Quick revision summary of Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal (Indian Economic Development), including GST and demonetisation. For full explanations read the detailed notes.
Board note: CBSE teaches this book in Class 12; UP, Bihar, Rajasthan and MP Boards teach it in Class 11.
1 Key Definitions
Definitions to learn
New Economic PolicyWide-ranging reforms of 1991; aim: a competitive environment, removing barriers to entry and growth of firms
Stabilisation measuresShort-term: correct balance of payments weaknesses, control inflation
Structural reformsLong-term: raise efficiency and international competitiveness, remove rigidities
LiberalisationEnding restrictions of rules and laws and opening up sectors of the economy
PrivatisationShedding of ownership or management of a government-owned enterprise
DisinvestmentPrivatisation by selling part of a PSE’s equity to the public
GlobalisationIntegration of the country’s economy with the world economy; a borderless world
OutsourcingHiring regular services from external sources, mostly other countries, earlier provided internally
DevaluationGovernment lowering the rupee’s value against foreign currencies
Quantitative restrictionsLimits (quotas) on the quantity of imports or exports
TariffTax on imported (or exported) goods
Goods and Services TaxIndirect tax on goods and services; 2016 constitutional amendment; one nation, one tax and one market
DemonetisationNovember 2016: old Rs 500 and Rs 1000 notes no longer legal tender
2 The 1991 Crisis and the NEP
1980sInefficient management, expenditure above revenue
→
1991Reserves below a fortnight’s imports, rising prices
→
Loan7 billion dollars from World Bank and IMF, with conditions
→
NEPStabilisation + structural (L, P, G)
3 Five Areas of Liberalisation
| Area | Main reforms |
|---|---|
| Industrial sector | Licensing abolished except alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace, drugs and pharmaceuticals; only part of atomic energy and some core railway activities reserved for the public sector; many SSI goods dereserved; market prices |
| Financial sector | RBI from regulator to facilitator; Indian and foreign private banks; foreign investment limit around 74%; branches without approval; FIIs (merchant bankers, mutual funds, pension funds) |
| Tax reforms | Income tax cut (high income tax rates were a reason for tax evasion); corporation tax gradually reduced; procedures simplified; GST after the 2016 amendment |
| Foreign exchange | 1991 devaluation; markets now set exchange rates by demand and supply |
| Trade and investment | QRs dismantled (fully removed on manufactured consumer goods and farm imports from April 2001), tariffs cut, import licensing abolished (except hazardous and environmentally sensitive industries), export duties removed |
- Two ways: government withdraws from ownership and management; outright sale
- Purposes of disinvestment: financial discipline, modernisation, private capital and managerial capability, FDI
- Maharatnas: IOCL, SAIL · Navratnas: HAL, MTNL, IRCTC · Miniratnas: BSNL, AAI
- Status gave more autonomy and better performance; criticism: partly privatised through disinvestment
5 Globalisation and the WTO
- Outsourcing: BPO/call centres, record keeping, accountancy, banking services, music recording, film editing, book transcription, clinical advice, teaching
- Why India: low wages, skilled manpower, IT and telecommunication
- Box 3.2: ONGC Videsh (16 countries), Tata Steel (1907, 26 countries), HCL (31 countries), Dr Reddy’s
- WTO 1995, successor to GATT (1948, 23 countries); rule-based trade, services too, optimum use of resources, environment
- Criticism: trade mostly among developed nations; developed countries complain over farm subsidies while developing countries feel cheated
6 Appraisal: Gains and Criticisms
Gains
- GDP growth 5.6% (1980-91) to 9.4% (2021-22)
- Services the main driver
- Foreign investment about 100 million to 23 billion US dollars
- Reserves about 6 to 646 billion US dollars (2023-24)
- Successful exports, prices under control
Criticisms
- Not enough employment
- Agriculture: public investment fell, fertiliser subsidy cut, cash crops
- Industry: cheaper imports, weak infrastructure, non-tariff barriers abroad
- Disinvestment undervalued; about Rs 46,000 crore in 2022-23
- Fiscal: limits on social spending; Siricilla (50 powerloom workers)
7 GST and Demonetisation
| Basis | GST | Demonetisation |
|---|---|---|
| When | 2016 constitutional amendment | November 2016 |
| What | Indirect tax on goods and services | Old Rs 500 and Rs 1000 notes no longer legal tender; new Rs 500 and Rs 2000 |
| Aims | Additional revenue, less tax evasion, one nation one tax one market | Corruption, black money, terrorism, fake currency |
| Key facts | Union and states both empowered to make laws | Deposit without declaration till 31 December 2016; with RBI with declaration till 31 March 2017; Rs 4000 per day exchange; old notes accepted at petrol pumps etc. till 12 December 2016 |
| Effects | A common national market expected | Queues and cash shortage; but better tax compliance, formal savings, electronic payments |
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