UNIT

UNIT
II
III

ECONOMIC REFORMS
SINCE 1991

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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.

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3

LIBERALISATION, PRIVATISATION
AND
GLOBALISATION: AN APPRAISAL

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.

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 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

3.1 I NTRODUCTION policy measures which changed the

direction of our developmental
You have studied in the previous
strategies. In this chapter, we will
chapter that, since independence,
look at the background of the crisis,
India followed the mixed economy
measures that the government has
framework by combining the
adopted and their impact on various
advantages of the capitalist economic
sectors of the economy.
system with those of the socialist
economic system. Some scholars argue
3.2 BACKGROUND
that, over the years, this policy resulted
in the establishment of a variety of The origin of the financial crisis can
rules and laws, which were aimed at be traced from the inefficient
controlling and regulating the management of the Indian economy
economy, ended up instead in in the 1980s. We know that for
hampering the process of growth and implementing various policies and
development. Others state that India, its general administration, the
which started its developmental path government generates funds from
from near stagnation, has since been various sources such as taxation,
able to achieve growth in savings, running of public sector enterprises
developed a diversified industrial etc. When expenditure is more than
sector which produces a variety of income, the government borrows to
goods and has experienced sustained finance the deficit from banks and
expansion of agricultural output also from people within the country
which has ensured food security. and from international financial
In 1991, India met with an institutions. When we import goods
economic crisis relating to its external like petroleum, we pay in dollars
debt — the government was not which we earn from our exports.
able to make repayments on its Development policies required that
borrowings from abroad; foreign even though the revenues were
exchange reserves, which we very low, the government had
generally maintain to import petroleum to overshoot its revenue to meet
and other important items, dropped challenges like unemployment,
to levels that were not sufficient for poverty and population explosion. The
even a fortnight. The crisis was continued spending on development
further compounded by rising prices programmes of the government did not
of essential goods. All these led the generate additional revenue. Moreover,
government to introduce a new set of the government was not able to

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 39

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generate sufficiently from internal and received $7 billion as loan to
sources such as taxation. When the manage the crisis. For availing the
government was spending a large loan, these international agencies
share of its income on areas which do expected India to liberalise and open
not provide immediate returns such as up the economy by removing
the social sector and defence, there was restrictions on the private sector,
a need to utilise the rest of its revenue reduce the role of the government in
in a highly efficient manner. The many areas and remove trade
income from public sector restrictions between India and other
undertakings was also not very high to countries.
meet the growing expenditure. At India agreed to the conditionalities
times, our f o r e i g n e x c h a n g e , of World Bank and IMF and
borrowed from other countries and announced the New Economic Policy
international financial institutions, (NEP). The NEP consisted of wide
was spent on meeting consumption ranging economic reforms. The
needs. Neither was an attempt made to thrust of the policies was towards
reduce such profligate spending nor creating a more competitive
sufficient attention was given to boost environment in the economy and
exports to pay for the growing imports. removing the barriers to entry and
In the late 1980s, government growth of firms. This set of policies
expenditure began to exceed its can broadly be classified into two
revenue by such large margins that groups: the stabilisation measures
meeting the expenditure through and the structural reform measures.
borrowings became unsustainable. Stabilisation measures are short-
Prices of many essential goods rose term measures, intended to correct
sharply. Imports grew at a very high some of the weaknesses that have
rate without matching growth of developed in the balance of
exports. As pointed out earlier, foreign payments and to bring inflation
exchange reserves declined to a level under control. In simple words, this
that was not adequate to finance means that there was a need to
imports for more than two weeks. maintain sufficient foreign exchange
There was also not sufficient foreign reserves and keep the rising prices
exchange to pay the interest that under control. On the other hand,
needed to be paid to international structural reform policies are long-term
lenders. Also no country or international measures, aimed at improving the
funder was willing to lend to India. efficiency of the economy and increasing
India approached the International its international competitiveness by
Bank for Reconstruction and removing the rigidities in various
Development (IBRD), popularly segments of the Indian economy. The
known as World Bank and the government initiated a variety of
International Monetary Fund (IMF), policies which fall under three heads

40 INDIAN ECONOMIC DEVELOPMENT

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viz., liberalisation, privatisation and The reform policies introduced in
globalisation. and after 1991 removed many of
these restrictions. Industrial
3.3 L IBERALISATION licensing was abolished for almost all
As pointed out in the beginning, but product categories — alcohol,
cigarettes, hazardous chemicals,
rules and laws which were aimed at
industrial explosives, electronics,
regulating the economic activities
aerospace and drugs and pharma-
became major hindrances in growth
ceuticals. The only industries which
and development. Liberalisation was
are now reserved for the public sector
introduced to put an end to these
a r e a part of a t o m i c e n e r g y
restrictions and open various sectors
generation and some core activities
of the economy. Though a few
in railway transport. Many goods
liberalisation measures were
produced by small-scale industries
introduced in 1980s in areas of
have now been dereserved. In most
industrial licensing, export-import
industries, the market has been
policy, technology upgradation,
allowed to determine the prices.
fiscal policy and foreign investment,
reform policies initiated in 1991 were Financial Sector Reforms:
more comprehensive. Let us study Financial sector includes financial
some important areas, such as the institutions, such as commercial
industrial sector, financial sector, tax banks, investment banks, stock
reforms, foreign exchange markets exchange operations and foreign
and trade and investment sectors exchange market. The financial
which received greater attention in sector in India is regulated by the
and after 1991. Reserve Bank of India (RBI). You may
be aware that all banks and other
Deregulation of Industrial Sector: In financial institutions in India are
India, regulatory mechanisms were regulated through various norms and
enforced in various ways (i) industrial regulations of the RBI. The RBI
licensing under which every entrepreneur decides the amount of money that
had to get permission from government the banks can keep with themselves,
officials to start a firm, close a firm fixes interest rates, nature of lending
or decide the amount of goods to various sectors, etc. One of the
that could be produced (ii) private major aims of financial sector reforms
sector was not allowed in many is to reduce the role of RBI from
industries (iii) some goods could be regulator to facilitator of financial
produced only in small-scale industries, sector. This means that the financial
and (iv) controls on price fixation and sector may be allowed to take
distribution of selected industrial decisions on many matters without
products. consulting the RBI.

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 41

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 The reform policies led to the establishment of a common national
establishment of private sector banks, market for goods and commodities.
Indian as well as foreign. Foreign In the year 2016, Indian constitution
investment limit in banks was raised to was amended to empower state
around 74 per cent. Those banks which governments and union Government to
fulfil certain conditions have been given come out with laws to impose Goods
freedom to set up new branches and Services Tax. This has led to
without the approval of the RBI and introduction of GST in India. This is
rationalise their existing branch expected to generate additional revenue
networks. Though banks have been for the government, reduce tax evasion
given permission to generate resources and create ‘one nation, one tax and one
from India and abroad, certain market’. Another component of reform
managerial aspects have been retained in this area is simplification. In order
with the RBI to safeguard the interests to encourage better compliance on the
of the account-holders and the nation. part of taxpayers, many procedures
Foreign Institutional Investors (FII), have been simplified and the rates also
such as merchant bankers, mutual substantially lowered.
funds and pension funds, are now
allowed to invest in Indian financial Foreign Exchange Reforms: The first
markets. important reform in the external sector
was made in the foreign exchange
Tax Reforms: Tax reforms are market. In 1991, as an immediate
concerned with the reforms in the measure to resolve the balance of
government’s taxation and public payments crisis, the rupee was
expenditure policies, which are devalued against foreign currencies.
collectively known as its fiscal policy. This led to an increase in the inflow of
There are two types of taxes: direct and foreign exchange. It also set the tone to
indirect. Direct taxes consist of taxes free the determination of rupee value
on incomes of individuals, as well as, in the foreign exchange market from
profits of business enterprises. Since government control. Now, more often
1991, there has been a continuous than not, markets determine exchange
reduction in the taxes on individual rates based on the demand and supply
incomes as it was felt that high rates of of foreign exchange.
income tax were an important reason
for tax evasion. It is now widely Trade and Investment Policy
accepted that moderate rates of income Reforms: Liberalisation of trade and
tax encourage savings and voluntary investment regime was initiated to
disclosure of income. The rate of increase international competitiveness of
corporation tax, which was very high industrial production and also foreign
earlier, has been gradually reduced. investments and technology into the
Efforts have also been made to reform economy. The aim was also to promote
the indirect taxes, taxes levied on the efficiency of local industries and
commodities, in order to facilitate the adoption of modern technologies.

42 INDIAN ECONOMIC DEVELOPMENT

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 In order to protect domestic of tariff rates and (iii) removal of
industries, India was following a regime licensing procedures for imports.
of quantitative restrictions on Import licensing was abolished except
imports. This was encouraged through in case of hazardous and
tight control over imports and by environmentally sensitive industries.
keeping the tariffs very high. These Quantitative restrictions on imports of
policies reduced efficiency and manufactured consumer goods and
competitiveness which led to slow agricultural products were also fully
growth of the manufacturing sector. removed from April 2001. Export
The trade policy reforms aimed at (i) duties have been removed to increase
dismantling of quantitative restrictions the competitive position of Indian goods
on imports and exports (ii) reduction in the international markets.

Work These Out

Ø Give an example each of nationalised bank, private bank, private foreign

bank, FII and a mutual fund.
Ø Visit a bank in your locality with your parents. Observe and find out the
functions it performs. Discuss the same with your classmates and prepare
a chart on it.
Ø Find out from your parents if they pay taxes. If yes, why do they do so and
how?
Ø Do you know that for a very long time countries used to keep silver and gold
as reserves to make payments abroad? Find out in what form do we keep
our foreign exchange reserves and find out from newspapers, magazines
and the Economic Survey how much foreign exchange reserves India had
during the last year. Also find the foreign currency of the following countries
and its latest rupee exchange rate.

Country Currency Value of 1(one) unit of foreign

currency in Indian rupee
U.S.A.
U.K.
Japan
China
Korea
Singapore
Germany

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 43

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3.4 PRIVATISATION Privatisation of the public sector
It implies shedding of the ownership enterprises by selling off part of the
or management of a government equity of PSEs to the public is known
o w n e d e n t e r p r i s e. G o v e r n m e n t as disinvestment. The purpose of the
companies are converted into private sale, according to the government,
c o m p a n i e s i n t w o w a y s ( i) b y was mainly to improve financial
withdrawal of the government from discipline and facilitate modernisation.
ownership and management of It was also envisaged that private
public sector companies and or (ii) by capital and managerial capabilities
outright sale of public sector could be effectively utilised to
companies. improve the performance of the PSUs.

Box 3.1: Navratnas and Public Enterprise Policies

You must have read in your childhood about the famous Navratnas or Nine
Jewels in the Imperial Court of King Vikramaditya who were eminent persons
of excellence in the fields of art, literature and knowledge. In order to improve
efficiency, infuse professionalism and enable them to compete more effectively
in the liberalised global environment, the government identifies PSEs and
declare them as maharatnas, navratnas and miniratnas. They were given greater
managerial and operational autonomy, in taking various decisions to run the
company efficiently and thus increase their profits. Greater operational,
financial and managerial autonomy has also been granted to profit-making
enterprises referred to as miniratnas.
The Central Public Sector Enterprises are designated with different status.
A few examples of public enterprises with their status are as follows:
(i) Maharatnas – (a) Indian Oil Corporation Limited, and (b) Steel Authority of
India Limited, (ii) Navratnas – (a) Hindustan Aeronautics Limited,
(b) Mahanagar Telephone Nigam Limited; and (iii) Miniratnas – (a) Bharat
Sanchar Nigam Limited; (b) Airport Authority of India and (c) Indian Railway
Catering and Tourism Corporation Limited.
Many of these profitable PSEs were originally formed during the 1950s
and 1960s when self-reliance was an important element of public policy. They
were set up with the intention of providing infrastructure and direct employment
to the public so that quality end-product reaches the masses at a nominal
cost and the companies themselves were made accountable to all stakeholders.
The granting of status resulted in better performance of these companies.
Scholars allege that instead of facilitating public enterprises in their expansion
and enabling them to become global players, the government partly privatised
them through disinvesment. Of late, the government has decided to retain
them in the public sector and enable them to expand themselves in the global
markets and raise resources by themselves from financial markets.

44 INDIAN ECONOMIC DEVELOPMENT

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 Work These Out

Ø Some scholars refer to disinvestment as the wave of privatisation spreading

all over the world to improve the performance of public sector enterprises
whereas others call it as outright sale of public property to the vested
interests. What do you think?
Ø Prepare a poster which contains 10-15 news clippings which you consider
as important and relating to navaratnas from newspapers. Also collect the
logos and advertisements of these PSEs. Put these on the notice board and
discuss them in the classroom.
Ø Do you think only loss making companies should be privatised? Why?
Ø Losses incurred by public sector enterprises are to be met out of the public
budget. Do you agree with this statement? Discuss.

The government envisaged that links in such a way that the

privatisation could provide strong happenings in India can be influenced
impetus to the inflow of FDI. by events happening miles away. It is
The government has also made turning the world into one whole or
attempts to improve the efficiency of creating a borderless world.
PSUs by giving them autonomy
Outsourcing: This is one of the
in taking managerial decisions. For
important outcomes of the
instance, some PSUs have been
globalisation process. In outsourcing,
granted special status as maharatnas,
a company hires regular service from
navratnas and miniratnas (see
external sources, mostly from other
Box 3.1).
countries, which was previously
provided internally or from within the
3.5 G LOBALISATION
country (like legal advice, computer
Although globalisation is generally service, advertisement, security —
understood to mean integration of the each provided by respective
economy of the country with the world departments of the company). As a
economy, it is a complex phenomenon. form of economic activity, outsourcing
It is an outcome of the set of various has intensified, in recent times,
policies that are aimed at transforming because of the growth of fast modes
the world towards greater of communication, particularly the
interdependence and integration. It growth of Information Technology
involves creation of networks and (IT). Many of the services such as
activities transcending economic, social voice-based business processes
and geographical boundaries. (popularly known as BPO or
Globalisation attempts to establish call centres), record keeping,

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 Box 3.2: Global Footprint!
Owing to globalisation, you might find many Indian companies have expanded
their wings to many other countries. For example, ONGC Videsh, a subsidiary of
the Indian public sector enterprise, Oil and Natural Gas Corporation engaged in
oil and gas exploration and production has projects in 16 countries. Tata Steel, a
private company established in 1907, is one of the top ten global steel companies
in the world which have operations in 26 countries and sell its products in 50
countries. It employs nearly 50,000 persons in other countries. HCL Technologies,
one of the top five IT companies in India has offices in 31 countries and employs
about 15,000 persons abroad. Dr Reddy's Laboratories, initially was a small
company supplying pharmaceutical goods to big Indian companies, today has
manufacturing plants and research centres across the world.
Source: www.rediff.com accessed on 14.10.2014.

accountancy, banking services, music be availed at a cheaper cost with

recording, film editing, book reasonable degree of skill and
transcription, clinical advice or even accuracy. The low wage rates and
teaching are being outsourced by availability of skilled manpower in
companies in developed countries to India have made it a destination for
India. With the help of modern global outsourcing in the post-reform
telecommunication links including the period.
Internet, the text, voice and visual data
in respect of these services is digitised World Trade Organisation (WTO):
and transmitted in real time over The WTO was founded in 1995 as
continents and national boundaries. the successor organisation to the
Most multinational corporations, and General Agreement on Trade and
even small companies, are outsourcing Tariff (GATT). GATT was established
their services to India where they can in 1948 with 23 countries as the
global trade organisation
to administer all
multilateral trade
agreements by providing
equal opportunities to
all countries in the
international market for
trading purposes. WTO is
expected to establish a
rule-based trading regime
in which nations cannot
place arbitrary restrictions
on trade. In addition, its
Fig. 3.1 Outsourcing: a new employment opportunity in big cities purpose is also to enlarge

46 INDIAN ECONOMIC DEVELOPMENT

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 Work These Out

Ø Many scholars argue that globalisation is a threat as it reduces the role of

the government in many sectors. Some counter argue that it is an
opportunity as it opens up markets to compete in and capture. Debate in
the classroom.

Ø Prepare a chart consisting of a list of five companies that have BPO services
in India, along with their turnover.

Ø Did you attend online classes or watched videos of your teachers or any
other teacher taking classes during the last year through television, mobile
phone or computers due to Covid 19 Pandemic? Share your experiences
related to information technology.

Ø Is employment in call centres sustainable? What kinds of skills should people

working in call centres acquire to get a regular income?

Ø If the multinational companies outsource many services to countries like

India because of cheap manpower, what will happen to people living in the
countries where the companies are located? Discuss.

production and trade of services, to As an important member of

ensure optimum utilisation of world WTO, India has been in the forefront
resources and to protect the of framing fair global rules,
environment. The WTO agreements regulations and safeguards and
cover trade in goods as well as services advocating the interests of the
to facilitate international trade developing world. India has kept its
(bilateral and multilateral) through commitments towards liberalisation
removal of tariff as well as non-tariff of trade, made in the WTO, by
barriers and providing greater market removing quantitative restrictions on
access to all member countries. imports and reducing tariff rates.

TABLE 3.1
Growth of GDP and Major Sectors (in %)

Sector 1980-91 1992-2001 2002-07 2007-12 2012-13 2013-14 2014-15

Agriculture 3.6 3.3 2.3 3.2 1.5 4.2 – 0.2*
Industry 7.1 6.5 9.4 7.4 3.6 5 7.0*
Services 6.7 8.2 7.8 10 8.1 7.8 9.8*
Total 5.6 6.4 7.8 8.2 5.6 6.6 7.4
Source: Economic Survey for various years, Ministry of Finance, Government of India.
Note: *Data pertaining to Gross Value Added (GVA). The GVA is estimated from GDP by adding
subsidies on production and subtracting indirect taxes.

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 47

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 Some scholars question the period, the growth of agriculture has
usefulness of India being a member of declined. While the industrial sector
the WTO as a major volume of reported fluctuation, the growth of the
international trade occurs among the service sector has gone up. This
developed nations. They also say that indicates that GDP growth is mainly
while developed countries file driven by growth in the service sector.
complaints over agricultural subsidies During 2012-15, there has been a
given in their countries, developing setback in the growth rates of different
countries feel cheated as they are forced sectors witnessed post–1991. While
to open their markets for developed agriculture recorded a high growth rate
during 2013–14, this sector witnessed
countries but are not allowed access to
negative growth in the subsequent
the markets of developed countries.
year. While the service sector
What do you think?
continued to witness a high level of
growth — higher than the overall GDP
growth in 2014–15, this sector
witnessed the high growth rate of 9.8
per cent. The industrial sector
witnessed a steep decline during 2012–
13, in the subsequent years it began
to show a continuous positive growth.
The opening of the economy has
led to a rapid increase in foreign direct
investment and foreign exchange
Fig. 3.2 IT industry is seen as a major contributor reserves. The foreign investment,
to India’s exports which includes foreign direct
3.6 INDIAN ECONOMY DURING investment (FDI) and foreign
institutional investment (FII), has
R EFORMS: AN A SSESSMENT
increased from about US $100 million
The reform process has completed in 1990-91 to US $ 30 billion in
three decades since its introduction. 2017-18. There has been an increase
Let us now look at the performance in the foreign exchange reserves from
of the Indian economy during this about US $ 6 billion in 1990-91 to
period. In economics, the growth of about US $ 413 billion in 2018-19.
an economy is measured by the Gross India is one of the largest foreign
Domestic Product. Look at Table 3.1. exchange reserve holders in the world.
The post–1991 India witnessed a Since 1991, India is seen as a
rapid growth in GDP on a continual successful exporter of auto parts,
basis for two decades. The growth pharmaceutical goods engineering
of GDP increased from 5.6 per cent goods, IT software and textiles. Rising
during 1980–91 to 8.2 per cent prices have also been kept under
during 2007–12. During the reform control.

48 INDIAN ECONOMIC DEVELOPMENT

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 Work These Out

Ø In the previous chapter, you might have studied about subsidies in various
sectors, including agriculture. Some scholars argue that subsidy in agriculture
should be removed to make the sector internationally competitive. Do you
agree? If so, how can it be done? Discuss in class.

Ø Read the following passage and discuss in class.

Groundnut is a major oilseed crop in Andhra Pradesh. Mahadeva,
who was a farmer in Anantpur district of Andhra Pradesh, used to spend
Rs. 10,000 for growing groundnut on his plot of half an acre. The cost
included expenditure on raw material (seeds, fertilisers, etc.), labour,
bullock power and machinery used. On an average, Mahadeva used to get
two quintals of groundnut, and each quintal was sold for Rs. 7,000.
Mahadeva, thus, was spending Rs. 10,000 and getting an income of Rs.
14,000. Anantpur district is a drought-prone area. As a result of economic
reforms, the government did not undertake any major irrigation project.
Recently, groundnut crop in Anantpur is facing problems due to crop
disease. Research and extension work has gone down due to lower
government expenditure. Mahadeva and his friends brought this matter
repeatedly to the notice of the government officials entrusted with this
responsibility, but failed. Subsidy was reduced on material (seeds,
fertilisers) which increased Mahadeva’s cost of cultivation. Moreover, the
local markets were flooded with cheap imported edible oils, which was a
result of removal of restriction on imports. Mahadeva was not able to sell
his groundnut in the market as he was not getting the price to cover
his cost.
What could be done to farmers like Mahadeva from incurring losses?
Discuss in the class.

On the other hand, the reform Growth and Employment: Though

process has been widely criticised the GDP growth rate has increased in
for not being able to address some the reform period, scholars point out
of the basic problems facing our that the reform-led growth has not
economy especially in areas of generated sufficient employment
employment, agriculture, industry, opportunities in the country. You will
infrastructure development and fiscal study the link between different aspects
management.
of employment and growth in the
next unit.

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Reforms in Agriculture: Reforms infrastructure etc. In a globalised
have not been able to benefit world, developing countries are
agriculture, where the growth rate has compelled to open up their economies
been decelerating. to greater flow of goods and capital
Since 1991, public investment in from developed countries and
agriculture sector especially in rendering their industries vulnerable
infrastructure, which includes to imported goods. Cheaper imports
irrigation, power, roads, market have, thus, replaced the demand
linkages and research and extension for domestic goods. Domestic
(which played a crucial role in the manufacturers are facing competition
from imports. The infrastructure
Green Revolution), has fallen. Further,
facilities, including power supply,
the partial removal of fertiliser subsidy
have remained inadequate due to lack
has led to increase in the cost of
of investment. Globalisation is, thus,
production, which has severely
often seen as creating conditions for
affected the small and marginal
the free movement of goods and
farmers. This sector has been services from foreign countries that
experiencing a number of policy adversely affect the local industries
changes such as reduction in import and employment opportunities in
duties on agricultural products, low developing countries.
minimum support price and lifting of Moreover, a developing country
quantitative restrictions on the imports like India still does not have the access
of agricultural products. These have to developed countries’ markets
adversely affected Indian farmers as because of high non-tariff barriers. For
they now have to face increased example, although all quota
international competition. restrictions on exports of textiles and
Moreover, because of export- clothing have been removed in India,
oriented policy strategies in agriculture, USA has not removed their quota
there has been a shift from production restriction on import of textiles from
for the domestic market towards India and China.
production for the export market
focusing on cash crops in lieu of Disinvestment: Every year, the
production of food grains. This puts government fixes a target for
pressure on prices of food grains. disinvestment of PSEs. For instance,
in 1991-92, it was targeted to mobilise
Reforms in Industry: Industrial Rs 2500 crore through disinvestment.
growth has also recorded a slowdown. The government was able to mobilise
This is because of decreasing demand ` 3,040 crore more than the target.
of industrial products due to In 2017–18, the target was about
various reasons such as cheaper ` 1,00,000 crore, and the achievement
imports, inadequate investment in was about ` 1,00,057 crore. Critics

50 INDIAN ECONOMIC DEVELOPMENT

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point out that the assets of PSEs have the reform policies, involving tariff
been undervalued and sold to the reduction, have curtailed the scope for
private sector. This means that there raising revenue through custom duties.
has been a substantial loss to the In order to attract foreign investment,
government and the outright sale of tax incentives are provided to foreign
public assets! Moreover, the proceeds investors which further reduced the
from disinvestment are used to offset scope for raising tax revenues. This has
the shortage of government revenues a negative impact on developmental and
rather than using it for the welfare expenditures.
development of PSEs and building
social infrastructure in the country. 3.7 CONCLUSION
Do you think selling a part of the
properties of government companies The process of globalisation through
is the best way to improve their liberalisation and privatisation policies
efficiency? has produced positive, as well as,
negative results both for India and
Reforms and Fiscal Policies: other countries. Some scholars argue
Economic reforms have placed limits that globalisation should be seen as
on the growth of public expenditure, an opportunity in terms of greater
especially in social sectors. The tax access to global markets, high
reductions in the reform period, aimed technology and increased possibility of
at yielding larger revenue and curb tax large industries of developing
evasion, have not resulted in increase countries to become important
in tax revenue for the government. Also, players in the international arena.

Box 3.3: Siricilla Tragedy!

Power sector reforms in many Indian states led to do away with the supply of
electricity at subsidised rates and steep rise in power tariff. This has affected
workers engaged in small industries. Powerloom textile industry in Andhra
Pradesh is an example. Since the wages of the powerloom workers are linked
to the production of cloth, power cut means cut in wages of weavers, who
were already suffering from hike in tariff. A few years ago, this led to a crisis
in the livelihood of the weavers and 50 powerloom workers committed suicide
in a small town called ‘Siricilla’ in Andhra Pradesh.
Ø Do you think the power tariff should not be raised?
Ø What would be your suggestions to revive small industries affected by
reforms?

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 On the contrary, the critics argue initiated as a response to the crisis
that globalisation is a strategy of the by the government, with externally
developed countries to expand their advised policy package, further
markets in other countries. According aggravated the inequalities. Further,
to them, it has compromised the it has increased the income and
welfare and identity of people quality of consumption of only high-
belonging to poor countries. It has income groups and the growth has
further been pointed out that market- been concentrated only in
driven globalisation has widened the some select areas in the services sector
economic disparities among nations such as telecommunication,
and people. information technology, finance,
Viewed from the Indian context, entertainment, travel and hospitality
some studies have stated that the services, real estate and trade,
crisis that erupted in the early 1990s rather than vital sectors such as
was basically an outcome of the deep- agriculture and industry which
rooted inequalities in Indian society provide livelihoods to millions of
and the economic reform policies people in the country.

Recap
Ø The economy was facing problems of declining foreign exchange, growing
imports without matching rise in exports and high inflation. India changed
its economic policies in 1991 due to a financial crisis and pressure from
international organisations like the World Bank and IMF.
Ø In the domestic economy, major reforms were undertaken in the industrial
and financial sectors. Major external sector reforms included foreign
exchange deregulations and import liberalisation.
Ø With a view to improving the performance of the public sector, there was a
consensus on reducing its role and opening it up to the private sector. This
was done through disinvestment and liberalisation measures.
Ø Globalisation is the outcome of the policies of liberalisation and privatisation.
It means an integration of the economy of the country with the world economy.
Ø Outsourcing is emerging as a major activity in industrial and service
sectors.
Ø The objective of the WTO is to establish a rule based trade regime to ensure
optimum utilisation of world resources.
Ø During the reforms, growth of agriculture and industry has gone down but
the service sector has registered growth.
Ø Reforms have not benefited the agriculture sector. There has also been a
decline in public investment in this sector.
Ø Industrial sector growth has slowed down due to availability of cheaper
imports and lower investment.

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 EXERCISES

1. Why were reforms introduced in India?

2. Why is it necessary to became a member of WTO?
3. Why did RBI have to change its role from controller to facilitator of
financial sector in India?
4. How is 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.

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 SUGGESTED ADDITIONAL ACTIVITIES

1. The table given below shows the GDP growth rate at 2004-05
prices. You have studied about the techniques of presentation
of data in your Statistics for Economics course. Draw a time
series line graph based on the data given in the table and inter-
pret the same.

Year GDP Growth Rate (%)

2005-06 9.5
2006-07 9.6
2007-08 9.3
2008-09 6.7
2009-10 8.6
2010-11 8.9
2011-12 6.7
2012-13 5.4
2013-14 6.4
2014-15 7.4

2. Observe around you — you will find State Electricity Boards

(SEBs), BSES and many public and private organisations sup-
plying electricity in different states and union territories. There are
private buses on roads alongside the goverment bus services and
so on.
(i) What do you think about this dual system of the co-existence
of public and private sectors?
(ii) What are the merits and demerits of such a dual system?
Discuss.
3. With the help of your parents and grandparents prepare a list of
multinational companies that existed in India at the time of
independence. Now put a (ü ) mark against those which are still
growing and a (×) against those which do not exist any more. Are
there any companies whose names have changed? Find out the
new names, the country of origin, nature of product, logo and
prepare charts and display in your class.

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 4. Give appropriate examples for the following:

Nature of Product Name of a Foreign Company

Biscuits
Shoes
Computers
Cars
TV and Refrigerators
Stationery

Now, find out if these companies which are mentioned above existed in
India before 1991, or came after the New Economic Policy. For this, take
the help of your teacher, parents, grandparents and shopkeepers.
5. Collect a few relevant newspaper cuttings and from the internet
on meetings organised by WTO. Discuss the issues debated in
these meetings, and find out how WTO facilitates world trade.
6. Was it necessary for India to introduce economic reforms at the
behest of World Bank and International Monetary Fund? Was there
no alternative for the government to solve the balance of pay-
ments crisis? Discuss in the classroom.

REFERENCES

Books

ACHARYA, S. 2003. India’s Economy: Some Issues and Answers. Academic

Foundation, New Delhi.
ALTERNATIVE SURVEY GROUP. 2005. Alternative Economic Survey, India 2004–05,
Disequalising Growth. Daanish Books, Delhi.
AHLUWALIA , I.J. and I.M.D. L ITTLE . 1998. India’s Economic Reforms and
Development. Oxford University Press, New Delhi.
BARDHAN , PRANAB. 1998. The Political Economy of Development in India.
Oxford University Press, Delhi.
BHADURI, AMIT and D EEPAK N AYYAR . 1996. The Intelligent Person’s Guide to
Liberalisation. Penguin, Delhi.
BHAGWATI, J AGDISH. 1992. India in Transition: Freeing the Economy. Oxford
University Press, Delhi.

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 BYRES, TERENCE J. 1997. The State, Development Planning and
Liberalisation in India. Oxford University Press, Delhi.
C HADHA, G.K. 1994. Policy Perspectives in Indian Economic Development.
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C HELLIAH, R AJA J. 1996. Towards Sustainable Growth: Essays in Fiscal
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D EBROY , B. and R AHUL M UKHERJI (Eds.). 2004. The Political Economy of
Reforms. Bookwell Publication, New Delhi.
D REZE , J EAN and AMARTYA S EN. 1996. India: Economic Development and
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D UTT, RUDDAR AND K.P.M. SUNDARAM. 2005. Indian Economy. S. Chand and
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G UHA , A SHOK (Ed.) 1990. Economic Liberalisation, Industrial Structure
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J ALAN , B IMAL . 1993. India’s Economic Crisis: The Way Ahead. Oxford
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J ALAN , B IMAL . 1996. India’s Economic Policy: Preparing for the Twenty
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J OSHI , V IJAY and I.M.D. L ITTLE. 1996. India’s Economic Reforms 1991-2001.
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K APILA, Uma. 2020. Indian Economy: Performences and Policies. Academic
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M AHAJAN, V.S. 1994. Indian Economy Towards 2000 A.D. Deep & Deep,
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P AREKH , KIRIT and RADHAKRISHNA , 2002, India Development Report 2001-02.
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R AO, C.H. HANUMANTHA. and H ANS LINNEMANN. 1996. Economic Reforms and
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Government Reports and Websites
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Tenth Five Year Plan 1997-2002. Vol. 1. Government of India, Planning
Commission, New Delhi.
Appraisal Document of Twelfth Five Year Plan 2012-2017, NITI Aayog,
Government of India.
https://dipam.gov.in
Handbook of Statistics on Indian Economy, Reserve Bank of India for various
years, Mumbai.

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