SUMMARY: This chapter examines the economic reforms introduced in India in 1991, focusing on the processes and impacts of liberalisation, privatisation, and globalisation on the Indian economy.
KEY TOPICS: Economic reforms of 1991, LPG model, New Economic Policy, impact on agriculture, impact on industry, foreign direct investment, trade policy reforms, role of WTO, economic growth, challenges of reforms.
The New Economic Policy (NEP) was introduced in India in the year:
Disinvestment refers to:
In which year was the World Trade Organisation (WTO) established?
The 1991 economic crisis was triggered primarily by:
Strategic disinvestment refers to:
In which year did India introduce the New Economic Policy (NEP) marking the beginning of LPG reforms?
Which of the following best describes 'liberalisation' in the context of India's 1991 economic reforms?
What was the primary immediate crisis that compelled India to adopt economic reforms in 1991?
Which of the following is NOT a component of the LPG model introduced in India's New Economic Policy of 1991?
Disinvestment, as part of privatisation policy in India, refers to:
Which of the following correctly describes the impact of trade policy reforms introduced in 1991 on India's foreign trade?
Which international organisation replaced GATT and plays a key role in regulating international trade as part of India's globalisation process?
A major criticism of the economic reforms of 1991 regarding agriculture is that:
Analyse the following statements about Foreign Direct Investment (FDI) after India's 1991 reforms and identify the correct one:
Critics argue that despite high GDP growth rates following the 1991 reforms, the benefits have not been equitably distributed. Which of the following best supports this critique in the context of the chapter?
State any two causes of the 1991 Balance-of-Payments crisis in India.
What is outsourcing? State one benefit it has brought to India.
Distinguish between strategic sale and minority sale in the context of disinvestment.
Explain the meaning of liberalisation privatisation and globalisation.
Discuss the role of WTO in the world trading system.
What were the main reasons that compelled India to introduce economic reforms in 1991?
What is meant by the New Economic Policy (NEP) introduced in 1991?
Define liberalisation in the context of India's 1991 economic reforms.
How did the economic reforms of 1991 affect the industrial sector in India?
What is privatisation and what were the two main forms it took in India after 1991?
Describe the main features of the New Economic Policy (1991) and the three pillars of LPG.
Evaluate the impact of LPG reforms on the Indian economy since 1991.
Describe the main reforms undertaken in the financial sector of India after 1991.
Discuss the major economic reforms initiated in India in 1991. Evaluate their impact on the economy.
Discuss the criticism of LPG reforms with reference to the agriculture sector and small-scale industries.
Differentiate between privatisation and disinvestment in tabular form.
Assertion (A): The 1991 reforms were driven by an acute balance-of-payments crisis.
Reason (R): India's foreign-exchange reserves had fallen to a level sufficient for barely two weeks of imports.
Assertion (A): Industrial licensing was abolished for all industries in 1991.
Reason (R): Liberalisation aimed at reducing bureaucratic controls on industry.
Assertion (A): Liberalisation in 1991 significantly reduced government intervention in private investment decisions.
Reason (R): The New Economic Policy abolished industrial licensing for most industries and removed many investment controls.
Assertion (A): The 1991 reforms accelerated India's GDP growth.
Reason (R): Removal of industrial licensing reduction of trade barriers and inflow of foreign investment created a more competitive growth-oriented economy.
Assertion (A): The WTO has been criticised for favouring developed countries.
Reason (R): WTO agreements like TRIPS protect intellectual property of developed countries while restricting access to affordable medicines in developing nations.
Assertion (A): India introduced the New Economic Policy in 1991.
Reason (R): India was facing a severe balance of payments crisis and fiscal deficit in 1991, which necessitated economic reforms.
Assertion (A): Liberalisation in India led to the removal of industrial licensing for most industries.
Reason (R): Industrial licensing was abolished to reduce government control and encourage private sector participation in the economy.
Assertion (A): Privatisation means the transfer of ownership of public sector enterprises to private individuals or companies.
Reason (R): Privatisation was introduced in India to improve efficiency and reduce the burden of loss-making public sector units on government finances.
Statement 1: The WTO replaced GATT in 1995 as the main international trade body.
Statement 2: India is one of the founding members of the WTO.
Statement 1: Peak customs tariff rates in India were reduced significantly after 1991.
Statement 2: Quantitative restrictions on all imports were removed immediately in 1991, with no transition period.
Statement 1: Globalisation involves freer movement of goods, services and capital across national borders.
Statement 2: Globalisation has made India completely immune to global economic shocks such as the 2008 financial crisis.
Statement 1: Disinvestment is the sale of equity in public-sector undertakings.
Statement 2: The proceeds are used to bridge the fiscal deficit and improve PSU efficiency.
Statement 1: Globalisation has integrated India with the world economy.
Statement 2: Indian IT and pharmaceutical companies have emerged as global players post-reforms.
Statement 1: The New Economic Policy of 1991 was introduced to address India's severe balance of payments crisis and fiscal deficit.
Statement 2: The New Economic Policy of 1991 was introduced primarily to increase agricultural production in India.
Statement 1: Liberalisation refers to the process of reducing government restrictions and controls on economic activities.
Statement 2: Privatisation refers to the transfer of ownership of public sector enterprises to private individuals or companies.
Statement 1: Under the LPG reforms, the industrial licensing system was completely abolished for all industries in India.
Statement 2: After 1991 reforms, industries related to defence, atomic energy and railways were kept outside the scope of private sector participation.
Study the pre- and post-reform growth data and answer:
| Decade | Avg. GDP Growth (%) | Avg. Export Growth (%) |
|---|---|---|
| 1980s | 5.6 | 7.7 |
| 1990s | 5.8 | 13.7 |
| 2000s | 7.3 | 21.6 |
| 2010s | 6.8 | 6.5 |
Study the forex-reserves data and answer:
| Year | Reserves ($ bn) | Comment |
|---|---|---|
| 1990-91 | 1 | Crisis — ~2 weeks of imports |
| 2000 | 38 | Stable |
| 2010 | 300 | High |
| 2024 | 650 | Record |
Compute the average GDP growth rate for each decade and comment on the LPG impact.
| Decade | Avg. GDP growth (%) | Avg. export growth (%) |
|---|---|---|
| 1980s | 5.6 | 7.7 |
| 1990s | 5.8 | 13.7 |
| 2000s | 7.3 | 21.6 |
| 2010s | 6.8 | 6.5 |
The table below shows India's Foreign Direct Investment (FDI) inflows (in USD billion) across different periods after the 1991 reforms. Identify the period with the highest FDI inflow and calculate the percentage increase in FDI from the period 1991-1995 to 2006-2010.
| Period | FDI Inflows (USD Billion) |
|---|---|
| 1991-1995 | 5.2 |
| 1996-2000 | 15.8 |
| 2001-2005 | 26.4 |
| 2006-2010 | 130.6 |
| 2011-2015 | 189.5 |
Study the decade-wise GDP-growth chart and answer:
Study India's annual FDI inflow trend and answer:
Study India's foreign-exchange reserves over time and answer:
Based on the given flowchart, answer the following:
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