NCERT Class 11 Economics LPG An Appraisal

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 market economic system with those of the planned 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 and instead ended up 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 petrol 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 problems 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 generate sufficiently from internal sources such as taxation. When the government was spendinga 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.

EXERCISES

1. Why were reforms introduced in India?

2. How many countries are members of the WTO?

3. What is the most important function of RBI?

4. How was RBI controlling the commercial banks?

5. What do you understand by devaluation of rupee?

6. Distinguish between the following

(i) Strategic and Minority sale

(ii) Bilateral and Multi-lateral trade

(iii) Tariff and Non-tariff barriers.

7. Why are tariffs imposed?

8. What is the meaning of quantitative restrictions?

9. Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why?

10. Do you think outsourcing is good for India? Why are developed countries opposing it?

11. India has certain advantages which makes it a favourite outsourcing destination. What are these advantages?

12. Do you think the navaratna policy of the government helps in improving the performance of public sector undertakings in India? How?

13. What are the major factors responsible for the high growth of the service sector?

14. Agriculture sector appears to be adversely affected by the reform process. Why?

15. Why has the industrial sector performed poorly in the reform period?

16. Discuss economic reforms in India in the light of social justice and welfare.

Please refer to attached file for NCERT Class 11 Economics LPG-An Appraisal