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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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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

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 petrol 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

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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 needs under control. On the other hand,
to be paid to international lenders. structural reform policies are long-term
Also no country or international funder measures, aimed at improving the
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

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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
are a part of defence equipment,
restrictions and open various sectors
atomic energy generation and railway
of the economy. Though a few
transport. Many goods produced by
liberalisation measures were
small-scale industries have now been
introduced in 1980s in areas of
dereserved. In many industries, the
industrial licensing, export-import
market has been allowed to
policy, technology upgradation,
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.

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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 Another component of reforms in this
investment limit in banks was raised to area is simplification. In order to
around 50 per cent. Those banks which encourage better compliance on the
fulfil certain conditions have been given part of taxpayers many procedures
freedom to set up new branches have been simplified and the rates also
without the approval of the RBI and substantially lowered. Recently, the
rationalise their existing branch Parliament passed a law, Goods and
networks. Though banks have been Services Tax Act 2016, to simplify and
given permission to generate resources introduce a unified indirect tax system
from India and abroad, certain in India. This law came into effect from
managerial aspects have been retained July 2017. This is expected to generate
with the RBI to safeguard the interests additional revenue for the government,
of the account-holders and the nation. reduce tax evasion and create ‘one
Foreign Institutional Investors (FII), nation, one tax and one market’.
such as merchant bankers, mutual
funds and pension funds, are now Foreign Exchange Reforms: The first
allowed to invest in Indian financial important reform in the external sector
markets. was made in the foreign exchange
market. In 1991, as an immediate
Tax Reforms: Tax reforms are measure to resolve the balance of
concerned with the reforms in the payments crisis, the rupee was
government’s taxation and public
devalued against foreign currencies.
expenditure policies, which are
This led to an increase in the inflow of
collectively known as its fiscal policy.
foreign exchange. It also set the tone to
There are two types of taxes: direct and
free the determination of rupee value
indirect. Direct taxes consist of taxes
in the foreign exchange market from
on incomes of individuals, as well as,
government control. Now, more often
profits of business enterprises. Since
than not, markets determine exchange
1991, there has been a continuous
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.

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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 Classify the following as direct and indirect taxes: sales tax, custom duties,
property tax, death duties, VAT, income tax.
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 we have
today. Also find the foreign currency of the following countries and its 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

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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.

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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 happenings
privatisation could provide strong in India can be influenced by events
impetus to the inflow of FDI. happening miles away. It is turning the
The government has also made world into one whole or creating a
attempts to improve the efficiency of 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

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Work These Out

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

the state 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 Read this excerpt of a news item from a daily newspaper describing
something that is now becoming increasingly common.
“On a morning, a few minutes before 7 A.M., Greeshma sat in front of
her computer with her headset on and said in accented English ‘Hello,
Daniella’. Seconds later, she gets the reply, ‘Hello, Greeshma’. The two chatted
excitedly before Greeshma said that ‘we will work on pronouns today’.
Nothing unusual about this chat except that Greeshma, 22, was in Kochi
and her student Daniella, 13, was at her home in Malibu, California. Using
a simulated whiteboard on their computers, connected by the Internet, and
a copy of Daniella’s textbook in front of Greeshma, she guides the teenager
through the intricacies of nouns, adjectives and verbs. Greeshma, who grew
up speaking Malayalam, was teaching Daniella English grammar,
comprehension and writing.”
ü How has this become possible? Why can’t Daniella get lessons in her
own country? Why is she getting English lessons from India, where
English is not the mother tongue?
ü India is benefiting from liberalisation and integration of world markets.
Do you agree?
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 WTO,

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

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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 5.9
Services 6.7 8.2 7.8 10 8.1 7.8 10.3
Total 5.6 6.4 7.8 8.2 5.6 6.6 7.2
Source: Economic Survey for various years, Ministry of Finance, Government of India.
Note: *This is the latest year for which comparable data is available.
Some scholars question the performance of the Indian economy
usefulness of India being a member of during this period. In economics, the
the WTO as a major volume of growth of an economy is measured by
international trade occurs among the the Gross Domestic Product. Look at
developed nations. They also say that Table 3.1. The post–1991 India
while developed countries file witnessed a rapid growth in GDP on a
complaints over agricultural subsidies continual basis for two decades. The
given in their countries, developing growth of GDP increased from 5.6 per
countries feel cheated as they are forced cent during 1980–91 to 8.2 per cent
to open their markets for developed during 2007–12. During the reform
countries but are not allowed access to period, the growth of agriculture has
the markets of developed countries. declined. While the industrial sector
What do you think? reported fluctuation, the growth of the
service sector has gone up. This
indicates that this growth is mainly
driven by growth in the service sector.
During 2012-15, there has been a
setback in the growth rates of different
sectors witnessed post–1991. While
agriculture recorded a high growth rate
during 2013–14, this sector witnessed
negative growth in the subsequent year.
While the service sector continued to
witness a high level of growth — higher
than the overall GDP growth in 2014–
Fig. 3.2 IT industry is seen as a major contributor
15, this sector witnessed the highest-
to India’s exports
ever growth rate of 10.3 per cent. The
3.6 INDIAN ECONOMY DURING industrial sector witnessed a steep
R EFORMS: AN A SSESSMENT decline during 2012–13, it began to
The reform process has completed one- show a continuous positive growth.
and-a-half decades since its The opening of the economy has led
introduction. Let us now look at the to a rapid increase in foreign direct

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investment and foreign exchange India is seen as a successful exporter

reserves. The foreign investment, of auto parts, engineering goods, IT
which includes foreign direct software and textiles in the reform
investment (FDI) and foreign period. Rising prices have also been
institutional investment (FII), has kept under control.
increased from about US $100 million On the other hand, the reform
in 1990-91 to US $ 36 billion in process has been widely criticised
2016-17. There has been an increase for not being able to address some
in the foreign exchange reserves from of the basic problems facing our
about US $ 6 billion in 1990-91 to economy especially in areas of
about US $ 321 billion in 2014-15. employment, agriculture, industry,
India is one of the largest foreign infrastructure development and fiscal
exchange reserve holders in the world. management.

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 1,500
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 1,000. Mahadeva, thus, was spending Rs 1,500
and getting an income of Rs 2,000. 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.

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Growth and Employment: Though the Reforms in Industry: Industrial

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

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The government was able to mobilise evasion, have not resulted in increase
` 3,040 crore more than the target. In in tax revenue for the government. Also,
2017–18, the target was about the reform policies, involving tariff
` 1,00,000 crore, whereas, the reduction, have curtailed the scope for
achievement was about ` 1,00,057 raising revenue through custom duties.
crore. Critics point out that the assets In order to attract foreign investment,
of PSEs have been undervalued and tax incentives were provided to foreign
sold to the private sector. This means investors which further reduced the
that there has been a substantial loss scope for raising tax revenues. This has
to the government. Moreover, the a negative impact on developmental
proceeds from disinvestment were and welfare expenditures.
used to offset the shortage of
government revenues rather than
3.7 CONCLUSION
using it for the development of PSEs
and building social infrastructure in The process of globalisation through
the country. Do you think selling a part liberalisation and privatisation policies
of the properties of government has produced positive, as well as,
companies is the best way to improve negative results both for India and
their efficiency? other countries. Some scholars argue
that globalisation should be seen as
Reforms and Fiscal Policies: an opportunity in terms of greater
Economic reforms have placed limits on access to global markets, high
the growth of public expenditure, technology and increased possibility of
especially in social sectors. The tax large industries of developing
reductions in the reform period, aimed countries to become important players
at yielding larger revenue and curb tax 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. 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 policies initiated as a response to the

that globalisation is a strategy of the crisis by the government, with
developed countries to expand their externally advised policy package,
markets in other countries. According further aggravated the inequalities.
to them, it has compromised the Further, it has increased the income
welfare and identity of people and quality of consumption of only
belonging to poor countries. It has high-income groups and the growth
further been pointed out that has been concentrated only in
market-driven globalisation has some select areas in the services
widened the economic disparities sector such as telecommunication,
among nations 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 agriculture and industry which
deep-rooted inequalities in Indian provide livelihoods to millions of
society and the economic reform 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 an emerging business activity.
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 5.1
2013-14 7.4
2014-15 7.5

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

(SEBs), BSES and many public and private organisations sup-
plying electricity in a city and states. There are private buses on
roads along side 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 a chart for 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 on meetings organised
by WTO. Discuss the issues debated in these meetings and find
out how the organisation 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

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