Revision: Indian Economic Development >> Liberalisation, Privatisation and Globalisation : An Appraisal Economics Commerce (English Medium) Class 12 CBSE

Liberalisation means removing unnecessary government restrictions and controls on business activities so that trade and industries can grow freely and compete globally.

Integration of national economies and societies through cross-country flows of information, ideas, technologies, goods, services, capital, finance, and people.

• Since independence, India followed a mixed economy model, trying to combine the benefits of capitalism and socialism.
• Critics say this led to too many controls and regulations, which hampered growth.
• Supporters say India achieved higher savings, a diversified industrial base, and rising agricultural output with food security.
• In 1991, India faced a serious economic crisis:
  External debt repayment problem.
  Foreign exchange reserves fell to less than two weeks of imports.
  Prices of essential goods were rising.
• This crisis forced the government to adopt a new set of policies in 1991, changing the direction of development strategy (towards economic reforms).

• 1980s: Govt spent much more than it earned, borrowed heavily, PSUs gave low returns, taxes and exports were insufficient.
• Imports rose, exports lagged, foreign exchange reserves fell to less than 2 weeks of imports, and India could not repay external debt or interest.
• India took about $7 billion loan from World Bank and IMF, who asked for opening up the economy and reducing controls.
• India accepted and launched New Economic Policy 1991 with Liberalisation, Privatisation, Globalisation (LPG), including:
  Stabilisation (short term): fix balance of payments, control inflation.
  Structural reforms (long term): increase efficiency and international competitiveness.

• Liberalisation helps markets run freely with less government control.
• Boosts investment, competition, and technology use.
• Protects investor interests and makes trade easier.
• Liberalisation (from 1991) reduced government controls and licensing and opened more sectors to private competition.
• Industrial licensing removed for most industries; only a few areas reserved for public sector and small‑scale reservations reduced.
• Financial sector: private and foreign banks allowed; FIIs (foreign investors) permitted in markets; RBI became more of a facilitator.
• Tax reforms: income and corporate tax rates cut, procedures simplified; GST introduced to create one national market and reduce evasion.
• Foreign exchange: rupee devalued in 1991; exchange rate mostly determined by market demand and supply.
• Trade & investment: import licensing and quantitative restrictions removed, tariffs reduced, export duties scrapped to make Indian industry more competitive globally.

• Privatisation refers to the transfer of a business from government to private ownership.
• It brings efficiency, accountability, better service, and profit focus.
• Indian examples include Air India, Maruti Suzuki, and Hindustan Zinc.
• Methods include disinvestment, outright sale, and private management contracts.
• Privatisation = government reduces or gives up ownership/management of public sector enterprises.
• Disinvestment = sale of government shares in PSUs to improve discipline, modernisation and efficiency using private capital and management.
• Aims: attract FDI and make PSUs more efficient by giving autonomy.
• Efficient PSUs get Maharatna / Navratna / Miniratna status for greater autonomy and global expansion.

• Globalisation means integrating a country’s economy with the world economy and treating the world as one single market.
• It involves free flow of goods, services, capital, technology, information, and people across national borders.
• Globalisation goes beyond trade and includes worldwide coordination in production, marketing, finance, and human resources.
• It increases economic integration and interdependence among countries.
• A global company views the entire world as one market and does not differentiate between domestic and foreign markets.
• Globalisation promotes free-market competition and benefits businesses and consumers, but also increases dependence among nations.
• Outsourcing is a result of globalisation, where foreign companies hire Indian firms for services like IT and BPO due to low cost and skilled labour.

• WTO (1995) replaced GATT (1948) to create a rule‑based global trading system and reduce arbitrary trade barriers.
• Aims: expand trade in goods and services, ensure efficient resource use, and protect the environment.
• Promotes removal of tariffs and non‑tariff barriers and more market access for member countries.
• India has reduced tariffs and removed quantitative restrictions as per its commitments and argues for developing countries’ interests.
• Criticism: benefits mainly developed nations, and developing countries feel pressured to open markets while rich countries retain protections, especially in agriculture.

• The 1991 reforms opened India’s economy through liberalization, privatization, and globalization. GDP growth accelerated, mainly driven by the service sector, while agriculture and industry lagged.
• FDI and foreign exchange reserves rose sharply, and India became a key exporter of IT and pharmaceuticals. Yet, growth created few jobs, and benefits were uneven. Public investment in agriculture and social sectors declined, and inequality widened.
• Overall, reforms made India more competitive but also less inclusive, highlighting the need for balanced, job-oriented growth.