Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal

Answer: The 1991 economic reforms in India were a response to a balance of payment crisis caused by dwindling foreign exchange reserves. The government was unable to pay for essential imports or service its external debt, leading to the devaluation of the rupee, accepting conditionalities from the IMF and World Bank, and launching a series of structural reforms to open the economy.

Answer: The World Bank and IMF provided significant financial assistance to India during the 1991 crisis, conditional upon India implementing structural adjustments. These included liberalisation policies to reduce government control over the economy, privatisation of public sector enterprises, and steps to encourage foreign investment and trade.

Answer: Liberalisation in India led to the deregulation of industrial licensing policies, enabling freer entry and exit of firms, reducing state monopolies over industries, and allowing market forces to determine production and pricing. It encouraged the growth of private and foreign enterprises, leading to increased competition and efficiency.

Answer: Privatisation in India involved disinvesting government equity in public sector enterprises to improve efficiency, introduce private management practices, and relieve government fiscal burdens. While it led to streamlined operations and increased private sector involvement, it also drew criticisms for undervaluing public assets.

Answer: Globalisation refers to the integration of the Indian economy with the global economy, facilitated through policies that reduced trade barriers, allowed greater foreign investments, and encouraged multinational operations in India. It sought to enhance competitiveness and bring technological advancements.

Answer: Economic reforms in India have largely bypassed agriculture, leading to a slowdown in its growth due to reduced public investments and lifting of import restrictions. This has made Indian agriculture vulnerable to international price fluctuations and increased competition, while the shift towards cash crops has impacted food security.

Answer: Post-reform, the service sector has been the primary driver of India's GDP growth, buoyed by robust growth in IT, telecommunications, and financial services. As global demand for outsourcing increased, India capitalised on its skilled workforce and cost advantages, boosting exports and employment.

Answer: Rupee devaluation made Indian exports cheaper and imports costlier. While it helped stabilize foreign exchange reserves and promoted exports, it increased the cost of essential imports like petroleum, contributing to inflation. Additionally, it put pressure on foreign debt repayments.

Answer: Privatisation in India has faced criticism for allegedly undervaluing government enterprises during disinvestment, leading to loss of public assets. Critics argue that it prioritises short-term fiscal benefits over long-term developmental goals and has not necessarily improved efficiency in all sectors.

Answer: Reforms have facilitated international trade by dismantling quantitative restrictions, lowering tariffs, and simplifying licensing procedures. These measures have increased India's global competitiveness, attracting foreign investments and integrating Indian industries into global supply chains.