UNIT

UNIT
II
III

ECONOMIC REFORMS
SINCE 1991
After forty years of planned development, India
has been able to achieve a strong industrial base
and became self-sufficient in the production of food
grains. Nevertheless, a major segment of the
population continues to depend on agriculture for
its livelihood. In 1991, a crisis in the balance of
payments led to the introduction of economic
reforms in the country. This unit is an appraisal of
the reform process and its implications for India.
3

LIBERALISATION, PRIVATISATION
AND
GLOBALISATION: AN APPRAISAL

After studying this chapter, the learners will

• understand the background of the reform policies introduced in India

in 1991
• understand the mechanism through which reform policies were
introduced
• comprehend the process of globalisation and its implications for India
• be aware of the impact of the reform process in various sectors.
 There is a consensus in the world today that economic development is not all
and the GDP is not necessarily a measure of progress of a society.

K.R. Narayanan

3.1 I NTRODUCTION policy measures which changed the

direction of our developmental
You have studied in the previous
strategies. In this chapter, we will
chapter that, since independence,
look at the background of the crisis,
India followed the mixed economy
measures that the government has
framework by combining the
adopted and their impact on various
advantages of the capitalist economic
sectors of the economy.
system with those of the socialist
economic system. Some scholars argue
3.2 B ACKGROUND
that, over the years, this policy resulted
in the establishment of a variety of The origin of the financial crisis can
rules and laws, which were aimed at be traced from the inefficient
controlling and regulating the management of the Indian economy
economy, ended up instead in in the 1980s. We know that for
hampering the process of growth and implementing various policies and
development. Others state that India, its general administration, the
which started its developmental path government generates funds from
from near stagnation, has since been various sources such as taxation,
able to achieve growth in savings, running of public sector enterprises
developed a diversified industrial etc. When expenditure is more than
sector which produces a variety of income, the government borrows to
goods and has experienced sustained finance the deficit from banks and
expansion of agricultural output also from people within the country
which has ensured food security. and from international financial
In 1991, India met with an institutions. When we import goods
economic crisis relating to its external like petroleum, we pay in dollars
debt — the government was not which we earn from our exports.
able to make repayments on its Development policies required that
borrowings from abroad; foreign even though the revenues were
exchange reserves, which we very low, the government had
generally maintain to import petrol to overshoot its revenue to meet
and other important items, dropped problems like unemployment, poverty
to levels that were not sufficient for and population explosion. The
even a fortnight. The crisis was continued spending on development
further compounded by rising prices programmes of the government did not
of essential goods. All these led the generate additional revenue. Moreover,
government to introduce a new set of the government was not able to

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 39

generate sufficiently from internal and received $7 billion as loan to
sources such as taxation. When the manage the crisis. For availing the
government was spending a large loan, these international agencies
share of its income on areas which do expected India to liberalise and open
not provide immediate returns such as up the economy by removing
the social sector and defence, there was restrictions on the private sector,
a need to utilise the rest of its revenue reduce the role of the government in
in a highly ef ficient manner. The many areas and remove trade
income from public sector restrictions between India and other
undertakings was also not very high to countries.
meet the growing expenditure. At India agreed to the conditionalities
times, our f o r e i g n e x c h a n g e , of World Bank and IMF and
borrowed from other countries and announced the New Economic Policy
international financial institutions, (NEP). The NEP consisted of wide
was spent on meeting consumption ranging economic reforms. The
needs. Neither was an attempt made to thrust of the policies was towards
reduce such profligate spending nor creating a more competitive
sufficient attention was given to boost environment in the economy and
exports to pay for the growing imports. removing the barriers to entry and
In the late 1980s, government growth of firms. This set of policies
expenditure began to exceed its can broadly be classified into two
revenue by such large margins that groups: the stabilisation measures
meeting the expenditure through and the structural reform measures.
borrowings became unsustainable. Stabilisation measures are short-
Prices of many essential goods rose term measures, intended to correct
sharply. Imports grew at a very high some of the weaknesses that have
rate without matching growth of developed in the balance of
exports. As pointed out earlier, foreign payments and to bring inflation
exchange reserves declined to a level under control. In simple words, this
that was not adequate to finance means that there was a need to
imports for more than two weeks. maintain sufficient foreign exchange
There was also not sufficient foreign reserves and keep the rising prices
exchange to pay the interest that needs under control. On the other hand,
to be paid to international lenders. structural reform policies are long-term
Also no country or international funder measures, aimed at improving the
was willing to lend to India. efficiency of the economy and increasing
India approached the International its international competitiveness by
Bank for Reconstruction and removing the rigidities in various
Development (IBRD), popularly segments of the Indian economy. The
known as World Bank and the government initiated a variety of
International Monetary Fund (IMF), policies which fall under three heads

40 INDIAN ECONOMIC DEVELOPMENT

viz. liberalisation, privatisation and The reform policies introduced in
globalisation. and after 1991 removed many of
these restrictions. Industrial
3.3 LIBERALISATION licensing was abolished for almost all
As pointed out in the beginning, but product categories — alcohol,
rules and laws which were aimed at cigarettes, hazardous chemicals,
industrial explosives, electronics,
regulating the economic activities
aerospace and drugs and pharma-
became major hindrances in growth
ceuticals. The only industries which
and development. Liberalisation was
are now reserved for the public sector
introduced to put an end to these
are defence equipments, atomic
restrictions and open up various
energy generation and railway
sectors of the economy. Though a few
transport. Many goods produced by
liberalisation measures were
small scale industries have now been
introduced in 1980s in areas of
dereserved. In many industries, the
industrial licensing, export-import
market has been allowed to
policy, technology upgradation,
determine the prices.
fiscal policy and foreign investment,
reform policies initiated in 1991 were Financial Sector Reforms:
more comprehensive. Let us study Financial sector includes financial
some important areas such as the institutions such as commercial
industrial sector, financial sector, tax banks, investment banks, stock
reforms, foreign exchange markets exchange operations and foreign
and trade and investment sectors exchange market. The financial
which received greater attention in sector in India is controlled by the
and after 1991. Reserve Bank of India (RBI). You may
be aware that all the banks and other
Deregulation of Industrial Sector: In financial institutions in India are
India, regulatory mechanisms were controlled through various norms
enforced in various ways (i) industrial and regulations of the RBI. The RBI
licensing under which every entrepreneur decides the amount of money that
had to get permission from government the banks can keep with themselves,
officials to start a firm, close a firm fixes interest rates, nature of lending
or to decide the amount of goods to various sectors etc. One of the
that could be produced (ii) private major aims of financial sector reforms
sector was not allowed in many is to reduce the role of RBI from
industries (iii) some goods could be regulator to facilitator of financial
produced only in small scale industries sector. This means that the financial
and (iv) controls on price fixation and sector may be allowed to take
distribution of selected industrial decisions on many matters without
products. consulting the RBI.

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 41

 The reform policies led to the very high earlier, has been gradually
establishment of private sector reduced. Efforts have also been made
banks, Indian as well as foreign. to reform the indirect taxes, taxes
Foreign investment limit in banks levied on commodities, in order to
was raised to around 50 per cent. facilitate the establishment of a
Those banks which fulfil certain common national market for
conditions have been given freedom goods and commodities. Another
to set up new branches without the component of reforms in this area is
approval of the RBI and rationalise simplification. In order to encourage
their existing branch networks. better compliance on the part of
Though banks have been given taxpayers many procedures have
permission to generate resources been simplified and the rates also
from India and abroad, certain substantially lowered.
managerial a s p e c t s h a v e b e e n
retained with the RBI to safeguard Foreign Exchange Reforms: The
the interests of the account- first important reform in the external
holders and the nation. Foreign sector was made in the foreign
Institutional Investors (FII) such exchange market. In 1991, as an
as merchant bankers, mutual funds immediate measure to resolve the
and pension funds are now allowed balance of payments crisis, the rupee
to invest in Indian financial markets. was devalued against foreign
currencies. This led to an increase in
T a x R e f o r m s : Tax reforms are the inflow of foreign exchange. It also
concerned with the reforms in set the tone to free the determination
government’s taxation and public of rupee value in the foreign
expenditure policies which are exchange market from government
collectively known as its fiscal control. Now, more often than not,
policy. There are two types of taxes: markets determine exchange rates
direct and indirect. Direct taxes based on the demand and supply of
consist of taxes on incomes of foreign exchange.
individuals as well as profits of
business enterprises. Since 1991, T r a d e a n d I n v e s t m e n t Po l i c y
there has been a continuous Reforms: Liberalisation of trade and
reduction in the taxes on individual investment regime was initiated to
incomes as it was felt that high rates increase international competitiveness
of income tax were an important of industrial production and also
reason for tax evasion. It is now foreign investments and technology
widely accepted that moderate rates into the economy. The aim was also
of income tax encourage savings and to promote the efficiency of the local
voluntary disclosure of income. The industries and the adoption of
rate of corporation tax, which was modern technologies.

42 INDIAN ECONOMIC DEVELOPMENT

 In order to protect domestic of tariff rates and (iii) removal of
industries, India was following a licensing procedures for imports.
regime of quantitative restrictions Import licensing was abolished
on imports. This was encouraged except in case of hazardous and
through tight control over imports environmentally sensitive industries.
and by keeping the tariffs very high. Quantitative restrictions on imports of
These policies reduced efficiency and manufactured consumer goods and
competitiveness which led to slow agricultural products were also fully
growth of the manufacturing sector. removed from April 2001. Export
The trade policy reforms aimed at (i) duties have been removed to increase
dismantling of quantitative restrictions the competitive position of Indian
on imports and exports (ii) reduction goods in the international markets.

Work These Out

¾ Give an example each of nationalised bank, private bank, private foreign

bank, FII and a mutual fund.
¾ Visit a bank in your locality with your parents. Observe and find out the
functions it performs. Discuss the same with your classmates and prepare
a chart on it.
¾ Classify the following as direct and indirect taxes: sales tax, custom duties,
property tax, death duties, VAT, income tax.
¾ Find out from your parents if they pay taxes. If yes, why do they do so and
how?
¾ Do you know that for a very long time countries used to keep silver and gold
as reserves to make payments abroad? Find out in what form do we keep
our foreign exchange reserves and find out from newspapers, magazines
and the Economic Survey how much foreign exchange reserves we have
today. Also find the foreign currency of the following countries and its rupee
exchange rate

Country Currency Value of 1(one) unit of foreign

currency in Indian rupee
U.S.A.
U.K.
Japan
China
Korea
Singapore
Germany

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 43

3.4 P RIVATISATION Privatisation of the public sector
It implies shedding of the ownership undertakings by selling off part of the
or management of a government equity of PSUs to the public is known
owned enterprise. Government as disinvestment. The purpose of the
companies are converted into private sale, according to the government,
c o m p a n i e s i n t w o w a y s ( i) b y was mainly to improve financial
withdrawal of the government from discipline and facilitate modernisation.
ownership and management of It was also envisaged that private
public sector companies and or (ii) by capital and managerial capabilities
outright sale of public sector could be effectively utilised to
companies. improve the performance of the PSUs.

Box 3.1: Navratnas and Public Enterprise Policies

You must have read in your childhood about the famous Navratnas or Nine
Jewels in the Imperial Court of King Vikramaditya who were eminent persons
of excellence in the fields of art, literature and knowledge. In order to improve
efficiency, infuse professionalism and enable them to compete more effectively
in the liberalised global environment, the government identifies PSUs and
declare them as maharatnas, navratnas and miniratnas. They were given greater
managerial and operational autonomy, in taking various decisions to run the
company efficiently and thus increase their profits. Greater operational,
financial and managerial autonomy has also been granted to profit-making
enterprises referred to as miniratnas.
In 2011, about 90 public enterprises were designated with different status.
A few examples of public enterprises with their status are as follows:
(i) Maharatnas – (a) Indian Oil Corporation Limited, and (b) Steel Authority of
India Limited, (ii) Navratnas – (a) Bharat Heavy Electricals Limited,
(b) Mahanagar Telephone Nigam Limited; and (iii) Miniratnas – (a) Bharat
Sanchar Nigam Limited; (b) Airport Authority of India and (c) Indian Railway
Catering and Tourism Corporation Limited.
Many of these profitable PSUs were originally formed during the 1950s
and 1960s when self-reliance was an important element of public policy. They
were set up with the intention of providing infrastructure and direct employment
to the public so that quality end-product reaches the masses at a nominal
cost and the companies themselves were made accountable to all stakeholders.
The granting of status resulted in better performance of these companies.
Scholars allege that instead of facilitating public enterprises in their expansion
and enabling them to become global players, the government partly privatised
them through disinvesment. Of late, the government has decided to retain
them in the public sector and enable them to expand themselves in the global
markets and raise resources by themselves from financial markets.

44 INDIAN ECONOMIC DEVELOPMENT

 Work These Out

¾ Some scholars refer to disinvestment as the wave of privatisation spreading

all over the world to improve the performance of public sector enterprises
whereas others call it as outright sale of public property to the vested
interests. What do you think?
¾ Prepare a poster which contains 10-15 news clippings which you consider
as important and relating to navaratnas from newspapers. Also collect the
logos and advertisements of these PSUs. Put these on the notice board and
discuss them in the classroom.
¾ Do you think only loss making companies should be privatised? Why?
¾ Losses incurred by public sector undertakings are to be met out of the public
budget. Do you agree with this statement? Discuss.

The government envisaged that links in such a way that the happenings
privatisation could provide strong in India can be influenced by events
impetus to the inflow of FDI. happening miles away. It is turning the
The government has also made world into one whole or creating a
attempts to improve the efficiency of borderless world.
PSUs by giving them autonomy Outsourcing: This is one of the
in taking managerial decisions. For
important outcomes of the
instance, some PSUs have been
globalisation process. In outsourcing,
granted special status as maharatnas,
a company hires regular service from
navratnas and miniratnas (see
external sources, mostly from other
Box 3.1).
countries, which was previously
provided internally or from within the
3.5 GLOBALISATION
country (like legal advice, computer
Although globalisation is generally service, advertisement, security —
understood to mean integration of the each provided by respective
economy of the country with the world departments of the company). As a
economy, it is a complex phenomenon. form of economic activity, outsourcing
It is an outcome of the set of various has intensified, in recent times,
policies that are aimed at transforming because of the growth of fast modes
the world towards greater of communication, particularly the
interdependence and integration. It growth of Information Technology
involves creation of networks and (IT). Many of the services such as
activities transcending economic, social voice-based business processes
and geographical boundaries. (popularly known as BPO or
Globalisation attempts to establish call centres), record keeping,

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 45

 Box 3.2: Global Footprint!
Owing to globalisation, you might find many Indian companies expanding their
wings to many other countries. In 2000, Tata Tea surprised the world by
acquiring the UK based Tetley, the inventor of the tea bag, for Rs 1,870 crore.
In the year 2004, Tata steel bought the Singapore-based Nat steel for Rs 1,245
crore and Tata Motors completed the buyout of Daewoo’s heavy commercial
vehicle unit in South Korea for Rs 448 crore. Now VSNL is acquiring Tyco’s
undersea cable network for Rs 572 crore, which will control over 60,000 km
undersea cable network across three continents. The Tatas also plan to invest
Rs 8,800 crore in fertiliser, steel and power plants in Bangladesh.
Source: Business Today, 22 May 2005.

accountancy, banking services, services to India where they can be

music recording, film editing, book availed at a cheaper cost with
transcription, clinical advice or even reasonable degree of skill and
teaching are being outsourced by accuracy. The low wage rates and
companies in developed countries to availability of skilled manpower in
India. With the help of modern India have made it a destination for
telecommunication links including global outsourcing in the post-reform
the Internet, the text, voice and visual period.
data in respect of these services is
digitised and transmitted in real time World Trade Organisation (WTO):
over continents and national The WTO was founded in 1995 as
boundaries. Most multinational the successor organisation to the
corporations, and even small General Agreement on Trade and
companies, are outsourcing their Tariff (GATT). GATT was established
in 1948 with 23 countries
as the global trade
organisation to administer
all multilateral trade
agreements by providing
equal opportunities to
all countries in the
international market for
trading purposes. WTO is
expected to establish a rule-
based trading regime in
which nations cannot place
arbitrary restrictions on
trade. In addition, its
Fig. 3.1 Outsourcing: a new employment opportunity in big cities purpose is also to enlarge

46 INDIAN ECONOMIC DEVELOPMENT

 Work These Out

¾ Many scholars argue that globalisation is a threat as it reduces the role of

the state in many sectors. Some counter argue that it is an opportunity as
it opens up markets to compete in and capture. Debate in the classroom.
¾ Prepare a chart consisting of a list of five companies that have BPO services
in India, along with their turnover.
¾ Read this excerpt of a news item from a daily newspaper describing
something that is now becoming increasingly common.
“On a morning, a few minutes before 7 A.M., Greeshma sat in front of
her computer with her headset on and said in accented English ‘Hello,
Daniella’. Seconds later, she gets the reply, ‘Hello, Greeshma’. The two chatted
excitedly before Greeshma said that ‘we will work on pronouns today’.
Nothing unusual about this chat except that Greeshma, 22, was in Kochi
and her student Daniella, 13, was at her home in Malibu, California. Using
a simulated whiteboard on their computers, connected by the Internet, and
a copy of Daniella’s textbook in front of Greeshma, she guides the teenager
through the intricacies of nouns, adjectives and verbs. Greeshma, who grew
up speaking Malayalam, was teaching Daniella English grammar,
comprehension and writing.”
9 How has this become possible? Why can’t Daniella get lessons in her
own country? Why is she getting English lessons from India, where
English is not the mother tongue?
9 India is benefiting from liberalisation and integration of world markets.
Do you agree?
¾ Is employment in call centres sustainable? What kinds of skills should people
working in call centres acquire to get a regular income?
¾ If the multinational companies outsource many services to countries like
India because of cheap manpower, what will happen to people living in the
countries where the companies are located? Discuss.

production and trade of services, to As an important member of WTO,

ensure optimum utilisation of world India has been in the forefront of
resources and to protect the framing fair global rules, regulations
environment. The WTO agreements and safeguards and advocating the
cover trade in goods as well as services interests of the developing world.
to facilitate international trade India has kept its commitments
(bilateral and multilateral) through towards liberalisation of trade, made
removal of tariff as well as non-tariff in the WTO, by removing quantitative
barriers and providing greater market restrictions on imports and reducing
access to all member countries. tariff rates.

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 47

 TABLE 3.1
Growth of GDP and Major Sectors (in %)

Sector 1980-1991 1992-2001 2002-2007 2007-2012 2012-2017 XII Plan

Target I Target II
Agriculture 3.6 3.3 2.3 3.2 4.0 4.2
Industry 7.1 6.5 9.4 7.4 9.6 10.9
Services 6.7 8.2 7.8 8.2 10.0 10.0
Total 5.6 6.4 7.8 8.2 9.0 9.5

Sources: Tenth Five Year Plan; Faster, sustainable and more inclusive growth: An Approach to the 12th
Five Year Plan, Planning Commission, Government of India, 2011.

Some scholars question the introduction. Let us now look at the

usefulness of India being a member of performance of the Indian economy
the WTO as a major volume of during this period. In economics,
international trade occurs among the growth of an economy is measured by
developed nations. They also say that the Gross Domestic Product. Look at
while developed countries file Table 3.1. The growth of GDP
complaints over agricultural subsidies increased from 5.6 per cent during
given in their countries, developing 1980-91 to 8.2 per cent during
countries feel cheated as they are forced 2007-1012. During the reform
to open up their markets for developed period, the growth of agriculture has
countries but are not allowed access to declined. While the industrial sectors
reported fluctuation, the growth of
the markets of developed countries.
service sector has gone up. This
What do you think?
indicates that the growth is mainly
driven by the growth in the service
sector. The Twelfth Plan (2012-2017)
envisages the GDP growth rate at
9 or 9.5 per cent. In order to achieve
such a high growth rate, the
agriculture, industrial and service
sectors have to grow at the rates of
4 to 4.2, 9.6 to 10.9 and 10
percentage points, respectively.
However, some scholars raise
Fig. 3.2 IT Industry is seen as a major contributor apprehensions over the projection of
to India’s exports such high rates of growth as
3.6 INDIAN ECONOMY DURING unsustainable.
The opening up of the economy has
R EFORMS : AN A SSESSMENT
led to rapid increase in foreign direct
The reform process has completed investment and foreign exchange
one and a half decades since its reserves. The foreign investment,

48 INDIAN ECONOMIC DEVELOPMENT

which includes foreign direct reform period. Rising prices have
investment(FDI) and foreign also been kept under control.
institutional investment(FII), has On the other hand, the reform
increased from about US $ 100 million process has been widely criticised
in 1990-91 to US $ 400 billion in for not being able to address some
2010-11. There has been an increase of the basic problems facing our
in the foreign exchange reserves from economy esepecially in the areas of
about US $ 6 billion in 1990-91 to US employment, agriculture, industry,
$ 300 billion in 2011-12. In 2011, infrastructure development and fiscal
India is the seventh largest foreign management.
exchange reserve holder in the world.
India is seen as a successful Growth and Employment: Though the
exporter of auto parts, engineering GDP growth rate has increased in the
goods, IT software and textiles in the reform period, scholars point out that the

Work These Out

¾ In the previous chapter, you might have studied about subsidies in various
sectors including agriculture. Some scholars argue that subsidy in agriculture
should be removed to make the sector internationally competitive. Do you
agree? If so, how can it be done? Discuss in class.
¾ Read the following passage and discuss in class.
Groundnut is a major oilseed crop in Andhra Pradesh. Mahadeva, who
was a farmer in Anantpur district of Andhra Pradesh, used to spend Rs 1,500
for growing groundnut on his plot of half an acre. The cost included expenditure
on raw materials (seeds, fertilisers etc.), labour, bullock power and machinery
used. On an average, Mahadeva used to get two quintals of groundnut, and
each quintal was sold for Rs 1,000. Mahadeva, thus, was spending Rs 1,500
and getting an income of Rs 2,000. Anantpur district is a drought-prone area.
As a result of economic reforms, the government did not undertake any major
irrigation project. Recently, groundnut crop in Anantpur is facing problems
due to crop disease. Research and extension work has gone down due to lower
government expenditure. Mahadeva and his friends brought this matter
repeatedly to the notice of the government officials entrusted with this
responsibility, but failed. Subsidy was reduced on materials (seeds, fertilisers)
which increased Mahadeva’s cost of cultivation. Moreover, the local markets
were flooded with cheap imported edible oils, which was a result of removal of
restriction on imports. Mahadeva was not able to sell his groundnut in the
market as he was not getting the price to cover his cost.
What could be done to farmers like Mahadeva from incurring losses?
Discuss in the class.

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 49

reform-led growth has not generated This is because of decreasing demand
sufficient employment opportunities in of industrial products due to
the country. You will study the link various reasons such as cheaper
between different aspects of employment imports, inadequate investment in
and growth in the next unit. infrastructure etc. In a globalised
world, developing countries are
Reforms in Agriculture: Reforms have compelled to open up their economies
not been able to benefit agriculture, to greater flow of goods and capital
where the growth rate has been from developed countries and
decelerating. rendering their industries vulnerable
Public investment in agriculture to imported goods. Cheaper imports
sector especially in infrastructure, have, thus, replaced the demand
which includes irrigation, power, roads, for domestic goods. Domestic
market linkages and research and manufacturers are facing competition
extension (which played a crucial role from imports. The infrastructure
in the Green Revolution), has been facilities, including power supply, have
reduced in the reform period. Further, remained inadequate due to lack of
the removal of fertiliser subsidy has led investment. Globalisation is, thus,
to increase in the cost of production, often seen as creating conditions for
which has severely affected the small the free movement of goods and
and marginal farmers. This sector has services from foreign countries that
been experiencing a number of policy adversely affect the local industries
changes such as reduction in import and employment opportunities in
duties on agricultural products, developing countries.
removal of minimum support price and Moreover, a developing country
like India still does not have the access
lifting of quantitative restrictions on
to developed countries’ markets
agricultural products; these have
because of high non-tariff barriers. For
adversely affected Indian farmers as
example, although all quota
they now have to face increased
restrictions on exports of textiles and
international competition. clothing have been removed in India,
Moreover, because of export- U.S.A. has not removed their quota
oriented policy strategies in agriculture, restriction on import of textiles from
there has been a shift from production India and China.
for the domestic market towards
production for the export market Disinvestment: Every year, the
focusing on cash crops in lieu of government fixes a target for
production of food grains. This puts disinvestment of PSUs. For instance,
pressure on prices of food grains. in 1991-92, it was targeted to mobilise
Rs 2,500 crore through disinvestment.
Reforms in Industry: Industrial The government was able to mobilise
growth has also recorded a slowdown. Rs 3,040 crore more than the target.

50 INDIAN ECONOMIC DEVELOPMENT

In 2010-11, the target was Rs 40,000 increase in tax revenue for the
crore whereas the achievement was government. Also, the reform policies
Rs 22,850 crore. Critics point out that involving tariff reduction have curtailed
the assets of PSUs have been the scope for raising revenue through
undervalued and sold to the private customs duties. In order to attract
sector. This means that there has been foreign investment, tax incentives were
a substantial loss to the government. provided to foreign investors which
Moreover, the proceeds fr om further reduced the scope for raising
disinvestment were used to offset the tax revenues. This has a negative impact
shortage of government revenues on developmental and welfare
rather than using it for the expenditures.
development of PSUs and building
social infrastructure in the country. Do 3.7 CONCLUSION
you think selling a part of the The process of globalisation through
properties of government companies is liberalisation and privatisation policies
the best way to improve their has produced positive as well as
efficiency? negative results both for India and
other countries. Some scholars argue
Reforms and Fiscal Policies: that globalisation should be seen as
Economic reforms have placed limits on an opportunity in terms of greater
the growth of public expenditure access to global markets, high
especially in social sectors. The tax technology and increased possibility of
reductions in the reform period, aimed large industries of developing
at yielding larger revenue and to curb countries to become important players
tax evasion, have not resulted in in the international arena.

Box 3.3: Siricilla Tragedy!

Power Sector reforms in many Indian states led to do away with the supply of
electricity at subsidised rates and steep rise in power tariff. This has affected
workers engaged in small industries. Powerloom textile industry in Andhra
Pradesh is an example. Since the wages of the powerloom workers are linked
to the production of cloth, power-cut means cut in wages of weavers who
were already suffering from hike in tariff. This led to a crisis in the livelihood
of the weavers and fifty powerloom workers committed suicide in a small
town called ‘Siricilla’ in Andhra Pradesh.
¾ Do you think the power tariff should not be raised?
¾ What would be your suggestions to revive small industries affected by
reforms?

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 51

 On the contrary, the critics argue policies initiated as a response to the
that globalisation is a strategy of the crisis by the government, with
developed countries to expand their externally advised policy package,
markets in other countries. According further aggravated the inequalities.
to them, it has compromised the Further, it has increased the income
welfare and identity of people and quality of consumption of only
belonging to poor countries. It has high-income groups and the growth
further been pointed out that has been concentrated only in
market-driven globalisation has some select areas in the services
widened the economic disparities sector such as telecommunication,
among nations and people. information technology, finance,
Viewed from the Indian context, entertainment, travel and hospitality
some studies have stated that the services, real estate and trade,
crisis that erupted in the early 1990s rather than vital sectors such as
was basically an outcome of the agriculture and industry which
deep-rooted inequalities in Indian provide livelihoods to millions of
society and the economic reform people in the country.

Recap
¾ The economy was facing problems of declining foreign exchange, growing
imports without matching rise in exports and high inflation. India changed
its economic policies in 1991 due to a financial crisis and pressure from
international organisations like the World Bank and IMF.
¾ In the domestic economy, major reforms were undertaken in the industrial
and financial sectors. Major external sector reforms included foreign
exchange deregulations and import liberalisation.
¾ With a view to improving the performance of the public sector, there was a
consensus on reducing its role and opening it up to the private sector. This
was done through disinvestment and liberalisation measures.
¾ Globalisation is the outcome of the policies of liberalisation and privatisation.
It means an integration of the economy of the country with the world
economy.
¾ Outsourcing is an emerging business activity.
¾ The objective of the WTO is to establish a rule based trade regime to ensure
optimum utilisation of world resources.
¾ During the reforms, growth of agriculture and industry has gone down but
the service sector has registered growth.
¾ Reforms have not benefited the agriculture sector. There has also been a
decline in public investment in this sector.
¾ Industrial sector growth has slowed down due to availability of cheaper
imports and lower investment.

52 INDIAN ECONOMIC DEVELOPMENT

 EXERCISES

1. Why were reforms introduced in India?

2. Why is it necessary to became a member of WTO?
3. Why did RBI have to change its role from controller to facilitator of
financial sector in India?
4. How is RBI controlling the commercial banks?
5. What do you understand by devaluation of rupee?
6. Distinguish between the following
(i) Strategic and Minority sale
(ii) Bilateral and Multi-lateral trade
(iii) Tariff and Non-tariff barriers.
7. Why are tariffs imposed?
8. What is the meaning of quantitative restrictions?
9. Those public sector undertakings which are making profits
should be privatised. Do you agree with this view? Why?
10. Do you think outsourcing is good for India? Why are developed
countries opposing it?
11. India has certain advantages which makes it a favourite outsourcing
destination. What are these advantages?
12. Do you think the navaratna policy of the government helps in
improving the performance of public sector undertakings in India?
How?
13. What are the major factors responsible for the high growth of the
service sector?
14. Agriculture sector appears to be adversely affected by the reform
process. Why?
15. Why has the industrial sector performed poorly in the reform
period?
16. Discuss economic reforms in India in the light of social justice
and welfare.

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 53

 SUGGESTED ADDITIONAL ACTIVITIES

1. The table given below shows the GDP growth rate at 1993-94
prices. You have studied about the techniques of presentation
of data in your Statistics for Economics course. Draw a time
series line graph based on the data given in the table and inter -
pret the same.

Year GDP Growth Rate (%)

2000-01 4.3
2001-02 5.5
2002-03 4.0
2003-04 8.1
2004-05 7.0
2005-06 9.5
2006-07 9.6
2007-08 9.3
2008-09 6.7
2009-10 8.4

2. Observe around you — you will find State Electricity Boards

(SEBs), BSES and many public and private organisations sup-
plying electricity in a city and states. There are private buses on
roads along side the goverment bus services and so on
(i) What do you think about this dual system of the co-existence
of public and private sectors?
(ii) What are the merits and demerits of such a dual system?
Discuss.
3. With the help of your parents and grandparents prepare a list of
multinational companies that existed in India at the time of
independence. Now put a (9 ) mark against those which are still
growing and a (×) against those which do not exist any more. Are
there any companies whose names have changed? Find out the
new names, the country of origin, nature of product, logo and
prepare a chart for your class.

54 INDIAN ECONOMIC DEVELOPMENT

 4. Give appropriate examples for the following

Nature of Product Name of a Foreign Company

Biscuits
Shoes
Computers
Cars
TV and Refrigerators
Stationery

Now find out if these companies which are mentioned above existed
in India before 1991 or came after the New Economic Policy. For this,
take the help of your teacher, parents, grandparents and shopkeepers.
5. Collect a few relevant newspaper cuttings on meetings organised
by WTO. Discuss the issues debated in these meetings and find
out how the organisation facilitates world trade.
6. Was it necessary for India to introduce economic reforms at the
behest of World Bank and International Monetary Fund? Was there
no alternative for the government to solve the balance of pay-
ments crisis? Discuss in the classroom.

REFERENCES

Books

A CHARYA, S. 2003. India’s Economy: Some Issues and Answers. Academic

Foundation, New Delhi.
ALTERNATIVE SURVEY GROUP. 2005. Alternative Economic Survey, India 2004–05,
Disequalising Growth. Daanish Books, Delhi.
A HLUWALIA , I.J. and I.M.D. L ITTLE . 1998. India’s Economic Reforms and
Development. Oxford University Press, New Delhi.
B ARDHAN , PRANAB. 1998. The Political Economy of Development in India.
Oxford University Press, Delhi.
B HADURI, AMIT and DEEPAK NAYYAR . 1996. The Intelligent Person’s Guide to
Liberalisation. Penguin, Delhi.
B HAGWATI , J AGDISH . 1992. India in T ransition: Freeing the Economy. Oxford
University Press, Delhi.

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 55

 B YRES , T ERENCE J. 1997. The State, Development Planning and Liberalisation
in India. Oxford University Press, Delhi.
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D EBROY , B. and R AHUL M UKHERJI (Eds.). 2004. The Political Economy of
Reforms. Bookwell Publication, New Delhi.
D REZE, J EAN and AMAR TYA S EN. 1996. India: Economic Development and Social
Opportunity. Oxford University Press, Delhi.
D UTT, RUDDAR AND K.P.M. S UNDARAM. 2005. Indian Economy. S. Chand and
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G UHA, ASHOK (Ed.) 1990. Economic Liberalisation, Industrial Structure and
Growth in India. Oxford University Press, Delhi.
J ALAN , B IMAL . 1993. India’s Economic Crisis: The Way Ahead. Oxford
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J ALAN , B IMAL . 1996. India’s Economic Policy: Preparing for the Twenty First
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J OSHI,V IJAY and I.M.D. L ITTLE. 1996. India’s Economic Reforms 1991-2001.
Oxford University Press, Delhi,
K APILA , Uma. 2005. Understanding the Problems of Indian Economy.
Academic Foundation, New Delhi.
M AHAJAN , V.S. 1994. Indian Economy Towards 2000 A.D. Deep & Deep,
Delhi.
P AREKH, KIRIT and R ADHAKRISHNA, 2002, India Development Report 2001-02.
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R AO, C.H. HANUMANTHA. and H ANS L INNEMANN . 1996. Economic Reforms and
Poverty Alleviation in India, Sage Publication, Delhi.
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Economic Survey 2005-06. Ministry of Finance, Government of India.
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Commission, New Delhi.

56 INDIAN ECONOMIC DEVELOPMENT