FOCUS AREA (INDIAN ECONOMY)

LIB ERALISATION, PRIVATISATION, AND

GLOBALISATION : AN APPRAISAL
Background of new economic policy :- Why we need new
economic reforms in 1991?
The government of India introduced a set of policy measures in
1991 to change the direction of our developmental strategies. The
main reason for the reforms was the economic crisis during
1980s and 1990s. The important causes for the economic crisis
were;
* Inefficient management of the economy
* Weak performance of public sector
* Government expenditure exceeded it’s revenue (deficit budget )
* Large increase in public debt
* Lack of foreign exchange reserves
* Large imports of petroleum products
* Price rise of essential goods
* Gulf war in 1991 etc......
India approached IBRD ( International Bank for Reconstruction
and Development ) and IMF(International Monetary Fund ) to
meet the problem of economic crisis. Our nation receiveddollar 7
billion as loan to manage the crisis. These institutions allowed the
fund on the basis of some conditionalities. The main
conditionalities were liberalise and open up the economy and
remove all restrictions on trade.India agreeded the conditionalities
of World Bank and IMF and announced the New Economic Policy
(NEP). A set of policies were introduced on the basis of NEP .
This set of policies can be classified in to two groups.
(1) stabilization measures
(2) structural reform measures .
Stabilisation measures are short term measures to control inflation
and to remove balance of payment crisis. Structural reform
measures long term measures to improve the efficiency of the
economy and to remove restrictions on the economy. The
government initiated a variety of policies which fall under three
heads;
Liberalization
Privatization
Globalization . The first two are policy strategies and the last one
is the outcome of these
strategies.
LIBERALISATION:- Liberalisation means put an end to the
restrictions on the economy. It means open up various sectors of
the economy. Let us study some important areas in which
liberalization measures were taken;
Industrial sector reforms :- The following measures were
introduced as a part of industrial sector liberalization measures.
* Industrial sector deregulated.
* Industrial licensing abolished for almost all products except
alcohol, cigarettes, hazardous chemicals etc....
* Only some industries reserved for the public sector ( defence,
atomic energy,railways etc..)
* Dereserved small scale industrial products
* Allowed market price system.
Financial sector reforms :- financial sector includes financial
institutions such as commercial banks, investment banks, stock
exchanges etc.....The financial sector in India is controlled by the
RBI. The RBI performs many functions . (a) issue of currency
notes (b) acts as banker’s bank (c) acts as adviser, agent, and bank
of government (d) controller of money supply (e) lender of the last
resort etc..But the economic reforms in 1991suggested some
financial sector reforms as
follows.
* reduce the role of RBI on financial sector
* promote private sector banks (eg- ICICI, Muthut finance, IDBI,
Manappuram finance etc...)
* promote foreign investments in banks
* set up new branches of banks without the approval of the RBI
* support foreign institutional investors (FIIs)such as merchant
banks, mutual funds, pension
funds etc.....
(3) Tax reforms :- Tax reforms are the part of fiscal policy. Fiscal
policy means the policy of government related to public
expenditure, taxation and public debt. The tax reforms in 1991
aimed to avoid tax evasion and increase tax revenue. The
following reforms were introduced in
tax sector.
* reduce direct tax rates. ( Direct taxes are the taxes such as
income tax, land tax, wealth tax,
corporation tax etc...)
* reduce indirect tax rates ( Indirect taxes are the taxes imposed on
goods and services such as
sales tax , customs duties, excise duties, VAT etc.... )
* reduce corporate tax rate. (corporate tax is the tax imposed on
the profit of firms )
* impose new types of taxes
* simplify the procedure of tax payments of tax payers
* provided tax incentives to foreign investors etc....
(4) Foreign exchange market reforms :- Foreign exchange
market is the market for exchanging domestic currency to foreign
currency. As a part of new economic policy, our nation introduced
the policy of devaluation. Devaluation means reduce the value of
domestic currency to the value of foreign currency. This led to the
inflow of foreign exchange . It promotes exports and reduce
imports.
(5) Trade and investment policy reforms :- The trade and
investment policy reforms aimed to promote the efficiency of
local industries and modern technology and create international
competitive market . The major reforms were;
* remove quantitative restrictions on exports and imports
* reduce tariff rate
* abolish import licensing
* remove export duties etc....
PRIVATISATION :-
Privatisation is an important policy of NEP 1991. It implies
shedding of the ownership or management of a government owned
enterprise. Government companies can be converted into
private companies in two ways.
(1) withdrawal of government from the ownership of public
sector units ( PSUs ) .
(2) sale of public sector companies . The sale of part of PSUs is
called as disinvestment.
The policy of privatization has some positive and negative impacts
in the economy.
Merits :-
* increase the efficiency of the economy
* increase the productivity
* introduce modern technology
* helps to the inflow of FDI (foreign direct investment )
* create more employment
* helps to raise the revenue source of government
* create competition
Demerits :-
* reduce social welfare
* create inequality of income etc....
The government tried to improve the efficiency of PSUs by giving
them autonomy in takingmanagerial decisions. Some PSUs have
been granted special status as navaratnas andmanagerial decisions.
Some PSUs have been granted special status as navaratnas and
miniratnas.
GLOBALISATION :- Globalisation is the outcome of the
policies of liberalization and privatization. It means the integration
of the economy with the world economy.
Out sourcing :- This is one of the outcome of globalization. In
outsourcing , a company hires regular service from external source
ie from other countries. In recent times , outsourcing becomes a
major economic activity due to the growth of communication, IT.
Many of the services are outsourced by companies in developed
countries to India. Such services are BPO or call centers , record
keeping, accountancy, banking services, music recording, film
editing, clinical advice, teaching etc.... .Most multinational
companies, small companies are outsourcing their services to
India. Now our nation became a good destination for outsourcing
because of ;
(a) low wage rate of labourers
(b) availability of skilled labourers . In our nation outsourcing
creates some advantages.
* Provide more employments
* Helps to the inflow of foreign investments
* Introduce modern technology
* Helps to the growth of communication ie mainly IT.
* Widening global market
World Trade Organisation (WTO) :-
The WTO was founded in 1995. It was the successor of GATT
(General Agreement on Trade and Tariff – 1948 ).India became a
member country of WTO. Now the total number of members in
WTO is...... . The WTO agreements cover trade in goods as well
as services based on some objectives;
* Provide equal opportunities for all member countries in
international trade market.
* Remove tariffs and non tariff barriers on trade.
* Ensure optimum utilization of resources protecting environment
Critical assessment of Indian economy during new economic
reforms period :-
Now our nation , India completed 25 years of economic reforms .
let us now look at the performance of Indian economy during this
period. The reforms generated some positive and negative impacts
in our country.
Positive impacts :-
GDP rate increased:- The rate of growth of GDP increased
during reform period . The contribution of service sector to GDP
increased. But the growth rate of agriculture and industry
diminished.
Foreign investment increased :- Foreign direct investments and
foreign institutional investments increased during reform period
Foreign exchange reserves increased :- India became one of the
major foreign exchange reserve holder in the world during the
period of economic reforms.
Exports increased :- During the reforms period our exports
increased. India is highly exporting automobiles, engineering
goods, IT software, textiles etc....
Savings and investments increased :- There is a large increase in
rate of savings and investments in the economy during reforms
period. The rate of savings increased by more than 50% and that
of investment increased by 36%.
Poverty rate decreased: - During the reforms period, the rate of
poverty in our country declined. Now India’s poverty rate is only
24%.
Negative impacts :-
Effects on agriculture :- Reforms have not been able to benefit in
Indian agriculture. The growth rate of has been declined during
the period of new economic reforms. The agriculture growth
rate is only 3%. The reasons for the poor performance of
agriculture are;
(a) removal of agricultural subsidies.
(b) rise in the cost of production of agriculture
(c) fall in the price of agricultural products
(d) lack of government investments
(e) higher exports of cash crops instead of food crops leads to food
crisis.
(f) WTO trade agreement
Effects on industry:- Industrial growth has also recorded a slow
down during reforms period.
The following causes are responsible for the slow growth rate of
our industrial sector;
(a)cheaper imports
(b) foreign competition
(c) lack of modern technology
(d) lack of infrastructure investments
(e) not removed barriers on India’s trade by developed nations like
USA.
Negative impact on employment :- During reforms period the
rate of growth of GDP increased. But the growth has not generated
sufficient employment opportunities. So the critics remarks
that we attained only ‘ jobless growth ‘ during the period of
reforms.
Mismanagement of disinvestment policy :- our nation accepted
the policy of disinvestment after 1991. This is the policy for
privatization . Disinvestment means the sale of PSUs and
increase the revenue of government. But many assets of PSUs
have undervalued and sold in the market at low price. So there has
been a great loss to the revenue of government. Moreover the
receipts from disinvestment used to offset the shortage of
government revenue and not for the development of PSUs and
build up a good social infrastructure in our country. Really
disinvestment policy became the policy of corruption.
Negative impact on fiscal policy :- During the reform period,
India government decided to limit public expenditure in social
sectors. Government accepted the policy of tax rate reduction and
increase tax revenue by avoiding tax evasion. But this policy has
not resulted to increase tax revenue of government. The revenue
through customs duties declined due to reduction in tariff rate.
Moreover the provision of tax incentives to foreigners reduced the
scope for raising tax revenue. This policy has a negative impact on
developmental and welfare expenditures of government.
Loss of social justice and welfare :- Globalisation is really a
strategy of developed nations to expand their market in other
countries. Globalization has widened the economic disparities
among nations and people. It created a deep rooted inequalities in
the society. During reforms period , the government decided to
limit the growth of public expenditure in social sectors. The
taxation policy of government really reduced the tax revenue of
government. This has a negative impact on welfare expenditures.
Concentration of wealth :- New economic policy resulted to high
concentration of wealth in to a few hands. The rich – poor
disparity is increasing in a huge level.

---------------------------------

Chapter-4 POVERTY
Meaning of poverty :-
Poverty is a socio – economic issue. Poverty means the
inability of man to meet the basic amenities like food , shelter and
cloth in his life.
Absolute & Relative poverty :- poverty can be used in two
senses- absolute and relative poverty. Poverty in absolute sense
means the lack of minimum needs like food , shelter and cloth of
man in his life. Relative poverty means poverty in comparative
sense. For eg; Indians are more poor than Americans in their
standard of living. Here the poverty is in relative sense.
Symptoms of poverty :-
 Hunger and starvation
 Lack of literacy and skill
 Ill health and sickness
 Malnutrition
 Unemployment etc….

Causes of poverty :-
 Social , economic and political inequality
 Unemployment
 Social exclusion
 Lack of income and assets
 Low capital formation
 Lack of infrastructure
 Indebtedness
 Backwardness of agriculture and industry
 Over population
 Lack of social welfare etc…..
Poverty line :- poverty can be measured by poverty line. In pre-
independent India, Dadabhai Naoroji was the first to discuss the
concept of poverty line. He used the concept of ‘ Jail Cost of
Living Index’ to measure the poverty rate in India. Poverty line
can be defined in terms of calories intake of the people. Poverty
line was defined in rural areas as 2400 calories intake for a
person and in urban areas as 2100 calories intake for a
person per day.
Categorizing poverty :-
 Chronic poor ( always poor + usually poor )
 Transient poor ( churning poor + occasionally poor )
 Non – poor

Measurement of poverty in India :-

 The number of poor is estimated as the proportion of people
below the poverty line is known as ‘Head Count Ratio’.
 Head count ratio is declining in our nation.
 In 1973- 74 , more than 321 million people were below the
poverty line .
 India’s poverty rate has declined gradually.
 Recently, our poverty rate is 24 %.
 Poverty rate is higher in rural areas.
 More than three – fourth of the poor in India reside in village.
 UP , MP, Bihar, West Bengal , Orissa account for 70% of
India’s poor.
 Urban poverty arises due to the migration of people from
rural to urban.
Poverty alleviation or eradication programmes :-
The government’s approach to poverty reduction was of
three dimensions.
1. Growth oriented approach :- A rapid increase in GDP or
percapita income helps to increase economic growth. The
benefits of economic growth gradually would spread to all
sections of society. The benefits will trickle down to the poor
sections of society by equal distribution of income and
 wealth. This was the major focus of planning between 1950
and 1960. Green revolution , land reforms and
industrialization helped to reduce the poverty in this context.
2. Employment generation programmes :- The employment
generation programmes made a major attention towards
poverty alleviation from third five year plan . such
programmes include self- employment and wage –
employment programmes .
(a) Self-employment programmes :- Many self
employment programmes were introduced by the
government during the plan period. REGP (Rural
Employment Guarantee Programme), PMRY (Prime
Minister’s Rozgar Yojana ) , SJSRY ( Swarna Jayanthi
Shahari Rozgar Yojana ) etc… are main such
programmes. Such programmes provide employment
opportunities for both rural and urban poor. Earlier ,under
self employment programmes, financial assistance was
given to individuals and families by the government. Since
1990s ,this approach has been changed. Such programmes
has been encouraged by SHGs ( Self Help Group ).SHGs
are encouraged to small savings and lend money
themselves for self employment activities. Later the
government provide partial financial assistance to SHGs
through banks.SGSY (Swarna jayanthi Gram
Swarozgar Yojana ) is one such programme.
(b) Wage – employment programme :- The government
has a variety of programmes to generate wage employment
for the poor. NFWP (National Food for Work Programme )
and SGRY ( Sampoorna Gramin Rozgar Yojana ) are such
two programmes. In 2005, the government passed a new
act to generate wage employment for the rural poor. The
act is known as NREG Act-2005. This act assures 100 days
wage employment for rural poor households in a year.
MNREGP (Mahatma Gandhi National Rural Employment
Guarantee Programme) was implemented by the
 government to support this act. In Kerala this programme
is referred to as ‘Thozhilurappu Padhathi’. The poor
people are ready to work at minimum wage assured by the
government under this programme.
3. Provide minimum basic amenities to the people :-
 Provide food grains at subsidy rate
 Provide education, health, water supply, sanitation facilities
to the people
 Midday meal scheme
 Improve public distribution system
 Promote social security programmes like various pensions,
health insurance scheme etc….
Critical assessment of poverty alleviation programmes :-
 The programmes benefited to non poor due to unequal
distribution of income and assets.
 No sufficient allocation of amount of resources for the
programmes.
 The resources inefficiently used and wasted.
 Corruption became serious issue.
 No successful implementation of the programmes.

INFRASTRUCTURE
Meaning of infrastructure:-
Infrastructure of an economy includes transport, energy, communication,
health, education, housing, sanitation facilities etc.....

Types of infrastructure:-
Importance of infrastructure:-
* Supports industrialisation

* Supports agricultural development

* Increases the productivity of inputs

* Increases the quality of life

* Provides better health care system

* Reduces poverty & unemployment

* “Infrastructure is back bone of the nation”

Sources of energy:-
Sources of electric power:-
* Hydro electricity

* Thermal electricity

* Nuclear power

* Tidal energy

* Wind energy

* Solar power etc....

Challenges of power sector:-
* Insufficient capacity to generate electricity

* Transmission & distribution loss of electric power

* Loss of state electricity boards

* Problems of high power tariff and power cuts

* Shortage of raw materials

* Lack of government investment in power sector

* Problems of privatisation

Measures to solve the problems of power sector:-

* Promote the use of renewable energy sources.

* Find new supply of raw materials

* Use energy saving appliances

* Increase government investments

* Follow the slogan “ save energy”

Indicators of good health:-

* Low death rate

* Low infant mortality rate

* High life expectancy

* High nutritious food

* Good sanitation facilities

* Good health care system

Features of Indian health care system:-

1. Three tier health care system
* Primary health care system – PHCs, provide awareness about
epidemics, anganwati etc...

* Secondary health care system – hospitals with medical treatment

and diagnosis using medical facilities

* Tertiary health care system – medical treatment, research and study.

Examples; AIIMS, NIMHANS etc...

2.Role of government:-

The government has an important role in the health care system of our
country. The government invests funds for public health. It
increases the social welfare of the people. The government
operates many hospitals and medical treatment facilities for the
people.

3. Role of private sector:-

The lack of investments made by the government in Indian public health care
system is a serious issue. To solve this problem, our nation promotes
privatisation in health care system. Now,the private sector controls and
regulates 70% of hospitals in our country. The private sector has a dominant
role in medical education, training etc....

4. Indian medicine system:- It is called as AYUSH

5.Development of medical tourism:-

Now our nation is a good destination for tourism. Many foreigners are
coming to our country for medical treatment. Indian medicine
system, ayush, has a vital role in the development of medical
tourism. Ayurveda, yoga, unani etc... are mostly attracted by the
foreigners.

Problems of health care system:-

1. urban – rural disparity
* Only 1/5th hospitals are located in rural areas.

* Shortage of medical personnel in rural areas.

* Only 11% hospitals with beds are available in rural areas.

2. Rich – poor disparity

* Better medical facilities are available for rich people.

* The poorest 20% spends 12% of their income on their health. But the
rich 20% spends only 2% of their income on the health.

* No sufficient income to poor people for medical treatments.

3. Burden of diseases
* Our nation carries 20% of the GBDs.

* Increasing epidemics

* Threaten of cancer, AIDS etc...

* Death of children due to water born diseases

* Malnutrition of children and poor people

4. problems of privatisation
* Privatisation reduces social welfare.

* Private sector medical facilities are benefited only to rich people.

5. women's health problems

* Anaemia due to the deficiency of iron

* The problem of abortion

* The problem of female foeticide

6. lack of government investment

* Fall in government investment on public health reduces social welfare.

* Not protect the public health of the poor people

Chapter – 9 ENVIRONMENT & SUSTAINABLE

DEVELOPMENT
Environment and it’s functions:-
Total planetary inheritance and the totality of resources.It
includes biotic and abiotic elements .
Functions:-
* It sustains life
* It assimilates wastes
* It supplies resources
* It maintains aesthetic services like scenery
Major environmental issues:-
* air pollution
* water pollution
* global warming
* ozone depletion
* land degradation
* solid waste management etc....
1. Air pollution:- This is an important environmental problem.
The major causes of this problems are;
* heavy use of motor vehicles
* industrialisation
* deforestation etc.....
2. Water pollution:- Like air pollution, the water pollution is an
another major issue of environment.
Reasons :-
* dumbing of solid waste in to water sources.
* flow of industrial waste into river and other water sources.
* heavy use of chemical fertilizers in the land
Results :-
* spread of water born epidemics.
* harmful effects on living organisms.
* lack of pure drinking water.
3. Global warming:-Gradual increase in the temperature of
atmosphere is called as global warming. Recently, global
warming is a serious environmental issue.
Reasons
* deforestation.
* omission of carbon dioxide and carbon monoxide.
* industrialisation.
* heavy use of motor vehicles.
Results
* biodiversity loss
* drought
* forest fire
* ocean acidification
* migration of animals
Kyoto protocol – Japan – 1997
* melting of polar ice Coppen Hague summit - 2010

* rise in sea level and flood

* harmful to human body
4. Ozone depletion:-The damage of ozone layer of atmosphere
is called as ozone depletion. This is another form of
environmental issue in the world.
Causes :-
* industrialisation
* heavy use of CFC, HFC products like fridge, A/c etc...
Results :-
* biodiversity loss
* harmful effects on human health especially skin deceases
due to ultraviolet rays.
5. Land degradation:- The degradation of land is an
important environmental problem.
Causes :-
* deforestation
* heavy use of chemical fertilizers
* encroachment to forest land
* natural calamities
* soil erosion
* faulty cropping system
Definitions of sustainable development:-
1.The definition of UNCED ( United Nations Conference
on Environment and Development)

2. Definition of Edward Barbier

Sustainable development as one which is directly concerned
with increasing material standard of living of the poor at grass
root level by increasing real income, educational services,
health care, sanitation, water supply etc....
3.Definition of Herman Daly.
To achieve sustainable development, the following needs to be
done.
* limit the human population to a level within carrying
capacity of environment like a 'plimsoll line' of the ship
*technological progress should be input efficient
* use renewable resources
* the use of non renewable resources should not exceed the
rate of their creation
* control pollution
Strategies of sustainable development:-
* use non conventional energy sources
* use LPG, Gobar gas in rural areas
* use CNG in urban areas
* use solar energy through photovoltaic cells
* use wind power
* promote traditional knowledge and practices
* support mini - hydel plants
* promote organic farming
* promote afforestation
* control over population
* avoid affluent consumption of the society
1.use non conventional energy sources:- Conventional energy
sources are exhaustible and not eco-friendly. So promote non
conventional energy sources to support sustainable
development.
2.use LPG, Gobar gas in rural areas:- In rural areas, majority of
the people are depending on firewood for fuels. This may be
resulted to deforestation. So, for sustainable development, we
should promote the use of LPG and gobar gas plants in rural
areas.
3.use CNG in urban areas:- Compressed Natural Gas is eco-
friendly. In Delhi, motor vehicles are highly using CNG to
control air pollution. So in urban areas, we should promote
the use of CNG for sustainable development.
4. use solar energy through photovoltaic cells:- The use of
solar energy promotes sustainable development. Such energy
source is eco-friendly and cheap in cost.
5.use wind power:- Wind power is renewable energy source.
So it promotes sustainable development.
6.promote traditional knowledge and practices:- Many of us
traditional knowledge and practices in our life are helpful to
protect environment. So such traditional knowledge and
practices should be promoted.
7.support mini - hydel plants:- Comparatively, mini hydel
projects reduces deforestation. So such plants should be
supported for sustainable development.
8.promote organic farming:-
Organic farming is an important strategy for sustainable
development. Our conventional agriculture depends on
high dosage of chemical fertilizer and pesticides. But this
method of production creates many harmful defects to
livestock. It depletes our resources. It is not eco friendly. In
this situation, we need an eco friendly farming. The eco
friendly farming by the use of bio fertilizers and bio
pesticides is known as organic farming. In the organic
farming we use biofertilizers instead of chemical
fertilizers. This is called as bio composting. Similarly we
use bio pest control instead of chemical pesticides.
Merits of organic farming :-
*Protects environment.
*Maintains ecological balance.
*Provides nutritious food.
*Promotes exports and earns foreign money.
*Helps to sustainable development.
 *Increases fertility of soil
*Cheap cost of production.
Problems of organic farming :-
*Inadequate infrastructure
*Problems of marketing
*Yields from organic farming is less than modern farming.
* Production off season crops is limited in organic
farming

END
prepared by RAMACHANDRAN.K ; H S S T Economics; G H S S
Kokkallur