NCERT Textbook: Liberalisation, Privatisation & Globalisation: An Appraisal | Indian Economy for UPSC CSE PDF Download

 Page 1


UNIT
II
ECONOMIC REFORMS
SINCE 1991
UNIT
III
UNIT
II
2024-25
Page 2


UNIT
II
ECONOMIC REFORMS
SINCE 1991
UNIT
III
UNIT
II
2024-25
After forty years of planned development, India
has been able to achieve a strong industrial base
and became self-sufficient in the production of food
grains. Nevertheless, a major segment of the
population continues to depend on agriculture for
its livelihood. In 1991, a crisis in the balance of
payments led to the introduction of economic
reforms in the country. This unit is an appraisal of
the reform process and its implications for India.
2024-25
Page 3


UNIT
II
ECONOMIC REFORMS
SINCE 1991
UNIT
III
UNIT
II
2024-25
After forty years of planned development, India
has been able to achieve a strong industrial base
and became self-sufficient in the production of food
grains. Nevertheless, a major segment of the
population continues to depend on agriculture for
its livelihood. In 1991, a crisis in the balance of
payments led to the introduction of economic
reforms in the country. This unit is an appraisal of
the reform process and its implications for India.
2024-25
After studying this chapter, the learners will
• understand the background of the reform policies introduced in India
in 1991
• understand the mechanism through which reform policies were
introduced
• comprehend the process of globalisation and its implications for India
• be aware of the impact of the reform process in various sectors.
LIBERALISATION, PRIVATISATION
AND
GLOBALISATION: AN APPRAISAL
3
2024-25
Page 4


UNIT
II
ECONOMIC REFORMS
SINCE 1991
UNIT
III
UNIT
II
2024-25
After forty years of planned development, India
has been able to achieve a strong industrial base
and became self-sufficient in the production of food
grains. Nevertheless, a major segment of the
population continues to depend on agriculture for
its livelihood. In 1991, a crisis in the balance of
payments led to the introduction of economic
reforms in the country. This unit is an appraisal of
the reform process and its implications for India.
2024-25
After studying this chapter, the learners will
• understand the background of the reform policies introduced in India
in 1991
• understand the mechanism through which reform policies were
introduced
• comprehend the process of globalisation and its implications for India
• be aware of the impact of the reform process in various sectors.
LIBERALISATION, PRIVATISATION
AND
GLOBALISATION: AN APPRAISAL
3
2024-25
39 LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL
3.1 INTRODUCTION
You have studied in the previous
chapter that, since independence,
India followed the mixed economy
framework by combining the
advantages of the capitalist economic
system with those of the socialist
economic system. Some scholars argue
that, over the years, this policy resulted
in the establishment of a variety of
rules and laws, which were aimed at
controlling and regulating the
economy, ended up instead in
hampering the process of growth and
development. Others state that India,
which started its developmental path
from near stagnation, has since been
able to achieve growth in savings,
developed a diversified industrial
sector which produces a variety of
goods and has experienced sustained
expansion of agricultural output
which has  ensured food security.
In 1991, India met with an
economic crisis relating to its external
debt — the government was not
able to make repayments on its
borrowings from abroad; foreign
exchange reserves, which we
generally maintain to import petroleum
and other important items, dropped
to levels that were not sufficient for
even a fortnight. The crisis was
further compounded by rising prices
of essential goods. All these led the
government to introduce a new set of
policy measures which changed the
direction of our developmental
strategies.  In this chapter, we will
look at the background of the crisis,
measures that the government has
adopted and their impact on various
sectors of the economy.
3.2 BACKGROUND
The origin of the financial crisis can
be traced from the inefficient
management of the Indian economy
in the 1980s. We know that for
implementing various policies and
its general administration, the
government generates funds from
various sources such as taxation,
running of public sector enterprises
etc. When  expenditure is more than
income, the government borrows to
finance the deficit from banks and
also from people within the country
and from international financial
institutions. When we import goods
like petroleum, we pay in dollars
which we earn from our exports.
Development policies required that
even though the revenues were
very low, the government had
to overshoot its revenue to meet
challenges like unemployment,
poverty and population explosion. The
continued spending on development
programmes of the government did not
generate additional revenue. Moreover,
the government was not able to
There is a consensus in the world today that economic development is not all
and the GDP is not necessarily a measure of progress of a society.
K.R. Narayanan, Former President of India
2024-25
Page 5


UNIT
II
ECONOMIC REFORMS
SINCE 1991
UNIT
III
UNIT
II
2024-25
After forty years of planned development, India
has been able to achieve a strong industrial base
and became self-sufficient in the production of food
grains. Nevertheless, a major segment of the
population continues to depend on agriculture for
its livelihood. In 1991, a crisis in the balance of
payments led to the introduction of economic
reforms in the country. This unit is an appraisal of
the reform process and its implications for India.
2024-25
After studying this chapter, the learners will
• understand the background of the reform policies introduced in India
in 1991
• understand the mechanism through which reform policies were
introduced
• comprehend the process of globalisation and its implications for India
• be aware of the impact of the reform process in various sectors.
LIBERALISATION, PRIVATISATION
AND
GLOBALISATION: AN APPRAISAL
3
2024-25
39 LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL
3.1 INTRODUCTION
You have studied in the previous
chapter that, since independence,
India followed the mixed economy
framework by combining the
advantages of the capitalist economic
system with those of the socialist
economic system. Some scholars argue
that, over the years, this policy resulted
in the establishment of a variety of
rules and laws, which were aimed at
controlling and regulating the
economy, ended up instead in
hampering the process of growth and
development. Others state that India,
which started its developmental path
from near stagnation, has since been
able to achieve growth in savings,
developed a diversified industrial
sector which produces a variety of
goods and has experienced sustained
expansion of agricultural output
which has  ensured food security.
In 1991, India met with an
economic crisis relating to its external
debt — the government was not
able to make repayments on its
borrowings from abroad; foreign
exchange reserves, which we
generally maintain to import petroleum
and other important items, dropped
to levels that were not sufficient for
even a fortnight. The crisis was
further compounded by rising prices
of essential goods. All these led the
government to introduce a new set of
policy measures which changed the
direction of our developmental
strategies.  In this chapter, we will
look at the background of the crisis,
measures that the government has
adopted and their impact on various
sectors of the economy.
3.2 BACKGROUND
The origin of the financial crisis can
be traced from the inefficient
management of the Indian economy
in the 1980s. We know that for
implementing various policies and
its general administration, the
government generates funds from
various sources such as taxation,
running of public sector enterprises
etc. When  expenditure is more than
income, the government borrows to
finance the deficit from banks and
also from people within the country
and from international financial
institutions. When we import goods
like petroleum, we pay in dollars
which we earn from our exports.
Development policies required that
even though the revenues were
very low, the government had
to overshoot its revenue to meet
challenges like unemployment,
poverty and population explosion. The
continued spending on development
programmes of the government did not
generate additional revenue. Moreover,
the government was not able to
There is a consensus in the world today that economic development is not all
and the GDP is not necessarily a measure of progress of a society.
K.R. Narayanan, Former President of India
2024-25
40 INDIAN ECONOMIC DEVELOPMENT
generate sufficiently from internal
sources such as taxation. When the
government was spending a large
share of its income on areas which do
not provide immediate returns such as
the social sector and defence, there was
a need to utilise the rest of its revenue
in a highly efficient manner. The
income from public sector
undertakings was also not very high to
meet the growing expenditure. At
times, our foreign exchange,
borrowed from other countries and
international financial institutions,
was spent on meeting consumption
needs. Neither was an attempt made to
reduce such profligate spending nor
sufficient attention was given to boost
exports to pay for the growing imports.
In the late 1980s, government
expenditure began to exceed its
revenue by such large margins that
meeting the expenditure through
borrowings became unsustainable.
Prices of many essential goods rose
sharply. Imports grew at a very high
rate without matching growth of
exports. As pointed out earlier, foreign
exchange reserves declined to a level
that was not adequate to finance
imports for more than two weeks.
There was also not sufficient foreign
exchange to pay the interest that
needed to be paid to international
lenders. Also no country or international
funder was willing to lend to India.
India approached the International
Bank for Reconstruction and
Development (IBRD), popularly
known as World Bank and the
International Monetary Fund (IMF),
and received $7 billion as loan to
manage the crisis. For availing the
loan, these international agencies
expected India to liberalise and open
up the economy by removing
restrictions on the private sector,
reduce the role of the government in
many areas and remove trade
restrictions between India and other
countries.
India agreed to the conditionalities
of World Bank and IMF and
announced the New Economic Policy
(NEP). The NEP consisted of wide
ranging economic reforms. The
thrust of the policies was towards
creating a more competitive
environment in the economy and
removing the barriers to entry and
growth of firms. This set of policies
can broadly be classified into two
groups: the stabilisation measures
and the structural reform measures.
Stabilisation measures are short-
term measures, intended to correct
some of the weaknesses that have
developed in the balance of
payments and to bring inflation
under control. In simple words, this
means that there was a need to
maintain sufficient foreign exchange
reserves and keep the rising prices
under control. On the other hand,
structural reform policies are long-term
measures, aimed at improving the
efficiency of the economy and increasing
its international competitiveness by
removing the rigidities in various
segments of the Indian economy. The
government initiated a variety of
policies  which fall  under three heads
2024-25