Catalyst classes group of institutes
📘 Chapter 3: Economic Reforms Since 1991
Subject: Indian Economic Development – Class 12 CBSE
Total Reform Areas: 🌟Liberalisation, Privatisation,
Globalisation (LPG Reforms)
🔶 1. Why Economic Reforms Were Needed in 1991
🔻 Severe balance of payments crisis (foreign exchange reserves
were very low).
🔻 Inflation was high; prices were rising rapidly.
🔻 Huge fiscal deficit (government spending more than income).
🔻 Poor performance of public sector industries.
🔻 India had to borrow from IMF and World Bank with conditions
to open up the economy.
🔷 2. Liberalisation: Freedom for Economy
✂ Removal of unnecessary government controls and licenses.
📉 Reduction in tax rates, tariffs, and duties.
🏭 No industrial licensing (except for a few industries).
💰 Entry of private and foreign banks in financial sector.
📜 Easier policies for foreign trade and investment.
🔷 Economic Reforms Under Liberalisation
🏭 1. Industrial Sector Reforms
❌ Licensing abolished for most industries (except a few like
defense, atomic energy).
✅ Private sector allowed to enter more industries.
🔓 MRTP Act (Monopoly law) relaxed to allow expansion.
🏦 2. Financial Sector Reforms
🏛Private and foreign banks allowed.
💳 Interest rates made market-determined (not fixed by govt).
🏢 RBI’s role shifted from regulator to facilitator.
📜 3. Tax Reforms
💰 Reduction in personal and corporate income tax.
🧾Simplification of tax structure.
📉 Customs and excise duties lowered.
🌍 4. Foreign Trade Policy Reforms
🚫 Import quotas removed.
📦 Import duties reduced to encourage competition.
🌐 Export promotion through duty-free schemes.
💼 5. Foreign Investment Policy Reforms
💸 FDI allowed in many sectors (e.g., telecom, banking).
📃 Simplified rules for foreign companies to invest in India.
🔓 Automatic route allowed for many investments (no prior govt.
approval).
🔷 3. Privatisation: Power to Private Sector
🏢 Shifting ownership or management from government to
private companies.
🎯 Objective: Increase efficiency, profitability, and accountability.
🔸 Methods of Privatisation:
💸 Disinvestment – Selling shares of PSUs (like Air India, BPCL).
🤝 Public-Private Partnerships (PPP) – Infrastructure projects
jointly by govt. and private sector.
🏭 Entry of private players in sectors like telecom, airlines, etc.
🔷 4. Globalisation: India Goes Global
🌍 Linking the Indian economy with the world economy.
🚢 Free movement of goods, services, capital, and people.
💵 Increased FDI (Foreign Direct Investment) and foreign trade.
🌐 Entry of MNCs (Multinational Companies) in Indian markets.
🔶 5. Key Government Policies to Promote Globalisation
🔓 Liberal FDI policy – Up to 100% in many sectors.
📉 Reduction of import tariffs and quotas.
📖 Joining the World Trade Organisation (WTO) in 1995.
🤝Encouragement to Indian companies to go international.
🔷 6. Outsourcing: India Becomes a Service Hub
🖥 Companies from abroad outsource services like BPO, IT
support, data entry to India.
💼 Benefits:
Generation of employment.
Increase in foreign exchange earnings.
Promotion of digital skills.
🔷 7. Demonetisation (2016)
📅 On 8 November 2016, ₹500 and ₹1000 notes were banned.
🏦 Public asked to deposit/exchange old notes in banks.
🔸 Objectives:
🚫 Curb black money and fake currency.
💳 Promote digital payments.
🔁 Bring informal economy into the formal system.
🔷 8. World Trade Organisation (WTO)
🌐 An international organisation to promote global trade
(established in 1995).
🇮🇳India is a founding member of WTO.
🔸 Functions:
📜 Makes rules for international trade.
⚖ Solves trade disputes between countries.
📊 Monitors national trade policies.
📚 Provides support to developing countries.
🔑 9. Key Terms at a Glance
📌 Term 💡 Meaning
Liberalisation Freedom from govt. controls and licensing
Privatisation Govt. ownership transferred to private
sector
Globalisation Integration with the world economy
Disinvestment Selling govt. shares in PSUs
Outsourcing Hiring services from outside the
company/country
Demonetisation Banning use of currency notes in circulation
🧠10. Critical Appraisal of 1991 Reforms
✅ Success/Advantages:
📈 Higher GDP growth.
🌍 Boost in foreign investment and exports.
💻 Growth in service sectors like IT and telecom.
🏭 Increased private sector participation.
❌ Challenges/Disadvantages:
⚖ Widened inequality between rich and poor.
🌾 Neglect of agriculture and rural sectors.
💼 Unemployment due to competition and automation.
🏢 Public sector enterprises became weaker.
