CHAPTER 3

ECONOMIC REFORMS SINCE 1991

Content
Why were economic reforms introduced
Liberalisation
Privatisation
Globalisation
Performance of the Indian economy during economic reforms
Demonetisation
Goods and service tax GST

Q1. Why are economic reforms introduced in India? Content why were economic
reforms introduced?
The Economic reforms introduced in India because of the following reasons
1.Poor performance of public sector undertakings
The overall performance of public sector undertaking was very disappointing. They are
not generating any revenue, there is need for economic reforms
2.Deficit in balance of payment account
Even after adopting high tariff and quota system, the Indian import are rising and export
of India is declining because of low quality product .as a result there is deficit in balance
of payment account.
3.Inflation
Inflation is constantly rising because of shortage of essential goods and increase in
money supply. so in order to Control the inflation there is need for economic reforms
4.Huge debt burden
Due to more expenditure of the government the government is forced to borrow from
the bank, public and other Financial Institutions . As a result debt burden of government
increase.
Fall in Foreign Exchange Reserves
Foreign exchange reserve decline because of more import and debt burden. So in order
to maintain balance for foreign exchange reserve there is need for economic reforms.

Q2. What do you mean by New Economic Policy 1991 and explain its measures
,In order to manage the crisis of 1991 the new economic policy was announced in 1991
July. The main aim of this policy is to create more competitive environment by removing
all the barriers. The various kind of measures are
A Stabilization measures
- It is short term measures to correct the balance of payment position
-To control inflation
B structural Reform measures
-These are long term measures to improve the efficiency of economy
-To increase competition by removing all the barriers
Q 3 What are the main policies of new economic policy?

The main policy of new economic policy was

Liberalisation

It means removal of entry and growth restriction on the private sector. The main aim of
liberalisation was to improve economic potential and to increase more competition

Privatisation
Privatisation means transfer of ownership of management and control of the public
sector undertaking into private sector. It is done by two ways

a Transfer of ownership from government to private sector.

b Through disinvestment which means sale of shares of government sector

Globalization.
it means integrating the Indian economy with the world economy through removal of all
the barriers on international trade

Q4.Explain the industrial sector reforms under liberalisation policy.

The various measures under industrial policy reforms include

1.Reduction in industrial licensing

According to new industrial licensing policy no license was needed to set up new unit
and to expand and diversify the existing unit.
However license is required for industries which is related to security of the nation.

2.Decrease the role of public sector

The number of industries which were reserved for the public sector reduced from 17 to
3 industries
The three industries include
A. Defence equipment
B.Atomic energy
C.Railway

3. De reservation of small scale industries

many goods which are produced by small scale industries were De reserved.

4. MRTP Act
According to this act there is no need to get the government permission for expansion,
mergers and establishment of new business.

Q5.Explain the financial sector reforms under liberalisation

It includes following reforms
1. Change in the role of RBI
The role of RBI was reduced from regulator to facilitator

2.Origin of private banks

The Reform policy helps in establishing private as well as foreign banks which benefit
the consumers through better services.

3.Increase in limit of foreign investment

limit of foreign investment in banks Rises up to 51% which generate more resources.

4.Ease in expansion process

Bank was given freedom to set up new branches without the permission of RBI.

Q6.What are the tax reforms under liberalisation policy.

Tax reforms refers to the reforms in taxation and expenditure policy which is also known
as FISCAL Policy
The major reforms are
1.Tax rate has been decreased to promote savings
2. Some changes have been done in indirect tax also.
3.Tax procedure have been simplified.

Q7.Explain the foreign exchange reforms under liberalisation policy.

It includes two reforms

1.Devaluation of Indian currency
To overcome the BOP crisis the Rupee was devaluated against foreign currency
2.Market determination of foreign exchange rate
The government allow Rupee value to be free from their control now rupee value will be
decided by the demand and supply forces.

Q8.Explain the trade and investment reforms under liberalisation policy

1.Quantitative restriction on import and export were reduced and it was finally fully
removed from April 2001
2.Export duties were removed to increase the competition level
3.Import duties were removed to improve the position of domestic goods
4.There is relaxation in import license in system for better price and greater efficiency.

Q9. Do you think that Navratna policy of the government help in improving the
performance of public sector undertakings in India and how?

yes, the Navratan policy of the government helps in improving the performance of public
sector undertaking because
*public sector undertaking were given greater freedom for taking various decisions.
*the granting of Navratna status resulting in better performance of these companies.
*the government decide to retain the Navratan status in the public sector also which
helps them to expand.
Q10.Do you think that Outsourcing is good for India and why developed
countries are opposing it
yes, Outsourcing is good for India because of the following reasons
1.it provide employment to large number of people
2.it enables the exchange of ideas and advanced technology
3.it also improve living standard of people
4.it also create International goodwill
however developed countries oppose Outsourcing to India because
It create job in security in developed countries .Outsourcing leads to outflow of funds
from developed countries to India which will reduce the income disparity

Q11.India has certain advantages which makes its favourable Outsourcing

destination what are its advantages

1.Easy availability of cheap labour

The wages rate in India are comparatively lower than the developed countries
2.Availability of skilled manpower
India has skilled manpower which increases the faith of MNCs
3.Government policies
Companies get various type of attractive offers from the Indian government like low rate
tax
International goodwill
India has International goodwill and ability which helps in attracting outsourcing.

Q12.Write a short note on world trade organisation and its functions.

WTO was founded in 1995 after the successful implementation of organisation GATT
At present there are 164 member countries.some of the major functions are
1.To protect the environment
2. Optimum utilisation of resources
3.To increase production and trade services
4.To increase international trade by removing all the tariff and non tariff barriers.

Topic
Impact of LPG OR Indian economy during the Reform period

Q14..The process of globalisation through liberalisation and privatisation policies has

produced positive as well as negative result and other countries. Defend or refute the
above statement
OR
Discuss economic reforms in India in the light of Social justice and welfare
OR
Critically evaluate the impact of liberalisation privatisation and globalisation policies on
the Indian economy

The given statement is true to its character

some Scholars argue that globalisation should be seen as an opportunity in terms of positive
points
Economic growth
The growth rate of different sector of the economy has been increased from 5.6% to 6.4 %
during 1990 to 2001
Check on inflation
By adapting new economic policy we has controlled our rate of inflation. Annual inflation rate
which was high as 12% has been constant around 4 to 5%.
High Technology

On the contrary the critics argue that( negative points)

Growing Unemployment
The GDP growth rate has been increased in the Reform period but such growth fails to generate
employment opportunities.
Removal of subsidies
The small and marginal farmers are adversely affected by the removal of subsidies on fertilizer.
Income inequality
It has increased the income and quality of further consumption of high income group it create
income inequality.

Q13.Write a short note on the concept of demonetisation

Demonetisation is a situation when the central bank of country withdraw the old
currency notes of certain denomination as an official mode of payment .On November 8
2016 higher denomination currency notes of 500 and 1000 cease to be legal tender.
The main aim of demonetisation
1.To curb corruption and penalized illegal activities
2.To decrease the circulation of fake currency
3.To reduce informal Savings and channelise them through formal banking system
Impact of demonetisation
1.There is decline in the stock of Black Money
2.There is suddenly rise in the Bank deposit and financial savings
3. Government revenue from taxes has been increased

Topic GST goods and services tax

Meaning
The good and services tax is an indirect tax on the supply of goods and services. GST
Act was passed in the Parliament on 24th March 2017, and it came into effect from 1st
July 2017.
before the implementation of goods and services tax, various Central and state and
local area taxes levied in India. These indirect taxes has now been subsumed under
GST which is based on the principle of one “Nation one tax”.

Goods and services are divided into following tax slabs for collection of tax namely 0%
on essential items including food, 5%, 12%, 18%, 28% on luxury items and tobacco

Features of GST
GST is a comprehensive tax as various indirect taxes have been merged in the single
tax expect custom duty, tax on petroleum products , alcoholic drinks.
GST is multi stage tax because it is proposed to be charged at all the stages starting
from production up to final consumption.
GST is value added tax because it is charged on value addition at each stage of the
supply chain.