. (vi) They provide the political alternative if the ruling party loses the confidence of the people and loses majority in the parliament.

Political Parties 127 4. State the various functions of political parties performed in democracy. Ans. The various functions the political parties perform in a democracy are: (i) Candidates are put forward by political parties to contest in elections. These candidates may be chosen by the top leaders, or by members of the party. (ii) Parties put forward their policies and programmes for voters to choose from them. (iii) Political parties play a major role in making laws for the country. No law can become a bill unless majority parties support it. (iv) Political parties form and run governments. (v) Parties that lose election play the role of opposition to the party in power. (vi) Parties shape public opinion. (vii) Political parties form an important link between the government and the people. It is easy for the public to approach their local leader than a government official. The local leader has to listen to the public demand, otherwise he/she will lose the next election. 5. Name the recognised national parties along with their electionsymbols, foundation year and the current leaders. Ans. The following table lists the recognised parties along with their election symbols, foundation year and the current leaders: S.No. National Political Party Election Symbols Current Leader Mamata Banerjee 1. All India Trinamool Congress (AITC) 2. Bahujan Samaj Party (BSP) Mayawati 3. Bharatiya Janata Party Jagat Prakash (BJP) Nadda Doraisamy Raja 4. Communist Party of India (CPI) Sitaram Yechury 5. Communist Party of India - Sonia Gandhi Marxist (CPI-M) 6. Indian National Congress (INC) 7. Nationalist Congress Party Sharad Govindrao (NCP) Pawar

128 Social Science–X 6. Differentiate between Communist Party of India (CPI) and Communist Party of India-Marxists (CPI-M). Ans. Communist Party of India (CPI) was formed in 1925. It believes in Marxism- Leninism, secularism and democracy. It is opposed to the forces of secessionism and communalism. It accepts parliamentary democracy as a means of promoting the interests of the working class, farmers and the poor. It became weak after the split in the party in 1964 that led to the formation of the CPI (M). It enjoys great support in the states of Kerala, West Bengal, Punjab, Andhra Pradesh and Tamil Nadu. Communist Party of India - Marxist (CPI-M) was founded in 1964. It believes in Marxism- Leninism. It supports socialism, secularism and democracy and opposes imperialism and communalism. It accepts democratic elections as a useful and helpful means for securing the objective of socioeconomic justice in India. It enjoys strong support in West Bengal, Kerala and Tripura, especially among the poor, factory workers, farmers, agricultural labourers and the intelligentsia. 7. State any three differences between Indian National Congress and Bharatiya Janata Party. Ans. The three differences between Bharatiya Janata Party and Indian National Congress are: (i) Birth: Indian National Congress was founded in 1885. So it is one of the one of the oldest parties of the world. Whereas Bharatiya Janata Party was formed in 1980 by reviving the erstwhile Bharatiya Jana Sangh. (ii) Ideology: The INC supports secularism and welfare of the weaker sections of the society and minorities. On the other hand, BJP wants to build a strong and modern India by drawing inspiration by India’s ancient culture and values. (iii) Present Position: In the Lok Sabha election held in 2019, BJP got an absolute majority (303) seats in the Lok Sabha and formed the government under the leadership of Sh. Narendra Modi. On the other hand, INC got only 52 seats in the Lok Sabha. 8. Name some regional parties along with their symbols and the states/Union territories where they are active. Ans. The following table lists some regional parties along with their election symbols and the states where they are active: S.No. Regional Political Party Election Symbols States/UTs 1. Asom Gana Parishad (AGP) Assam 2. Telugu Desam Party (TDP) Andhra Pradesh 3. Dravida Munnetra Kazhagam Tamil Nadu and (DMK) Puducherry 4. All India Anna Dravida Tamil Nadu and Munnetra Kazhagam Puducherry (AIADMK)

Political Parties 129 S.No. Regional Political Party Election Symbols States/UTs 5. National Conference (NC) Jammu & Kashmir 6. Shiromani Akali Dal (SAD) Punjab 7. Aam Aadmi Party (AAP) Delhi 9. “Dynastic succession is one of the most serious challenges before the political parties.” Analyse the statement. Ans. Dynastic succession is one of the most serious challenges before the political parties because: (i) Most political parties do not practise open and transparent procedures for their functioning. (ii) There are few ways for an ordinary worker to rise to the top in a party. (iii) In many parties, the top positions are always controlled by members of one family. For example, in Congress Party, the family members of Nehru have been controlling the party since independence. (iv) This practice is unfair to other members of that party and is also bad for a democracy. (v) People who do not have adequate experience or popular support come to occupy position of power. 10. What are the various challenges faced by the political parties in India? Ans. Following are the various challenges faced by the political parties in India: (i) Lack of Internal Democracy within the Parties: Concentration of power in one or few leaders at the top. (ii) Dynastic Succession: The people who happen to be the leaders are in a position of unfair advantage to favour people close to them or even their family members. In many parties, the top positions are always controlled by members of one family. (iii) Money and Muscle Power: The third challenge is about growing role of money and muscle power in parties, especially during elections. (iv) Meaningful Choices: The fourth challenge is that very often parties do not seem to offer a meaningful choice to the voters. 11. What is meant by ‘defection’ in democracy? Explain. Ans. Defection in politics means moving of a person from one party to another party for some personal benefit. It means changing party allegiance from the party on which a person got elected to a different party. It happens when a legislature, after having been elected from a particular party leaves it and joins in other party. The constitution was amended to prevent elected MLA’s and MP’s from changing parties. Now, the law says that if any MLA and MP changes parties, he or she will lose seat in the legislature. The new law has brought defection down and has made dissent even more difficult.

130 Social Science–X 12. Write the steps that have been taken by the Parliament, Election Commission and Supreme Court of India to reform the political parties. Ans. The following measures have been taken to reform the political parties in India: (a) Parliament: To check defection from one political party to another to become a minister or for money, the Parliament has passed the Anti-defection law. This law says if any MLA or MP changes parties, he or she will lose the seat in the legislature. (b) Election Commission: The Election Commission passed an order making it necessary for political parties to hold their organisational elections at regular intervals and to file their income tax returns. This can lead to greater internal democracy in political parties. (c) Supreme Court: The Supreme Court passed an order to reduce the influence of money and criminals. Now, it is mandatory for every candidate who contests elections to file an AFFIDAVIT giving details of his property and criminal cases pending against him. The new system has made a lot of information available to the public. But there is no system of check if the information given by the candidates is true. As yet we do not know if it has led to decline in the influence of the rich and the criminals. 13. Suggest any five measures to reform political parties. Ans. Some effective measures to reform political parties are: (i) A law should be made to regulate the internal affairs of political parties. (ii) It should be made compulsory for political parties to maintain a register of its members. (iii) It should be made mandatory for political parties to give a minimum number of tickets; about l/3rd to its women candidates. (iv) There should be a quota for women in the decision making bodies of the party. (v) There should be state funding of elections. (vi) The government should give parties money to support their election expenses in kind, for example, petrol, paper, telephone, etc., or in cash. (vii) Vote casting should be made compulsory in each election. (viii) Data regarding caste and religion, OBC, SC, ST should not be utilised during election period in any form. 14. Explain the role of public in the reformation of political parties. Ans. There are two other ways in which political parties can be reformed: (a) Peoples Pleasure: People can put pressure on political parties. This can be done through petitions, publicity and agitations. Ordinary citizens, pressure groups and movements and the media can play an important role in this. If political parties feel that they would lose public support by not taking up reforms, they would become more serious about reforms. (b) People’s Participation: Political parties can improve if those who want this join political parties. The quality of democracy depends on the degree of public participation. It is difficult to reform politics if ordinary citizens do not take part in it and simply criticise it from the outside. The problem of bad politics can be solved by more and better politics.

Political Parties 131 Case Study Based MCQs Case Study–1 Read the given extract/source/passage carefully and answer the questions that follow: In China, only the Communist Party is allowed to rule. Although, legally speaking, people are free to form political parties, it does not happen because the electoral system does not permit free competition for power. We cannot consider one-party system as a good option because this is not a democratic option. Any democratic system must allow at least two parties to compete in elections and provide a fair chance for the competing parties to come to power. In some countries, power usually changes between two main parties. Several other parties may exist, contest elections and win a few seats in the national legislatures. But only the two main parties have a serious chance of winning majority of seats to form government. Such a party system is called two-party system. The United States of America and the United Kingdom are examples of two-party system. If several parties compete for power, and more than two parties have a reasonable chance of coming to power either on their own strength or in alliance with others, we call it a multi- party system. Thus in India, we have a multiparty system. In this system, the government is formed by various parties coming together in a coalition. When several parties in a multi- party system join hands for the purpose of contesting elections and winning power, it is called an alliance or a front. For example, in India there were three such major alliances in 2004 parliamentary elections– the National Democratic Alliance (NDA), the United Progressive Alliance (UPA) and the Left Front. The multiparty system often appears very messy and leads to political instability. At the same time, this system allows a variety of interests and opinions to enjoy political representation. 1. In China, which party is allowed to rule? (a) Communist Party (b) Democratic Party (c) Republic Party (d) None of these Ans. (a) 2. Which of the following countries has the one-party system? (a) India (b) China (c) USA (d) None of these Ans. (b) 3. Which of the following countries has the two-party system? (a) China (b) India (c) USA (d) None of these Ans. (c) 4. Which of the following countries has the multi-party system? (a) China (b) India (c) USA (d) None of these Ans. (b)

132 Social Science–X 5. In this party system, the government is formed by various parties coming together in a coalition. (a) One-party system (b) Two-party system (c) Multi-party system (d) None of these Ans. (c) 6. The major alliance(s) in 2004 parliamentary elections in India is/are: (a) NDA (b) UPA (c) Left front (d) All of these Ans. (d) Case Study–2 Read the given extract/source/passage carefully and answer the questions that follow: Democracies that follow a federal system all over the world tend to have two kinds of political parties: parties that are present in only one of the federal units and parties that are present in several or all units of the federation. This is the case in India as well. There are some countrywide parties, which are called ‘national parties’. These parties have their units in various states. But by and large, all these units follow the same policies, programmes and strategy that is decided at the national level. Every party in the country has to register with the Election Commission. While the Commission treats all parties equally, it offers some special facilities to large and established parties. These parties are given a unique symbol – only the official candidates of that party can use that election symbol. Parties that get this privilege and some other special facilities are ‘recognised’ by the Election Commission for this purpose. That is why these parties are called, ‘recognised political parties’. The Election Commission has laid down detailed criteria of the proportion of votes and seats that a party must get in order to be a recognised party. A party that secures at least six per cent of the total votes in an election to the Legislative Assembly of a State and wins at least two seats is recognised as a State party. A party that secures at least six per cent of the total votes in Lok Sabha elections or Assembly elections in four States and wins at least four seats in the Lok Sabha is recognised as a national party. 1. How many kinds of political parties have the democracies that follow a federal system? (a) Two (b) Three (c) Four (d) None of these Ans. (a) 2. Every party in the country has to register with ___________. (a) Supreme Court (b) Election Commission (c) Parliament (d) None of these Ans. (b) 3. Country wide political parties are called___________. (a) State parties (b) National parties (c) Local parties (d) None of these Ans. (b)

Political Parties 133 4. A party that secures at least six per cent of the total votes in an election to the Legislative Assembly of a State and wins at least two seats is recognised as a ________ party. (a) State (b) National (c) Local (d) None of these Ans. (a) 5. A party that secures at least six per cent of the total votes in Lok Sabha elections or Assembly elections in four States and wins at least four seats in the Lok Sabha is recognized as a _______ party. (a) State (b) National (c) Local (d) None of these Ans. (b) 6. A recognized political party is one that: (a) is registered with Election Commission of India. (b) is given a unique election symbol (c) gets some other facilities recognized by the Election Commission (d) All of these Ans. (d) Case Study–3 Read the given extract/source/passage carefully and answer the questions that follow: Other than these seven parties, most of the major parties of the country are classified by the Election Commission as ‘State parties’. These are commonly referred to as regional parties. Yet these parties need not be regional in their ideology or outlook. Some of these parties are all India parties that happen to have succeeded only in some states. Parties like the Samajwadi Party and Rashtriya Janata Dal have national level political organization with units in several states. Some of these parties like Biju Janata Dal, Sikkim Democratic Front, Mizo National Front and Telangana Rashtra Samithi are conscious about their State identity. Over the last three decades, the number and strength of these parties has expanded. This made the Parliament of India politically more and more diverse. No one national party is able to secure on its own a majority in the Lok Sabha, until 2014. As a result, the national parties are compelled to form alliances with State parties. Since 1996, nearly every one of the State parties has got an opportunity to be a part of one or the other national level coalition government. This has contributed to the strengthening of federalism and democracy in our country. 1. State parties are commonly referred to as _______ parties. (a) regional (b) national (c) both (a) & (b) (d) None of these Ans. (a) 2. Which of these is NOT a regional party? (a) Biju Janata Dal (b) National Congress Party (c) Telangana Rashtra Samithi (d) Sikkim Democratic Front Ans. (b)

134 Social Science–X 3. In which state does the Biju Janata Dal exist as a regional party? (a) Bihar (b) Odisha (c) Maharashtra (d) Telangana Ans. (b) 4. Mizo National Front is active in which state? (a) Mizoram (b) Nagaland (c) Goa (d) None of these Ans. (a) 5. What made the Parliament of India politically more and more diverse? (a) The expansion of regional parties (b) The expansion of national parties (c) Both (a) & (b) (d) None of these Ans. (a) 6. No one national party is able to secure on its own a majority in the Lok Sabha, until _________. (a) 1984 (b) 1996 (c) 2014 (d) None of these Ans. (c)

Unit IV Economics (Understanding Economic Development) This unit consists of the following chapters: 7. Money and Credit 8. Globalisation and the Indian Economy



CHAPTER Money and Credit 7 (NCERT Textbook Chapter 3) Chapter at a Glance Money as a Medium of Exchange The use of money spans a very large part of our everyday life. In our day-to-day transactions, goods are being bought and sold with the use of money. At times we do exchange of services with money. That is, both parties have to agree to sell and buy each other commodities. This is known as double coincidence of wants. Money acts as an intermediate in exchange process and therefore it is called a medium of exchange. Modern Forms of Money In earlier times, before the introduction of coins, a variety objects was used as money e.g., grains, and cattle, metallic coins: gold, silver, copper. Currency Modern forms of money includes currency—paper notes and coins. The currency is used by medium of exchange. The Reserve Bank of India (RBI) issues currency as notes on behalf of the central government. The law legalizes the use of rupee as a medium of payment that cannot be refused in setting transactions in India. Deposits with Banks People need only some money for their day-to-day needs. People deposit money with the banks by opening a bank account. Banks accept the deposits and also pay an amount of interest on the deposits. Demand Deposits The deposited money in bank can also be withdrawn at the depositor’s wish. These deposits are called demand deposits. Cheques: Banks offer a facility i.e., the payments made by cheques. A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque is issued. 153

154 Social Science–X Loan Activities of Banks People make People take deposits loans Depositors Bank Borrowers People make People repay withdrawals loans with interest and get interest Bank Source of Income The difference between what is charged from borrowers and what is paid to depositors is their main source of income. Two Different Credit Situations Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In the rural areas the main demand for the credit is for the crop production. Farmers usually take crop loan at the beginning of the season and repay after harvest. Repayment of the loan is dependent on the income from farming. If the harvest is poor, the repayment of the loan becomes difficult and credit instead of improving the earnings, pushes the borrower into a situation from which recovery is very difficult and painful. Then the borrower is forced to give up his collateral or asset used as a guarantee to the lender. So credit can play either a positive or a negative role for the borrower depending on the risks in a situation and whether there is some support in case of loss. Terms of Credit Term of credit such as interest rate, colletral, etc. vary substantially from one credit arrangement to another. Every loan agreement specifies an interest rate which the borrower must pay to the lender along with the repayment of the principal. In addition, lenders may demand collateral (security) against loans. Collateral is an asset that the borrower owns (such as land, building, vehicle, livestocks, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid. Variety of Credit Arrangements Agriculture traders or landowners give loans at a very high interest rate, i.e., 3–5% per month. They also make a profit from buying the crop at a low price and then sell later when the price has risen. Banks give loans at an interest rate, i.e., 8.5% per annum. Besides banks, cooperative societies provide cheap credit in the rural areas. There are several types of cooperative possible such as farmers cooperative, weavers cooperative, industrial cooperatives, etc. Krishak cooperative provides loans for the purchase of agricultural implements, loans for cultivation and agricultural trade, fishery loans, loans for construction of houses and for a variety of other expenses.

Money and Credit 155 Formal Sector Credit in India People obtain loans from formal sectors includes banks and cooperatives. The Reserve Bank of India (RBI) supervises the functioning of formal sector of loans. Informal sectors includes moneylenders, traders, employees, relatives and friends, etc. There is no organisation to supervise their credit activities. No one can stop them using unfair means to get their money back. Formal and Informal Credit Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan and they have less income left for themselves. For these reasons banks and cooperative societies need to lend more and expand formal sources of credit in India. This would lead to higher incomes and many people could then borrow cheaply for a variety of needs. Cheap and affordable credit is crucial for the country’s development. At present, it is the richer households who receive formal credit whereas the poor have to depend on the informal sources. It is important that the formal credit is distributed more equally so that the poor can benefit from the cheaper loans. Self-help Groups (SHG) for the Poor Self-help groups consist of certain members. They pool (collect) their savings and constitute a fund which is further used in making finance and advances to other members. This helps to reduce the functioning of informal sectors of credit. SHGs provide small loans to their members at lower interest rates than moneylenders and help them to overcome the problem of lack of collateral. They can get timely loans for variety of purposes and at a reasonable interest rate. They help women to become self-reliant. Grameen Bank of Bangladesh It was started in 1970s as a small project by Prof. Muhammad Yunus, the founder of Grameen Bank of Bangladesh and recipient of 2006 Nobel Prize for Peace. Grameen Bank of Bangladesh has over 8.63 million members in about 81,390 villages spread across Bengladesh. Technical Terms Automated Teller Machine (ATM): A free standing self-service terminal performing 60% of tellers job quickly and at lesser cost. Bank: An institution which accepts deposits from public for the purpose of lending and investment. Barter System: The system by which one commodity is exchanged for another without money. Cheque: An unconditional written instruction made by the account holder to the bank to pay the specified amount to the drawer of the cheque. Credit: The activity of borrowing and lending money between two parties. Landlords: The people who own farm land in villages on which poor farmers cultivate the crops.

156 Social Science–X Very Short Answer Type Questions 1. Why transaction are made in money? Give reason. Ans. A person holding money can easily exchange it for commodity or service that he/she might want. 2. Define double coincidence of wants. Ans. When both parties agree to sell and buy each other’s commodities, it is known as double coincidence of wants. 3. What is it that can act as a medium of exchange in transaction? Ans. Money acts as a medium of exchange in transactions. 4. What is the system of exchanging goods from goods called? Ans. The system of exchanging goods from goods is called Barter System. 5. Name any two objects that were used as money before introduction of coins. Ans. Grains and cattle 6. Define the term ‘currency’. Ans. Currency is defined as a current medium of exchange in the forms of coins and banknotes. 7. What are forms of modern money? Ans. Modern forms of money include currency—paper note and coins. 8. Who issues currency notes on behalf of the central government? Ans. The Reserve Bank of India (RBI) 9. What do people do with extra money? Ans. People deposit extra money into banks by opening a bank account in their name. 10. Why are demand deposits considered as money? Ans. Demand deposits are considered as money because they can be withdrawn when required. 11. What is the major source of revenue for the commercial banks? Ans. The major source of revenue is difference between what is charged from borrowers and what is paid to depositors. 12. Why do the banks keep major portion of deposits? Ans. Banks keep major portion of deposits to extend loans. 13. What is a cheque? Ans. A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque is issued. 14. Why do people in rural areas demand for credit? Ans. People in rural area demand for credit for crop production. 15. Why did Swapna sell a portion of her land? Ans. Swapna sold a portion of her land in order to pay the loan. 16. What is credit? Ans. Credit refers to an aggrement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. 17. What is collateral? Ans. Collateral is an asset that the borrower owns (such as land, building, vehicles, livestock, etc.) and uses this as a guarantee to the lender until the loan is repaid.

Money and Credit 157 18. What would the lender do in case the borrower fails to repay the loan? Ans. If the borrower fails to repay the loan, lender has right to sell the asset or collateral to obtain payment. 19. Give some common examples of collateral used for borrowing. Ans. Property such as land titles, deposits with banks, livestock are some common examples used for borrowing. 20. While taking a loan, borrowers look for easy terms of credit? What does this mean? Ans. This means low interest rate, easy conditions of repayment, less collateral and documentations requirements. 21. Why did Salim need credit? Ans. Salim needed credit to purchase raw materials for manufacturing of shoes. 22. Why did Swapna need credit? Ans. Swapna needed credit to meet the expenses of cultivation. 23. Name the various sources from where people obtain loan. Ans. People obtain loan from both formal and informal sectors. Formal sectors: Banks and cooperatives Informal sectors: Moneylenders, traders, employers, relatives, friends 24. What report is submitted periodically by all the banks to RBI? Ans. Banks have to submit information periodically to RBI on how much they are lending, to whom and what rate. 25. Why the banks and cooperatives are popular lending agencies? Give one reason. Ans. They provide loans at a very low rate. 26. Which are the two major sources of credit for rural households in India? Ans. Moneylenders and cooperative societies 27. Which one of them is the most dominant source of credit for rural households? Ans. Moneylenders 28. Why is moneylender the most dominant source of credit? Give reasons. Ans. (i) Moneylenders do not ask for collaterals. (ii) Complicated paper work or documentation is not involved. 29. Who supervise the credit activities of lenders in the informal sector? Ans. No organisation 30. How do the informal lender take undue advantage of the borrowers helplessness? Ans. They charge high interest on loans. As a result, the cost of borrower of informal loans is also very high. 31. Which is crucial for the country’s development? Ans. Cheap and affordable credit is crucial for the country's in development. 32. What is necessary to reduce the dependence on informal sources of credit in rural areas? Ans. Banks and cooperatives increase their lending in the rural areas. 33. Which segment of the society receives formal credit? Ans. Richer segment of the society

158 Social Science–X 34. Which segment of the society depends on the formal resources? Ans. The poor have to depend on the formal resources. 35. Mention one of the major reasons which prevents the poor from getting bank loans. Ans. Absence of collateral is one of the major reasons which prevents the poor from getting bank loans. 36. What are the benefits that you can get by depositing your extra money in the banks? Ans. 1. Safety, 2. Earn interest, 3. Can make payments easily through cheques. 37. What is the full form of SHGs? Ans. SHGs stand for Self-Help Groups. 38. What is the idea behind the self-help groups? Ans. The basic idea behind the self-help groups is to organise the rural poor into self-help groups and collect their savings. 39. How many members a typical self-help group should have? Ans. A typical self-help group should have 15–20 members. 40. How do saving per member vary? Ans. Saving per member varies from 25 to 100 or more, depending on the availability of the people to save. 41. By whom in an SHG, the decisions regarding savings and loan activities are taken? Ans. In an SHG, the decisions regarding saving and loans are taken by group members. 42. Who is the founder of Grameen Bank of Bengladesh? Ans. Professor Muhammad Yunus Short Answer Type-I Questions 1. What are the difficulties from which the barter system of exchange suffers? Ans. Following are difficulties from which the barter system of exchange suffers: 1. Lack of double coincidence of wants 2. Valuations of all the goods cannot done easily. 3. Certain products cannot be divided. 2. How does money solve the problem of double coincidence of wants? Ans. Money solves the problem of double coincidence of wants in the following ways: (i) Money solves the problem of double coincidence of wants by acting as a medium of exchange. (ii) Money provides an intermediate step and eliminates the need of double coincidence of wants. (iii) A person holding money can easily exchange it for any commodity or service that he/she might want. 3. Name the major stages through which money has evolved. Ans. (i) Commodity money, (ii) Metallic coins, (iii) Paper money, (iv) Credit money, (v) Plastic money

Money and Credit 159 4. Why is currency accepted as a medium of exchange? Ans. Currency is accepted as a medium of exchange because: (i) The currency is authorised by the government of the country. (ii) The Reserve Bank of India (RBI) issues currency as notes on behalf of the central government. (iii) As per Indian law, no other individual or organisation is allowed to issue currency. (iv) The law legalises the use of rupee as a medium of payment that cannot be refused in setting transactions in India. 5. What are the modern forms of money currency in India? Why is it accepted as a medium of exchange? How is it executed? Ans. Modern forms of money include currency (paper notes) and coins. It is accepted as a medium of exchange because the currency is authorised by the government of India. No individual in India can legally refuse a payment made in rupee. Any person holding money can easily exchange it with any commodity or service that he desires. It acts as intermediate in the exchange process of different countries. 6. Why are demand deposits considered as money? Ans. Demand deposits are considered as money because they can be withdrawn when required and the withdrawn money can be used for making payments. Bank pay interest on these deposits. 7. Why is cheap and affordable credit important for the country’s development? Ans. Cheap and affordable credit is important for the country’s development because of the following reasons: (i) This would lead to higher incomes and many people could then borrow cheaply for a variety of needs. (ii) This could grow crops, do business, set up small scale industries, etc. (iii) They could set up new industries or trade in good. All these lead to the country’s development. 8. Look at a 10-rupee note. What is written on the top? Can you explain this? Ans. On the top of a 10-rupee note, the following text is written “Reserve Bank of India, Guaranteed by Central Government.” This statement means that Central Government guarantees that this 10-rupee note cannot be rejected by anybody in India for exchange of goods or service. 9. Why do lenders ask for collateral while lending? Ans. The collateral is a kind of surety, which the lender can hold on to. In case of the debtor failing to repay the loan, the lender can recover the same amount by selling the collateral. 10. Given that a large number of people in our country are poor, does it in any way affect their capacity to borrow? Ans. Credit is always given after properly assessing the repayment capacity of the borrower. Since poor people do not have repayment capacity, they are usually unable to get a loan; especially from the formal sector. They get some loan from the informal sector but in that case, they often fall in debt trap because of very high rate of interest. 11. List the various sources of credit in Sonpur. Ans. The various sources of credit in Sonpur are: (i) Village moneylenders (ii) Agricultural Traders

160 Social Science–X (iii) Landowners acting as moneylenders (iv) Commercial Banks (v) Krishak Cooperative Society 12. What is the main source of income for banks? Ans. The main source of income for banks is the difference between interest rate charged from borrowers and what is paid to depositors. After keeping a portion of deposits as reserves, banks lend to people who demand money as loan and bank charges interest from them. 13. Can you think of some examples of goods/services being exchanged or wages being paid through barter? Ans. Barter system does exist at some degree in our society. Farmers often use this system of exchange to barter different types of farm produce. Even some friends may exchange certain items among each other. Some hawkers sell trinkets and edible stuff in lieu of old bottles and plastic containers. 14. Can everyone in Sonpur get credit at a cheap rate? Who are the people who can? Ans. Everyone in Sonpur cannot get credit at a cheap rate of interest. The people who can afford to get credit at a cheap rate are those who can produce collateral as security, those who have organised themselves in a cooperative society and those who can fulfil the documentation requirements. 15. Why do you think that the share of formal sector credit is higher for the richer households compared to the poorer households? Ans. The share of the formal sector credit is higher for the richer households because of the following reasons. (i) Richer households are in a better position to provide collateral and other necessary documents which are required by the banks and cooperatives. (ii) Richer households have means to exert pressure on banks and cooperatives to sanction them loans. (iii) Richer households have greater capacity to repay the loans than the poorer households. 16. Why are SHGs called the building blocks of organisation to the rural poor? Ans. SHGs are called the building blocks of organisation to the rural poor, because: (i) They can get timely loans for the variety of purposes and a reasonable interest rate from the SHGs. (ii) It helps women to become financially self-reliant. (iii) The regular meetings of the group provide a platform to discuss and act on a variety of social issues such as health, nutrition, domestic violence, etc. Short Answer Type-II Questions 1. How does money solve the problem of double coincidence of wants? Explain with an example of your own. Ans. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. By serving as a medium of exchanges, money removes the need for double coincidence of wants and the difficulties associated with the barter system. For example, it is no longer necessary for the farmer to look

Money and Credit 161 for a book publisher who will buy his cereals and at the same time sell him books. All he has to do is find a buyer for his cereals. If he has exchanged his cereals for money, he can purchase any goods or service he needs. This is because money acts as a medium of exchange. 2. In India the rupee is widely accepted as a medium of exchange. Explain. Or What are the modern forms of money currency in India? Why is it accepted as a medium of exchange? How is it executed? Ans. Modern form of money: Paper notes and coins. These are accepted as a medium of exchange, because: (i) It is authorised as a legal tender by the Union Government of India. (ii) Its demand and supply can be regularised and controlled by the RBI. (iii) In India, the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual can legally refuse a payment made in rupee. (iv) In India, the value of goods or services is measured in rupee. 3. What are demand deposits? Describe any three salient features of demand deposits. Ans. People with surplus money or extra amount, deposit it in banks. The banks keep the money safe and give an interest on it. The deposits can be drawn at any time on demand by the depositors. Features: (i) The demand deposits are encashable by issuing cheques and have the essential features of money. (ii) They make it possible to directly settle payments without the use of cash. (iii) Since demand drafts/cheques are widely accepted as a means of payment along with currency, they constitute money in the modern economy. 4. What do the banks do with the ‘Public Deposits’? Describe their working mechanism. Ans. Banks accept deposits from the public and use the major portion of these deposits to tend loans. There is a huge demand for loans for various economic activities. Banks make use of these deposits to meet the loan requirement of the people and thereby earn interest. This is, in fact, the main source of income of the banks. In this way, banks act as a mediator between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. 5. What is meant by terms of credit? What does it include? Ans. Terms of credit are the requirements that need to be satisfied for any credit arrangements. It includes interest rate, collateral, documentation and mode of repayment. However, the terms of credit vary depending upon the nature of lender, borrower and loan. 6. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary? Or How does Reserve Bank of India supervise the functioning of banks? Why is this necessary?

162 Social Science–X Ans. The Reserve Bank of India supervises the functioning of banks in a number of ways: (a) The commercial banks are required to hold part of their cash reserves with the RBI. It (RBI) ensures that the banks maintain a minimum cash balance out of the deposits they receive. (b) RBI observes that the banks give loans not just to profit making businessmen and traders but also to small cultivators, small scale industries, small borrowers, etc. (c) The commercial banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc. This is necessary to ensure equality in the economy of the country and protect small depositors, farmers, small scale industries, small borrowers, etc. In this process RBI also acts as the lender of the last resort to the banks. 7. In situations with high risks, credit might create further problems for the borrower. Explain. Ans. In situations with high risks, credit might create further problems for the borrower. This is also known as a debt-trap. Taking credit involves an interest rate on the loan and if this is not paid back, the borrower is forced to give up his collateral or asset used as guarantee, to the lender. If a farmer takes a loan for crop production and the crop fails, loan payment becomes impossible. To repay the loan the farmer may sell a part of his land making the situation worse than before. Thus, in situations with high risks, if the risks affect a borrower badly, he ends up losing more than he would have without the loan. 8. Analyse the role of credit for development. Ans. Cheap and affordable credit plays a crucial role for the country’s development. There is a huge demand for loans for various economic activities. The credit helps people to meet the ongoing expenses of production and thereby develop their business. Many people could then borrow for a variety of different needs. They could grow crops, do business, set up industries, etc. In this way credit plays a vital role in the development. 9. What are the reasons why the banks might not be willing to lend to certain borrowers? Ans. The banks might not be willing to lend to certain borrowers due to the following reasons: (a) Banks require proper documents and collateral as security against loans. Some persons fail to meet these requirements. (b) There may be some borrowers who have not repaid previous loans, the banks might not be willing to lend them further. (c) The banks might not be willing to lend those entrepreneurs who are going to invest in the business with high risks. (d) One of the principal objectives of a bank is to earn more profits after meeting a number of expenses. For this purpose it has to adopt judicious loan and investment policies which ensure fair and stable return on the funds. 10. Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss. Ans. Manav will decide whether to borrow from the bank or the moneylender on the basis of the following terms of credit: (a) Rate of interest.

Money and Credit 163 (b) Requirements availability of collateral and documentation required by the banker. (c) Mode of repayment. Depending on these factors and of course, easier terms of repayment, Manav has to decide whether he borrows from the bank or the moneylender. 11. Describe the four features of Self-Help Group (SHG). Ans. The features of Self-Help Group (SHG) are: (i) People form their personal groups for the purpose of savings and also lend money among themselves. (ii) Rate of interest is lower than informal service providers. (iii) They can also avail loans from banks if their savings are regular. (iv) Decisions regarding the savings and loan activities are taken by group members. 12. Which are two major sources of formal sector credit in India? Why do we need to expand the formal sources of credit? Or Name two sources of formal source of credit. Why there is need to expand them? Ans. Two sources of formal sector of credit in India include loans from banks and cooperatives. RBI supervises their functions of giving loans. Lower rate of interest is charged on these loans as compared to informal sources of credit. Need to expand formal sources of credit: Formal sector credit needs to be expanded in India so as to save people and especially poor farmers and workers from exploitation of the informal sector credit. Formal sector lends at a reasonable rate of interest which is very cheap. Formal credit can fulfil various needs of the people through providing cheap and affordable credit. 13. How does the use of money make it easier to exchange things? Ans. Unlike the barter system, exchange by using money does not need a double coincidence of wants. Hence, money makes it easier to exchange things. Let us take an example of a student who wants to sell his old books and wants to buy a guitar in lieu of that. If he opts for the barter system, he will have to search a person who may be interested in giving off his guitar and in taking old books. But finding such a person can be difficult and time consuming. On the other hand, if the student sells his books and takes money for that, he can easily go to a shop to buy a guitar. 14. Compare the terms of credit for the small farmer, the medium farmer, and the landless agricultural worker in Sonpur. Ans. Terms of Credit for Terms of Credit for Terms of Credit for Small Farmer Medium Farmer Landless Agricultural Worker (A) They take loan from (A) They take loans (A) They are not able to informal sources from formal get loan from formal like moneylenders, sources like banks, sources. So they take traders, friends or cooperative socie- loan from informal, relatives. ties, etc. sources. (B) High rate of interest (B) Low rate of (B) Very high rate of interest interest (C) Promises to sell (C) Easy mode of (C) Cannot repay the crops to traders at payment like in loan, instead pledges low price as free three or more to work free for the repayment of loan years lender

164 Social Science–X 15. Why will Arun have a higher income from cultivation compared to Shyamal? Ans. Arun secured loan from formal source, i.e., commercial bank at the rate of interest of 10% per annum, while Shyamal took loan from village moneylender at an interest of 5% per month. Arun is in the better position of repaying the loan as compared to Shyamal because his terms of repayment of loan are easy as compared to Shyamal. Arun can also get a fresh loan after few years. He is free to sell his produce but Shyamal on the other hand, is bound to sell his produce at a low price only to the moneylender who gave him the loan. Arun is liable to get a fresh loan against the cold storage receipt where he may store his produce. Long Answer Type Questions 1. Differentiate between Reserve Bank of India (RBI) and Commercial Bank. Or What is the difference between Reserve Bank of India and Commercial Bank? Ans. Difference between Reserve Bank of India and Commercial Bank Reserve Bank of India Commercial Bank (A) It has the sole monopoly right to (A) No such thing is done by commer- issue currency notes. cial bank. (B) It is the apex bank in the money (B) It is a unit in the banking structure market of the country. of a country. (C) It does not deal with the public. (C) It directly deals with the public and business firms. (D) It acts as a banker to the govern- (D) It has no such responsibility to- ment. wards the state. 2. Explain any two features each of formal sector loans and informal sector loans. Ans. Formal Sector Loans: Formal sector loans include loans from banks and cooperatives. Features of formal sector loans are: (i) Formal sectors provide cheap and affordable loans and their rate of interest is monitored by the RBI. (ii) Formal sector strictly follows the terms of credit which include interest rate, collateral, documentation and the mode of repayment. Informal Sector Loans: Informal sector loans include loans from moneylenders, traders, employers, relatives, friends, etc. Features of informal sector loans are: (i) Their credit activities are not governed by any organisation, therefore they charge higher rate of interest. (ii) Informal sector loan providers know the borrower’s personally, and hence they provide loans on easy terms without collateral and documentation. 3. What are the two main reasons for formal credit not being available to the rural poor? Why is there a need to expand rural credit? Ans. The two main reasons for formal credit not being available to the rural poor are: (i) Absence of collateral and documentation is the main reason which prevents rural poor from getting bank loans.

Money and Credit 165 (ii) The arrangements of informal sector loans are flexible in terms of timelines, procedural requirements, interest rates, etc. They are adjustable according to the needs and convenience of the borrower. There is a need to expand rural credit from the side of formal sector because: (i) Informal sectors exploit the rural poor by putting them in debt-traps. (ii) Cheap and affordable credit for the rural poor is important for country’s overall development. 4. Why do the rural borrowers depend on the informal sector for credit? What steps can be taken to encourage them to take loans from the formal sources? Explain any two. Ans. The rural borrowers depend on the informal sector for credit because: (i) Absence of collateral and documentation with rural borrowers. (ii) Flexible loans in term of timelines, interest rates, procedural requirements, etc., are provided to rural borrowers by informal sectors. Following steps can be adopted to encourage rural borrowers to take loans from the formal sources: (a) Awareness among rural borrowers against the exploitation of informal sectors. Need to make them aware of high rate of interest and debt traps of such moneylenders. (b) Promotion to self-help groups. These groups collect their savings as per their own ability to save. Members can take small loans from the groups to meet their requirements. If the group is regular in savings for year or two, it can avail loan from the bank. 5. How does the Reserve Bank of India supervise the functioning of banks? Why is this necessary? Ans. Reserve Bank of India (RBI) supervises the banks in the following ways: (i) It monitors the balance kept by the banks for day-to-day transactions. (ii) It checks that the banks give loans not just to profit-making businesses and traders but also to small borrowers. (iii) Periodically banks have to give details about lending, borrowers and interest rate to RBI. It is necessary for securing public welfare. It presents the banks from running the business with profit motive only. It also keeps a check on interest rate of credit facilities provided by the banks. RBI makes sure that the loans from the banks are affordable and cheap. 6. In India, about 80% of farmers are small farmers, who need credit for cultivation. (a) Why might banks be unwilling to lend to small farmers? (b) What are the other sources from which the small farmers can borrow? (c) Explain with an example how the terms of credit can be unfavourable for the small farmers. (d) Suggest some ways by which small farmers can get cheap credit. Ans. (a) Bank loans require proper documents and collateral as security against loans. But most of the times the small farmers lack in providing such documents and collateral. Besides, at imes they even fail to repay the loan in time because of the uncertainty of the crop. So, banks might be unwilling to lend to small farmers.

166 Social Science–X (b) Apart from bank, the small farmers can borrow from local money lenders, agricultural traders, big landlords, cooperatives, SHGs, etc. (c) The terms of credit can be unfavourable for the small farmers which can be explained by the following: Example: Ramu, a small farmer borrows from a local moneylender at a high rate of interest, i.e., 10 per cent to grow rice. But the crop is hit by drought and it fails. As a result, Ramu has to sell a part of land to repay the loan. Now his condition becomes worse than before. (d) The small farmers can get cheap credit from the different sources like – Banks, Agricultural Cooperatives and SHGs. 7. Differentiate between formal and informal sources of credit. Mention four characteristics each of formal and informal sources of credit in India. Or Write three features each of formal and informal source of credit. Ans. Difference between formal and informal sources of credit Formal Sources of Credit Informal Sources of Credit (A) Informal sources of credit are (A) Formal sources of credit are moneylenders, traders, employers, loans from banks and cooperative relatives, friends, etc. societies. (B) Functioning of formal sources (B) There is no organisation that of credit is governed by Reserve manages or checks the credit Bank of India. Their interest rate activities performed by informal and money lending details are sources. periodically checked by RBI. (C) Rate of interest is common and (C) Rate of interest depends upon the fixed for all formal sources and choice of moneylenders. borrowers. (D) Formal sources of credit need to (D) Informal sources of credit are satisfy all the terms of credit. flexible in terms of credit. (E) They provide cheap and affordable (E) They generally charge higher rate credit for both urban and rural of interest. borrowers. 8. Study the table given below and answer the questions that follow: People Depending on Formal Sector Credit in Urban Areas Category Percentage of People Poor households 15% Households with few assets 47% Well-off households 72% Rich households 90% (i) Poor households’ share of formal credit in the urban areas is low as compared to that of rich households. Why is it so? (ii) Mention two difficulties faced by the poor households in taking loan from a formal sector.

Money and Credit 167 Ans. (i) Poor households’ share of formal credit in urban areas is low as compared to that of rich households due to the following reasons: (a) The poor generally lack in collateral guarantees and do not have proper mode of repayment. (b) Informal sources of credit are generally flexible in timings, rate of interest, repayment schedule, etc. Therefore, it is easier for the poor to approach moneylenders as they know them personally. (ii) (a) The poor are not able to satisfy general terms of credit mostly collateral guarantees. (b) Informal moneylenders know the poor borrowers personally and are therefore flexible in terms of repayment schedule, amount and interest, etc. 9. Why are poor household still dependent on informal sources of credit? Give reasons. Ans. Poor household still depend on formal sources of credit because: (i) Banks are not present everywhere in rural India (ii) Even if they are present, getting a loan from a bank is much more difficult than taking a loan from informal societies. (iii) Bank loan required proper documents and a collateral. Absence of collateral is one of the major reasons which prevents the poor from getting bank loans. (iv) Informal lenders like moneylenders know the borrower personally and hence, are often willing to give a loan without a collateral. (v) The borrower can, if necessary, approach moneylender even without paying their earlier loans. (vi) However, the moneylenders charge very high rates of interest, keep no records of the transactions and harass the poor borrowers. 10. Who takes the important decisions of SHGs and why? Ans. (i) Most of the important decisions regarding the savings and loan activities are taken by the group members. (ii) The groups decide the loans to be granted: the purpose, amount, interest to be charged, repayment schedule, etc. (iii) Only the group is responsible for the repayment of the loan. (iv) In case of default by any one member, it is followed up seriously by other members in group. (v) Because of this feature, banks are willing to lend to the poor women when organised in SHGs even though they have no collateral as such. Case Study Based MCQs Case Study–1 Read the given extract/source/passage carefully and answer the questions that follow: The other form in which people hold money is as deposits with banks. At a point of time, people need only some currency for their day-to-day needs. For instance, workers who receive their salaries at the end of each month have extra cash at the beginning of the month. What do people do with this extra cash? They deposit it with the banks by opening a bank

168 Social Science–X account in their name. Banks accept the deposits and also pay an amount as interest on the deposits. In this way people’s money is safe with the banks and it earns an amount as interest. People also have the provision to withdraw the money as and when they require. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits. Demand deposits offer another interesting facility. It is this facility which lends it the essential characteristics of money (that of a medium of exchange). You would have heard of payments being made by cheques instead of cash. For payment through cheque, the payer who has an account with the bank, makes out a cheque for a specific amount. A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been issued. 1. Who issues the currency notes on the behalf of the Central Government of India? (a) Government of India (b) Reserve Bank of India (c) World Bank (d) State Bank of India Ans. (b) 2. Money is accepted as a medium of exchange because it is authorised by (a) United Nations (b) Reserve Bank of India (c) World Bank (d) People Ans. (b) 3. What do people do with extra cash? (a) Withdraw money (b) Issue cheques (c) Deposit it with the banks (d) Exchange with people Ans. (c) 4. Deposits in the bank accounts withdrawn on demand are called (a) saving deposits (b) current deposits (c) demand deposits (d) recurring deposits Ans. (c) 5. A paper instructing the bank to pay a specific account from the person’s account to the person in whose name it has been made is called (a) depositor (b) paper note (c) demand deposit (d) cheque Ans. (d) 6. Bank deposits are known as demand deposit because (a) People can issue cheques (b) People have the provision to withdraw the money as and when they require (c) People can take loan from their deposits (d) People are not allowed to deposit money in them Ans. (b)

Money and Credit 169 Case Study–2 Read the given extract/source/passage carefully and answer the questions that follow: In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self Help Groups (SHGs) and pool (collect) their savings. A typical SHG has 15-20 members, usually belonging to one neighbourhood, who meet and save regularly. Saving per member varies from 25 to 100 or more, depending on the ability of the people to save. Members can take small loans from the group itself to meet their needs. The group charges interest on these loans but this is still less than what the moneylender charges. After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank. Loan is sanctioned in the name of the group and is meant to create self employment opportunities for the members. For instance, small loans are provided to the members for releasing mortgaged land, for meeting working capital needs (e.g., buying seeds, fertilisers, raw materials like bamboo and cloth), for housing materials, for acquiring assets like sewing machine, handlooms, cattle, etc. Most of the important decisions regarding the savings and loan activities are taken by the group members. The group decides as regards the loans to be granted — the purpose, amount, interest to be charged, repayment schedule etc. Also, it is the group which is responsible for the repayment of the loan. Any case of nonrepayment of loan by any one member is followed up seriously by other members in the group. Because of this feature, banks are willing to lend to the poor women when organised in SHGs, even though they have no collateral as such. 1. SHGs stand for (a) Social Help Groups (b) Self-Helf Groups (c) Self Home Groups (d) Social Home Groups Ans. (b) 2. A typical Self-Helf Group has (a) 7–10 members (b) 11–15 members (c) 15–20 members (d) 20–25 members Ans. (c) 3. In an SHG, saving per member varies from (a) 15–25 (b) 25–100 (c) 100–150 (d) 150–200 Ans. (b) 4. In an SHG, the decisions regarding savings and loan activities are taken by (a) banks (b) government (c) cooperatives (d) group members Ans. (d) 5. Who helps the borrowers to overcome the problem of lack of collateral? (a) Reserve Bank of India (b) Government (c) Self Home Groups (SHGs) (d) Moneylenders Ans. (c)

170 Social Science–X Case Study–3 Read the given extract/source/passage carefully and answer the questions that follow: Grameen Bank of Bangladesh is one of the biggest success stories in reaching the poor to meet their credit needs at reasonable rates. Started in the 1970s as a small project, Grameen Bank in 2018 had over 9 million members in about 81,390 villages spread across Bangladesh. Almost all of the borrowers are women and belong to poorest sections of the society. These borrowers have proved that not only are poor women reliable borrowers, but that they can start and run a variety of small income-generating activities successfully. 1. Professor Mohammad Yunus is the founder of ____________. (a) Cooperative Bank (b) Self-Help Groups (c) Grameen Bank of Bangladesh (d) Reserve Bank Ans. (c) 2. When was Grameen Bank of Bangladesh started? (a) 1969 (b) 1970 (c) 1971 (d) 1972 Ans. (b) 3. How many members had Grameen Bank in October 2018? (a) 5.5 million (b) 9 million (c) 7.5 million (d) 8.63 million Ans. (b) 4. Number of villages across Bangladesh where members were spread? (a) 69,000 (b) 73,000 (c) 75,930 (d) 81,600 Ans. (d) 5. Almost all the borrowers of Grameen Bank of Bangladesh are (a) men (b) poor women (c) farmers (d) senior citizen Ans. (b) 6. When did Professor Mohammad Yunus get Nobel Price for Peace? (a) 2003 (b) 2004 (c) 2005 (4) 2006 Ans. (d)

ISBN: 978-93-93738-05-9 789393 738059 T10-0964-249-COMP.CBSE QB SOC SC T-II X