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Questions and Answers
What was India's contribution to world trade in 1992?
Which of the following was NOT identified as a problem affecting India's economy?
What was identified as the primary remedy for India's economic issues?
What status did the US grant to China, emphasizing its role in trade?
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What significant change globally prompted nations to adapt their economies?
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What was a triggering factor for India's initiative towards liberalisation?
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Which block has been emerging with a common market philosophy?
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Which aspect of change was mentioned as a necessity for businesses in India?
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What factor contributed significantly to India's economic crisis in 1991?
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Which of the following was a requirement for India to stabilize its economy post-1991?
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How did India's trade balance perform in 1995-96?
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What does the LPG model of development introduced in 1991 emphasize?
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What was a major consequence of the economic crisis faced by India in 1991?
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What was a characteristic of India’s trade deficit since independence?
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What was an immediate requirement for India's economy according to the crisis situation?
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What was a critical step taken by the government to attract foreign investors?
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Study Notes
Liberalisation: Background and Necessity
- India's economic performance in the global market was poor despite vast resources.
- In 1992, India's contribution to world trade was only 0.53%, less than Thailand.
- Despite planned economic growth, India remained underdeveloped with issues like low NNP, chronic unemployment, low per capita income, poverty, and low capital formation.
- Increasing imports led to a trade deficit, foreign debt, low technological base, and a poor external image.
- The government identified liberalisation as a crucial step to address these challenges.
Factors Supporting Liberalisation
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Global Change:
- The global economy was experiencing rapid change, requiring nations to adapt.
- The European Economic Community (EEC) became the largest single market, showcasing global integration.
- The Gulf War facilitated increased cooperation and integration between the EEC and America.
- The US and Canada formed an integrated trade zone.
- Japan, despite its large trade surplus, remained a strong trading partner for America.
- The US granted "Most Favoured Nation" status to China, signifying a global business philosophy.
- The Asian-Pacific block was emerging, with a common market philosophy gaining ground.
- The success of China's liberalised economy in less than a decade served as an eye-opener.
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Position of Indian Economy:
- India faced a severe economic crisis and external pressure for foreign exchange.
- The country was on the brink of defaulting in the international arena in 1991.
- This triggered panic among Non-Resident Indians (NRIs), leading to the withdrawal of deposits.
- The country was trapped by internal and external debt.
- The foreign exchange crisis was fuelled by long-term and short-term foreign debts.
- The government needed to attract foreign exchange, increase exports, and reduce imports.
- The country urgently required a modern technology base, greater innovation, capital formation, more employment opportunities, latest technical know-how, and inflow of foreign capital.
- Liberalisation was crucial to attract foreign investors.
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Trade Deficit:
- India's trade deficit had been a persistent issue since independence.
- India failed to achieve economic independence despite political independence.
- India's share in the world market remained negligible while the import bill increased.
- The trade balance was negative in 1990-91 and became increasingly worse in subsequent years.
- The trade deficit in 1995-96 stood at -3.2% of GDP.
- The trade deficit in 1999-2000 stood at -0.4% of GDP.
- The trade balance was -2.1% and -2.5% in 2002-03 and 2003-04, respectively.
Liberalisation: The Path Forward
- The government needed to release the economy from restricting rules and regulations.
- India needed to establish a new image: a market-oriented economy, private sector-friendly, and a more confident image.
- The government aimed to control both unemployment and inflation.
- Globalisation necessitates liberalisation.
- The LPG (Liberalisation, Privatisation, Globalisation) model of development introduced in 1991 aimed to implement a new strategy with an emphasis on these three pillars.
- Areas previously reserved for the public sector were opened to the private sector.
- The government aimed to transfer loss-making public sector units to the private sector.
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Description
Explore the necessity of liberalisation in India and its impact on the economy. This quiz delves into India's economic challenges pre-liberalisation and the global factors that contributed to the decision for change. Test your knowledge of economic concepts and historical context related to India's transition.
