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

Summary

This 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.