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Liberalisation, Privatisation and Globalisation: An Appraisal – Class 11 Economics Chapter 3 Notes & NCERT PDF

Class 11EconomicsChapter 3NCERT book: Indian Economic Development - Economics Class 11

Notes and a simple summary of Chapter 3 of the NCERT Class 11 Economics book, with the official chapter PDF, flashcards, an MCQ quiz and an AI tutor for your doubts.

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Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal

Introduction

This chapter opens Unit II, Economic Reforms since 1991. After forty years of planned development India had a strong industrial base and self-sufficiency in food grains, yet most people still depended on agriculture. In 1991 India faced an economic crisis relating to its external debt: the government could not repay foreign borrowings, and foreign exchange reserves fell to levels not sufficient even for a fortnight of imports. Rising prices of essential goods made things worse. The government responded with a new set of policies that changed the direction of India's development strategy.

"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, former President of India

Key Concepts

3.2 Background of the Crisis

  • Origins lie in inefficient management of the economy in the 1980s.
  • Government spending on development (unemployment, poverty, population) exceeded revenue; taxation and PSU income were insufficient.
  • Borrowed foreign exchange was at times spent on consumption; exports were not boosted to pay for growing imports.
  • By the late 1980s, expenditure exceeded revenue so much that borrowing became unsustainable; prices rose; imports grew faster than exports; reserves could finance imports for only about two weeks; no one was willing to lend.
  • India approached the World Bank (IBRD) and the IMF and received $7 billion as a loan. Conditions: liberalise, reduce the government's role, remove trade restrictions.
  • India announced the New Economic Policy (NEP), grouped into:

    • - Stabilisation measures — short-term: correct balance-of-payments weaknesses and control inflation (maintain reserves, keep prices down).

    - Structural reform measures — long-term: improve efficiency and international competitiveness by removing rigidities.

  • The policies fall under three heads: liberalisation, privatisation and globalisation (LPG).

    • 3.3 Liberalisation

    Some liberalisation began in the 1980s, but the 1991 reforms were more comprehensive.

    Deregulation of the industrial sector

  • Earlier controls: industrial licensing (permission to start, close or decide output), private sector barred from many industries, reservation for small-scale industries, price and distribution controls.
  • After 1991, licensing was abolished for almost all product categories except alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace, and drugs and pharmaceuticals.
  • Only a part of atomic energy generation and some core activities in railway transport remain reserved for the public sector.
  • Many SSI goods were dereserved; markets now determine most prices.

    • Financial sector reforms

  • The financial sector (commercial banks, investment banks, stock exchanges, foreign exchange market) is regulated by the RBI.
  • Aim: reduce RBI's role from regulator to facilitator.
  • Private sector banks (Indian and foreign) were allowed; foreign investment limit in banks raised to around 74 per cent; qualifying banks can open branches without RBI approval.
  • Foreign Institutional Investors (FIIs) — merchant bankers, mutual funds, pension funds — can invest in Indian markets.

    • Tax reforms (fiscal policy)

  • Direct taxes (on incomes and business profits) have been continuously reduced, since high rates encouraged evasion; moderate rates encourage savings and voluntary disclosure. Corporation tax was also reduced.
  • Indirect taxes were reformed to create a common national market. In 2016 the Constitution was amended to allow GST, aiming at more revenue, less evasion and "one nation, one tax and one market". Procedures were simplified.

    • Foreign exchange reforms

  • In 1991 the rupee was devalued against foreign currencies, increasing the inflow of foreign exchange. Now markets usually determine exchange rates by demand and supply.

    • Trade and investment policy reforms

  • Aims: dismantle quantitative restrictions, reduce tariffs, remove import licensing.
  • Import licensing abolished except for hazardous and environmentally sensitive industries.
  • QRs on manufactured consumer goods and agricultural products were fully removed from April 2001. Export duties removed.

    • 3.4 Privatisation

  • Shedding government ownership or management of an enterprise — by withdrawal from ownership/management or by outright sale.
  • Selling part of the equity of PSEs to the public is called disinvestment, meant to improve financial discipline and modernisation and attract FDI.
  • Box 3.1 — Maharatnas, Navratnas, Miniratnas: status gives PSEs more financial, managerial and operational autonomy. Examples: Maharatnas — Indian Oil Corporation, Steel Authority of India; Navratnas — Hindustan Aeronautics, MTNL, IRCTC; Miniratnas — BSNL, Airport Authority of India.

    • 3.5 Globalisation

  • Integration of the national economy with the world economy; creating networks across economic, social and geographical boundaries — a "borderless world".
  • Outsourcing: a company hires regular services from external, often foreign, sources (legal advice, computer services, BPO/call centres, record keeping, accountancy, banking, music recording, film editing, transcription, clinical advice, teaching). India's low wage rates and skilled manpower made it a major destination. Box 3.2: ONGC Videsh (projects in 16 countries), Tata Steel (operations in 26 countries), HCL Technologies, Dr Reddy's Laboratories.
  • WTO: founded in 1995 as successor to GATT (established 1948 with 23 countries). It aims at a rule-based trading regime without arbitrary restrictions, enlarging trade in goods and services, optimum use of world resources and environmental protection. India removed QRs and reduced tariffs as commitments. Critics say developing countries must open markets while developed countries keep subsidies and barriers.

    • 3.6 Indian Economy during Reforms: An Assessment

  • GDP growth rose from 5.6% (1980–91) to 9.4% (2021–22). Growth has been driven mainly by services; agricultural growth declined; industry fluctuated (steep decline in 2012-13).
  • Foreign investment (FDI + FII) grew from about US $100 million in 1990-91 to US $23 billion in 2022-23.
  • Foreign exchange reserves rose from about US $6 billion (1990-91) to about US $646 billion (2023-24).
  • India became a successful exporter of auto parts, pharmaceuticals, engineering goods, IT software and textiles.

    • Criticisms

  • Growth and employment: growth has not generated sufficient jobs.
  • Agriculture: public investment in irrigation, power, roads, market linkages and research fell; partial removal of fertiliser subsidy raised costs; lower import duties and removal of QRs exposed farmers to competition; shift to cash crops for export pressured food-grain prices (see the Mahadeva groundnut case from Anantpur).
  • Industry: slowdown due to cheaper imports and inadequate infrastructure; developing countries still face non-tariff barriers abroad (e.g., US quotas on Indian and Chinese textiles).
  • Disinvestment: 1991-92 target ₹2,500 crore; about ₹46,000 crore mobilised in 2022-23. Critics say assets were undervalued and proceeds used to cover revenue shortfalls.
  • Fiscal policies: limits on social-sector spending; tax cuts and tariff cuts reduced revenue.
  • Box 3.3 — Siricilla tragedy: power-sector reforms raised tariffs; 50 powerloom workers in Siricilla committed suicide.

    • 3.7 Conclusion

    Supporters see globalisation as an opportunity (markets, technology, global players). Critics see it as a strategy of developed countries that widened disparities, benefited high-income groups and concentrated growth in select services rather than agriculture and industry.

    Key Facts & Figures

  • 1991 crisis: reserves enough for about two weeks of imports; loan of $7 billion from World Bank and IMF
  • Banks' foreign investment limit: about 74%
  • GST enabled by constitutional amendment in 2016
  • QRs fully removed: April 2001
  • GATT: 1948, 23 countries; WTO: 1995
  • GDP growth: 5.6% (1980–91) → 9.4% (2021–22)
  • Foreign investment: US $100 million → US $23 billion; reserves: US $6 billion → US $646 billion

    • Exam Focus

  • Why were reforms introduced? (1991 BoP crisis, fiscal deficits, inflation, IMF/World Bank conditions)
  • Stabilisation vs structural reform measures.
  • RBI's change from regulator to facilitator.
  • Devaluation; tariff vs non-tariff barriers; quantitative restrictions.
  • Outsourcing — India's advantages; is it good for India?
  • Navratna policy — does it improve PSU performance?
  • Why agriculture and industry performed poorly in the reform period.

    • Key Terms

  • Liberalisation (उदारीकरण)
  • Privatisation (निजीकरण)
  • Globalisation (वैश्वीकरण)
  • Stabilisation measures (स्थिरीकरण उपाय)
  • Structural reforms (संरचनात्मक सुधार)
  • Disinvestment (विनिवेश)
  • Devaluation (अवमूल्यन)
  • Quantitative restrictions (परिमाणात्मक प्रतिबंध)
  • Outsourcing (बाह्य प्रापण)
  • Foreign Direct Investment (प्रत्यक्ष विदेशी निवेश)
  • Foreign Institutional Investor (विदेशी संस्थागत निवेशक)
  • Goods and Services Tax (वस्तु एवं सेवा कर)
  • Non-tariff barriers (गैर-प्रशुल्क बाधाएँ)

    • Common Mistakes

  • Confusing stabilisation (short-term) with structural (long-term) measures.
  • Saying WTO was founded in 1948 — that was GATT; WTO came in 1995.
  • Assuming all industrial licensing ended — some categories (alcohol, cigarettes, hazardous chemicals, explosives, electronics, aerospace, drugs) remained.
  • Saying reforms benefited agriculture — the book says they did not.
  • Treating disinvestment as closing PSEs — it is selling part of their equity.

    • 💡 Key Learning Points

    • ✓The 1991 crisis (external debt, reserves for barely two weeks of imports, rising prices) led India to take a $7 billion loan from the World Bank and IMF and adopt the New Economic Policy.
    • ✓The NEP combined short-term stabilisation measures with long-term structural reforms under liberalisation, privatisation and globalisation.
    • ✓Liberalisation abolished most industrial licensing, reformed the financial sector, taxes (GST), the foreign exchange market and trade policy.
    • ✓Privatisation worked through disinvestment and Maharatna/Navratna/Miniratna autonomy; globalisation brought outsourcing and WTO membership.
    • ✓Reforms raised GDP growth, foreign investment and reserves, but critics point to weak job creation, neglect of agriculture, slow industry and reduced social spending.

    👨‍🏫 Teaching Tips

    • →Recreate the 1991 crisis with a household that borrows to pay for daily expenses until no one will lend.
    • →Make a three-column LPG chart with the chapter's specific measures under each head.
    • →Discuss the Mahadeva groundnut case in groups: what could protect such farmers?
    • →Hold the suggested debate: is globalisation a threat or an opportunity?
    • →Collect logos and news on Maharatnas, Navratnas and Miniratnas for a notice-board activity.
    • →Plot the GDP growth-rate time series from the activity table as a line graph.
    • →Use the Siricilla tragedy (Box 3.3) to discuss reforms and social justice.

    📋 Assessment Questions

    1. Why were economic reforms introduced in India in 1991?
    2. Distinguish between stabilisation and structural reform measures.
    3. Why did the RBI change from controller to facilitator of the financial sector?
    4. What is outsourcing and why is India a favoured destination?
    5. Why has agriculture been adversely affected by the reform process?

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    Keep learning

    All chapters in Indian Economic Development - Economics Class 11

    1. 1. Indian Economy on the Eve of Independence
    2. 2. Indian Economy 1950–1990
    3. 3. Liberalisation, Privatisation and Globalisation: An Appraisal
    4. 4. Human Capital Formation in India
    5. 5. Rural Development
    6. 6. Employment: Growth, Informalisation and Other Issues
    7. 7. Environment and Sustainable Development
    8. 8. Comparative Development Experiences of India and its Neighbours