case study on liberalisation privatisation globalisation class 12

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April 1, 2020 Mehak Economics 2

LIBERALIZATION

Liberalization means removal of entry and growth restriction on the private sector.

• Liberalization involves deregulation and reduction of government controls and greater autonomy (freedom) of private investment, to make economy more competitive.
• Under this process, business is given free hand and is allowed to run on commercial lines.
• The purpose of liberalization was : # To unlock the economic potential of the country by encouraging private sector and multinational corporations to invest and expand; and # To introduce much more competition into the economy and creating incentives for increasing efficiency of operations.
•  The economic reforms taken by the government under liberalization include the following :
• Industrial sector reforms
• Financial sector reforms
• Tax reforms
• Foreign exchange reforms
• Trade and investment policy reforms

INDUSTRIAL SECTOR REFORMS

Reduction in industrial licensing:.

The new policy abolished industrial licensing for all the projects, expect for a short list of industries (like liquor, defense equipment, industrial explosives etc….)

• No licenses were needed

(i) to set up new units

(ii) expands or diversify the exciting line of manufacture.

• However, license is required for certain industries, related to security and strategic considerations.

Decrease in role of public sector:

One of the striking features was the substantive reduction in the role of the public sector in the future industrial development of the country. The number of industries reserved for the public sector, reduced from 17 to following 3 industries

(i)defense equipment

(ii) atomic energy generation

(iii) railway transport.

De-reservation under small-scale industries:Many goods produced by small scale industries have now been de- reserved.

• The investment ceiling on plant and machinery for small undertakings enhanced to  rupees one crore.
• In many industries, the market was allowed to determine the prices through forces of the market (and not by directivity policy of the government).

Monopolies and restrictive trade practice (MRTP) Act:

with the introduction of liberalization and expansion schemes, the requirement of large companies, to seek prior approval for expansion , establishment of new undertakings, merger , amalgamations, etc.. Were eliminated.

FINANCIALLY SECTOR REFORMS

Financial sector includes financial institutes like commercial banks, investment hank, stock exchange operations and foreign exchange market . the financial sector in India is controlled by the central bank — Reserve bank of India (RBI) .

• Change in role of RBI:

The role of RBI was reduced from regulation of facilitator of financial sector . As a result, financial sector was allowed to take decisions on many matters, without consulting the RBI.

•  Origin of private banks:

The reforms policies led to the establishment of private sector banks , Indian as well as foreign . for example, Indian banks like ICICI and foreign banks like HSBC increased the competition and benefitted the consumers through lower interest rates and better services.

•  Increase in limit of foreign investment:

The limit of foreign investment in banks was raised to around 51% foreign institutional investors (FII) such as merchant bankers, mutual funds and pension funds were now allowed to invest in Indian financial markets.

• Ease in expansion process:

Bank were given freedom to set up new branches (after fulfillment of certain condition) without the approval of the RBI.

TAX REFORMS

Tax reforms refer to reforms in government’s taxation and public expenditure policies, which are collectively known as its ‘fiscal policy’.

Taxes are of two types:

• Direct taxes consist of taxes on incomes of individuals as well as profits of business enterprises for example , income tax (taxes on individual incomes) and corporate tax (taxes on profits of companies ) .

• Indirect taxes refer to those taxes which affect the income and property of persons through their consumption expenditure. indirect taxes are generally imposed on goods and services. For example, sales tax, VAT , custom duty, etc.

• Reduction in taxes :

Since 1991, there has been a continuous reduction in income and corporate tax as high tax retes were an important reason for tax evasion. It is now widely accepted that moderate rates of income tax encourage savings and voluntary disclose of income.

•  Reforms in indirect taxes:

Considerable reform have been made in indirect taxes to facilitate establishment of common national market for goods and services

• Simplification of process

In order to increase better compliance on the part of tax pair many procedures have been simplified.

Foreign Exchange Reforms

The important reforms made in the foreign exchange market are:

• 1. Devaluation of Rupee – Devaluation refers to reduction in the value of domestic currency by the government. To overcome Balance of Payments crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange

2. Market Determination of Exchange Rate: The Government allowed rupee value to be free from its control. As a result, market forces of demand and supply determine the exchange value of the Indian rupee in terms of foreign currency

Trade and Investment Policy Reforms

Before 1991, a lot of restrictions (high tariffs and quotas) were imposed on imports to protect the domestic industries.

However, this protection reduced the efficiency and competitiveness of domestic industries and led to their slow growth.

So, the reforms in the trade and investment policy were initiated:

• To increase the international competitiveness of industrial production.
• To promote foreign investments and technology into the economy.
• To promote efficiency of local industries and adoption of modern technologies.

The important trade and investment policy reforms include

1. Removal of Quantitative restrictions on Imports and Exports: Under the New Economic Policy, quantitative restrictions on imports and exports were greatly reduced. For example, quantitative restrictions on imports of manufactured consumer goods and agricultural products were fully removed from April 2007

2. Removal of Export Duties: Export duties were removed to increase the competitive position of Indian goods in the international markets

3. Reduction in Import Duties :  Import duties were reduced to improve the position of domestic goods in the foreign market.

4. Relaxation in Import Licensing System : The Import licensing was abolished,except in case of hazardous and environmentally sensitive industries. This encouraged domestic industries to import raw materials at better prices, which raised their efficiency and made them more competitive”

PRIVATIZATION

Privatization means transfer of ownership, management and control of public sector enterprises to the entrepreneurs in the private sector.

Privatization implies greater role of the private sector in the economic activities of the country. Over the years, Indian Government has diluted its stake in several public enterprises, including IPCL, IBP, Maruti Udyog, etc.

Privatization can be done in two ways:

•  Transfer of ownership and management of public sector companies from the government to the Private Sector
• Privatization of the public sector undertakings (PSU) by selling off part of the equity of PSUs to the public.
• This process is known as disinvestment.

Disinvestment is of three type

• Complete disinvestment in this type of disinvestment complete public sector undertaking is sold to private sector.
• Majority disinvestment in this type of disinvestment a major portion of public sector undertaking is sold ie more than 50% shares of public sector undertaking are sold to private sector.
• Minority disinvestment in this type of disinvestment government sells less than 50% of stake two private sector.

The purpose of privatization was mainly to improve financial discipline and facilitate modernization. It was also believed that private capital and managerial capabilities will help in improving performance of the PSUS.

GLOBALIZATION

Globalization means integrating the national economy with the world economy through removal of barriers on international trade and capital movements

• Globalization is the outcome of the policies of liberalization and privatization

• Globalization is generally understood to mean integration of the economy of the country with the world economy

• However, it is a complex phenomenon. It is an outcome of the set of various policies that aim to transform the world towards greater interdependence and integration

Changes made by the Globalization of the Indian Economy

1. The New Economic Policy prepared a specified list of high technology and high investment priority industries, in which automatic permission will be available for foreign direct investment up to 51 per cent of foreign equity

2 In respect of foreign technology agreements, automatic permission is provided in high priority industry up to a sum of rupees 1 crore. No permission is now required for hiring foreign technicians or for testing indigenously developed technology abroad.

3. In order to make international adjustment of Indian currency, rupee was devalued in July 1991 by nearly 20 per cent. It stimulated exports, discouraged imports and raised the influx of foreign capital.

4 To integrate Indian economy with world, the Union Budget 1992-93 made Indian rupee partially convertible and then the rupee was made fully convertible in 1993-94 budget

5, A new five year export import Policy (1992 – 97) announced by the Go i,rir • establish the framework of globalisation of India’s foreign trade The policy removed all restrictions and controls on the external trade and allowed market forces to play a greater role in respect of exports and imports.

6. In order to bring the Indian economy within the ambit of global competition, the government has modified the customs duty to a considerable extent. Accordingly, the peak rate of customs duty has been reduced from 250 per cent to 10 per cent in 2007-2008 budget.

OUTSOURCING

Outsourcing refers to contracting out some of its activities to third party which. were earlier performed by the organisation. For example, many companies have started outsourcing security service to outside agencies on a contractual basis.

• Outsourcing is one of the important outcomes of the globalization process.
• It has intensified in recent times because of the growth of fast modes of communication, particularly the growth of Information Technology (IT).
• With the help of modern telecommunication links, the text, voice and visual data in respect of these services is digitized and transmitted in real time over continents and national boundaries.
• India has become a favorable destination of outsourcing for most of the MNC’s because of low wage rates and availability of skilled manpower.
• For example, Indian Business Process Outsourcing (BPO) companies are already gaining prominence and earning precious foreign exchange.

World Trade Organisation (WTO)

Origin of World Trade Organisation (WTO)

• Prior to WTO, General Agreement on Trade and Tariff (GATT) was established as global trade organisation, in 1948 with 23 countries.
• GATT was set up to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market.
• WTO was founded in 1995 as the successor organisation to the GATT
• The WTO agreements cover trade in goods as well as services, to facilitate international trade.
• At present, there are 159 member countries of WTO and all the members are required to abide by laws and policies framed under WTO rules

Some Major Functions of WTO:

1. To facilitate international trade (both bilateral and multilateral trade) through removal of tariff as well as non-tariff barriers;

2. To establish a rule-based trading regime, in which nations cannot place arbitrary restrictions on trade.

3. To enlarge production and trade of services

4. To ensure optimum utilization of world resources

5. To protect the environment.

AN APPRAISAL OF LPG POLICIES (ECONOMIC REFORMS)

Economic reforms created mixed reactions at different levels. Le us discuss some of the positive and negative aspects of economic reforms. Arguments in Favor of Economic Reforms The following are some of the important arguments advanced in favor of economic reforms:

1 Increase in rate of Economic Growth:

• The growth of GDP increased from 5.6% during 1980-91 to 6.1% during 1992-2001
• This shows that there has been an increase in the overall GDP growth in the reform period.
• During the reform period, the growth of agriculture and industrial sectors has declined, whereas the growth of service sector has gone up.
• This indicates that the growth is mainly driven by the growth in the service sector. Currently, the growth rate of GDP is estimated to be 8.2%

2. Inflow of Foreign Investment:

• The opening up of the economy has led to the rapid increase in foreign direct investment (FDI).
• The foreign investment (FDI and foreign institutional investment) increased from about US $ 100 million in 1990-91 to US $ 36 billion in 2016-17.

3. Rise in Foreign Exchange

• Reserves foreign exchange reserves reached the level of $ 25,186 million at the end of March 1995 as compared to only $ 3,962 million in 1989-90.
• At present, India is the 6th largest foreign exchange reserve holder in the world, with $ 321 billionin the year 2014-15.

4. Rise in Exports:

• During the reform period, India experienced considerable increase in exports of auto parts, engineering goods, IT software and textiles

5. Control on Inflation.

• Increase in production tax reforms and other reforms helped in controlling the inflation.
• The annual rate of inflation reduced from the peak level of 17% in 1991 to around 7.6% in 2012-13.

6. Increase in role of Private sector

• Abolition of licensing system and removal of restrictions on entry of the private sector, in areas earlier reserved for the public sector, have enlarged the area of operation of the private sector

Criticism of Economic Reforms

Critics have raised a series of criticism against the New Economic Reforms, especially in the areas of employment, agriculture, industry, infrastructure development and fiscal management.

1. Growing Unemployment

Though the GDP growth rate has increased in the reform period, but such growth failed to generate sufficient employment opportunities in the country

2. Neglect of Agriculture

The new economic policy has neglected the agricultural sector as compared to industry, trade and services sector.

(i) Reduction of public investment : Public investment in agriculture sector, especially in infrastructure, which includes irrigation, power, roads, market linkages and research and extension (which played a crucial role in the Green Revolution), has been reduced in the reform period.

(ii)Removal of subsidy: Removal of fertilizer subsidy increased the cost of production, which adversely affected the small and marginal farmers.

(iii) Liberalisation and reduction in import duties: After the commencement of WTO, a number of policy changes were made:

(a) Reduction in import duties on agricultural products;

(b) Removal of minimum support price

(c) Lifting of quantitative restrictions on agricultural products.

All these policies adversely affected the Indian farmers as they now have to face increased international competition.

(iv) Shift towards cash crops: Due to Export-oriented policy strategies in agriculture, the production shifted from food grains to cash crops for the export market. It led to rise in the prices of food grains.

3. Low level of Industrial Growth:

Industrial growth recorded a slowdown due to the following reasons:

(i) Cheaper Imported Goods:

• Due to globalisation, there was a greater flow of goods and capital from developed countries and as a result, domestic industries were exposed to imported goods.
• Cheaper imports replaced the demand for domestic goods and domestic manufacturers started facing competition from imports. For example, cheaper Chinese goods pose a big threat to Indian manufacturers

(ii) Lack of infrastructure facilities: The infrastructure facilities, including power supply, have remained inadequate due to lack of investment.

(iii) Non-Tariff Barriers by Developed countries: All quota restrictions on exports of textiles and clothing have been removed from India. But some developed countries, like USA have not removed their quota restrictions on import of textiles from India.

4. Ineffective Disinvestment Policy:

• The government has always fixed a target for disinvestment of PSUs.
• For instance, in 1991-92, the target was rupees 2,500 crore, whereas, government was able to mobilize rupees 3,040 crore.
• However, according to some scholars, the disinvestment policy of government was not successful because:
• The assets of public sector undertakings (PSUS) were under-valued and sold to the private sector.
• Moreover, such proceeds from disinvestment were used to compensate shortage of government revenues rather than using it for the development of PSUs and building social infrastructure in the country

5. Ineffective Tax Policy:

• The tax reduction in the reform period was done to generate larger revenue and to curb tax evasion.
• But, it did not result in increase in tax revenue for the government.
• Tariff reduction decreased the scope for raising revenue through customs duties.
• Tax incentives provided to foreign investors to attract foreign investment further reduced the scope for raising tax revenues.

6. Spread of Consumerism

• The new policy has been encouraging a dangerous trend of consumerism by encouraging the production of luxuries and items of superior consumption.

DEMONETIZATION (8 November 2016)

• The Government of India, made an announcement on November 8, 2016 with profound implications for the Indian economy.
• The two largest denomination notes,’500 ‘1,000, were  ‘demonetised’ with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills.
• This led to eighty six per cent of the money in circulation invalid.The people of India had to deposit the invalid currency in the banks which came along with the restrictions placed on cash withdrawals. In other words, restrictions were placed on the convertibility of domestic money and Bank deposits.

Meaning of Demonetization

• Demonetization is a process of stripping a currency unit of its status as alegal tender. In simple words, when the Government demonetized the 500 and 1000 rupees notes, they were no longer valid as legal currency.
• Usually, a new currency replaces the old currency unit/s.
• In India, this is not the first instance of demonetization. In 1946, the Reserve Bank of India had demonetized Rs. 1,000 and Rs. 10,000 currency notes which were then under circulation.
• In 1954, the Government introduced new currency notes of Rs. 1,000, Its. 5,000, and Rs. 10,000.
• Further, these notes were demonetized in 1978 when the Morarji Desai Government decided to curb illegal transactions and anti-social activities

Reasons to Government demonetize 500 and 1000 notes in 2016

The Government made many claims with respect to the objectives and outcomes of the demonetization scheme in 2016. These were:

1. It will plug financing to terrorists

2. It will help unearth black money

3. The unearthed black money will also expand the fiscal space of the government

4. It will help reduce interest rates in the banking system

5. It will help formalize India’s informal economy, reduce the extent of cash transactions, and help in the creation of a less-cash economy

The government offered several incentives to induce people to use digital transactions too.

Possible Benefits of Demonetization

The aim of demonetization was to curb corruption, counterfeiting the use of high denomination notes for illegal activities; and especially the accumulation of ‘black money’ generated by income that has not been declared to the tax authorities.

• Increased Savings – When currency is demonetized, people tend to deposit their cash with a bank and store less physical currency at home. This helps them save more.

• Lower lending rates With currency demonetization, money moves from people to banks and financial institutions. Therefore, there is a better circulation of money. Further, banks and financial institutions have a lower cost of funds which translates into lower lending rates.

• Better economy – Since demonetization induces people to deposit their cash with the banks, there is a higher circulation of money in the economy The government receives more taxes and can undertake more development projects. Eventually, this leads to a better-perlbrming economy.

• Curbing anti-social activities – Usually, anti-social elements like smugglers or terrorists use cash as a mode of transaction. When the government decided to demonetize 500 and 1000 rupees notes, they were the highest denomination notes in circulation. By demonetizing them, the government forced these anti-social units to find ways to get rid of the old notes. This allowed the government an opportunity to get a better control over the unaccounted money in the economy and curb anti-social activities.

• Reducing counterfeit currency notes During demonetization, people deposit all old notes with banks who check if the notes are genuine or counterfeit before accepting them. Therefore, this allows the government to weed out counterfeit notes circulating in the market.

• Demonetization is viewed as a tax administration measure.
• Cash holdings arising from declared income was readily deposited in banks and exchanged for new notes.
• But those with black money had to declare their unaccounted wealth and pay taxes at a penalty rate.
• . Demonetization is also interpreted as a shift on the part of the government indicating that tax evasion will no longer be tolerated or accepted
•  Demonstration also led to tax administration channelizing savings into the formal financial system.
• Though, much of the cash that has been deposited in the banking system is bound to be withdrawn but some of the new deposits schemes offered by the banks will continue to provide base loans, at lower interest rates.
•  Another feature of demonetization is to create a less-cash or cash-lite economy, i.e., channeling more savings through the formal financial system and improving tax compliance.

Though there are arguments against this as digital transactions require use of cell phones for customers and Point-of

Sale (PoS) machines for merchants, which will only work if there is internet connectivity.

On the contrary, these disadvantages are Counterbalanced by an understanding that it helps people into the formal Digitization has broadly impact three sections of society: The poor, who are largely outside the digital economy; the less largely outside the digital economy; the less affluent, who are becoming part of the digital economy who have been covered under Jan Dhan Accounts and Rupay cards, and the affluent, who are fully conversant with digital transactions

GOODS AND SERVICE TAX (01. July 2017)

• Introduction of Goods and Services Tax (GST) will indeed be an important perfection and the next logical step towards a widespread indirect tax reforms in India.
• As per, First Discussion Paper released by the Empowered Committee of the State Finance Ministers on 10.11.2009, it has been made clear that there would be a “Dual GST” in India, i.e. taxation power lies with both by the Centre and the State to levy the taxes on the Goods and Services.
• Constitutional Amendment: While the Centre is empowered to tax services and goods upto the production stage, the States have the power to tax sale of goods.
• The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods.
• Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the supply of goods and Services’.
• Moreover, theConstitution also does not empower the States to impose tax on imports.
• Therefore, it is essential to have Constitutional Amendments for empowering the Center to levy tax on sale ofgoods and States for levy of service tax and tax on imports and other consequential issue

What is GST?

‘G’-Goods

‘S-Services

Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and

consumption of goods and service at a national level under which no distinction is made

between goods and services for levying of tax. It will mostly substitute all indirect taxes levied

on goods and services by the Central and State governments in India. GST is a tax on goods and

services under which every person is liable to pay tax on his output and is entitled to get inputtax credit (ITC) on the tax paid on its inputs(therefore a tax on value addition only) and ultimately the final Consumer shall bear the tax”.

Types of GST

There are three kinds of taxes under the GST:-SGST, CGST, and IGST 1. SGST- State Goods and Service Tax is the part of tax diverted to the state government which is credited to revenue department of state government.

This is generally equivalent to CGST. This compensates the loss of existing VAT or Sales Tax revenue to state government. In the easi of local sales, 50% quantum of tax amount under GST is diverted to GST tax.

2. CGST:- Central Goods and Service Tax is the share of GST tax diverted to revenue department of central government and is also equivalent to SGST.

This share of tax compensates the loss of existing excise duty and service tax to the central government. In the case of local sales, balanc 50% quantum of GSTI transferred to CGST.

3.IGST:- Integrated Goods and Services Tax is levied when inter-state sales and purchase is make. One part of this tax transferred to central government and another to state governmeni to whom goods and services belong. The IGST is charged only in case of inter-state sales or when transactions between two states involved.

OBJECTIVES OF GST:

• One of the main objective of Goods & Service Tax (GST) would be to eliminate the double taxation i.s. cascading effect of taxes on production and distribution cost of goods and services.
• The exclusion of cascading effect i.n. tax on tax till the level of final consumers will significantly iwprove the competitiveness of original goods and services in market which leads to beneficial impact to the GDP growth of the country. introduction of a GST to replace the existing multiple tax structure of Centre and State taxes is not only desirable but imperative.
• Integration of various taxes into a GST system would make it possible to give full credit for inputs taxes Iallected. GST, being a destination-based consumption tax based on VAT principle.

Worldwide GST:

France was the first Country to introduce GST in 1954. Worldwide, Almost 150 countries have

introduced GST in one or the other form since now. Most of the countries have a unified GST

system. Brazil and Canada follow a dual system.

Tax Rates under GST in India

• GST rates are divided into five categories which are 0% , 5%, 12%, 18%, 28%. All the basic need requirement goods are pleased in 0% category like food grains, bread, salt, books etc.
• Goods like paneer, packed food, tea coffee etc are placed under 5% category.
• Mobiles, sweets, medicine, are under 12%. Al types of services are under 18% category.
• All other remaining luxury items are placed under the last head of 28%.
• Petrol, gas, crude oil, diesel etc, are still out from the criteria of GST.

Impact of GST

• In the case of indirect taxes, the burden was on end customer or consumer.
• But due to the implementation of one tax in the whole country the overall cost of production of all goods will be reduced but on the other hand in case services, it will increase after the implantation of GST but CST gets abolished which ultimately reduces the cost of goods. Currently, we pay 30 35% tax on a commodity.
• In the case of sonic goods, direct and indirect taxes imposed by government raise its cost’ upto 30%. After the implementation of GST, it will reduce.
• The GST also reduces the cascading effect of tax which helps in making the trade simple and reduces the tax Burden of Entrepreneurs

Conclusion of GST

• Implementation of GST is one of the best decision taken by the Indian government.
• For the same reason, July 1, 2017 was celebrated as Financial Independence day in India when all the Members of Parliament attended the function in Parliament House.
• The transition to the GST regime which is accepted by 159 countries would not be easy. Confusions and complexities were expected and will happen.
• India, at some point, had to comply with such regime, Though the structure might not be a perfect one but once in place, such a tax structure will make India a better economy favorable for foreign investment. Until now India was a union of 29 small tax economies and 7 union territories with different levies unique to each state.
• It is a much accepted and appreciated regime because it does away with multiple tax rates by Centre and States.
• And if you are doing any kind of business then you should register for GST as it is not only going to help Indian government but will help you also to track your business weekly as in GST you have to make your business activity statement each work.

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• Liberalization, Privatization and Globalization

Introduction to LPG

Liberalisation, Privatisation, and Globalisation are the three elements of the new economic model of the country. Liberalisation ensures a relaxation from severely strict laws and opinions which may include certain rules and regulations of the government. Privatisation is the complete transfer of roles and operations of publicly owned means to private ownership. This means a property or business of the government being taken by a private owner with an aim to function and discipline well. Globalisation is the next step forward to increase the network of trade and culture interconnecting the whole of the world. It ensures no trade, services or technology are bounded by borders thus connecting and integrating the whole world together. They are often togetherly referred to as LPG. They aim to develop the economy of the country fast so that it can compete and complement the world’s economy.

What is LPG?

LPG refers to Liberalisation, Privatisation, and Globalisation. When India under its New Economic Policy approached the International Banks for developing the country, they suggested that the government should open towards restrictions on trade which is mostly done by the private sectors in between India and other countries. After the suggestion put forward by the International Banks, the Indian Government announced New Economic Policy or NEP. This policy consisted of an extensive range of reforms. These measures are broadly classified into two groups- structural reforms and stabilisation measures. 

The objective of structural measures was to develop international competitiveness. Moreover, the measures aimed to eliminate the rigidity in various sections of the country's economy. In stabilisation measures, the aim was to rectify and correct the existing weakness developed in controlling the inflation and balance of payments. Both sets of measures were taken for a short-term period. 

The stabilisation measure included Liberalisation, Privatisation, and Globalisation. Under this measure, the balance of payment was enabled to record all forms of economic transactions of a country with the rest of the world in a year. In such a scenario, inflation refers to the growth of prices in goods and services over a particular period. 

Liberalisation

The objective of liberalisation was to put an end to those rigidities and restrictions that were acting as a hindrance to the growth of the country. Further, in this approach, the Government was expected to be flexible with its regulation in the nation. 

The objectives of this policy were to enhance the competition among the domestic industries and encourage international trade with planned imports and exports. Moreover, it aimed at increasing international technology and capital. Also, this policy was expected to expand the international market frontier of the nation and reduce the burden of debt in the country. 

Privatisation

The second policy of the stabilisation measure is privatisation. This policy aims to expand the domination of private sector companies and reduce the control of the public sectors. Thus, the Government-owned enterprise will have less ownership. Besides these Government companies can be converted into private sector companies with two approaches. These approaches are by withdrawing the control of the Government in the public sector company and by disinvesting. There are three forms of Privatisation which are a strategic sale, partial sale, and token privatisation. In the strategic sale or denationalisation, the Government needs to deliver 100% of productive resources ownership to the owners of the private companies. 

The Partial Sale or Partial privatization owns a minimum of 50% ownership with the help of the transfer of shares. They would, therefore, own the majority of the shares and would have control of the autonomy and functioning of the company. In the token or the deficit privatisation, the Government would have to disinvest the share capital by up to 5-10% in order to meet the shortage in the budget. This policy, therefore, aims to improve the financial situation in the country and reduce the work pressure of the public sector companies. Moreover, funds could be raised from the disinvestment. With the reduced work pressure the efficiency of the public sector would automatically increase and yield better quality of goods and services for the use of consumers. 

Globalisation

In this policy, the country's economy is expected to grow with the help of the global economy. This means that the primary focus would be on foreign trade and institutional and private investments. It is the third and the last policy that is to be implemented. The objective of this phenomenon is to develop and independent the world with the implication of suitable strategies. It is the attempt to create a world where the requirements of one country can be driven and turned into one large economy. One of the major outcomes of Globalisation is outsourcing. 

Outsourcing means an enterprise can employ professionals from other countries to reach a particular goal. There is a lot of contractual work that is being outsourced in the field of Information Technology leading to its development. This has opened new avenues for a lot of private sectors and Indian skills are regarded as the most effective and vibrant across the globe. The low wage rate and dedicated employees have made India one of the constructive nations suitable for international outsourcing.

FAQs on Liberalization, Privatization and Globalization

1. What are the objectives of liberalisation?

In Spite of the fact that the government always thinks the best for the country, at times the strict rules and regulations laid by the government offer hindrance in the path of the development and hence certain relaxation in the strict rules and regulations are necessary. Liberalisation ensures the same with the following objectives as its goal.

The development of a country needs the development of domestic industries. Liberalisation ensures that by encouraging the sense of competition between the domestic industries.

It also encourages business with other countries of the world with less strict rules and regulations.

It can include foreign capital and technology for its development.

Increase the global market and improve the economy of the country.

2. What are the privatisations done by India in the sector of Airports?

One of the major breakthroughs in the privatisation done by India is the privatisation of airports with an aim to increase the airport capacity, efficiency in operations, and find new ways to earn revenue for local and state governments. The main aim is to earn more revenue and reduce costs. The privatisation of airports has also increased the benefits for consumers and job opportunities for many local people. Privatisation has also helped the government to clear its long-standing debts. The airport authority of India has given permission to privatise 13 airports of India including major airports of Bhubaneswar, Raipur, Indore, Varanasi, Trichy and Amritsar. The following airports have already been privatised. 

Trivandrum International Airport

Hyderabad International Airport

Delhi Airport

Mumbai Airport

Cochin International Airport

3. What are the disadvantages of privatisation?

Although privatisation brings good job opportunities, tax reduction and increased revenue to the country there are several problems with privatisation. They are as follows:

Privatisation often increases the cost for customers

Employees are not under government hence opposition from employees often take place

Often working is not proper in private sectors

It often deteriorates industrial relations

It concentrates the economic power to a certain business group only.

Often in many privatisations, there has been a great loss.

Privatisation has not been able to completely remove the burden from the government. Instead, sometimes they depend on the government for its requirements, adding more burden to the government.

4. What are the advantages of globalization?

Globalisation is the other name of development for developing countries. Through globalisation, they present and compete with the world market with an aim to complement the world market ultimately. The greatest advantages are interchange and learning new updated technologies which lead to improvement in the standard of living. Globalisation often promises better services and cheaper products resulting in the extension of the market. Contribution to the country’s GDP increases through globalisation. The development of infrastructures is also possible through globalisation only. Refer to the official website of Vedantu for a detailed explanation.

5. What is the impact of Liberalisation, Privatisation and Globalisation on the country’s governance?

These three elements for the economic development of the government have not always come with all the golden fruits as was expected though most of the time they have a remarkably good impact on the government. The following are the impacts on the country’s governance including both good and bad impacts.

A remarkable growth in GDP

Significant increase in foreign investment

Generation of employment for both skilled and unskilled professionals.

Significant growth in export due to development of infrastructure

Loss of employment due to the introduction of advanced technologies

Big setback for the small scale industries and cottage industries which are not able to compete with the foreign aided large scale industries.

Liberalisation, Privatisation and Globalisation: An Appraisal

Cbse class 12 economics - liberalisation, privatisation and globalisation: an appraisal.

INDIA’S FOREIGN TRADE

Export and Import of goods and services across/ with different countries is called foreign or international trade.

Observations under International Trade

1. It’s based on International specialization and on principle of comparative cost advantage.

2. Facilitates the exports of goods at higher prices compared with domestic prices to the rest of the world.

3. Increases investment opportunities for trading partners by providing a wider market size. Serves as an engine of growth as a higher investment means higher GDP growth.

India’s Foreign Trade at the time of Independence:

1.India became a source of raw material and a market for the finished goods from Britain.

2. Direction of trade was largely restricted to Britain

3.Trade composition directed the backwardness of economy.

India’s Foreign Trade after Independence

Volume of Foreign Trade : refers to the value f exports and imports in a country.

1. Rise in the percentage of exports and imports are a result of ‘base effect’. A small increase seemed significant due to the fact that initially, it was extremely low.

2.India’s share in global trade had declined despite India’s foreign trade had risen.

3. Only after the initiation of economic reforms the volume became significant.

Composition of Foreign Trade:

Refers to the items that compose the export and imports.

1 . The decline in Percentage Share of Agricultural Exports:

•  To meet the demands of increasing consumption of farm products by growing population India showed a significant decline in agricultural exports.
• Farm products were started to be used as raw materials for the domestic industry.

2. Decline in Percentage Share of Conventional Items:

• The demand for conventional items of exports like tea, jute, etc started having rise in domestic demand which previously formed the bulk of India’s exports, therefore their exports tended to fall.

3.   Increased in percentage share of Manufactured Goods:

1. Gems and jewellery are now in the list of highest exporting goods. This is a result of Planned Development Programmes launched after independence.

•  There was a structural transformation as the predominance of the primary sector was now replaced by the secondary and tertiary sectors. Therefore, no longer backward economy.

Direction of Foreign Trade:

1. The direction of Foreign  Trade took significant change as now list of trading partners has expanded over time which was largely restricted to Britain pre-independence. China, UAE, Australia, Iran, etc became the major trading partners.

2. As a result of Globalization and free trade, Chinese goods started dominating the Indian markets more than Indian goods in Chinese markets. China succeeded d India in earning the gains of trade.

1991; Year of the great divide as India relied on ‘Inward Looking Trade Strategy ‘’ till 1990 that failed to give enough and targeted gains. After 1991 India shifter to the strategy of export promotion which accelerated the rise in exports and imports of the country.

INWARD LOOKING TRADE STRATEGY

( Import Substitution Strategy )

Meant domestic production of goods that economy had to import from the rest of the world. This was followed in order to save foreign exchange by restricting import volume.

1. Scarce foreign exchange had to be used for import of machinery that was essential for growth and development as it couldn’t be produced domestically due to lack of technology and investment funds.

2. Government wanted to economize use of foreign exchange.

3. This was also done to protect the domestic industry from international competition.

Impact of Inward Looking Trade Strategy:

Good Impact

1. High rate of Industrial Growth with Structural Transformation:

Contribution of industrial sector to the GDP increased despite Green Revolution which was the indicator of economic growth based on structural transformation in an economy.

2. Diversification of Industrial Growth:

• The industry started to expand across engineering goods and a wide range of consumer goods and not just textile.
• Growth in the sunrise industry like electronic industry and   Growth of the automobile industry was also observed

3. Opportunities of Investment:

•  New opportunities for those who had less capital opened by the protection of Small scale industry.
• Use of resources that remained idle was observed.
•  Opportunities of self-employment opened promoting growth and equity as a result of new investments.

1. Growth of Inefficient Public Monopolies:

• Inefficient public monopolies started growing as a result of the protection of the public sector industry.

2. Lack of Competition implied Lack of Modernization:

• Domestic producers lacked the inducement to upgrade and modernize their products because of lack of competition.

3. The indiscriminate spread of Public Sector Enterprises:

• These public sector enterprises started swallowing up all the opportunities of private entrepreneurs and were spreading indiscriminately.

4. Economically Unviable State Enterprises; a Compulsion:

• Despite being incapable of working successfully the public sector or state enterprises continued operating on political compulsion and trade union on the pretext of social injustice and unemployment. Private unviable enterprises were shut if seen economically unviable.

NEW ECONOMIC POLICY

The economic reforms started by the Government of India in 1991 to end economic crisis of 1990s came to be known as New Economic Policy.

Three major components of NEP are Liberalization, Privatization and Globalization, commonly called LPG.

Need for NEP:

1. High Fiscal Deficit: Borrowings of government on account of the excess of its expenditure over revenue during a year is called fiscal deficit.

It shows poor financial status, triggers inflation and lowers faith of international institutions (like World Bank) in the country.   The government was in debt trap from 1990 to 1991.

2. Balance of Payment Crisis:   relates to BOP deficit which is a difference between total receipts and total payments of a country on an account of economic transitions with the world. End of 1990 marked the high borrowings and building CAD. NEP was the only way out.

3. Falling Foreign Exchange Reserves: India’s forex reserves fell so low that it could not afford to pay for an import bill of even ten days. Country’s gold reserves had to be mortgaged by the government with the World Bank. Need for NEP was immediate and essential.

4. Inflationary Spiral: Inflation shot up as a result of an increase in the supply of money as a result of borrowings by govt to cope with the fiscal deficit.

5. Poor Performance of PSU’S:   Huge amount of money was invested in the growth of PSU’S that turned out to be inefficient and corrupted resulting in huge losses. NEP was required to reverse the damage done by them.

ELEMENTS OF NEP (NEW ECONOMIC POLICY)

1. Liberalization:   means freedom of producing units from the direct or physical controls imposed by governments. The controls included:

• Industrial Licensing, Price control or financial control on goods, import license, forex control, investment restrictions by big houses.   These controls resulted in corruption, undue delay, and inefficiency.
• Greater reliance, therefore, was placed on market forces of supply and demand rather than checks and controls.

2. PRIVATISATION: involving private sector ownership operation of state-owned enterprise.

• Sale   of government enterprises to private entrepreneurs.

Need for Privatization:   Public Sector Enterprises became dead weights that were incurring huge losses. Corruption and inefficiency became widespread therefore government decided to sell out the equity of public enterprises to the private entrepreneurs.

NAVRATNAS : Referred to nine profit-making companies that are called the epicenter of growth in the country by the government. These provided infrastructural base and source of employment as well.

3. GLOBALISATION : Is a process that allows openness, economic interdependence and deepening of economy’s integration into the world economy. In simple terms, free flow of trade and capital across the borders

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CBSE Class 12th Economics Chapter 3 Unit II- Liberalisation Privatisation and Globalisation- An Appraisal New Revision Notes

Cbse board class 12th economics chapter 3 unit ii- liberalisation, privatisation and globalisation- an appraisal revision notes.

CBSE Board Class 12th Economics Chapter 3 Unit II- Liberalisation, Privatisation and Globalisation- An Appraisal Revision Notes are now available on this website. We can’t stress enough how important class 12th is. It is the only class after which students gain a bunch of knowledge that can be implemented in real life and they can even choose their career just after giving the final board examination. Therefore, the importance of revision notes is similar to the class 12th importance. Class 12th notes are created with the purpose of providing the best learning paths to the students. These Notes are prepared on the basis of the CBSE class 12th syllabus. By using these notes students can easily understand the significance of Economics Chapter 3 Unit II- Liberalisation, Privatisation and Globalisation- An Appraisal Revision Notes for CBSE Class 12th Commerce.

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Important Questions and Answers on Liberalization, Privatization, and Globalization for Class 12 Economics Board Exams

If you're a Class 12 Economics student preparing for your board exams, it's important to understand the concepts of liberalization, privatization, and globalization (LPG) given in the Indian Economic Development book Chapter 3. Here are some important questions and answers to help you prepare for your exams and gain a deeper understanding of these economic concepts.

"The only thing that stands between you and your dream is the will to try and the belief that it is actually possible." - Joel Brown

Indian Economic Development Chapter 3 Liberalization, Privatization, and Globalization Important Questions & Answers

Q. No. 1) Multiple Choice Questions (MCQ)

i. Which of the following can help reduce the fiscal deficit?

a . increasing subsidies

b. increasing the PSU profits

c. investing in improving public goods

d. decreasing the burden and incidence of tax

Ans. Option (b)

ii. …………….was the Indian Finance Minister in 1991, acknowledged for his capabilities to steer away the economic crisis looming large on the erstwhile Indian Economy.

(Choose the correct alternative)

a. Dr. Subramanian Swamy

b. Pranab Mukherjee

c. Dr. Manmohan Singh

d. Dr. Urjit Patel

Ans. Option (c)

iii. Which of the following statements correctly represents actions taken by the government towards liberalization?

• P: levying high tariffs to discourage import and promote the consumption of domestic goods and services
• Q: devaluation of the rupees to encourage the inflow of foreign exchange
• R: allowing for private banks to make decisions independent of the RBI restrictions
• S: fixing prices of certain industrial goods in order to support increased consumption of these goods to boost the manufacturing industry

a . P and Q only

b. P and R only

c. Q and R only

d. Q and S only

iv. Which of the following policies was adopted to increase the competitive position of Indian goods in the international markets?

a . export duties were removed

b. import licensing was abolished

c. the rate of corporation tax was reduced

d. Foreign Institutional Investors (FII) were allowed to invest in India

Ans. Option (a)

v. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below.

• Assertion (A): In 1991, as an immediate measure to resolve the Balance of Payments crisis, the rupee was devalued against foreign currencies.
• Reason (R): Devaluation of currency was eminent, exchange reserves.

Alternatives:

a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

b. Both Assertion (A) and Reason (R) are true, but Reason (R) is the explanation of Assertion (A).

c. Assertion (A) is true, but Reason (R) is false.

d. Assertion (A) is false, but Reason (R) is true.

vi. There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose the correct option.

• Assertion (A): The Devaluation of the Indian rupee in 1991 resulted in the inflow of foreign exchange.
• Reason (R): The Devaluation of the Indian rupee was a step to get taken to get more foreign investments.

a. A is true but R is false.

b. A is false but R is true.

c. Both A and R are true and R explains A.

d. Both A and R are true but R does not explain A.

vii. Which of the following falls under the role of the World Trade Organisation?

a. setting the limit for domestic and foreign investments in a country

b . mandating the level of tax levied on foreign firms in developing countries

c . aiding the development of poor countries by providing infrastructural investment

d . providing a platform for member countries to decide future tariff-related strategies

Ans. Option (d)

viii. There are two statements given below, marked as Statement (1) and Statement (2). Read the statements and choose the correct option.

• Statement (1): Air India, a fully owned Public Sector Undertaking (PSU) was disinvested and sold to a private entity.
• Statement (2): Public Sector Undertakings (PSU) are sold to create more direct and/or indirect employment opportunities in the country.

a. Statement 1 is true and Statement 2 is false.

b . Statement 1 is false and Statement 2 is true.

c . Both statements 1 and 2 are true

d . Both statements 1 and 2 are false

ix. Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

• Assertion (A): Every year government fixes a target for disinvestment of Public Sector Enterprises (PSEs).
• Reason (R): Disinvestment is an excellent tool for discarding the loss incurring Public Sector Enterprises (PSEs).

a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c. Assertion (A) is true but Reason (R) is false.

d. Assertion (A) is false but Reason (R) is true.

x. There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose the correct option.

• Assertion (A): According to the Government of India, the disinvestment of Public Sector Enterprises has brought accountability and professionalism to them.
• Reason (R): The Government of India used disinvestment mainly to improve financial discipline and facilitate modernization .

b . A is false but R is true.

c . Both A and R are true and R explains A.

d . Both A and R are true but R does not explain A.

Q. No. 2) India’s post-1990 economic strategy entailed three important breaks with the past:

• To dismantle the vast network of controls and permits that dominated the economic system.
• To redefine the role of the state as a facilitator of economic transactions and as a neutral regulator rather than the primary provider of goods and services.
• To move away from a regime of import substitution and to integrate fully with the global trading system.

The 1991 reforms unleashed the energies of Indian entrepreneurs and gave untold choices to the consumers and changed the face of the Indian economy. The reform agenda constituted a paradigm shift and has defined the broad contours of economic policymaking for three decades.

Liberalization was adopted as the guiding principle of governance and all governments since 1991, have broadly stuck to that path.

Today we don’t need a paradigm shift. We need to look at individual sectors and see which one of these needs, reforms to create a competitive environment and improve efficiency. The power sector, the financial system, governance structures, and even agricultural marketing need reforms.

Today’s reforms also require much more discussion and consensus-building. The central government needs to work in tandem with state governments and consult different stakeholders impacted by reform decisions. Timing and sequencing are critically important in the new reforms’ agenda.

Source: Excerpts from ‘Like 1991, the 2021 crisis presents an opportunity, by C.Rangarajan , 22nd January 2021 (livemint.com)

i. According to the given text, ________ was adopted as the guiding principle of governance and all governments since 1991.

a. Modernization

b. Liberalisation

c. Privatization

d. Globalization

ii. Read the following statements carefully and choose the correct alternatives given below:

• Statement 1 – 1991 was a landmark moment in India’s post-independence history as that changed the nature of the economy in fundamental ways.
• Statement 2 –India’s economic establishment launched a multipronged reforms agenda to repair India’s macroeconomic balance sheet and ignite growth.

a. Both statements are true.

b. Both statements are false.

c. Statement 1 is true and Statement 2 is false

d. Statement 2 is true and Statement 1 is false

iii. Read the following statements - Assertion (A) and Reason (R):

• Assertion (A) – India’s pre-1990 economic strategy dismantles the vast network of controls and permits that dominated the economic system.
• Reason(R) – The 1991 reforms unleashed the energies of Indian entrepreneurs, gave untold choices to consumers, and changed the face of the Indian economy.

From the given alternatives choose the correct one:

b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

iv. In the light of the given text and common knowledge, identify the incorrect statement: -

a. A severe balance of payments problem triggered an acute economic crisis in 1991.

b. In 1991, the economic and political leadership launched a multipronged reform agenda to repair the macroeconomic situation of the nation.

c. In the post-1991 situation, the state was

d. given the role of primary regulator of the economy.

e. Post-pandemic, individual sectors should be looked at closely. Sectors that need reforms should be identified and corrective action should be taken.

v. Read the following statements carefully and choose the correct alternatives given below:

• Statement 1 – Timing and sequencing are critically important in the post-economic reform agenda.
• Statement 2 –Post pandemic reforms in India require a paradigm shift.

vi. Read the following statements - Assertion (A) and Reason (R):

• Assertion (A) – The 1991 reforms released the vitalities of Indian businesspersons.
• Reason(R) – The reform agenda established a paradigm shift and defined the broad outlines of economic policymaking for years to come.

Q. No. 3) Why were reforms introduced in India?

• A steep fall in foreign exchange reserves : Foreign exchange reserves, which we generally maintain to import petroleum and other important items, dropped to levels that were not sufficient for even a fortnight.
• An unfavorable Balance of Payments (BOP) : Imports grew at a very high rate without matching the growth of exports.
• A huge burden of external debt : The government was not able to make repayments on its borrowings from abroad. There was also not sufficient foreign exchange to pay the interest that needed to be paid to international lenders.
• High rate of price inflation : Prices of many essential goods rose sharply.
• A huge burden of fiscal deficit in the government budget : When expenditure is more than income, the government borrows to finance the deficit from banks and also from people within the country and from international financial institutions. The revenue from taxation and public sector undertakings was lower than the expenditure incurred on developmental policies.

Q. No. 4) Discuss briefly any two major steps taken by the Government of India on the “Financial Sector” front under the Economic Reforms of 1991.

Ans. Two steps taken by the government of India in the financial sector under the Economic Reforms of 1991 were:

• Change in the role of the Reserve Bank of India (RBI): The role of RBI was reduced from regulator to facilitator of the financial sector. This means that the financial sector was given greater autonomy (to take decisions) on many matters independent of RBI.
• Origin of Private Banks: The reform process led to the establishment of private sector banks of Indian as well as foreign origin.

Q. No. 5) Why did RBI have to change its role from controller to facilitator of the financial sector in India?

• Economic liberalization:  In 1991, India began a process of economic liberalization that led to a greater role for the private sector in the economy. This meant that the RBI could no longer control the financial sector in the same way that it had in the past.
• Globalization:  India's integration into the global economy also meant that the RBI had to change its role. The RBI could no longer insulate the Indian financial sector from the global financial system.
• Financial sector reforms:  The RBI undertook a number of financial sector reforms in the 1990s and 2000s. These reforms led to a more competitive and efficient financial sector. This meant that the RBI needed to change its role from controller to facilitator in order to promote competition and efficiency.

Q. No. 6) Name any two taxes which were subsumed in Goods and Services Tax (GST).

Ans. Value-added tax, service tax, excise duty, sales tax.

Q. No. 7) Those public sector undertakings which are making profits should be privatized. Do you agree with this view? Why?

Ans. Arguments in favor of privatization:

• Increased efficiency:  Private companies are often more efficient than government-owned companies. This is because they are driven by the profit motive and are not subject to the same bureaucratic constraints as government-owned companies.
• Improved service delivery:  Private companies are often able to deliver better services than government-owned companies. This is because they are more responsive to customer needs and are not subject to the same political interference as government-owned companies.
• Increased competition:  Privatization can lead to increased competition in the market. This can benefit consumers by driving down prices and improving the quality of goods and services.
• Revenue generation:  The government can generate revenue from the sale of PSUs. This revenue can be used to fund other government programs or to reduce the national debt.

Arguments against privatization:

• Loss of jobs:  Privatization can lead to job losses, as private companies are often more efficient and may not need as many employees as government-owned companies.
• Reduced social welfare:  Public sector undertakings often provide social welfare benefits to their employees, such as subsidized housing, healthcare, and education. Privatization can lead to a reduction in these benefits, as private companies are not legally obligated to provide them.
• Increased inequality:  Privatization can lead to increased inequality, as private companies are often owned by a small number of wealthy individuals. This can lead to a concentration of wealth and power in the hands of a few people.
• Loss of control:  Privatization can lead to a loss of control over strategic industries, as they are transferred to private ownership. This can make it more difficult for the government to regulate these industries and to ensure that they are operating in the best interests of the public.

Q. No. 8) Define the following terms:

• a. Disinvestment
• b. Outsourcing

Ans. a. Disinvestment : Privatisation of the public sector enterprises (PSEs) by selling off a part/whole of the equity to the general public or any private sector player is known as disinvestment.

b. Outsourcing: Hiring of regular service from external sources, mostly from foreign countries, which was previously provided internally or from within the country is known as outsourcing.

Q. No. 9) Name any one Maharatana company.

Ans. Indian Oil Corporation Limited.

Q. No. 10) “In the post-reform period, the Government of India decided to retain profit-making Public Sector Undertakings (PSUs). It provided a special status to PSUs to enable them to expand in the global market.” Do you agree with the given statement? Give valid reasons in support of your answer.

Ans. Yes. In order to improve efficiency, infuse professionalism and enable Public Sector Undertakings (PSUs) to compete more effectively in the liberalized global environment, the government identified profit-making PSUs. The government declared them as Maharatnas, Navratnas, and Miniratnas. PSUs were given greater managerial and operational autonomy, in taking various decisions. As a result, over the years these Maharatnas, Navratnas, and Miniratnas have performed exceedingly well and established themselves as market leaders.

Q. No. 11) Amazon has been outsourcing to various customer support companies in India to accommodate more local and international buyers and sellers. In light of the above statement, how has the process of globalization impacted the Indian economy?

• generates more employment and job opportunities
• increases the overall GDP of the country
• leads to the formalization of the employment sector
• limits the availability of social security measures for the workers.

Q. No. 12) India has certain advantages which make it a favorite outsourcing destination. What are these advantages?

Ans. The low wage rates and availability of skilled manpower in India have made it a destination for global outsourcing in the post-reform period.

Q. No. 13) Why is it necessary to become a member of the WTO?

• Increased market access:  WTO membership gives countries access to the markets of other WTO members. This can lead to increased exports and economic growth. For example, India's exports to other WTO members have increased by more than 500% since it joined the WTO in 1995.
• Reduced trade barriers:  WTO members agree to reduce tariffs and other trade barriers. This makes it easier for businesses to trade goods and services across borders. For example, India has reduced its tariffs on imports by an average of 50% since it joined the WTO.
• Increased investment:  WTO membership can attract foreign investment. This can help to finance economic growth and create jobs. For example, India has received more than $1 trillion in foreign investment since it joined the WTO.
• Improved access to technology:  WTO membership can give countries access to new technologies. This can help to improve productivity and competitiveness. For example, India has benefited from access to new technologies in the areas of agriculture, manufacturing, and information technology.
• Strengthened rules-based trading system:  WTO membership helps to strengthen the rules-based trading system. This can help to prevent trade disputes and ensure that trade is fair and open. For example, India has used the WTO to resolve trade disputes with other countries.

Q. No. 14) ‘The opening up of the Indian Economy has led to a rapid increase in Foreign Direct Investments and Foreign Exchange Reserves of the country’. Defend or refute the given statement.

Ans. The given statement is true to its character. Foreign investments, both Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII), have increased from about US $100 million in 1990-91 to US $ 74 billion recently. This has changed the status of India from a ‘begging bowl’ in the 1990s to a ‘self-dependent’ economy in the present age.

Due to the opening up of the Indian Economy, she has become one of the largest foreign exchange reserve holders in the world. India has been able to register an increase in its foreign exchange reserves from about US $ 6 billion in 1990-91 to about US $ 321 billion in 2014-15.

Q. No. 15) “Agriculture sector appears to be adversely affected by the economic reform process.” Explain the given statement.

Ans. The agricultural sector was adversely affected by the reform process in the following manner:

• Public investment in the agriculture sector especially in infrastructure like irrigation, power, etc. has been reduced in the reform period
• The reduction of fertilizer subsidies has increased the cost of production affecting thereby the small and marginal farmers
• Increased international competitiveness due to liberalization and reduction of import duties.
• Shift from food crops to cash crops due to export-oriented policy in agriculture led to a rise in prices of food grains.

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Chapter 3 IED Liberalisation, Privatisation And Globalisation

• Chapter 1 IED Indian Economy On The Eve Of Independence
• Chapter 2 IED Indian Economy 1950-1990
• Chapter 4 IED Poverty
• Chapter 5 IED Human Capital Formation In India
• Chapter 6 IED Rural Development
• Chapter 7 IED Employment: Growth Informalisation Other Issues
• Chapter 8 IED Infrastructure
• Chapter 9 IED Environment And Sustainable Development
• Chapter 10 IED Comparative Development Experiences of India
• Globalisation

Last updated at April 16, 2024 by Teachoo

What is Globalisation?

It means Integration of Country's economy with World's economy.

Important Points of Globalisation

Globalisation means following set of policies which lead to:

1 Greater interdependence and integration of world

2 Happenings In India are Influenced by happening far away

3 Various Economic ,Social Geoghraphical boundaries are broken

4 World becomes borderless (Different countries of world become one whole)

Outcomes of Globalisation - Examples

Earlier, we used to purchase goods and services within India

But now due to globalisation, we are free to buy goods and services from outside India also

Due to Globalisation, Foreign MNC are free to set up business in India and earn profit

This has led to job opportunities for millions of people

Due to Globalisation, Foreign Companies outsource their work to India

This has led to new outsourcing business set up in India as well as jobs to India'a people

MCQ Other Books

In the following questions, select the correct answers:

_____ means integrating the domestic economy with the world economy.

• Liberalisation
• Disinvestment
• Privatisation

A. Globalisation

Globalisation means Integration of Country's economy with World's economy.

• Greater interdependence and integration of world
• Happenings In India are Influenced by happening far away
• Various Economic ,Social Geoghraphical boundaries are broken
• World becomes borderless (Different countries of world become one whole)

Globalization-Meaning and Example North Korea No interaction with Other Countries Very Little Import, Export, Foreign Trade Very less Tourist visit North Korea Not much Affected by World Events (COVID, Stock market Crash etc.) India Properly Integrated with Outside World Large Imports, Exports, Foreign Trade Large number of Tourist visit India, go abroad Much Affected by World Events (If US Stock Market Crashed, India's Stock Market also crashes) This is due to Globalization What is Globalization? It is integration of Domestic Economy with Global Economy. What is Globalisation? It means integration Of Country’s Domestic economy with World’s Economy Important Points of Globalisation It means following set of policies which lead to Greater interdependence and integration of world Happenings In India are Influenced by happening far away. Example-COVID Various Economic ,Social Geographical boundaries are broken (We can travel and work anywhere) World becomes borderless (Different countries of world become one whole) Effect of Globalisation in India Before 1991 Indian Customers purchased mostly Indian Goods Maruti 800 (INDIA) Not many Foreign Companies (MNC) in India Netherland MNC in India American MNC in India After 1991 Reforms Indian Customers have a choice They can Purchase Either Indian or Foreign Goods Maruti 800 (INDIA) Hyundai Santro (South Korea) Lot of MNC (Multi-National Companies) Both Foreign and Indian Providing Jobs to lakhs of People Foreign MNC in India Indian MNC Operating worldwide Effect of Globalisation in India BEFORE 1991 No Outsourcing to India USA Company USA Call Center AFTER 1991 REFORMS Large Business Process Outsourcing (BPO) to India USA Company Indian Call Center Indian Call Center working for US Client Benefits Providing Business to Outsourcing Companies Jobs to Employees

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• Economic Reforms Since 1991...

Economic Reforms Since 1991 Class 12 Economics Important Questions

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Practice Questions for Class 12 Economics

• Economic Reforms Since 1991

How many industries still need license for its operations? ( 1)

When government disinvests its shares to the extent of 5 to 10 percent to meet the deficit in the budget, this is termed as  ( 1)

• Partial privatisation
• Token privatisation
• Denationalisation

LPG stands for:  ( 1)

• Liberalisation, Production and Global Cooperation
• License, Privatisation and Globalisation
• Liberalisation, Privatisation and Globalisation
• License, Permit and Goods

CRR is  ( 1)

• The percentage of total deposits which the banks have to keep in the form of cash.
• The percentage of total deposits which the banks have to keep with the RBI.

Define the globalization.  ( 1)

Privatisation has done more harm than good. Justify your answer.  ( 1)

Why should tariff and non-tariff barriers be removed to promote globalisation?  ( 1)

Why did the Indian Government need to borrow from international organisations?  ( 1)

Those Public Sector Undertakings which are making profits should be privatised. Do you agree with this view? Why?  (3 )

In your opinion, what are the advantages of privatisation to the economy?  (3 )

Write a brief note on trade and investment policy reforms. How did it lead to economic growth?  (4 )

What were the objectives behind Trade and Investment Policy reforms?  (4 )

Explain the changing role of state in Indian economy since introduction of reforms.  (4 )

Evaluate the positive and negative impacts of LPG policy.  (6 )

Write a brief note on International Bank for Reconstruction and Development (IBRD).  (6 )

• Explanation: The only industries which are now reserved for the public sector are 4. i.e defence equipment, atomic energy generation and railway transport.
• Token privatisation Explanation:  Token privatisation, also known as deficit privatisation occurs when the government disinvests its share to the extent of 5 to 10 percent to meet the deficit in the budget.
• Liberalisation, Privatisation and Globalisation Explanation:  The government initiated a variety of policies which fall under three heads viz., liberalisation, privatisation and globalisation. (LPG)
• The percentage of total deposits which the banks have to keep with the RBI. Explanation:  Cash Reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI.
• Globalization is the free movement of goods, services and people across the world in a seamless and integrated manner.
• It will help in reducing the burden on the exchequer.
• It will help in modernising and diversifying PSUs.
• It will help in making PSUs more competitive.
• It will help in improving the quality of decision making of management.
• It will help in reviving sick units, which are eating away the revenue of government.
• It will help in developing capital market and international market.
• It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A state-owned firm doesn’t have this pressure and so it is easier for them to be inefficient. Therefore privatisation inceases the efficiency of firms.

Case against privatisation :

• It will encourage growth of monopoly power in the hands of big business houses.
• It will increase disparities in income and wealth.
• Private sector has no interest in buying loss making and sick enterprises.
• Privatisation may result in lop-sided development of industries in the country.
• Private sector may have no interest in long gestation projects, infrastructure investment and risky projects.
• Private sector may not have sufficient funds for many vital projects.
• Unexpectedly, all of the utilities create negative externalities (via pollution, spoiling the environment, etc.) It can be argued that as public sector companies, the government can regulate output and make sure that it is at the socially optimal level (i.e. allow for externalities). In the private sector, maximisation of profit is the only concern, so a socially damaging level of externalities will occur.
• Tariff and non-tariff barriers restrict the free flow of trade between the two countries. Therefore, these barriers should be removed to promote globalisation. Otherwise, domestic goods would lose international competitiveness.
• A severe financial crisis due to unsustainable fiscal deficit, fall in foreign exchange reserves and inability to pay interest to international lenders forced the Indian Government to borrow from international organisations. It is because India’s export industry was lagging behind due to which she could obtain BOP surplus.
• No, I do not agree with this view. Even though disinvestment would increase the revenue of the government, the profit-making Public Sector Units(PSUs) are revenue generator for the government and they should be retained in the public sector because the profits of these undertakings add to the revenues of the government and can be used to develop other PSUs and the infrastructure of the company. The profit making PSUs should not be privatised just for the reason that the government can get funds to cover the deficit in government budget. A profit-making PSU should be privatised only if it can earn better revenues and thus higher profit if run more efficiently by the private sector. Also, in the process of disinvestment, if the assets of the profit-making industries are undervalued, it will lead to a substantial loss to the government. Also, the government should retain the strategic profit making industries to avoid emergence of any monopoly in the private sector.
• It will introduce efficiency and profitability in Public Sector Undertakings (PSUs).
• It promotes consumer’s sovereignty. High degree of consumer’s sovereignty implies wider choice and better quality of goods and services.
• It will reduce budgetary deficits which result from expenditure on loss making PSUs.
• It promotes diversification of production. Also, unlike PSUs, private enterprises invariably generate high profits.
• Often privatisation of state owned monopolies occurs alongside deregulation – i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market.
• It helps in lowering the cost of goods by removing tariff barriers.
• These reforms help in bringing economies of scale by increasing specialisation.
• These reforms help in maintaining friendly relations with other countries.
• These reforms increase competition, which in turn help firms to increase efficiency in production.
• It helps in earning foreign exchange.
• Remove the restrictions on foreign goods and to increase international competitiveness in Indian markets.
• Attract foreign investment and to promote the adoption of modern technology into the economy.
• Dismantling of quantitative restrictions on imports and exports.
• Reduction of tariff rates
• Removal of licensing procedures for imports.
• To increase the efficiency of domestic market.
• The public sector must withdraw from the areas where no public sector is served by its presence.
• State should make investments only in those areas where investment is of main infrastructural nature where private sector is not likely to come forth to an adequate extent within a reasonable time perspective.

After that we saw a major shift in the Indian economy and the role of state has been changing from a controller, regulator and participator to that of a facilitator, observer and guide. The changes that took place in the role of state since 1991 are as under:

• Before economic reforms, government had its share in all sectors of the economy. It was producing bread, butter, biscuits, milk, running hotels and many of these were actually not required to be in public sector. Government withdrew herself from these sectors through delicensing, deregulation and disinvestment.
• As a regulator, during 1947-1990, Government regulated all activities with the laws and acts. But after 1991, except some basic and strategic goods and services, decisions were made to be market driven. For this purpose, regulatory authorities were set up for different sectors.
• Since 1991, Government has focused its attention on development of social sector like education, health, defence, law and order.
• A vibrant economy: Indian economy has definitely become a more vibrant economy. The Overall level of economic activity has definitely picked up after the introduction of the policies of liberalisation, privatisation and globalisation. Results are evident in terms of an impressive increase in the growth rate of GDP.
• A stimulant to industrial production: LPG policies have worked as a great stimulant to industrial production in the Indian economy. Presently, industrial production is hovering around 10 percent which is a big jump from the pre-1991 level.
• A check on fiscal deficit: Mounting fiscal deficit has been a serious threat to the process of investment in the Indian economy. it was as high as 8.5 percent prior to 1991. thanks to the LPG policies, there has been a significant increase in government revenue.
• A check on Inflatio n : Owing to the greater flow of goods and services in the economy, there has been a check on the rate of inflation. Till 2007-08, it ranged between 4-5 percent which is not a serious threat to interest rate structure.
• consumer’s sovereignty : consumers sovereignty has definitely widened over time. this is evident from the actual fact that a large kind of goods and services from the various international markets are currently among the simple reach of the consumers. producers are widely responding to consumers choice and preference.

Negative impact of LPG policies

• neglect of agriculture: growth of GDP has primarily been owing to substantial growth of the industrial sector. In the wake of LPG policies, focus shifted from agriculture to industries. Consequently, the growth rate in agriculture suffered a setback.
• Urban concentration of growth process: LPG policies have resulted in the concentration of the growth process in urban areas. think of any MNC, you will hardly find its trace in the rural areas of country. All MNCs are focusing only on urban areas, where they find conductive infrastructural facilities.
• Economic colonialism: India suffered nearly 200 years of political colonialism during British rule. Now while MNCs are dominating the Indian economy, we might suffer a sort of economic colonialism. Implying a situation where MNCs are exploiting the Indian markets to sell their products.
• Spread of consumerism: Spread of consumerism within the country as a consequence of LPG policies has resulted during a large-scale unfold of consumerism. A variety of global brands in the market lured the masses to become spendthrift, even beyond their means.
• cultural erosion: Globalisation has also caused cultural erosion of Indian society. Economic prosperity has taken a lead over all other parameters of life. Everybody wants to be economically independent and well off, regardlessly of his responsibility towards his family or society.
• To assist in the reconstruction and development of its member countries by facilitating the investment of capital for productive purposes, thereby promoting long range growth of international trade and improvements in the standard of living.
• To promote private foreign investment by guarantees of and participation in loans and other investments made by private investors.
• To maintain balance growth of international trade and to attain equilibrium in BoP account.
• Motivating governments to act on preventing climate change, controlling communicable diseases, managing international financial crises and promoting free trade.

Chapter Wise Practice Test for Class 12 Economics

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• Indian Economy on the Eve of Independence
• Indian Economy 1950-90
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• Rural Development
• Employment Growth Informational and other Issues
• Infrastructure
• Environment Sustainable Development
• Development Experiences India & Neighbours

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Liberalisation Privatisation and Globalisation class 12 Notes

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The trio of liberalisation, globalisation, and privatisation has significantly reshaped economies worldwide, including India. These transformative concepts, often studied together in economics, particularly in Class 12, represent a paradigm shift in how nations approach economic growth and integration into the global market.

Liberalisation, privatisation, and globalisation notes delve into the intricacies of these processes. Liberalisation refers to the easing of government regulations and restrictions in the economy, providing greater autonomy to business enterprises. This shift is pivotal for encouraging competition and enhancing overall efficiency. Privatisation, on the other hand, involves the transfer of ownership of enterprises from the public sector to the private sector. It is seen as a move towards more efficient management and operation of businesses, driven by profit and market demands. Globalisation represents the integration of economies across the world, primarily through trade and financial flows. It signifies the expansion of businesses beyond national borders, facilitating an interconnected global market.

These concepts are elaborately covered in liberalisation privatisation and globalisation PDFs and class 12 notes. These resources provide comprehensive information, making it easier for students to grasp the complexity of these economic transformations. The liberalisation privatisation globalisation PDF serves as a valuable reference for understanding the theoretical underpinnings and real-world applications of these concepts.

For visual learners, the liberalisation globalisation and privatisation class 12 mind map offers a succinct and engaging way to connect various aspects of these topics. It helps in visualizing the interlinkages and impacts of these processes on the global economy.

Furthermore, for exam preparation, liberalisation globalisation and privatisation class 12 MCQs and extra questions are indispensable tools. They help students test their understanding and apply concepts to different scenarios, a crucial skill for excelling in economics.

In summary, understanding liberalisation, privatisation, and globalisation is key for students, especially those in Class 12, to comprehend the current economic environment. These concepts not only represent significant chapters in economics textbooks but are also vital in understanding the dynamics of the modern global economy. With the right notes, PDFs, mind maps, and practice questions, students can gain a robust understanding of these transformative economic processes.

What is Liberalisation, Privatisation, and Globalisation:

Liberalisation, privatisation, and globalisation are three fundamental concepts in modern economics that have reshaped global economies. Liberalisation refers to the process of reducing government control and restrictions in the economy, fostering greater freedom in business activities and market competition. It involves easing policies to allow more players, both domestic and international, to participate in various sectors. Privatisation signifies the transfer of ownership and management of enterprises from the public sector to the private sector.

This move is often aimed at improving efficiency, productivity, and competitiveness of businesses by leveraging private sector expertise and resources. Globalisation, the broadest of the three, encompasses the increasing interconnectedness and interdependence of the world's economies. It involves the expansion of global trade and investment, facilitated by technological advancements. Globalisation leads to the exchange of goods, services, ideas, and cultures across international borders, creating a more integrated global market.

Difference Between Liberalisation, Privatisation, and Globalisation :

While liberalisation, privatisation, and globalisation are interconnected, they have distinct characteristics. Liberalisation is mainly concerned with reducing government regulations and barriers in the economy, creating an environment where businesses can operate more freely and competitively. It opens the economy to new players and promotes free trade. Privatisation, on the other hand, is the process of transferring public sector enterprises to private ownership and management, focusing on improving efficiency and profitability. It often involves deregulation and reduced government intervention in businesses.

Globalisation is a broader concept that extends beyond economic policies to cultural and social domains. It represents the integration of economies around the world through trade, investment, and the exchange of information and culture. Globalisation is facilitated by liberalisation and can lead to increased foreign direct investment, a result often associated with privatisation.

Liberalisation, Privatisation, and Globalisation Notes: Liberalisation, privatisation, and globalisation are key themes in economic studies, especially in understanding how modern economies function. Notes on these topics typically cover the theories behind these concepts, their implementation, and their impact on global and local economies. Liberalisation is often discussed in terms of reducing trade barriers and encouraging foreign direct investment. Privatisation notes focus on the shift of ownership from public to private hands, and the implications it has on efficiency, employment, and economic growth.

Globalisation notes encompass a wider range of subjects, including the role of technology in connecting markets, the impact on local cultures and economies, and the challenges and opportunities it presents in the context of international trade and development. Comprehensive notes on these subjects are crucial for students and professionals alike to understand the complexities and interrelations of these fundamental economic processes.

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Important Questions of CBSE Class 12 Economics Chapter 3

Important Questions for CBSE Class 12 Economics Chapter 3 Liberalisation, Privatisation and Globalisation: An Appraisal, which is outlined by expert Economics teachers from the latest version of CBSE (NCERT) books.

CBSE Class 12 Economics Chapter – 3 Important Questions

What is the other name of the World Bank?

(a) Federal Bank

(b) ICICI Bank

(d) Bank of America

Expand WTO.

WTO stands for World Trade Organization

What is Privatisation?

Answer : Privatisation is the procedure of transferring an industry or enterprise from the public to the private sector. This is known as destatization and denationalisation.

Why has industrial sector growth lowered down in India?

(a) Due to the obtainability of cheaper imports and lower investment

(b) Public income has increased

(c) Receiving good response from the exports

(d) Manpower has decreased in industries

Industrialisation in India has recorded a slowdown in the period of economic reforms. What are the reasons for this?

(a) Decreasing demand for domestic industrial products

(b) Globalisation

(c) India doesn’t have access to different markets because of high non-tariff barriers

(d) All of the above

What is Globalisation?

Globalisation means the opening of nationalistic and local outlooks to a broader perspective of an interlinked and interdependent world. It involves free transfer of – goods, capital and services across the national borders.

What are indirect taxes?

Indirect taxes are that kind of taxes that are not directly imposed on the income earned; however, it is indirectly imposed on the expenses incurred by an individual. For instance, VAT, service tax, entertainment tax, etc., Most of the taxes are merged and called GST.

What do economic reforms mean?

Economic reforms imply those actions which are adapted for production effectiveness, competitive markets and make sure that the economy grows rapidly.

What is the benefit that the domestic industries get by reducing the tariff?

Imports have become cheaper and there is an increase in profit margin on the exports for domestic industries are the primary benefits.

Question 10

What are the Navratnas Companies of India?

During 1997, the Government of India gave the status of Navratna to 9 Public Sector Enterprises (PSEs). Hence, giving them greater autonomy to compete in the market by assisting them in their path to become global tycoons. Currently, in India, there are 17 companies with the title of Navratnas – HAL, BHEL, MTNL, NTPC, Oil India, etc. This scheme was introduced by the Government to identify Central Public Sector Enterprises (CPSEs) that had a few merits.

Question 11

What is India’s Export-Import policy?

The foreign trade policy is outlined and announced by the Central Government (Ministry of Commerce). Foreign Trade Policy or EXIM (Export-Import) policy is a set of regulations, guidelines and instructions established by the DGFT (Directorate General of Foreign Trade) in the matters associated with the EXIM goods in India.

Export and import play an important role in the economic development of all the developing and developed nations. Along with the enhancement of international organisations like – UNCTAD, WTO, ASEAN, etc.

Question 12

What is outsourcing? How is India benefited?

India continues to be the major destination for outsourcing because it has been able to develop with the changing needs. National Association of Software and Services Companies (NASSCOM), which is the primary body of India’s foremost IT software and services (IT and BPO) companies, once reported that India’s share in the Global Outsourcing market increased from 51% to 55%. India stands out at its best for customer service and effectiveness.

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12th Class Economics Liberalisation, Privatisation and Globalisation Question Bank

Done case based mcqs - liberalisation, privatisation and globalisation total questions - 15.

A) A high level of fiscal deficit done clear

B) Inflationary pressures done clear

C) Persistent level of unemployment and poverty done clear

D) Depletion of the foreign exchange reserves done clear

question_answer 2) The new economic policy of 1991 in context of Indian economy implies

A) liberating trade and industry from controls and restrictions done clear

B) greater role of private sector in the functioning of an economy done clear

C) shifting from closed economy to an open economy model done clear

D) All of the above done clear

question_answer 3) The other name of World Bank is .......

A) Integrated Bank for Reconstruction and Development (IBRD) done clear

B) International Bank for Resource and Development (IBRD) done clear

C) International Bank for Reconstruction and Development (IBRD) done clear

D) Integrated Bank for Resource and Development (IBRD) done clear

A) True done clear

B) False done clear

C) Partially true done clear

D) Can't say, there were no such conditionalities done clear

A) (i),(iii) and (iv) done clear

B) (i),(ii) and (iii) done clear

C) (i),(ii) and (iv) done clear

D) (ii),(iii) and (iv) done clear

A) stripping the legal tender status of a currency done clear

B) removing certain currency notes from the market and investing them in government bonds done clear

C) deliberately reducing the flow of certain currency bills for a specified period of time done clear

D) Allot the above done clear

question_answer 7) The major reason(s) given for demonetisation of currency bills

A) Seize the wealth that was accumulated through undeclared income done clear

B) Eliminate the scourge to counterfeit currency circulating in an economy done clear

C) Pushing a nation towards digitalisation done clear

question_answer 8) Demonetisation of currency bills in 2016 has been the first episode of demonetisation in context of Indian economy. The given statement is

A) True      done clear

C) Partially true      done clear

D) Partially false done clear

question_answer 9) The recent demonetisation in which Prime Minister Narendra Modi demonetised Rs. 500 and Rs. 1,000 currency bills was announced on

A) 8th November, 2017 done clear

B) 8th November, 2016 done clear

C) 6th November, 2017 done clear

D) 6th November, 2016 done clear

question_answer 10) Which of the following gives the correct meaning of legal tender status?

A) Legally recognised payment instrument used to fulfil a financial commitment done clear

B) Legally recognised payment instrument used to fulfil debts of more than Rs. 1 crore done clear

C) Legally recognised payment instrument used to fulfil debts of less than Rs. 1 crore done clear

D) None of the above done clear

A) True  done clear

D) Can't say done clear

question_answer 12) Which of the following factor is incorrect with regard to the growth of service sector during the reform period?

A) Availability of cheap and skilled labour done clear

B) Growth of IT sector and spill over effects on the use of internet, telecommunications, mobile phones etc. done clear

C) Huge inflow of foreign capital and investments done clear

D) Increased tax rates on foreign investments with no tax holidays done clear

question_answer 13) The major reason explaining the decline in growth rate of agricultural sector during the reform period was/were

A) decline in public investment in this sector done clear

B) removal of fertilizer subsidy increased the cost of production which significantly affected small farmers done clear

C) reduction in export duties resulted Indian farmers to face international competition done clear

A) Both Assertion [A] and Reason [R] are true and Reason [R] is the correct explanation of Assertion [A] done clear

B) Both Assertion [A] and Reason [R] are true, but Reason [R] is not the correct explanation of Assertion [A] done clear

C) Assertion [A] is true, but Reason [R] is false done clear

D) Assertion [A] is false, but Reason [R] is true done clear

question_answer 15) As a result of economic reform, ......... sector experienced highest growth rate.

A) agricultural done clear

B) industry done clear

C) services done clear

D) All sectors experienced equal growth rate done clear

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Case Based MCQs - Liberalisation, Privatisation and Globalisation

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100 Important MCQs on Liberalisation, Privatisation and Globalistaion Class 12

• January 31, 2022
• MCQS , Indian Economy , Liberalisation Privatisation Globalisation

Looking for important MCQs (Multiple Choice Questions) on Liberalisation privatisation and globalisation chapter of Indian Economic Development Class 12 CBSE, ISC UPSC and other state Board.

We have made a good collection of very important MCQs of Chapter 2 of the Indian economic development book of class 12

Multiple Choice Questions (MCQs) of Chapter 3 of Indian Economic Development Book of Class 12

Lets practice.

The most urgent problem which prompted the introduction of New Economic Policy in 1991 was:

a) Bad performance of public sector units b) Foreign exchange crises c) High tax rates leading to tax evasion d) All the above

Ans – b)

Industrial Policy before 1991 was essentially a:

a) Pro-Private sector policy b) Anti-public sector policy c) Pro-public sector policy d) Anti-private sector policy

Ans – c)

The most important change in Foreign Trade Policy from 1991 onwards was:

a) Reducing restrictions on imports b) Reducing restrictions on exports c) Both a) and b) d) Reducing restrictions on specific goods only

Inward foreign direct investment is useful because:

a) Brings in foreign exchange b) Brings in modern technology c) Brings in management expertise d) All the above

Ans – d)

Fiscal deficit is that part of total government expenditure which is met by:

a) Imposing more taxes b) Selling shares held by government c) Borrowings d) All the above

Fiscal policy of the government refers to:

a) Taxation policy b) Government expenditure policy c) Both a) and b) d) Neither a) nor b)

Financial sector reforms are undertaken by:

a) Government of India b) Reserve Bank of India c) Both a) and b) d) Neither a) nor b)

The main source of foreign capital In India is:

a) Loans from abroad b) Foreign direct investment c) Both a) and b) d) Neither a) nor b)

Which of the following refers to relaxation of previous government restrictions?

a) Privatisation b) Globalisation c) Disinvestment d) Liberalisation

WTO was established in the year___________

a) 1995 b) 1948 c) 1996 d) 1994

Ans – a)

_______________means integrating the domestic economy with the world economy.

a) Globalisation b) Privatisation c) Liberalisation d) Disinvestment

Trade between two countries is knows as:

a) Bilateral trade b) Multi lateral trade c) Both a) and b)

Which of the following is a policy initiated under New Economic Policy?

a) Liberalisation b) Privatisation c) Gloablisation d) Licensing

Ans – a), b), c)

When was the New Economic Policy announced?

a) June, 1991 b) May, 1991 c) July, 1991 d) January, 1991

_________refers to disposal of equity of public sector units in the market.

a) Globalisation b) Privatisation c) Disinvestment d) Liberalisation

Cheaper imported goods was one of the reasons behind:

a) Growing unemployment b) unbalanced growth c) Low level of industrial growth d) Speard of consumerism

refers to the transfer of assets or serves function from public to private ownership.

a) Gloablisation b) Privatisation c) Disinvestment d) Liberalisation

WTO stands for:

a) World Trade Organisation b) World Transport Organisation c) World Trariff Organisation d) Women Teachers Organisation

Outsourcing is goods for India because:

a) It provides employment to large number of unemployed b) It provides excellence in a particular field c) Both a) and B) d) Neither a) nor b)

Which of the following economic reforms were initiated by the govenment under liberalisation?

a) Industrial sector reforms b) Agricultural reforms c) Financial sector reforms d) All of these

Ans – a), c)

Which of the following industries are reserved for the public sector?

a) Defence aircraft and warships b) Atomic energy generation c) Cement d) Both a) and b)

_________refers to transfer of ownership, management and control of public sector enterprises to the entrepreneurs in the private sector.

a) Liberalisation b) Globalisation c) Privatisation d) None of these

It refers to contracting out some of its activites to a third party which were earlier performed by the organisation.

a) Outsourcing b) Globalisation c) Privatisation d) Liberalisation

________involves deregulation and reduction of government controls and greater autonomy of private investment, to make economy more competitive.

a) Globalisation b) Privatisation c) Liberalisation d) None of these

Which of the following is not a tax reform?

a) Reduction in taxes b) Reforms in Indirect taxes c) Removal of Export Duties d) Devaluation of Rupee

Ans – c), d)

Which of the following is not a benefit of demonatisation in India?

a) Control over corruption b) Counterfeiting use of high denomination notes for illegal activities c) Control on black money d) More Demanding Customers

Which of the following was not a feature of Demonatisation?

a) Channelizing savings into formal financial system b) Tax Administration c) Cash less economy d) Promotion of Balck Money

All Indirect Taxes have been subsumed under:

a) Income Tax b) Corporate Tax c) Goods and Services Tax (GST) d) Value Added Tax (VAT)

Which of the following reason led to the introduction of New Economic Policy in 1991?

a) Poor Performance of Public Sector b) Consistent rise in general price level c) Foreign exchange crisis d) All of these

After agreeing to the conditions of ____ India announced the New Economic Policy (NEP).

a) International Monetary Fund (IMF) b) International Bank of Reconstruction and Devleopment (IBRD) c) Reserve Bank of India d) Both a) and b)

and ____ currency notes of the old Mahatma Gandhi series were banned as legal tender money on 8th November 2016. (Choose the correct alternative)

a) ₹ 50 and ₹ 100 b) ₹ 500 and ₹ 1000 c) ₹ 500 and ₹ 2000 d) ₹ 500 and ₹ 200

__ was the predecessor organisation to World Trade Organisation (WTO).

a) International Bank for Reconstruction and Development (IBRD) b) International Monetary Fund (IMF) c) Reserve Bank of India (RBI) d) General Agreement on Tariffs and Trade (GATT)

___ was the Indian Finance Minister in 1991, acknowledged for his capabilities to steer away from the economic crisis looming large on the erstwhile Indian Economy.

a) Dr. Subramanian Swamy b) Dr. Manmohan Singh c) Pranab Mukharjee d) Dr. Urjit Patel

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