Liberalisation, Privatisation and Globalisation

In 1991 India faced an economic crisis. Persistent fiscal deficits, rising prices and a balance of payments problem worsened when oil prices rose during the Gulf War. Foreign exchange reserves fell so low that they could pay for only about two weeks of imports. India approached the World Bank and the IMF for loans and announced the New Economic Policy. Stabilisation measures aimed to correct the balance of payments and control inflation, while structural reforms aimed to improve efficiency and competitiveness. The reforms are grouped under three heads: liberalisation, privatisation and globalisation. Liberalisation included abolishing industrial licensing for most industries, reforms of the financial sector with the RBI moving from regulator to facilitator, tax reforms, devaluation of the rupee, and trade and investment reforms such as lower tariffs and the removal of quantitative restrictions. Privatisation included disinvestment in public sector enterprises and the Navratna and Maharatna status. Globalisation covers outsourcing and India's membership of the World Trade Organisation, set up in 1995. The chapter ends with an appraisal of the reforms, demonetisation (2016) and GST (2017).

Detailed Worksheet: Liberalisation, Privatisation and Globalisation Section A - Definitions (10 marks) 1. What were the main causes of the economic crisis of 1991? (2 marks) 2. Distinguish between stabilisation and structural reform measures. (2 marks) 3. What is disinvestment? (2 marks) 4. What is outsourcing? Give one example. (2 marks) 5. What is the World Trade Organisation? When was it set up? (2 marks) Section B - Calculations and Applications (15 marks) 6. In 1991, India's foreign exchange reserves were about 1.2 billion dollars, and monthly imports were about 2.4 billion dollars. Calculate how many weeks of imports the reserves could finance (take 1 month = 4 weeks). Why is this dangerous? (3 marks) 7. The government sold 10% of its shares in a public sector company valued at Rs 50,000 crore. Calculate the amount raised. If it holds 80% before the sale, what is its new holding? (3 marks) 8. In 1991, the rupee was devalued from about Rs 21 to Rs 26 per dollar. Calculate the percentage increase in the number of rupees per dollar. How does devaluation help exports? (3 marks) 9. India's GDP growth averaged 5.6% in 1980-91 and 6.4% in 1992-2001 (illustrative). Calculate the change in growth rate and the number of years needed for GDP to double at each rate using the rule of 70. (3 marks) 10. A firm's import of a machine costing 10,000 dollars faced a 150% tariff before reforms and 20% after. At Rs 70 per dollar, calculate the cost of the machine including tariff before and after. (3 marks) Section C - Diagrams (10 marks) 11. Draw a flowchart showing the components of the New Economic Policy of 1991. (4 marks) 12. Draw a bar diagram for illustrative GDP growth rates: agriculture 3.6%, industry 6.0%, services 7.5%. (3 marks) 13. Draw a flowchart showing how outsourcing benefits both the outsourcing country and India. (3 marks) Section D - Analysis and Higher-order Thinking (15 marks) 14. 'The reforms of 1991 had a positive impact on growth but neglected agriculture.' Explain this statement with reasons. (5 marks) 15. Explain the reforms in the financial sector, tax system and foreign exchange market after 1991. (5 marks) 16. Explain the arguments for and against privatisation and disinvestment of public sector enterprises. What are Navratnas and Maharatnas? (5 marks) Instructions: Time allowed 2 hours. Attempt all sections. Show the steps of all calculations. Data marked illustrative are for practice only.