Economic Reforms Since 1991 PDF

UNIT UNIT II III ECONOMIC REFORMS SINCE 1991 2024-25 After forty years of planned development, India has been able to achieve a strong industrial base and became self-sufficient in the production of food grains. Nevertheless, a major segment of the population continues to...

UNIT UNIT II III ECONOMIC REFORMS SINCE 1991 2024-25 After forty years of planned development, India has been able to achieve a strong industrial base and became self-sufficient in the production of food grains. Nevertheless, a major segment of the population continues to depend on agriculture for its livelihood. In 1991, a crisis in the balance of payments led to the introduction of economic reforms in the country. This unit is an appraisal of the reform process and its implications for India. 2024-25 3 LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL After studying this chapter, the learners will understand the background of the reform policies introduced in India in 1991 understand the mechanism through which reform policies were introduced comprehend the process of globalisation and its implications for India be aware of the impact of the reform process in various sectors. 2024-25  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 3.1 I NTRODUCTION policy measures which changed the direction of our developmental You have studied in the previous strategies. In this chapter, we will chapter that, since independence, look at the background of the crisis, India followed the mixed economy measures that the government has framework by combining the adopted and their impact on various advantages of the capitalist economic sectors of the economy. system with those of the socialist economic system. Some scholars argue 3.2 BACKGROUND that, over the years, this policy resulted in the establishment of a variety of The origin of the financial crisis can rules and laws, which were aimed at be traced from the inefficient controlling and regulating the management of the Indian economy economy, ended up instead in in the 1980s. We know that for hampering the process of growth and implementing various policies and development. Others state that India, its general administration, the which started its developmental path government generates funds from from near stagnation, has since been various sources such as taxation, able to achieve growth in savings, running of public sector enterprises developed a diversified industrial etc. When expenditure is more than sector which produces a variety of income, the government borrows to goods and has experienced sustained finance the deficit from banks and expansion of agricultural output also from people within the country which has ensured food security. and from international financial In 1991, India met with an institutions. When we import goods economic crisis relating to its external like petroleum, we pay in dollars debt — the government was not which we earn from our exports. able to make repayments on its Development policies required that borrowings from abroad; foreign even though the revenues were exchange reserves, which we very low, the government had generally maintain to import petroleum to overshoot its revenue to meet and other important items, dropped challenges like unemployment, to levels that were not sufficient for poverty and population explosion. The even a fortnight. The crisis was continued spending on development further compounded by rising prices programmes of the government did not of essential goods. All these led the generate additional revenue. Moreover, government to introduce a new set of the government was not able to LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 39 2024-25 generate sufficiently from internal and received $7 billion as loan to sources such as taxation. When the manage the crisis. For availing the government was spending a large loan, these international agencies share of its income on areas which do expected India to liberalise and open not provide immediate returns such as up the economy by removing the social sector and defence, there was restrictions on the private sector, a need to utilise the rest of its revenue reduce the role of the government in in a highly efficient manner. The many areas and remove trade income from public sector restrictions between India and other undertakings was also not very high to countries. meet the growing expenditure. At India agreed to the conditionalities times, our f o r e i g n e x c h a n g e , of World Bank and IMF and borrowed from other countries and announced the New Economic Policy international financial institutions, (NEP). The NEP consisted of wide was spent on meeting consumption ranging economic reforms. The needs. Neither was an attempt made to thrust of the policies was towards reduce such profligate spending nor creating a more competitive sufficient attention was given to boost environment in the economy and exports to pay for the growing imports. removing the barriers to entry and In the late 1980s, government growth of firms. This set of policies expenditure began to exceed its can broadly be classified into two revenue by such large margins that groups: the stabilisation measures meeting the expenditure through and the structural reform measures. borrowings became unsustainable. Stabilisation measures are short- Prices of many essential goods rose term measures, intended to correct sharply. Imports grew at a very high some of the weaknesses that have rate without matching growth of developed in the balance of exports. As pointed out earlier, foreign payments and to bring inflation exchange reserves declined to a level under control. In simple words, this that was not adequate to finance means that there was a need to imports for more than two weeks. maintain sufficient foreign exchange There was also not sufficient foreign reserves and keep the rising prices exchange to pay the interest that under control. On the other hand, needed to be paid to international structural reform policies are long-term lenders. Also no country or international measures, aimed at improving the funder was willing to lend to India. efficiency of the economy and increasing India approached the International its international competitiveness by Bank for Reconstruction and removing the rigidities in various Development (IBRD), popularly segments of the Indian economy. The known as World Bank and the government initiated a variety of International Monetary Fund (IMF), policies which fall under three heads 40 INDIAN ECONOMIC DEVELOPMENT 2024-25 viz., liberalisation, privatisation and The reform policies introduced in globalisation. and after 1991 removed many of these restrictions. Industrial 3.3 L IBERALISATION licensing was abolished for almost all As pointed out in the beginning, but product categories — alcohol, cigarettes, hazardous chemicals, rules and laws which were aimed at industrial explosives, electronics, regulating the economic activities aerospace and drugs and pharma- became major hindrances in growth ceuticals. The only industries which and development. Liberalisation was are now reserved for the public sector introduced to put an end to these a r e a part of a t o m i c e n e r g y restrictions and open various sectors generation and some core activities of the economy. Though a few in railway transport. Many goods liberalisation measures were produced by small-scale industries introduced in 1980s in areas of have now been dereserved. In most industrial licensing, export-import industries, the market has been policy, technology upgradation, allowed to determine the prices. fiscal policy and foreign investment, reform policies initiated in 1991 were Financial Sector Reforms: more comprehensive. Let us study Financial sector includes financial some important areas, such as the institutions, such as commercial industrial sector, financial sector, tax banks, investment banks, stock reforms, foreign exchange markets exchange operations and foreign and trade and investment sectors exchange market. The financial which received greater attention in sector in India is regulated by the and after 1991. Reserve Bank of India (RBI). You may be aware that all banks and other Deregulation of Industrial Sector: In financial institutions in India are India, regulatory mechanisms were regulated through various norms and enforced in various ways (i) industrial regulations of the RBI. The RBI licensing under which every entrepreneur decides the amount of money that had to get permission from government the banks can keep with themselves, officials to start a firm, close a firm fixes interest rates, nature of lending or decide the amount of goods to various sectors, etc. One of the that could be produced (ii) private major aims of financial sector reforms sector was not allowed in many is to reduce the role of RBI from industries (iii) some goods could be regulator to facilitator of financial produced only in small-scale industries, sector. This means that the financial and (iv) controls on price fixation and sector may be allowed to take distribution of selected industrial decisions on many matters without products. consulting the RBI. LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 41 2024-25  The reform policies led to the establishment of a common national establishment of private sector banks, market for goods and commodities. Indian as well as foreign. Foreign In the year 2016, Indian constitution investment limit in banks was raised to was amended to empower state around 74 per cent. Those banks which governments and union Government to fulfil certain conditions have been given come out with laws to impose Goods freedom to set up new branches and Services Tax. This has led to without the approval of the RBI and introduction of GST in India. This is rationalise their existing branch expected to generate additional revenue networks. Though banks have been for the government, reduce tax evasion given permission to generate resources and create ‘one nation, one tax and one from India and abroad, certain market’. Another component of reform managerial aspects have been retained in this area is simplification. In order with the RBI to safeguard the interests to encourage better compliance on the of the account-holders and the nation. part of taxpayers, many procedures Foreign Institutional Investors (FII), have been simplified and the rates also such as merchant bankers, mutual substantially lowered. funds and pension funds, are now allowed to invest in Indian financial Foreign Exchange Reforms: The first markets. important reform in the external sector was made in the foreign exchange Tax Reforms: Tax reforms are market. In 1991, as an immediate concerned with the reforms in the measure to resolve the balance of government’s taxation and public payments crisis, the rupee was expenditure policies, which are devalued against foreign currencies. collectively known as its fiscal policy. This led to an increase in the inflow of There are two types of taxes: direct and foreign exchange. It also set the tone to indirect. Direct taxes consist of taxes free the determination of rupee value on incomes of individuals, as well as, in the foreign exchange market from profits of business enterprises. Since government control. Now, more often 1991, there has been a continuous than not, markets determine exchange reduction in the taxes on individual rates based on the demand and supply incomes as it was felt that high rates of of foreign exchange. income tax were an important reason for tax evasion. It is now widely Trade and Investment Policy accepted that moderate rates of income Reforms: Liberalisation of trade and tax encourage savings and voluntary investment regime was initiated to disclosure of income. The rate of increase international competitiveness of corporation tax, which was very high industrial production and also foreign earlier, has been gradually reduced. investments and technology into the Efforts have also been made to reform economy. The aim was also to promote the indirect taxes, taxes levied on the efficiency of local industries and commodities, in order to facilitate the adoption of modern technologies. 42 INDIAN ECONOMIC DEVELOPMENT 2024-25  In order to protect domestic of tariff rates and (iii) removal of industries, India was following a regime licensing procedures for imports. of quantitative restrictions on Import licensing was abolished except imports. This was encouraged through in case of hazardous and tight control over imports and by environmentally sensitive industries. keeping the tariffs very high. These Quantitative restrictions on imports of policies reduced efficiency and manufactured consumer goods and competitiveness which led to slow agricultural products were also fully growth of the manufacturing sector. removed from April 2001. Export The trade policy reforms aimed at (i) duties have been removed to increase dismantling of quantitative restrictions the competitive position of Indian goods on imports and exports (ii) reduction in the international markets. Work These Out Ø Give an example each of nationalised bank, private bank, private foreign bank, FII and a mutual fund. Ø Visit a bank in your locality with your parents. Observe and find out the functions it performs. Discuss the same with your classmates and prepare a chart on it. Ø Find out from your parents if they pay taxes. If yes, why do they do so and how? Ø Do you know that for a very long time countries used to keep silver and gold as reserves to make payments abroad? Find out in what form do we keep our foreign exchange reserves and find out from newspapers, magazines and the Economic Survey how much foreign exchange reserves India had during the last year. Also find the foreign currency of the following countries and its latest rupee exchange rate. Country Currency Value of 1(one) unit of foreign currency in Indian rupee U.S.A. U.K. Japan China Korea Singapore Germany LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 43 2024-25 3.4 PRIVATISATION Privatisation of the public sector It implies shedding of the ownership enterprises by selling off part of the or management of a government equity of PSEs to the public is known o w n e d e n t e r p r i s e. G o v e r n m e n t as disinvestment. The purpose of the companies are converted into private sale, according to the government, c o m p a n i e s i n t w o w a y s ( i) b y was mainly to improve financial withdrawal of the government from discipline and facilitate modernisation. ownership and management of It was also envisaged that private public sector companies and or (ii) by capital and managerial capabilities outright sale of public sector could be effectively utilised to companies. improve the performance of the PSUs. Box 3.1: Navratnas and Public Enterprise Policies You must have read in your childhood about the famous Navratnas or Nine Jewels in the Imperial Court of King Vikramaditya who were eminent persons of excellence in the fields of art, literature and knowledge. In order to improve efficiency, infuse professionalism and enable them to compete more effectively in the liberalised global environment, the government identifies PSEs and declare them as maharatnas, navratnas and miniratnas. They were given greater managerial and operational autonomy, in taking various decisions to run the company efficiently and thus increase their profits. Greater operational, financial and managerial autonomy has also been granted to profit-making enterprises referred to as miniratnas. The Central Public Sector Enterprises are designated with different status. A few examples of public enterprises with their status are as follows: (i) Maharatnas – (a) Indian Oil Corporation Limited, and (b) Steel Authority of India Limited, (ii) Navratnas – (a) Hindustan Aeronautics Limited, (b) Mahanagar Telephone Nigam Limited; and (iii) Miniratnas – (a) Bharat Sanchar Nigam Limited; (b) Airport Authority of India and (c) Indian Railway Catering and Tourism Corporation Limited. Many of these profitable PSEs were originally formed during the 1950s and 1960s when self-reliance was an important element of public policy. They were set up with the intention of providing infrastructure and direct employment to the public so that quality end-product reaches the masses at a nominal cost and the companies themselves were made accountable to all stakeholders. The granting of status resulted in better performance of these companies. Scholars allege that instead of facilitating public enterprises in their expansion and enabling them to become global players, the government partly privatised them through disinvesment. Of late, the government has decided to retain them in the public sector and enable them to expand themselves in the global markets and raise resources by themselves from financial markets. 44 INDIAN ECONOMIC DEVELOPMENT 2024-25  Work These Out Ø Some scholars refer to disinvestment as the wave of privatisation spreading all over the world to improve the performance of public sector enterprises whereas others call it as outright sale of public property to the vested interests. What do you think? Ø Prepare a poster which contains 10-15 news clippings which you consider as important and relating to navaratnas from newspapers. Also collect the logos and advertisements of these PSEs. Put these on the notice board and discuss them in the classroom. Ø Do you think only loss making companies should be privatised? Why? Ø Losses incurred by public sector enterprises are to be met out of the public budget. Do you agree with this statement? Discuss. The government envisaged that links in such a way that the privatisation could provide strong happenings in India can be influenced impetus to the inflow of FDI. by events happening miles away. It is The government has also made turning the world into one whole or attempts to improve the efficiency of creating a borderless world. PSUs by giving them autonomy Outsourcing: This is one of the in taking managerial decisions. For important outcomes of the instance, some PSUs have been globalisation process. In outsourcing, granted special status as maharatnas, a company hires regular service from navratnas and miniratnas (see external sources, mostly from other Box 3.1). countries, which was previously provided internally or from within the 3.5 G LOBALISATION country (like legal advice, computer Although globalisation is generally service, advertisement, security — understood to mean integration of the each provided by respective economy of the country with the world departments of the company). As a economy, it is a complex phenomenon. form of economic activity, outsourcing It is an outcome of the set of various has intensified, in recent times, policies that are aimed at transforming because of the growth of fast modes the world towards greater of communication, particularly the interdependence and integration. It growth of Information Technology involves creation of networks and (IT). Many of the services such as activities transcending economic, social voice-based business processes and geographical boundaries. (popularly known as BPO or Globalisation attempts to establish call centres), record keeping, LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 45 2024-25  Box 3.2: Global Footprint! Owing to globalisation, you might find many Indian companies have expanded their wings to many other countries. For example, ONGC Videsh, a subsidiary of the Indian public sector enterprise, Oil and Natural Gas Corporation engaged in oil and gas exploration and production has projects in 16 countries. Tata Steel, a private company established in 1907, is one of the top ten global steel companies in the world which have operations in 26 countries and sell its products in 50 countries. It employs nearly 50,000 persons in other countries. HCL Technologies, one of the top five IT companies in India has offices in 31 countries and employs about 15,000 persons abroad. Dr Reddy's Laboratories, initially was a small company supplying pharmaceutical goods to big Indian companies, today has manufacturing plants and research centres across the world. Source: www.rediff.com accessed on 14.10.2014. accountancy, banking services, music be availed at a cheaper cost with recording, film editing, book reasonable degree of skill and transcription, clinical advice or even accuracy. The low wage rates and teaching are being outsourced by availability of skilled manpower in companies in developed countries to India have made it a destination for India. With the help of modern global outsourcing in the post-reform telecommunication links including the period. Internet, the text, voice and visual data in respect of these services is digitised World Trade Organisation (WTO): and transmitted in real time over The WTO was founded in 1995 as continents and national boundaries. the successor organisation to the Most multinational corporations, and General Agreement on Trade and even small companies, are outsourcing Tariff (GATT). GATT was established their services to India where they can in 1948 with 23 countries as the global trade organisation to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market for trading purposes. WTO is expected to establish a rule-based trading regime in which nations cannot place arbitrary restrictions on trade. In addition, its Fig. 3.1 Outsourcing: a new employment opportunity in big cities purpose is also to enlarge 46 INDIAN ECONOMIC DEVELOPMENT 2024-25  Work These Out Ø Many scholars argue that globalisation is a threat as it reduces the role of the government in many sectors. Some counter argue that it is an opportunity as it opens up markets to compete in and capture. Debate in the classroom. Ø Prepare a chart consisting of a list of five companies that have BPO services in India, along with their turnover. Ø Did you attend online classes or watched videos of your teachers or any other teacher taking classes during the last year through television, mobile phone or computers due to Covid 19 Pandemic? Share your experiences related to information technology. Ø Is employment in call centres sustainable? What kinds of skills should people working in call centres acquire to get a regular income? Ø If the multinational companies outsource many services to countries like India because of cheap manpower, what will happen to people living in the countries where the companies are located? Discuss. production and trade of services, to As an important member of ensure optimum utilisation of world WTO, India has been in the forefront resources and to protect the of framing fair global rules, environment. The WTO agreements regulations and safeguards and cover trade in goods as well as services advocating the interests of the to facilitate international trade developing world. India has kept its (bilateral and multilateral) through commitments towards liberalisation removal of tariff as well as non-tariff of trade, made in the WTO, by barriers and providing greater market removing quantitative restrictions on access to all member countries. imports and reducing tariff rates. TABLE 3.1 Growth of GDP and Major Sectors (in %) Sector 1980-91 1992-2001 2002-07 2007-12 2012-13 2013-14 2014-15 Agriculture 3.6 3.3 2.3 3.2 1.5 4.2 – 0.2* Industry 7.1 6.5 9.4 7.4 3.6 5 7.0* Services 6.7 8.2 7.8 10 8.1 7.8 9.8* Total 5.6 6.4 7.8 8.2 5.6 6.6 7.4 Source: Economic Survey for various years, Ministry of Finance, Government of India. Note: *Data pertaining to Gross Value Added (GVA). The GVA is estimated from GDP by adding subsidies on production and subtracting indirect taxes. LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 47 2024-25  Some scholars question the period, the growth of agriculture has usefulness of India being a member of declined. While the industrial sector the WTO as a major volume of reported fluctuation, the growth of the international trade occurs among the service sector has gone up. This developed nations. They also say that indicates that GDP growth is mainly while developed countries file driven by growth in the service sector. complaints over agricultural subsidies During 2012-15, there has been a given in their countries, developing setback in the growth rates of different countries feel cheated as they are forced sectors witnessed post–1991. While to open their markets for developed agriculture recorded a high growth rate during 2013–14, this sector witnessed countries but are not allowed access to negative growth in the subsequent the markets of developed countries. year. While the service sector What do you think? continued to witness a high level of growth — higher than the overall GDP growth in 2014–15, this sector witnessed the high growth rate of 9.8 per cent. The industrial sector witnessed a steep decline during 2012– 13, in the subsequent years it began to show a continuous positive growth. The opening of the economy has led to a rapid increase in foreign direct investment and foreign exchange Fig. 3.2 IT industry is seen as a major contributor reserves. The foreign investment, to India’s exports which includes foreign direct 3.6 INDIAN ECONOMY DURING investment (FDI) and foreign institutional investment (FII), has R EFORMS: AN A SSESSMENT increased from about US $100 million The reform process has completed in 1990-91 to US $ 30 billion in three decades since its introduction. 2017-18. There has been an increase Let us now look at the performance in the foreign exchange reserves from of the Indian economy during this about US $ 6 billion in 1990-91 to period. In economics, the growth of about US $ 413 billion in 2018-19. an economy is measured by the Gross India is one of the largest foreign Domestic Product. Look at Table 3.1. exchange reserve holders in the world. The post–1991 India witnessed a Since 1991, India is seen as a rapid growth in GDP on a continual successful exporter of auto parts, basis for two decades. The growth pharmaceutical goods engineering of GDP increased from 5.6 per cent goods, IT software and textiles. Rising during 1980–91 to 8.2 per cent prices have also been kept under during 2007–12. During the reform control. 48 INDIAN ECONOMIC DEVELOPMENT 2024-25  Work These Out Ø In the previous chapter, you might have studied about subsidies in various sectors, including agriculture. Some scholars argue that subsidy in agriculture should be removed to make the sector internationally competitive. Do you agree? If so, how can it be done? Discuss in class. Ø Read the following passage and discuss in class. Groundnut is a major oilseed crop in Andhra Pradesh. Mahadeva, who was a farmer in Anantpur district of Andhra Pradesh, used to spend Rs. 10,000 for growing groundnut on his plot of half an acre. The cost included expenditure on raw material (seeds, fertilisers, etc.), labour, bullock power and machinery used. On an average, Mahadeva used to get two quintals of groundnut, and each quintal was sold for Rs. 7,000. Mahadeva, thus, was spending Rs. 10,000 and getting an income of Rs. 14,000. Anantpur district is a drought-prone area. As a result of economic reforms, the government did not undertake any major irrigation project. Recently, groundnut crop in Anantpur is facing problems due to crop disease. Research and extension work has gone down due to lower government expenditure. Mahadeva and his friends brought this matter repeatedly to the notice of the government officials entrusted with this responsibility, but failed. Subsidy was reduced on material (seeds, fertilisers) which increased Mahadeva’s cost of cultivation. Moreover, the local markets were flooded with cheap imported edible oils, which was a result of removal of restriction on imports. Mahadeva was not able to sell his groundnut in the market as he was not getting the price to cover his cost. What could be done to farmers like Mahadeva from incurring losses? Discuss in the class. On the other hand, the reform Growth and Employment: Though process has been widely criticised the GDP growth rate has increased in for not being able to address some the reform period, scholars point out of the basic problems facing our that the reform-led growth has not economy especially in areas of generated sufficient employment employment, agriculture, industry, opportunities in the country. You will infrastructure development and fiscal study the link between different aspects management. of employment and growth in the next unit. LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 49 2024-25 Reforms in Agriculture: Reforms infrastructure etc. In a globalised have not been able to benefit world, developing countries are agriculture, where the growth rate has compelled to open up their economies been decelerating. to greater flow of goods and capital Since 1991, public investment in from developed countries and agriculture sector especially in rendering their industries vulnerable infrastructure, which includes to imported goods. Cheaper imports irrigation, power, roads, market have, thus, replaced the demand linkages and research and extension for domestic goods. Domestic (which played a crucial role in the manufacturers are facing competition from imports. The infrastructure Green Revolution), has fallen. Further, facilities, including power supply, the partial removal of fertiliser subsidy have remained inadequate due to lack has led to increase in the cost of of investment. Globalisation is, thus, production, which has severely often seen as creating conditions for affected the small and marginal the free movement of goods and farmers. This sector has been services from foreign countries that experiencing a number of policy adversely affect the local industries changes such as reduction in import and employment opportunities in duties on agricultural products, low developing countries. minimum support price and lifting of Moreover, a developing country quantitative restrictions on the imports like India still does not have the access of agricultural products. These have to developed countries’ markets adversely affected Indian farmers as because of high non-tariff barriers. For they now have to face increased example, although all quota international competition. restrictions on exports of textiles and Moreover, because of export- clothing have been removed in India, oriented policy strategies in agriculture, USA has not removed their quota there has been a shift from production restriction on import of textiles from for the domestic market towards India and China. production for the export market focusing on cash crops in lieu of Disinvestment: Every year, the production of food grains. This puts government fixes a target for pressure on prices of food grains. disinvestment of PSEs. For instance, in 1991-92, it was targeted to mobilise Reforms in Industry: Industrial Rs 2500 crore through disinvestment. growth has also recorded a slowdown. The government was able to mobilise This is because of decreasing demand ` 3,040 crore more than the target. of industrial products due to In 2017–18, the target was about various reasons such as cheaper ` 1,00,000 crore, and the achievement imports, inadequate investment in was about ` 1,00,057 crore. Critics 50 INDIAN ECONOMIC DEVELOPMENT 2024-25 point out that the assets of PSEs have the reform policies, involving tariff been undervalued and sold to the reduction, have curtailed the scope for private sector. This means that there raising revenue through custom duties. has been a substantial loss to the In order to attract foreign investment, government and the outright sale of tax incentives are provided to foreign public assets! Moreover, the proceeds investors which further reduced the from disinvestment are used to offset scope for raising tax revenues. This has the shortage of government revenues a negative impact on developmental and rather than using it for the welfare expenditures. development of PSEs and building social infrastructure in the country. 3.7 CONCLUSION Do you think selling a part of the properties of government companies The process of globalisation through is the best way to improve their liberalisation and privatisation policies efficiency? has produced positive, as well as, negative results both for India and Reforms and Fiscal Policies: other countries. Some scholars argue Economic reforms have placed limits that globalisation should be seen as on the growth of public expenditure, an opportunity in terms of greater especially in social sectors. The tax access to global markets, high reductions in the reform period, aimed technology and increased possibility of at yielding larger revenue and curb tax large industries of developing evasion, have not resulted in increase countries to become important in tax revenue for the government. Also, players in the international arena. Box 3.3: Siricilla Tragedy! Power sector reforms in many Indian states led to do away with the supply of electricity at subsidised rates and steep rise in power tariff. This has affected workers engaged in small industries. Powerloom textile industry in Andhra Pradesh is an example. Since the wages of the powerloom workers are linked to the production of cloth, power cut means cut in wages of weavers, who were already suffering from hike in tariff. A few years ago, this led to a crisis in the livelihood of the weavers and 50 powerloom workers committed suicide in a small town called ‘Siricilla’ in Andhra Pradesh. Ø Do you think the power tariff should not be raised? Ø What would be your suggestions to revive small industries affected by reforms? LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 51 2024-25  On the contrary, the critics argue initiated as a response to the crisis that globalisation is a strategy of the by the government, with externally developed countries to expand their advised policy package, further markets in other countries. According aggravated the inequalities. Further, to them, it has compromised the it has increased the income and welfare and identity of people quality of consumption of only high- belonging to poor countries. It has income groups and the growth has further been pointed out that market- been concentrated only in driven globalisation has widened the some select areas in the services sector economic disparities among nations such as telecommunication, and people. information technology, finance, Viewed from the Indian context, entertainment, travel and hospitality some studies have stated that the services, real estate and trade, crisis that erupted in the early 1990s rather than vital sectors such as was basically an outcome of the deep- agriculture and industry which rooted inequalities in Indian society provide livelihoods to millions of and the economic reform policies people in the country. Recap Ø The economy was facing problems of declining foreign exchange, growing imports without matching rise in exports and high inflation. India changed its economic policies in 1991 due to a financial crisis and pressure from international organisations like the World Bank and IMF. Ø In the domestic economy, major reforms were undertaken in the industrial and financial sectors. Major external sector reforms included foreign exchange deregulations and import liberalisation. Ø With a view to improving the performance of the public sector, there was a consensus on reducing its role and opening it up to the private sector. This was done through disinvestment and liberalisation measures. Ø Globalisation is the outcome of the policies of liberalisation and privatisation. It means an integration of the economy of the country with the world economy. Ø Outsourcing is emerging as a major activity in industrial and service sectors. Ø The objective of the WTO is to establish a rule based trade regime to ensure optimum utilisation of world resources. Ø During the reforms, growth of agriculture and industry has gone down but the service sector has registered growth. Ø Reforms have not benefited the agriculture sector. There has also been a decline in public investment in this sector. Ø Industrial sector growth has slowed down due to availability of cheaper imports and lower investment. 52 INDIAN ECONOMIC DEVELOPMENT 2024-25  EXERCISES 1. Why were reforms introduced in India? 2. Why is it necessary to became a member of WTO? 3. Why did RBI have to change its role from controller to facilitator of financial sector in India? 4. How is RBI controlling the commercial banks? 5. What do you understand by devaluation of rupee? 6. Distinguish between the following (i) Strategic and Minority sale (ii) Bilateral and Multi-lateral trade (iii) Tariff and Non-tariff barriers. 7. Why are tariffs imposed? 8. What is the meaning of quantitative restrictions? 9. Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why? 10. Do you think outsourcing is good for India? Why are developed countries opposing it? 11. India has certain advantages which makes it a favourite outsourcing destination. What are these advantages? 12. Do you think the navaratna policy of the government helps in improving the performance of public sector undertakings in India? How? 13. What are the major factors responsible for the high growth of the service sector? 14. Agriculture sector appears to be adversely affected by the reform process. Why? 15. Why has the industrial sector performed poorly in the reform period? 16. Discuss economic reforms in India in the light of social justice and welfare. LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 53 2024-25  SUGGESTED ADDITIONAL ACTIVITIES 1. The table given below shows the GDP growth rate at 2004-05 prices. You have studied about the techniques of presentation of data in your Statistics for Economics course. Draw a time series line graph based on the data given in the table and inter- pret the same. Year GDP Growth Rate (%) 2005-06 9.5 2006-07 9.6 2007-08 9.3 2008-09 6.7 2009-10 8.6 2010-11 8.9 2011-12 6.7 2012-13 5.4 2013-14 6.4 2014-15 7.4 2. Observe around you — you will find State Electricity Boards (SEBs), BSES and many public and private organisations sup- plying electricity in different states and union territories. There are private buses on roads alongside the goverment bus services and so on. (i) What do you think about this dual system of the co-existence of public and private sectors? (ii) What are the merits and demerits of such a dual system? Discuss. 3. With the help of your parents and grandparents prepare a list of multinational companies that existed in India at the time of independence. Now put a (ü ) mark against those which are still growing and a (×) against those which do not exist any more. Are there any companies whose names have changed? Find out the new names, the country of origin, nature of product, logo and prepare charts and display in your class. 54 INDIAN ECONOMIC DEVELOPMENT 2024-25  4. Give appropriate examples for the following: Nature of Product Name of a Foreign Company Biscuits Shoes Computers Cars TV and Refrigerators Stationery Now, find out if these companies which are mentioned above existed in India before 1991, or came after the New Economic Policy. For this, take the help of your teacher, parents, grandparents and shopkeepers. 5. Collect a few relevant newspaper cuttings and from the internet on meetings organised by WTO. Discuss the issues debated in these meetings, and find out how WTO facilitates world trade. 6. Was it necessary for India to introduce economic reforms at the behest of World Bank and International Monetary Fund? Was there no alternative for the government to solve the balance of pay- ments crisis? Discuss in the classroom. REFERENCES Books ACHARYA, S. 2003. India’s Economy: Some Issues and Answers. Academic Foundation, New Delhi. ALTERNATIVE SURVEY GROUP. 2005. Alternative Economic Survey, India 2004–05, Disequalising Growth. Daanish Books, Delhi. AHLUWALIA , I.J. and I.M.D. L ITTLE. 1998. India’s Economic Reforms and Development. Oxford University Press, New Delhi. BARDHAN , PRANAB. 1998. The Political Economy of Development in India. Oxford University Press, Delhi. BHADURI, AMIT and D EEPAK N AYYAR. 1996. The Intelligent Person’s Guide to Liberalisation. Penguin, Delhi. BHAGWATI, J AGDISH. 1992. India in Transition: Freeing the Economy. Oxford University Press, Delhi. LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 55 2024-25  BYRES, TERENCE J. 1997. The State, Development Planning and Liberalisation in India. Oxford University Press, Delhi. C HADHA, G.K. 1994. Policy Perspectives in Indian Economic Development. Har -Anand, Delhi. C HELLIAH, R AJA J. 1996. 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M AHAJAN, V.S. 1994. Indian Economy Towards 2000 A.D. Deep & Deep, Delhi. P AREKH , KIRIT and RADHAKRISHNA , 2002, India Development Report 2001-02. Oxford University Press, New Delhi. R AO, C.H. HANUMANTHA. and H ANS LINNEMANN. 1996. Economic Reforms and Poverty Alleviation in India, Sage Publication, Delhi. S ACHS, J EFFREY D., ASHUTOSH V ARSHNEY and N IRUPAM B AJPAI.1999. India in the Era of Economic Reforms. Oxford University Press, New Delhi. Government Reports and Websites Economic Survey for various years. Ministry of Finance, Government of India. Published by Oxford University Press, New Delhi. Tenth Five Year Plan 1997-2002. Vol. 1. Government of India, Planning Commission, New Delhi. Appraisal Document of Twelfth Five Year Plan 2012-2017, NITI Aayog, Government of India. https://dipam.gov.in Handbook of Statistics on Indian Economy, Reserve Bank of India for various years, Mumbai. 56 INDIAN ECONOMIC DEVELOPMENT 2024-25