Liberalisation, Privatisation & Globalisation | Economics Class12 NCERT | Animation
Summary
TLDRThe video script explores India's economic transition from 1950 to 1990, highlighting the mixed economy and its limitations. It delves into the 1991 economic crisis, leading to the New Economic Policy which introduced liberalization, privatization, and globalization. The policy aimed to stabilize the economy through short-term measures and foster long-term growth through structural reforms, impacting sectors like industry, finance, and agriculture. The script also discusses the policy's outcomes, including increased GDP growth, foreign investment, and exports, alongside criticisms regarding unemployment, agricultural decline, and widening economic disparities.
Takeaways
- 📈 India adopted a mixed economy post-independence with policies that spurred some development but were criticized for not achieving optimal growth.
- 💡 The New Economic Policy of 1991 was introduced in response to a severe economic crisis, aiming to open up the economy and reduce the government's role.
- 🏦 The government faced a fiscal deficit in the 1980s, leading to high expenditure without sufficient income, resulting in increased borrowing and debt.
- 🌐 Foreign exchange reserves were depleted due to high imports, defense spending, and a lack of export focus, culminating in a critical economic juncture in 1991.
- 💼 The World Bank and IMF provided a bailout loan under conditions that required India to liberalize its economy and implement structural reforms.
- 🚀 The reforms were categorized into stabilization measures for short-term economic stability and structural reforms for long-term efficiency and competitiveness.
- 🔓 Liberalization involved deregulation and reduced restrictions on the private sector, allowing for more entrepreneurial freedom and market-driven pricing.
- 🏦 Financial sector reforms aimed to empower the RBI as a facilitator rather than a strict regulator, promoting competition and the entry of private banks.
- 💼 Privatization efforts sought to modernize and increase the efficiency of state-owned enterprises by transferring ownership to the private sector.
- 🌍 Globalization policies led to increased foreign investment and integration into the global market, with India becoming a significant exporter of various goods and services.
- 📉 Despite overall economic growth, the reforms were criticized for not adequately addressing issues in agriculture, employment, and infrastructure, and for widening economic disparities.
Q & A
What economic policy did India adopt from 1950 to 1990?
-India adopted a mixed economy policy during this period, which involved a combination of both public and private sectors.
What was the economic situation in India in 1991?
-In 1991, India faced a severe economic crisis, which led to the implementation of a new economic policy.
What were the main reasons for the economic crisis in the 1980s in India?
-The economic crisis was due to the government's inability to manage the economy properly, with high expenditures, low income generation, and a lack of focus on increasing exports.
What is the significance of foreign exchange reserves for a country?
-Foreign exchange reserves are crucial for a country as they are used to pay for imports and are a sign of economic stability. A lack of reserves can lead to economic vulnerability.
How did the Indian government address the economic crisis of 1991?
-The government addressed the crisis by implementing the New Economic Policy of 1991, which included opening up the economy, reducing government control, and liberalizing international trade.
What were the two main categories of reforms introduced in the New Economic Policy of 1991?
-The two main categories of reforms were stabilization measures, which focused on short-term changes to stabilize the economy, and structural reform measures, which aimed at long-term changes to increase efficiency and competitiveness.
What is meant by 'liberalization' in the context of the Indian economy?
-Liberalization refers to the removal or reduction of restrictions on the private sector, allowing for more freedom in business operations and reducing the need for government licenses.
How did the financial sector reforms in India impact the banking system?
-The financial sector reforms transformed the Reserve Bank of India from a regulator to a facilitator, allowing banks to make decisions independently as long as they served the interests of account holders and the nation.
What was the impact of the New Economic Policy on India's GDP growth rate?
-The GDP growth rate increased significantly after the reforms, with an overall growth rate of 5.6% between 1980 and 1991 rising to 8.2% between 2007 and 2012.
What criticisms have been raised regarding the New Economic Policy?
-Critics argue that the policy did not address basic issues such as employment, agriculture, industry, and infrastructure development, and that it increased economic disparity, benefiting the rich more than the poor.
How did the New Economic Policy affect India's international trade and foreign investment?
-The policy led to a rapid increase in foreign investment and a significant growth in India's exports, making India a successful exporter of various goods and services.
What was the role of the World Trade Organization (WTO) in the context of India's economic reforms?
-The WTO played a crucial role in administering global trade rules and regulations, promoting international trade, and ensuring fair access to international markets for its member countries, including India.
Outlines
📈 Economic Crisis and the 1991 Policy Reforms in India
The first paragraph discusses the economic policies of India from 1950 to 1990, which led to a mixed economy with debates on its effectiveness. It highlights food security and industrial diversification as achievements but also points to an economic crisis in 1991 due to poor management in the 1980s. The crisis was characterized by high government expenditure, low income from taxes and public sector enterprises, and high military spending due to wars. The foreign exchange reserves were depleted, leading to a loan from international financial institutions under the condition of economic liberalization. The New Economic Policy of 1991 aimed to stabilize the economy through short-term stabilization measures and long-term structural reforms, focusing on liberalization, privatization, and globalization.
🏭 Sectoral Reforms and Their Impact on the Indian Economy
The second paragraph delves into the specific reforms implemented in various sectors post-1991. Industrial deregulation removed the need for government permission for most industries, allowing the private sector to enter sectors previously reserved for the government. Price controls were relaxed, and financial sector reforms aimed to make the Reserve Bank of India a facilitator rather than a strict regulator. This led to the establishment of private banks and the entry of foreign institutional investors into the Indian financial market. Tax reforms included reductions in direct and indirect tax rates, and the simplification of the tax system with the introduction of GST. Foreign exchange reforms involved devaluing the Indian rupee to boost exports and allowing market forces to determine the exchange rate. Trade and investment policies were liberalized to increase competition and efficiency among Indian industries.
🌐 Globalization and Its Effects on Indian Industries and Economy
The third paragraph examines the effects of globalization, including the integration of the Indian economy with the global market, the rise of outsourcing, and the impact of multinational companies like Tata Steel. It discusses the role of the WTO in administering global trade rules and India's participation in it. The paragraph also presents data on India's economic growth post-reforms, highlighting the rapid increase in GDP, foreign investment, and foreign exchange reserves. However, it also points out criticisms of the reforms, such as insufficient job creation, a decline in agricultural growth, and the negative effects of liberalization on small farmers and domestic industries due to increased international competition.
📉 Critique of Reforms and the Disparity in Economic Growth
The final paragraph critiques the economic reforms, suggesting that while they led to overall economic growth, they did not address fundamental issues such as employment, agricultural development, and infrastructure. It discusses the negative consequences of globalization, such as increased economic disparity both within and between countries, and the challenges faced by domestic industries due to cheap imported goods. The paragraph also addresses the government's disinvestment strategy, tax revenue issues, and the use of disinvestment funds, arguing that these measures have not led to the desired outcomes in public welfare and development.
Mindmap
Keywords
💡Mixed Economy
💡Economic Crisis
💡Deficit
💡Foreign Exchange Reserves
💡New Economic Policy (1991)
💡Liberalization
💡Privatization
💡Globalization
💡Structural Reform
💡Balance of Payments
💡Disinvestment
💡Outsourcing
💡World Trade Organization (WTO)
Highlights
India adopted a mixed economy from 1950 to 1990 with policies that some scholars argue limited growth and development.
Despite limitations, there was significant development in food security and industrial diversification compared to the time of independence.
The New Economic Policy of 1991 was introduced in response to a severe economic crisis in India.
The economic crisis of the 1980s was characterized by mismanagement and a growing deficit due to high government expenditure and low income.
Government funds primarily came from taxes and public sector enterprises, which were insufficient to cover the growing deficit.
Wars with China and Pakistan contributed to increased defense spending and depletion of foreign exchange reserves.
The concept of foreign exchange reserves is explained, highlighting their importance for international trade.
India's foreign exchange reserves were critically low, leading to a loan from the World Bank and IMF under certain conditions.
The loan conditions required India to open its economy, reduce government control, and ease international trade restrictions.
The new economic policy focused on creating a competitive environment and removing barriers to industry growth.
Policies were divided into stabilization measures for short-term economic stability and structural reforms for long-term efficiency.
Liberalization involved removing restrictions on the private sector and deregulating the industrial sector.
Financial sector reforms aimed to make RBI a facilitator rather than a strict regulator, allowing more autonomy for banks.
Tax reforms included reducing direct and indirect tax rates to encourage compliance and increase government revenue.
Foreign exchange reforms devalued the Indian rupee to promote exports and allowed market forces to determine the exchange rate.
Trade and investment policy reforms reduced import restrictions and taxes to increase competition and efficiency in local industries.
Privatization involved converting government companies into private ones to modernize and improve efficiency.
Globalization and its effects, including outsourcing, are discussed, with India benefiting from access to global markets.
India's role in the WTO and the debate over its benefits and drawbacks for developing countries are examined.
The results of the reforms over three decades show increased GDP growth, foreign investment, and foreign exchange reserves.
Critiques of the reforms highlight the lack of sufficient job creation, negative impacts on agriculture, and increased economic disparity.
The conclusion acknowledges both the positive and negative outcomes of globalization policies in India.
Transcripts
In the last chapter, we
read the development from 1950 to 1990, in which we saw
that India adopted a mixed economy.
Some scholars say that due to the policies
brought during that time, growth and development did not happen as much as it
should have happened. And some of the same scholars say that
if compared with the condition of India at the time of independence,
there was a lot of development in between.
Food security was ensured and
industries also diversified.
In this chapter, we
will understand the New Economic Policy
of 1991 . If you haven't seen the previous videos then
there is a link to the playlist in the description, you can watch it from there.
In 1991, there was a huge economic crisis in India.
After which finally the government
had to bring a new economic policy.
First understand the background of the economy crisis.
It can be said that the government
could not manage the Indian economy properly in the 1980s and
this crisis originated from there.
We know that the government needs funds
to implement different policies
and for general administration . And these funds come,
for example, from taxes and from public sector enterprises,
that is, from the companies that are under the government.
When the expenditure of the government is more than the income,
then it is called deficit.
To meet these deficit, the government takes loans
either from the bank or from the people of the country or
from any international financial institutions. So during that time there were many expenses of the government
but that much income was not being generated.
To cure unemployment, poverty, population,
the government was running
many development policies.
He could not even be stopped because that too was necessary.
That much revenue was not being generated
from taxes and public sector enterprises
. Apart from this, wars with China in 1962, with Pakistan in 1965,
again with Pakistan in 1971. Because of all these wars,
a lot of money was being spent in the defense sector as well.
Foreign exchange reserves, which we
had maintained by borrowing from other countries and international financial institutions
, also
started being used for consumption purpose.
Neither the government was able to reduce these expenses
nor was paying special attention to increase exports.
Now first
let us understand the concept of foreign exchange reserve.
Central Bank of every country means RBI in the case of India
, such currency which
is easily acceptable in the global market means any country
should be ready to trade in use currency.
Like US dollar, japanese yen, euro,
all these currencies are kept with them.
It is used when we import something,
then in its payment. And how do these currencies come to us
? So by exporting more and more goods and services,
now we come back to the situation of 1980s.
Understand the situation, the expenses of the government were huge,
the income was not getting anything.
The government was not able to pay even the interest on
the loan taken from outside .
Petrol or other important items which
were not available in India also
had to be imported. He also needs money.
Export was nothing special that would help.
The result was that the foreign exchange reserves were reduced so much
that we could import only for two more weeks,
in such a situation no country or international funder
was even ready to give loan to India.
In the end, India
approached International Bank for reconstruction development, which means World Bank and International
Monetary Fund and
took a loan of 7 billion dollars from them.
The loan was given on the condition that India
will open its economy, which means it will remove the restrictions on the private sector
, reduce the role of the government,
and
also remove the restrictions on international trade like height tariff and fix quota.
Accepted Indian conditions and announced new economic policy.
In which the focus was to
create a competitive environment in the economy and
remove the barriers in the growth of industries.
These policies were divided into two groups.
Stabilization measures and Structural reform measures.
Stabilization measures were short term changes. By which
Let the situation become a little stable. Like controlling inflation,
and correcting whatever was wrong
with the balance of payment .
Countries maintain records of all their exports and imports,
that is called balance of payment.
On the other hand, structural reform
focused on long term changes, such as
increasing the efficiency of the economy, developing a competitive environment. We study
all the structural reforms in three categories.
liberalisation, privatization and globalisation.
Liberalization simply means
removing or reducing restrictions.
As we saw in the last chapter that
there were many restrictions on the private sector. For example, to open industries,
they had to take license from the government. So
in the Liberalization policy, these restrictions were removed and the economy was
opened to all.
Now let's see what
changes were made in some important areas.
Deregulation of industrial sector. Earlier, if any entrepreneur
had to open or close a firm
or decide how much goods to produce,
permission had to be taken from the government for all this.
But now except some product categories, such as alcohol, cigarette,
medicine, hazardous chemicals,
this permission system has been removed from all the rest.
Earlier there were many such industries which only the government
could open, not the private sector.
Now only defense equipment, atomic energy generation and
railway transport related industries
have been kept reserved for the government, rest
of the private sector can also come.
Earlier there were some such goods which
were reserved only for small scale industries .
Meaning only he can make it. This too was removed after the reform.
The government had control over fixing the price of goods
. But now most of the industries
have been given permission to fix the price according to the market.
Now because there will be many companies and
there will be competition among all, then the price will automatically be correct.
Next, what reform happened in the financial sector? Financial
institutions like banks, stock exchange
come in the financial sector
. So in India, RBI i.e.
Reserve Bank of India regulates
all these . For example, how much money can a bank keep with itself?
What will be the interest rate?
Or how much loan can the bank give to which sector?
So the main focus of the finance sector reform was to
make RBI a facilitator from a regulator, meaning the finance sector
would be allowed to take some decisions on its own
without consulting RBI
. As long as the bank
is working in the interest of the account holder and the nation, RBI will not interfere unnecessarily.
Due to Reform many private sector banks were established,
which was very difficult earlier.
With the opening of private banks, government banks also
started working well because the competition increased for them too.
On fulfilling certain conditions, banks were
also given permission to open new branches without asking RBI.
Foreign institutional investors, meaning
companies from outside India,
were allowed to invest in the Indian financial market.
The advantage of this was that more and more money
came into the Indian economy and it
became easier for banks or companies to raise capital, that is, to take loans.
Reforms were also done in taxes. Taxes are of two types.
Direct taxes and indirect taxes.
Direct taxes are those that we
pay directly to the government.
Like income tax, which we pay tax on our income
or corporation tax, which companies pay tax on their profit.
From 1991, the rate of these taxes was also reduced.
Because it is believed that due to high income tax,
people evade tax and if the tax rate is moderate
then people will pay tax and the government's revenue will increase.
The second tax is indirect taxes, which
are imposed on any goods or services.
We do not pay this directly to the government.
For example, when we buy any goods or services then
we pay this tax and the government
collects tax from the seller of those goods or services.
Its rate was also reduced and the process was simplified.
Like in 2016, the government brought
GST i.e. goods and services tax , which
was based on One nation, One tax and One market by removing different taxes.
Reform was also done in foreign exchange.
We had seen that our balance of payment was not correct.
Means there was a lot of import but there was no export.
Due to which the foreign exchange reserve
had also reduced a lot. So to promote exports,
the Indian rupee was devalued.
Means the value has been reduced.
Let's understand this with an example.
Suppose 70 Indian rupees is equal to 1 US dollar,
then if any other country wants our goods worth 70 rupees,
then it will have to pay 1 dollar. And if
the value of our currency decreases i.e. 1 US dollar equal to 70
to 80 then they will have to pay less than 1 dollar
for the same 70 rupees product. And
when they find the trade cheap, they will demand more and more,
which will increase our exports.
That's why currency was devalued
to increase exports .
Earlier this exchange rate used to be fixed by the government, but
after the reform, it
started being decided according to the market i.e. demand and supply.
Reforms were also given in trade and investment policy. Like
earlier there were lot of restrictions on imports, like tax was very high,
quantity was fixed that cannot import more than this.
All these were gradually removed so that
the competition of local industries of India increases and they
focus on their efficiency. And adopt modern technology.
Hazardous and environmentally sensitive industries, for
example, petroleum, except these,
the system of import licensing was removed.
The tax that was imposed on exports was also
removed so that exports are encouraged and
Indian products compete in the international market as well.
Next is privatization.
Its simple means is
to convert government companies into private companies.
The government did this in two ways.
Firstly, the government should sell the entire company and secondly
by transferring the ownership. The one who has
more than 50% stake in a company
is the owner. Means if government has 70% stake in a company
and government sells 30% stake, then now 40% left with government and 60% private. So the ownership
was transferred and that company became private.
When the government reduces its stake by selling it,
it is called disinvestment. If the government
sold 5% stake, then it would be called disinvestment of 5%.
The purpose of privatization was that companies
could be modernized and work in an efficient manner.
Next is globalization.
Globalization means the
integration of the economy or culture of one country with the economy or culture of the whole world.
For example, today every country exports and imports, so all
are dependent on each other. It means that what is going on in some far away country,
its effect also falls on our country.
Who will win the election in America
also has an impact on the politics of India.
So globalization eliminates boundaries
and creates a borderless world.
Outsourcing is an important result of globalization. In this, companies
hire people from other countries for their regular service
. This is called outsourcing. For example,
if there is a US company, it has to open a call center for its customer
, then it will open it in India because here it
will cost less in comparison to its country.
With this India will get employment and
their work will be done cheaply.
There can be other such works like
banking services, music recording, video editing.
Today outsourcing has become even easier due to
modern technology and fast mode of communication.
India also has many such companies
which are present in different countries.
For example, Tata Steel operates in 26 countries
and sells in 50 countries. And
is one of the top 10 steel companies in the world.
WTO, World Trade Organization
administers the rules and regulations in these global trade
. The WTO was created in 1995 by replacing
the General Agreement on Trade and Tariff, GATT, which was created in 1948.
Its job is to promote international trade,
to give access to the international market to its member countries,
to ensure that the world's resources are used properly
and to make such trading rules so that
no one can act arbitrarily.
India is also an important member of WTO and
plays an important role in making global rules and promoting the
interest of developing countries
. But some scholars say that India
is a member of WTO, it is of no special use.
Because most of the international trade
is the beach of developed countries.
Developing countries like India were forced
to open their market a little
and give market access to developed countries.
But in return they were
not given access to the market of developed countries.
All these reforms were brought in 1991.
So now let us see
what has been the result of these reforms in these three decades.
Look at this table. GDP
growth percentage has been given in this.
Overall GDP grew very fast
in the first two decades after the reform
. The growth rate between 1980 and 1991 was 5.6%.
Which increased to 8.2% between 2007-12.
But if we look at the agriculture sector during this period,
then the growth rate has decreased.
In 2012-13 the growth rate was only 1.5% and
in 2014-15 the growth rate went negative.
In the industrial sector too, the growth rate has been going up and down.
But continuous growth rate has been seen
in the service sector . This means that
the service sector has contributed a lot in the overall GDP growth
. Apart from this, due to the opening of the economy, foreign
investment also increased very rapidly.
Increased from 100 Million US Dollars in 1991
to 30 Billion US Dollars in 2017-18.
And the foreign exchange reserve increased from 6 Billion US Dollar to
413 Billion US Dollar in 2018-19.
Talking about now, it
is around 600 Billion US dollars.
From 1991, India
was seen as a successful exporter of autopart, IT software, textile, pharmaceutical goods
.
On the other hand, the reform was criticized a lot
that it
does not address the basic problems related to employment, agriculture, industry and infrastructure development.
Scholars say that even though the GDP growth rate
increased significantly during the reform period, that growth
did not generate sufficient employment in the country.
There was not much benefit of the reform in the agriculture sector.
In this we can see that the growth
rate was continuously decreasing.
The reason for this was that
not much money was spent on
irrigation, power supply,
roads, markets, research and development . Apart from this,
the cost of production for the farmers has increased due to the removal of fertilizers and subsidies, due to which
the small farmers were greatly affected.
Restrictions on import were also removed due to which
the international competition for Indian farmers also increased a lot.
Due to export oriented policies, farmers
started producing things which are in demand in the export instead of the things
which are in demand in the Indian market. Means,
instead of food grains, they started producing cash crops,
so that the profit is more. But due to this the availability of food grains
started decreasing and the price started rising.
With the removal of restrictions on import, the competition of domestic industries
also increased a lot.
Imported goods were very cheap, due to which
the demand for domestic products decreased,
which had a negative impact on the growth of industries.
Developing countries like India
removed the restriction on these imports but developed countries
like USA. Quota restrictions on imports from countries like India, China were not removed. Meaning, they
can come here and sell their product without any
restrictions, but how much we will sell there is a quantity fix.
Every year the government fixes the
target of disinvestment of public sector enterprises
, that means it fixes how much part of the public sector will be sold to the private sector.
Like in 2017-18 there was a target of 1 lakh crore assets
and the government sold assets worth 1 lakh 57 crores.
Critics say that the problem here is
Due to the lack of money, the government
sells the assets only at a low price.
Due to which the government has suffered a lot.
Even the money that comes from disinvestment, the government
uses it in some other scheme or policy instead of the development
of public sector enterprises. Taxes
were reduced during the Reform period so that people do not evade taxes
and the revenue of the government increases. But this did not happen.
When the tariff was removed, the government
's revenue from that side also stopped.
Government was also giving tax exemption to foreign investors,
so that they invest more and more in the Indian economy.
So overall, the tax revenue of the government decreased,
due to which the government's expenditure on public welfare
also decreased.
So the conclusion is that Globalization policies have had both positive and negative results.
Some scholars say that the economy of developing countries has benefited overall from globalization.
High technology came and got access to the global market.
And on the other hand, some scholars say
that globalization is the strategy of developed countries so that it
can expand its market to other countries.
Market driven globalization has increased the economic disparity
between countries and between people .
Which means the rich are getting richer and the poor are getting poorer.
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