NEP 1991 : LIBERALISATION , PRIVATISATION AND GLOBALISATION ; AN APPRAISAL . CLASS XII ECONOMICS
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
📚 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.
🏭 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.
🌐 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
💡Privatisation
💡Globalisation
💡Economic Policy
💡Balance of Payment Crisis
💡Fiscal Deficit
💡Inflation
💡World Bank and IMF
💡Structural Measures
💡Outsourcing
💡World Trade Organization (WTO)
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.
Transcripts
hello students in this chapter we are
going to study about liberalisation
privatization and globalization we all
know that in 1991 India initiated a set
of new economic policy under the prime
ministership
of mr. Peavey narsimha Rao and finance
minister mr. Manmohan Singh what was the
need for a new economic policy in 1991
meaned was to manage the crisis of 1990s
in 1990s in your face balance of payment
crisis poor performance of public sector
leading to huge losses and a mounting
fiscal deficit and a high rate of
inflation these our problems were result
of the restricted policies that were
adopted by Indian economy prior to 1991
in order to manage these crises India
approached World Bank and IMF and also
received a help of 7 million dollar as
loan but in to turn off the loan World
Bank and IMF asked India to liberalize
and open up the economy by removing
certain restrictions and as a result
India introduced a set of new economic
policy in 1991 mep 1991 was initiated in
two major steps firstly stabilization
measures which were short-term measures
aimed at rectifying immediate crises
like inflation and balance of payment
apart from this long-term measures or
structural measures were also introduced
which transformed the indian economy
these measures were liberalized ation
privatization and globalization now
let's study each and every measure in
detail starting with it realization
liberal ionization means putting an end
to the restriction and open various
sectors of the economy all major sectors
of economy were liberalized under NVP
1991 let's see how liberalisation
measures were introduced in different
sectors of Indian economy starting with
industrial sector industrial sector was
under so many restrictions Prime flyer
299
t1 these restrictions were relaxed under
liberalisation that is industry
licensing was abolished apart for few
industry such as alcohol sigrid drugs
explosive etc public sector was now D
reserved for most of the industries only
critical industries like atomic energy
railway and defense were now reserved
for the public sector goods produced by
small-scale industries have also been
the reserved market was allowed to
determine the prices and there was a
drastic reduction in government control
now coming to financial sector reforms
we all know that our diya is the apex
financial institution governing the
financial sector of Indian economy there
was a change in the role of RBI from
regulated to that of a facilitator
private sector banks were also
established in Indian economy after
flipple ization reforms of 1991 for an
investment limitation Bank was raised to
50%
there was a relaxation to open or expand
the branch network of banks with certain
restrictions for an institutional
investors like merchant bankers mutual
funds pension agencies were allowed to
invest in India now coming to tax
reforms there was a reduction in both
direct as well as indirect taxes and the
tax paint procedure was also simplified
GST that is one tax one market and one
nation was also introduced in 2017 all
these steps were taken to increase the
tax revenue off government now foreign
exchange reform rupee was devalued in
year 1991 in order to encourage exports
for an exchange rate was now allowed to
be determined by the foreign exchange
market which put an end to the fixed
exchange rate regime in the Indian
economy trade and investment policy
reforms as we all know that prior to
1991 India followed an inward-looking
trade
see but in 1991 these restrictions were
relaxed or removed that is quantitative
restrictions of the on exports and
imports were removed there was a
reduction in the tariff rate removal of
import licensing for most of the
industries and also removal of export
duties on these steps were undertaken in
order to encourage foreign trained for
Indian economy coming to privatization
privatization means shedding of
ownership or management of government
enterprises this can be done in two ways
firstly by this invest I mean that is
for trouble of the government from
ownership and management of public
sector companies or secondly by simply
outright sale of public sector companies
to private sector the question that
arises here is why do privatization we
need privatization in order to improve
the financial discipline of public
sector units as we all know that private
sector is managed through better
capabilities and discovered by profit
and a motive however some public sector
enterprises were performing fairly
better and some Lee bridges were given
to them than they were also granted some
status like Marathon number and Mini
retina coming to the third aspect of MVP
globalization globalization means
transforming the world towards more
interdependence and integration it aims
at creating a borderless world one of
the important aspect of globalization
for Indian economy is outsourcing
outsourcing means hiring regular service
from an external source mostly from the
other countries which were previously
provided with in the countries India is
a hub of outsourcing for many fields
like legal advice computer service
advertisement accountancy banking music
recording film editing book
transcription clinical advice teaching
and so on what makes India a favorable
outsourcing destination
firstly modern telecommunication which
is creating a borderless world cheap
labor and that too educated and English
speaking thus India has a huge potential
to earn from globalization coming to the
organization which is facilitating
globalization throughout the world World
Trade Organization founded in 1995 as a
successor of gat
what are the functions of the buteo
basically WTO aims at removing
restrictions from trade which were
imposed by different countries thus it
is facilitating international trade by
advocating reduction in tariffs and
non-tariff barriers it also aims at
establishing a rule-based trade regime
and ensure optimum utilization of world
resources however there are questions
raised on Indian economy as a member of
WTO India is an active member of WTO and
abide by its rules and regulation but
many economists cushion this membership
as in having katoa lapping country is
not getting much benefit from being the
member of WTO as major volume of trade
occurs between developed nations
developed nations still impose tariffs
and non-tariff barriers which have been
reduced by developing countries like
India thus a fair play is not there the
WTO and that is why India being a member
of WTO has been criticized now a
question for you people is what do you
think that should India continue to be a
member of w to you or not now let's have
a look at the critical appraisal of any
bail 1990 month
NEP 1991 was actually a savior for
Indian economy it pulled out Indian
economy from huge financial crisis
however there were certain positive and
certain negative aspects related to
in 1991 as everything has good as well
as bad aspects coming to achievements
first because of NEP 1991 our GDP growth
rate increased and it was around 7 to 8
percent per annum there was a drastic
increase in foreign direct investment
and foreign institutional investment due
to restriction on due to relaxation in
the restriction on export and import
there was a increase in the foreign
exchange reserves now India became a
successful exporter of many goods such
as automobiles software engineering
Goods etc which were earlier imported
there was a control on inflation as well
however there were certain negative
effects such as the removal of subsidies
from the agriculture Kiba setback to the
agricultural sector rather no investment
was done for agricultural sector during
this period industry slowdown was there
due to competition from cheap imports
though GDP increased but there was an
increase in the unemployment as well
this investment was done at an
undervalued rate though we reduce the
tax rate and also simplified the
procedure but there was a decline in the
tax revenue and welfare spending as a
result but overall we can say that
anybody 1991 changed the way Indian
economy think if Indian economy will
take right steps to rectify these
problems then we can go ahead and be the
superpower very soon thank you and have
a good day
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