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Liberalisation, Privatisation and Globalisation: An Appraisal – Class 11 Economics notes, important questions and MCQs

NCERT Class 11 Economics, chapter 10. Notes, key terms, important questions with answers and MCQs.

Chapter overview

In 1991 India faced a severe economic crisis, with foreign exchange reserves barely enough for about two weeks of imports. The government introduced the New Economic Policy based on liberalisation, privatisation and globalisation (LPG). The reforms raised growth, foreign investment and foreign exchange reserves, but critics point to neglect of agriculture, uneven benefits and limited job growth.

The 1991 crisis

High government spending, rising fiscal deficits, falling exports, rising oil prices after the Gulf War and heavy borrowing caused a balance of payments crisis.
India borrowed from the International Monetary Fund and the World Bank and agreed to reforms.
The New Economic Policy of 1991 had stabilisation measures (short-term) and structural reform measures (long-term).

Liberalisation

Industrial licensing was abolished for most industries, and the number of industries reserved for the public sector was reduced.
Financial sector reforms allowed private and foreign banks and reduced RBI's direct controls; tax rates were lowered and the tax system simplified.
The rupee was devalued and its value was increasingly decided by the market; import duties and quantitative restrictions were reduced.

Privatisation and globalisation

Privatisation transferred ownership or management of public sector enterprises to the private sector, often through disinvestment.
Profitable public enterprises were given autonomy as Maharatnas, Navratnas and Miniratnas.
Globalisation integrated India with the world economy through trade, investment and outsourcing; India is a founding member of the World Trade Organization (1995).

Key terms

Liberalisation: removal of government restrictions on economic activities
Privatisation: transfer of ownership or management of public enterprises to the private sector
Globalisation: integration of a country's economy with the world economy
Disinvestment: sale of part of the government's shares in public sector enterprises
Outsourcing: hiring outside firms, often in other countries, to provide services such as call centres and software

Important questions with answers

Why were reforms introduced in India in 1991?2 marks

Reforms were introduced because India faced a severe balance of payments crisis in 1991. Foreign exchange reserves had fallen to about two weeks' worth of imports, the fiscal deficit was high, inflation was rising and exports were weak. India borrowed from the IMF and World Bank and agreed to liberalise, privatise and globalise the economy.

What is meant by outsourcing? Why has India benefited from it?3 marks

Outsourcing means a company hiring outside firms, often in other countries, to provide services such as call centres, data processing, accounting and software development. India benefited because of its large pool of skilled English-speaking workers, low wages and good telecommunication links, which created jobs and earned foreign exchange.

Explain the main features of the economic reforms of 1991 and give an appraisal of their effects.5 marks

In 1991 India faced a balance of payments crisis, with reserves enough for only about two weeks of imports, high fiscal deficits and rising inflation. The government introduced the New Economic Policy with three parts. Liberalisation removed restrictions: industrial licensing was abolished for most industries, the list of industries reserved for the public sector was reduced, the financial sector was opened to private and foreign banks, tax rates were reduced and simplified, the rupee was devalued and market-determined, and import duties and quotas were cut. Privatisation reduced the role of the government through disinvestment of shares in public enterprises, while profitable ones were given autonomy as Navratnas and Maharatnas. Globalisation integrated India with the world through trade, foreign investment and outsourcing, and India joined the WTO in 1995. The reforms raised GDP growth, increased foreign direct investment and foreign exchange reserves, expanded services such as IT and telecom and improved consumer choice. However, critics argue that agriculture was neglected and farmers faced lower subsidies and global competition; industrial growth was uneven, with small industries hurt by imports; disinvestment sometimes undervalued public assets; and growth did not create enough good-quality jobs, increasing inequality. Thus the reforms brought gains but their benefits were not shared equally.

Quick revision

1991 balance of payments crisis; IMF and World Bank loans.
Liberalisation: delicensing, financial, tax, trade reforms.
Privatisation: disinvestment; Navratnas.
Globalisation: WTO 1995, outsourcing.

Exam tips

Write the crisis causes, then the three parts of LPG, then an appraisal with both positive and negative points.
Remember: WTO came into being in 1995, replacing GATT.

Practice MCQs

The New Economic Policy was introduced in
1. 1951
2. 1969
3. 1991
4. 2001
Show answer
Answer: (c) 1991. It followed a severe crisis.
LPG stands for
1. Land, Power, Gas
2. Licence, Permit, Grant
3. Liberalisation, Privatisation, Globalisation
4. Labour, Production, Growth
Show answer
Answer: (c) Liberalisation, Privatisation, Globalisation. These were the three pillars of reform.
Selling part of government shares in public enterprises is called
1. nationalisation
2. licensing
3. disinvestment
4. subsidy
Show answer
Answer: (c) disinvestment. It is a form of privatisation.
The World Trade Organization was established in
1. 1947
2. 1991
3. 1995
4. 2001
Show answer
Answer: (c) 1995. It replaced GATT.
In 1991 India's foreign exchange reserves could pay for imports of about
1. two years
2. two weeks
3. ten years
4. six months
Show answer
Answer: (b) two weeks. This showed the depth of the crisis.
Call centres and software services provided to foreign firms are examples of
1. import substitution
2. land reform
3. outsourcing
4. licensing
Show answer
Answer: (c) outsourcing. India benefited from IT outsourcing.
Which was a stabilisation measure of the 1991 reforms
1. abolition of licensing
2. WTO membership
3. measures to correct the balance of payments and control inflation
4. disinvestment
Show answer
Answer: (c) measures to correct the balance of payments and control inflation. Stabilisation measures were short-term.
A common criticism of the reforms is that
1. foreign reserves fell
2. exports were banned
3. India left the WTO
4. agriculture was neglected and growth did not create enough jobs
Show answer
Answer: (d) agriculture was neglected and growth did not create enough jobs. Benefits were uneven.

All chapters of Class 11 Economics

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.