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Liberalisation: Privatisation and Globalisation - An Appraisal

Liberalisation: Privatisation and Globalisation - An Appraisal

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Study Action Plan (Sorted by Difficulty)
Economic Reforms of 1991
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Globalisation
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Impact of Economic Reforms
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Liberalisation
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Monetary and Fiscal Policy Changes
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Privatisation
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Trade and Investment Policy Reforms
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World Trade Organisation (WTO)
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Learning Objectives

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Learning Objectives

  • 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.

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Revision Notes & Summary

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Economic Reforms Since 1991

Introduction

  • Overview of India's mixed economy framework.
  • Discussion on the impact of policies on growth and development.

Background of Economic Reforms

  • Economic crisis in 1991 due to external debt and insufficient foreign exchange reserves.
  • Government's inability to manage expenditure and revenue.
  • Introduction of New Economic Policy (NEP) as a response to the crisis.

Key Components of NEP

  • Stabilisation Measures: Short-term measures to correct balance of payments and control inflation.
  • Structural Reform Measures: Long-term measures to improve efficiency and international competitiveness.

Liberalisation

  • Removal of restrictions on various sectors to promote growth.
  • Deregulation of the industrial sector, including:
    • Abolishment of industrial licensing for most sectors.
    • Market determination of prices in most industries.

Financial Sector Reforms

  • Shift of the Reserve Bank of India (RBI) from regulator to facilitator.
  • Changes in norms and regulations governing financial institutions.

Impact of Reforms

  • Growth in GDP and various sectors:
    Sector1980-911992-20012002-072007-122012-132013-142021-22
    Agriculture3.63.32.33.21.54.24.8*
    Industry7.16.59.47.43.6512.7*
    Services6.78.27.8108.17.89.2*
    Total5.66.47.88.25.66.69.4
    *Data pertaining to Gross Value Added (GVA).

Conclusion

  • The reforms have had mixed results, with significant growth but also challenges in employment and social equity.
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Practice Test – MCQs, True/False

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Multiple Choice Questions

A.

By increasing the complexity of the tax system

B.

By creating a common national market for goods and commodities

C.

By reducing government revenue

D.

By increasing tax evasion
Correct Answer: B

Solution:

The introduction of GST aimed to create 'one nation, one tax and one market', facilitating a common national market for goods and commodities.

Chapter Concept:

Monetary and Fiscal Policy Changes

A.

They generated excessive employment opportunities

B.

They failed to generate sufficient employment opportunities

C.

They focused employment growth only in agriculture

D.

They led to a decline in service sector jobs
Correct Answer: B

Solution:

Despite GDP growth, the reforms were criticized for not generating enough employment opportunities across various sectors.

Chapter Concept:

Impact of Economic Reforms

A.

To increase government control over the economy

B.

To reduce government control and increase market efficiency

C.

To nationalize all private enterprises

D.

To restrict foreign investments
Correct Answer: B

Solution:

The liberalisation policies aimed at reducing government control and increasing market efficiency by deregulating various sectors.

Chapter Concept:

Liberalisation

A.

To regulate international monetary policies

B.

To establish a rule-based trading regime

C.

To provide financial aid to developing countries

D.

To manage global environmental policies
Correct Answer: B

Solution:

The WTO aims to establish a rule-based trading regime to ensure fair competition and market access.

Chapter Concept:

World Trade Organisation (WTO)

A.

By imposing strict import tariffs

B.

By establishing a rule-based trading regime

C.

By restricting foreign investments

D.

By promoting agricultural subsidies
Correct Answer: B

Solution:

The WTO aims to establish a rule-based trading regime, facilitating international trade and ensuring equal opportunities for all member countries.

Chapter Concept:

Globalisation

A.

To establish a rule-based trading regime ensuring fair competition and market access.

B.

To provide financial aid to developing countries.

C.

To regulate the foreign exchange rates of member countries.

D.

To promote cultural exchanges between member countries.
Correct Answer: A

Solution:

The WTO aims to establish a rule-based trading regime where nations cannot place arbitrary restrictions on trade, ensuring fair competition and market access.

Chapter Concept:

World Trade Organisation (WTO)

A.

By increasing tariffs on imported goods

B.

By promoting the adoption of modern technologies

C.

By restricting foreign investments

D.

By nationalizing private enterprises
Correct Answer: B

Solution:

The reforms aimed to improve the efficiency of local industries by promoting the adoption of modern technologies and increasing international competitiveness.

Chapter Concept:

Trade and Investment Policy Reforms

A.

By imposing strict environmental standards on all member countries.

B.

By facilitating international trade in goods and services that ensures optimal utilization of world resources.

C.

By providing financial incentives for countries to adopt green technologies.

D.

By banning trade in environmentally harmful products.
Correct Answer: B

Solution:

The WTO agreements include provisions to facilitate international trade in a manner that ensures the optimal utilization of world resources, indirectly supporting environmental protection.

Chapter Concept:

World Trade Organisation (WTO)

A.

Dismantling of quantitative restrictions on imports and exports

B.

Reduction of tariff rates

C.

Introduction of new import licensing procedures

D.

Removal of export duties to increase competitiveness
Correct Answer: C

Solution:

The trade policy reforms included dismantling quantitative restrictions, reducing tariff rates, and removing export duties, but not introducing new import licensing procedures.

Chapter Concept:

Trade and Investment Policy Reforms

A.

To increase international competitiveness by reducing trade barriers

B.

To increase government ownership in private enterprises

C.

To restrict foreign investments in the economy

D.

To maintain high tariffs on all imports
Correct Answer: A

Solution:

The trade and investment policy reforms aimed at increasing international competitiveness by reducing trade barriers and promoting foreign investment.

Chapter Concept:

Trade and Investment Policy Reforms

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Liberalisation: Privatisation and Globalisation - An Appraisal

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True or False

Correct Answer: True

Solution:

The reform policies aimed to reduce the role of the RBI from regulator to facilitator of the financial sector, allowing more autonomy to financial institutions.

Chapter Concept :

Monetary and Fiscal Policy Changes

Correct Answer: True

Solution:

Privatisation is defined as the reduction of government ownership in public sector enterprises through disinvestment, which includes the outright sale of these enterprises to improve financial discipline and facilitate modernisation.

Chapter Concept :

Privatisation

Correct Answer: True

Solution:

Liberalisation aimed at reducing government control and increasing market efficiency by deregulating the industrial sector, among other reforms.

Chapter Concept :

Liberalisation

Correct Answer: True

Solution:

Globalisation is defined as the integration of the economy of a country with the global economy, involving policies that promote interdependence and international trade.

Chapter Concept :

Globalisation

Correct Answer: True

Solution:

Globalisation is defined as the integration of the economy of a country with the world economy, involving policies that promote interdependence and international trade.

Chapter Concept :

Globalisation

Correct Answer: True

Solution:

The WTO was indeed founded in 1995 as the successor organisation to GATT, which was established in 1948.

Chapter Concept :

World Trade Organisation (WTO)

Correct Answer: True

Solution:

The WTO was indeed founded in 1995 as the successor to GATT, with the purpose of establishing a rule-based trading regime to ensure fair competition and market access.

Chapter Concept :

World Trade Organisation (WTO)

Correct Answer: True

Solution:

The reforms, which included liberalisation, privatisation, and globalisation, facilitated an increase in foreign direct investment and foreign exchange reserves, as indicated by the rise from about US 100millionin1990−91toUS100 million in 1990-91 to US 30 billion in 2017-18.

Chapter Concept :

Impact of Economic Reforms

Correct Answer: False

Solution:

The trade policy reforms aimed at dismantling quantitative restrictions on imports and exports, reducing tariff rates, and removing licensing procedures for imports.

Chapter Concept :

Trade and Investment Policy Reforms

Correct Answer: False

Solution:

Since 1991, there has been a reduction in taxes on individual incomes and corporation tax, which was aimed at reducing tax evasion by encouraging savings and voluntary disclosure.

Chapter Concept :

Monetary and Fiscal Policy Changes

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