Podcast
Questions and Answers
What year did India gain true economic freedom following the introduction of economic reforms?
What year did India gain true economic freedom following the introduction of economic reforms?
Which of the following were consequences of the economic policies before 1991?
Which of the following were consequences of the economic policies before 1991?
What triggered the economic reforms in India in 1991?
What triggered the economic reforms in India in 1991?
What was one of the key features of liberalization in India?
What was one of the key features of liberalization in India?
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Which of the following factors was NOT a reason for the foreign exchange crisis in 1991?
Which of the following factors was NOT a reason for the foreign exchange crisis in 1991?
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What was a primary condition imposed by the International Monetary Fund for loans during the crisis?
What was a primary condition imposed by the International Monetary Fund for loans during the crisis?
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What significant change occurred concerning the Industrial Location Policy during liberalization?
What significant change occurred concerning the Industrial Location Policy during liberalization?
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Which event correlated with India's need to open up to international trade?
Which event correlated with India's need to open up to international trade?
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What is the primary purpose of liberalization of the capital market?
What is the primary purpose of liberalization of the capital market?
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How does privatization aim to improve efficiency in managed enterprises?
How does privatization aim to improve efficiency in managed enterprises?
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What does the term 'disinvestment' refer to?
What does the term 'disinvestment' refer to?
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Which of the following is NOT a feature of privatization?
Which of the following is NOT a feature of privatization?
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What is one significant impact of globalization on international trade?
What is one significant impact of globalization on international trade?
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Which of the following is a key feature of globalization?
Which of the following is a key feature of globalization?
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What is the role of the Securities and Exchange Board of India (SEBI) in the capital market?
What is the role of the Securities and Exchange Board of India (SEBI) in the capital market?
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Which statement best describes 'sick units' in the context of privatization?
Which statement best describes 'sick units' in the context of privatization?
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Why was the Board for Industrial and Financial Reconstruction (BIFR) established?
Why was the Board for Industrial and Financial Reconstruction (BIFR) established?
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Which of the following best explains 'foreign direct investment' (FDI)?
Which of the following best explains 'foreign direct investment' (FDI)?
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What does the 'Voluntary Retirement Scheme' (VRS) address?
What does the 'Voluntary Retirement Scheme' (VRS) address?
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What significant change occurred with exchange rate reforms in India during globalization?
What significant change occurred with exchange rate reforms in India during globalization?
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Which of the following is a benefit of globalization for developing countries?
Which of the following is a benefit of globalization for developing countries?
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Study Notes
Economic Reforms in India
- India gained independence in 1947 and adopted its constitution in 1950. Economic freedom was achieved in 1991 with economic reforms.
- Pre-1991 policies caused low economic growth, slow GDP growth, rising unemployment, stagnant domestic savings/investments, weak public sector performance, and inadequate infrastructure.
- A severe 1991 foreign exchange crisis, with reserves for only two weeks of imports, was exacerbated by the Gulf War's higher oil prices, rising external debt, and withdrawals of NRI deposits.
- IMF and World Bank loan conditions required cutting fiscal deficits, controlling money supply, liberalizing the domestic economy, and allowing international trade.
- The collapse of the USSR in 1991 necessitated India's opening to international trade and competing globally.
Liberalization
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Liberalization eased regulations for domestic and international trade.
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Key features include:
- De-licensing: Eliminating most business license requirements, except for specific sectors like alcohol, cigarettes, hazardous chemicals, defense, and explosives.
- Relaxed Monopoly Controls: The 1950 Monopolies and Restrictive Trade Practices (MRTP) Act, designed to prevent monopolies, was relaxed. Pre-reform regulations required government approval for firms with assets above 100 crore. Post-1991, this requirement was removed.
- Liberalized Industrial Location Policy: Removed restrictions on business locations and government approvals.
- Relaxed Mergers/Acquisitions: Allowed mergers, acquisitions, and separation of industrial units, facilitating mergers like Zomato acquiring Grofers and Byju's purchasing Kashi.
- Liberalized Capital Market: Opened share trading, requiring the establishment of SEBI to protect investors.
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Significance: Overcoming the "control raj," encouraging entrepreneurs, promoting competition, and benefiting consumers.
Privatization
- Privatization transferred previously government-owned businesses to private ownership.
- Disinvestment: Selling government-owned public sector units to private companies to boost government revenue. Often involves "sick units" (struggling businesses).
- Significance: Ideological reasons (public sector focuses on essential services), improved managerial efficiency, competitive environments, and greater decision-making flexibility.
- Features:
- Reduced Public Sector Reservation: The number of industries reserved for the public sector was reduced. Currently, three industries remain reserved: atomic energy, railways, and specific minerals.
- Sick Public Sector Unit Support: The Board for Industrial and Financial Reconstruction (BIFR) established in 1987 assisted struggling public sector units.
- Navratnas, Mini Ratnas, and Maharatnas: Government recognition encouraging certain public sector companies towards global scale through schemes like Navratna (1997), culminating in 8 Maharatna, 16 Navratna, and 73 Mini Ratna companies by March 31, 2019.
- Memorandum of Understanding (MoU): Agreements improving public sector/private sector business performance with greater autonomy and accountability.
- Voluntary Retirement Scheme (VRS): Introduced to address public sector overstaffing.
Retirement Schemes
- Public sector undertakings often faced overstaffing.
- The Voluntary Retirement Scheme (VRS) reduced the workforce in these enterprises.
Disinvestment Policy
- Disinvestment is the sale of government-owned stocks/equity in public sector units to private buyers. Essentially, a method for transferring businesses to private ownership.
Globalization
- Globalization integrated India's economy with the global community, allowing for foreign involvement and local expansion into international markets.
- It is about integrating economies via trade, capital flows, and technology.
Impact of Globalization
- Increased world trade, international capital flow, country interdependence, access to advanced technologies, a global market, and greater information exchange.
Features of Globalization
- Exchange Rate Reforms: India shifted from a fixed to a flexible exchange rate system (determined by supply and demand).
- Import Liberalization: India reduced restrictions on import licensing, quantities, and duties which facilitated trade.
- Foreign Direct Investment (FDI): India encouraged foreign direct investment (FDI) for increased participation in Indian businesses.
- Foreign Technology: Promoted the inflow of foreign technology to support domestic companies' advancements.
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Description
Explore the crucial economic reforms that transformed India's economy in 1991. This quiz covers the challenges faced before the reforms, the triggering foreign exchange crisis, and the subsequent changes that reshaped the economic landscape. Test your knowledge on the policies and their impacts on India's growth trajectory.
