CBSE Class 11 Economics Indian Economic Development Revision Notes Chapter 3

Class 11 Indian Economic Development Chapter 3 Notes

CBSE Class 11 Indian Economic Development Revision Notes Chapter 3 – Liberalisation, Privatisation and Globalisation: An Appraisal

Students will learn about liberalisation and the opening of the Indian economy to foreign investment in this Class 11 Indian Economic Development Chapter 3 Notes. The events leading up to and during this process are described in detail in this chapter. Chapter 3 notes also cover how these policies were implemented. Students who want to understand the pre-1980 situation and how that affected the Indian economy today should be able to find sufficient answers in this chapter.

For a detailed and illustrative examination of the topic, see Extramarks’ Chapter 3 Indian Economic Development Class 11 Notes. 

Access Class 11 Economics (Indian Economic Development) Chapter 3 – Liberalisation, Privatisation and Globalisation

Economic Policy of 1991

  • The Indian government started a program of economic reforms known as the New Economic Policy in 1991 to combat the severe economic crisis occurring at that time.
  • India announced its New Economic Policy (NEP), subject to World Bank and IMF requirements. This policy can be broadly classified as follows:
    1. Stabilisation measures: These were the short-term solutions to the problem of inflation and the balance of payments imbalance.
    2. Structural reform measures: Long-term measures aimed at improving the economy’s efficiency and global competitiveness were known as structural reforms.
  • This policy’s three main parts were as follows:
    1. Liberalisation 
    2. Privatisation 
    3. Globalisation

Economic Reforms:

The following reasons led to the implementation of economic reforms in India:

Decreasing foreign exchange reserves: The foreign exchange reserves that the government typically has on hand to import gasoline and other necessities have fallen to levels that are not enough to last even a fortnight. The government struggled to pay back its foreign debt.

Poor performance of the public sector: From 1951 to 1990, the public sector played a significant role in development policies. But the vast majority of government-run businesses did poorly. Due to poor management, they were suffering significant financial losses.

Inflationary BoP or imports exceeding exports: Imports grew quickly but not at the same rate as exports. The government could not restrict imports even after imposing high taxes and quotas. On the other hand, exports were quite low due to the subpar quality and exorbitant prices of our goods compared to those of foreign goods.

Government has massive debts: The government owed a lot of money because it spent more on various development projects than it collected in taxes. As a result, the public authority purchased money from banks, government-run financial institutions, international financial organisations like the International Monetary Fund (IMF), and other sources.

Liberalisation

Liberalisation is the process by which the economy becomes free of the physical or direct restraints imposed by the government. It is typically explained as a relaxation of government regulations to allow the private sector to operate with fewer restraints. In emerging nations, this refers to opening economic frontiers for multinational and foreign investment.

There have been many liberalisation initiatives in foreign trade, technological advancement, exports and imports, and foreign investment.

Industrial Sector Reforms

  • Except for five industries—alcohol, cigarettes, defence technology, industrial explosives, and hazardous chemicals—the requirement for licensing was eliminated due to these reforms.
  • There are now only 8 instead of 17 industries that the government has set aside. There were only 2 of these in 2010–11.
  • Many production areas previously set aside for small-scale industries have been released.
  • Lack of licensing implies a lack of capacity restrictions.
  • Now, the producer can choose what to produce and how much.

Financial Sector Reforms

  • The RBI’s regulatory function was changed to that of a financial sector facilitator.
  • The RBI would set the commercial banks’ interest rate structure as a regulator. However, its role as a facilitator would only allow the market forces to operate freely and allow the banks to set their own interest rates.
  • Foreign Institutional Investors (FII), including pension funds, mutual funds, and merchant bankers, also had access to Indian financial markets.

Tax Reforms (Fiscal Reforms)

  • Since 1991, there has been a decrease in taxes and a simplification of the tax code’s individual income tax structure. People would frequently evade taxes out of fear of the high burden and complexity of taxes.
  • Additionally, changes have been made to the taxes imposed on goods. It was anticipated that the Goods and Services Tax, passed in 2016 and implemented in 2017, would increase government revenue and deter tax evasion.

Foreign Exchange Reforms

  • To correct the balance of payments, the Indian rupee was devalued against other currencies in 1991.
  • After the devaluation, market forces were allowed to determine how much the Indian rupee would exchange for on the global money market.

Trade and Investment Policy reforms

  • Import quotas that were a part of the Foreign Trade Policy were eliminated after liberalisation.
  • The tariff rates were decreased.
  • The import licensing policy was almost completely abandoned except for a few products.
  • To increase competition in the domestic market, import duties were reduced.
  • Export duties were eliminated to make Indian goods more competitive on the global market.
  • Quantitative restrictions on imports were lifted beginning in April 2001.

Privatisation

  • Privatisation is the procedure of incorporating the private sector into the ownership of a state-owned company.
  • There are two ways that government ownership can be transferred to the public sector:

          (i) The direct transfer of government businesses to private businesspeople

          (ii) Government management and ownership of mixed enterprises are removed.

  • Another form of privatisation is disinvestment, in which the government sells a portion of the capital it owns in PSUs to private investors.

Strategies Adopted for Privatisation:

  • Providing a strong impetus for FDI inflows: The goal of privatisation is to give FDI inflows a strong foundation. The financial position of the economy is improved by increased FDI inflows.
  • Increasing the efficiency of public-sector endeavours (PSUs): Public-sector enterprises (PSUs) are more effective when given this power. The Navratna and Miniratna designations were given to some companies.

Globalisation

  • When a country’s economy is integrated with the world economy, it is called globalisation.
  • Some features of globalisation include the following:
    • Liberalisation: This is the ability of businesspeople to grow any sector of the economy they choose, whether domestically or abroad.
    • Economic activity globalisation: Both domestic and international markets drive economic activity. It alludes to the process of fusing national and international economies.
    • Trade liberalisation supports the unhindered flow of goods and services among all countries. It promotes the removal of onerous regulatory, protective, and other restrictions from businesses and industries.
    • Privatisation: Globalisation entails releasing the government from regulating the means of production and distribution and allowing the unrestricted exchange of commercial, industrial, and economic activities between people and businesses.
    • Increased collaborations: One aspect of globalisation is the promotion of entrepreneurial collaborations to ensure rapid technological advancement, development, and modernisation.

Outsourcing

  • When a country’s economy is integrated with the world economy, it is called globalisation.
  • These services include call centres, transcribing, medical advice, teaching/coaching, BPOs, KPOs, accountancy, banking services, etc.
  • India is steadily rising in popularity as a destination for global outsourcing due to the accessibility of inexpensive labour and the revolutionary expansion of the Indian IT industry.

World Trade Organisation

  • The World Trade Organisation took the place of the GATT organisation on January 1, 1995. Geneva, Switzerland, serves as its corporate headquarters.
  • Additionally, because all decisions are made by member states based on consensus, it is a member-driven, rule-based organisation.
  • It is anticipated that the World Trade Organisation (WTO) will be crucial to the globalisation of world economies. By reducing tariffs and removing non-tariff barriers, it aims to promote global trade.

Assessment of LPG Policies

Merits

Growth

The Indian economy has grown more thriving. An impressive increase in the growth rate of GDP indicates that economic activity has trended up overall. GDP growth increased to 8% annually after the LPG policy was implemented.

Rise in FDI

Foreign Institutional Investment (FII) and Foreign Direct Investment (FDI) have increased significantly. Furthermore, there has been a sizable increase in foreign exchange reserves. India is now one of the countries with the largest foreign exchange reserves in the world.

Increased Exports

India has become a significant exporter of a wide range of goods, including textiles, IT software, pharmaceuticals, engineering, and auto parts.

A Check on Inflation

A reduction in inflation: LPG policies increased the flow of goods and services throughout the economy.

Demerits

Unemployment

The growth-driven reforms were unable to create enough job opportunities in the nation.

Reforms in Agriculture

The primary factor influencing GDP growth has been the rise of the secondary and tertiary industries. The agricultural sector has experienced tremendous neglect, and as a result, its growth rate has drastically decreased. India’s rural and urban economies are consequently diverging more and more.

Disinvestment

PSU assets were undervalued and sold to the private sector, resulting in a significant loss to the government and the outright sale of public support. The money raised from selling these assets is diverted from building up the nation’s social infrastructure and instead is used to make up for the lack of tax revenue.

Reforms and Fiscal Policies

Economic reforms, particularly in the social sectors, have slowed public sector spending growth. No increase in tax revenue was observed, despite expectations that the tax reductions would reduce tax evasion and increase government revenue. International investors were given tax breaks to attract foreign investment. This further limited the opportunity to raise tax revenue.

Economics Class 11 Chapter 3 Notes Liberalisation, Privatisation and Globalisation – An Appraisal

Extramarks has provided concise Class 11 Indian Economic Development Chapter 3 Notes for students to have a quick revision of the chapter’s contents. These notes explain the points in an easy-to-understand and lucid manner. Students will benefit from the Class 11 Indian Economic Development Chapter 3 Notes because it is easy to access and written by subject matter experts. 

Microeconomics Class 11 Chapter 3 Notes: Economic Crisis

Indian Economic Development Chapter 3 Class 11 Notes provide a detailed explanation of what occurred before the 1980 crisis in this section. It also tries to understand what led to the need for liberalisation. It discusses the reasons behind the financial crisis, the necessity of economic reforms, and events that sparked those reforms.

Microeconomics Class 11 Chapter 3 Notes: Emergence of New Economic Policy

This section discusses the necessity of liberalising the Indian economy and how it was accomplished. Here are more details on the motivations behind India’s decision to open its economy.

Microeconomics Class 11 Chapter 3 Notes: Liberalisation

Brief explanations of liberalism, its goals, and the various reforms implemented during the liberalisation process are provided in Indian Economic Development Class 11 Chapter 3 Notes.

Microeconomics Class 11 Chapter 3 Notes: Economic Reforms

This economic deregulation of the industrial sector is covered in Chapter 3 Indian Economic Development Class 11 Notes. Reforms in the financial sector, the tax code, changes to the foreign exchange system, domestic and international trade direction, and other issues are also discussed.

Microeconomics Class 11 Chapter 3 Notes: Privatisation

The term privatisation is defined and explained.

Class 11 Economics Ch 3 Notes: Globalisation

This section describes the nature and significance of outsourcing and globalisation. Even the World Trade Organisation’s significance is covered in depth.

Chapter 3 Economics Class 11 Notes: Economic Growth During Reforms

These key reasons for the necessity of economic growth during reforms are explained, and what were the observable changes during this time are also highlighted.

Class 11 Economics Chapter 3 Notes: Economic Reforms Failures

This topic discusses various economic changes that have failed since they were implemented in a simplified manner.

FAQs (Frequently Asked Questions)

1. What was the need for economic reforms in the country?

The country’s expanding fiscal deficit was the main driver of the need for financial reforms. The government at the time struggled to pay its debts because it lacked the resources to do so. In addition, prices were continuing to rise, which was problematic for the average person. In the end, the government was forced to request a $7 million loan from the International Monetary Fund (IMF). It chose to liberalise the economy in return. 

2. What were some of the more significant causes of the Indian economic crisis?

The debt trap in which the government at the time found itself caused the 1980s economic crisis in India. Spending too much money on welfare reforms did not generate revenue for the government. Even the taxation system failed to produce any money for use. Additionally, the government tried heavily subsidising agriculture and defence, but those efforts failed to bring in much money. The economic crisis of the 1980s was ultimately caused by the interaction of all these factors.