NEP 1991 : LIBERALISATION , PRIVATISATION AND GLOBALISATION ; AN APPRAISAL . CLASS XII ECONOMICS

Ecovideology : Economics videos

6 May 202010:35

Summary

TLDRThis chapter delves into India's economic transformation post-1991, highlighting the liberalization, privatization, and globalization policies initiated by Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh. The new economic policy aimed to resolve the 1990s crisis, including a balance of payment crisis, public sector inefficiencies, and high inflation. The script discusses the stabilization and structural measures, including industrial deregulation, financial sector reforms, tax simplification, and foreign exchange adjustments. It also addresses the impact of privatization and India's role in globalization, particularly in outsourcing. The chapter concludes with a critical appraisal of the policy's outcomes, including increased GDP growth, foreign investment, and exports, alongside challenges like agricultural setbacks and unemployment.

Takeaways

📈 The 1991 economic policy was initiated to address the crisis of the 1990s, including a balance of payment crisis, poor public sector performance, and high inflation.
💡 India approached the World Bank and IMF for a loan of 7 million dollars, which came with the condition of liberalizing the economy.
🛑 The New Economic Policy (NEP) of 1991 was introduced in two steps: stabilization measures for immediate crises and long-term structural measures for transformation.
🏭 Liberalization involved ending restrictions and opening up various sectors of the economy, including the industrial sector where licensing was abolished for most industries.
🏦 Financial sector reforms included a change in the role of the Reserve Bank of India (RBI) and the establishment of private sector banks.
💼 Tax reforms reduced both direct and indirect taxes and simplified the tax payment procedure, with the introduction of GST in 2017.
💵 Foreign exchange reforms devalued the rupee to encourage exports and allowed the exchange rate to be determined by the market.
🌐 Trade and investment policy reforms relaxed restrictions on exports and imports, reducing tariffs and removing import licensing for most industries.
🏬 Privatization involved shedding government ownership or management of public sector enterprises, either through disinvestment or outright sale.
🌍 Globalization aimed at creating a borderless world, with India becoming a hub for outsourcing in various fields due to modern telecommunication, cheap educated labor, and English proficiency.
🏛 The World Trade Organization (WTO) facilitates international trade by advocating for the reduction of tariffs and non-tariff barriers, though India's membership has been criticized for not reaping enough benefits.

Q & A

What was the primary reason for India to initiate a new economic policy in 1991?
-The primary reason for India to initiate a new economic policy in 1991 was to manage the crisis of the 1990s, which included a balance of payment crisis, poor performance of the public sector, huge losses, mounting fiscal deficit, and high inflation.
What were the two major steps initiated in the new economic policy of 1991?
-The two major steps initiated in the new economic policy of 1991 were stabilization measures, which were short-term measures aimed at rectifying immediate crises, and structural measures, which were long-term measures that transformed the Indian economy.
How did liberalization affect the industrial sector in India post-1991?
-Liberalization affected the industrial sector by abolishing industry licensing for most industries, except a few critical ones, allowing market determination of prices, and reducing government control significantly.
What changes did the financial sector reforms bring about in the role of the Reserve Bank of India (RBI)?
-The financial sector reforms changed the role of the RBI from a regulator to a facilitator, allowed the establishment of private sector banks, and increased the investment limit for banks to 50%.
What was the impact of tax reforms on the Indian economy post-1991?
-Tax reforms led to a reduction in both direct and indirect taxes, simplification of the tax payment procedure, and the introduction of GST, which aimed to increase the tax revenue for the government.
How did the foreign exchange reform in 1991 affect the Indian economy?
-The foreign exchange reform in 1991 devalued the rupee to encourage exports and allowed the exchange rate to be determined by the foreign exchange market, ending the fixed exchange rate regime.
What does privatization mean in the context of the Indian economy post-1991?
-Privatization in the context of the Indian economy post-1991 means shedding of ownership or management of government enterprises, either through disinvestment or outright sale to the private sector.
How did globalization impact the Indian economy, particularly in terms of outsourcing?
-Globalization impacted the Indian economy by making it a hub for outsourcing in various fields such as legal advice, computer services, advertisement, accountancy, banking, and more, leveraging modern telecommunication, cheap educated labor, and English-speaking skills.
What is the role of the World Trade Organization (WTO) in facilitating globalization?
-The WTO aims at removing trade restrictions imposed by different countries, advocating for a reduction in tariffs and non-tariff barriers, establishing a rule-based trade regime, and ensuring the optimum utilization of world resources.
What are some criticisms of India's membership in the WTO?
-Some criticisms of India's membership in the WTO include the perception that India is not getting much benefit from membership due to continued tariffs and non-tariff barriers imposed by developed nations, leading to an unfair trade environment.
What were the positive and negative aspects of the 1991 economic policy for India?
-Positive aspects included increased GDP growth, foreign investment, foreign exchange reserves, and control over inflation. Negative aspects included the removal of agricultural subsidies, industry slowdown due to cheap imports, increased unemployment, and a decline in tax revenue and welfare spending.

Outlines

00:00

📚 Introduction to India's Economic Reforms

This paragraph introduces the economic reforms in India, focusing on liberalization, privatization, and globalization. It discusses the necessity of new economic policies in 1991 due to the crisis of the 1990s, including a balance of payment crisis, poor performance of the public sector, and high inflation. The reforms were initiated by Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh. The World Bank and IMF played a role by providing a loan and demanding economic liberalization. The paragraph outlines the two steps of the reforms: stabilization measures for immediate crisis management and structural measures for long-term transformation.

05:01

🏭 Sectoral Reforms and Privatization

This section delves into the specifics of the reforms across different sectors of the Indian economy. It covers the liberalization of the industrial sector, where industry licensing was abolished, and the public sector was opened up to competition. The financial sector reforms are highlighted, including the change in the role of the Reserve Bank of India (RBI) and the establishment of private sector banks. Tax reforms, including a reduction in direct and indirect taxes and the introduction of GST, are also discussed. The paragraph further explains foreign exchange reforms, trade policy changes, and the concept of privatization, which involves the government shedding ownership or management of public sector enterprises to improve financial discipline.

10:04

🌐 Globalization and India's Role

The final paragraph discusses the impact of globalization on the Indian economy, emphasizing the importance of outsourcing and India's position as a hub for various services. It outlines the factors that make India a favorable outsourcing destination, such as modern telecommunication, cheap and educated labor, and English proficiency. The role of the World Trade Organization (WTO) in facilitating globalization and international trade is explained, along with the criticisms India faces as a member of the WTO. The paragraph concludes with a critical appraisal of the 1991 NEP, highlighting its achievements in increasing GDP growth, foreign investment, and exports, as well as the challenges such as the removal of subsidies, industry slowdown, and unemployment.

Mindmap

Keywords

💡Liberalisation

Liberalisation refers to the policy of relaxing restrictions and regulations, particularly in the economic sector. In the context of the video, it is a key component of India's 1991 economic reforms, aimed at opening up various sectors of the economy and reducing government control. The script mentions how liberalisation led to the abolition of industry licensing for most sectors and allowed market forces to determine prices, which was a significant shift from the previous restrictive policies.

💡Privatisation

Privatisation is the process of transferring ownership or management of government-owned enterprises to the private sector. The video discusses privatisation as a measure to improve the financial discipline of public sector units by encouraging better management and efficiency driven by profit motives. The script gives examples of how privatisation can occur either through disinvestment by the government or through outright sale of public sector companies to the private sector.

💡Globalisation

Globalisation is the process of increased interconnectedness and interdependence among countries, particularly in economic terms. The video highlights globalisation's role in transforming the world towards a borderless economy. It specifically mentions outsourcing as a significant aspect of globalisation for the Indian economy, where services are provided by external sources, often from other countries, leveraging India's strengths in telecommunication, educated and English-speaking workforce.

💡Economic Policy

Economic policy refers to the strategies and actions undertaken by governments to influence economic variables such as growth, inflation, and employment. The video script discusses the new economic policy initiated by India in 1991 under Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh, which was a response to the economic crisis of the 1990s and aimed to manage issues like balance of payment crisis and high inflation.

💡Balance of Payment Crisis

A balance of payment crisis occurs when a country faces difficulties in paying for its imports or servicing its foreign debt. The video script identifies the balance of payment crisis as one of the key problems that led to the need for a new economic policy in India in 1991. To manage this crisis, India sought assistance from the World Bank and IMF, which in turn asked for economic liberalisation as a condition for the loan.

💡Fiscal Deficit

A fiscal deficit occurs when a government's expenditures exceed its revenues. The script mentions the mounting fiscal deficit as one of the economic challenges India faced in the 1990s, which was a result of poor performance of the public sector and the high rate of inflation. The new economic policy aimed to address this issue through various measures, including tax reforms and privatisation.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video script discusses high inflation as a problem in the Indian economy prior to 1991. The new economic policy introduced measures to control inflation, such as stabilisation measures and changes in monetary policy.

💡World Bank and IMF

The World Bank and the International Monetary Fund (IMF) are international financial institutions that provide financial assistance to countries. The script explains that India approached these institutions during the economic crisis of the 1990s and received a loan of 7 million dollars. In return, the World Bank and IMF asked India to liberalise its economy by removing certain restrictions.

💡Structural Measures

Structural measures refer to long-term policy changes aimed at transforming the structure of an economy. The video script mentions structural measures as part of India's 1991 economic policy, which included liberalisation, privatisation, and globalisation. These measures were designed to bring about fundamental changes in the Indian economy, moving away from the previous model of restricted policies.

💡Outsourcing

Outsourcing is the practice of hiring a third-party entity to perform tasks, services, or functions that were previously handled in-house. The video discusses outsourcing as a significant aspect of globalisation for India, where the country became a hub for various fields of outsourcing, such as IT services, legal advice, and more. This was facilitated by modern telecommunication, a large pool of educated and English-speaking labour, and cost-effective services.

💡World Trade Organization (WTO)

The World Trade Organization (WTO) is an international organisation that deals with the global rules of trade between nations. The video script mentions the WTO as an entity that facilitates globalisation by advocating for the reduction of tariffs and non-tariff barriers, aiming to establish a rule-based trade regime. However, it also raises concerns about the benefits India receives as a member of the WTO, given the ongoing trade imbalances and the criticism that developed nations still impose barriers.

Highlights

India initiated a set of new economic policies in 1991 under Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh.

The need for a new economic policy in 1991 was to manage the crisis of the 1990s, including a balance of payment crisis and poor performance of the public sector.

India approached the World Bank and IMF for a loan of 7 million dollars, which led to the liberalization and opening up of the economy.

The new economic policy was introduced in two major steps: stabilization measures for immediate crises and long-term structural measures.

Liberalization ended restrictions and opened various sectors of the economy, including the industrial and financial sectors.

The role of the Reserve Bank of India (RBI) changed from a regulator to a facilitator post-1991 reforms.

Private sector banks were established, and investment limitations for banks were raised to 50% after the reforms.

Tax reforms included a reduction in both direct and indirect taxes and the simplification of the tax payment procedure.

The introduction of GST in 2017 aimed to increase government tax revenue through a unified tax system.

Foreign exchange reforms included the devaluation of the rupee to encourage exports and the end of the fixed exchange rate regime.

Trade and investment policy reforms relaxed restrictions on exports and imports, reducing tariff rates and removing import licensing for most industries.

Privatization involved shedding government ownership or management of public sector enterprises through disinvestment or outright sale.

Globalization aimed at creating a borderless world, with India becoming a hub for outsourcing in various fields.

India's favorable conditions for outsourcing include modern telecommunication, cheap educated labor, and English-speaking capabilities.

The World Trade Organization (WTO) was established in 1995 to facilitate international trade by reducing tariffs and non-tariff barriers.

Criticism of India's WTO membership includes concerns about not receiving fair benefits and the continued imposition of tariffs by developed nations.

The 1991 NEP had both positive and negative effects, including increased GDP growth, foreign investment, and exports, but also unemployment and a decline in agricultural investment.

The 1991 NEP changed the way the Indian economy operates, with the potential to become a superpower if the right steps are taken to rectify issues.