Liberalisation, Privatisation and Globalisation: An Appraisal, Class 12

What Liberalisation, Privatisation and Globalisation: An Appraisal is about

Weightage: This chapter is part of Unit 6, Development Experience (1947-90) and Economic Reforms since 1991 (Part B Indian Economic Development), which carries 12 of the 80 theory marks together with Indian Economy on the Eve of Independence and Indian Economy 1950-1990.Source: CBSE Economics (030) syllabus 2026-27, Unit 6 Development Experience (1947-90) and Economic Reforms since 1991

In real board papers: asked in 2 of the 2 board papers we hold (2026 to 2026), on average 6.5 marks per paper. See the questions

Key concepts

Background: the 1991 crisis and the New Economic Policy

NCERT section 3.2

Causes of the crisis (NCERT): revenue fell short of the government's spending on social sector programmes and development; borrowing became unsustainable by the late 1980s; prices of essential goods rose sharply; imports grew fast without matching exports; foreign exchange reserves fell to a level that could finance imports for not more than two weeks, and there was not enough to pay interest to international lenders.

India borrowed USD 7 billion from the World Bank (IBRD) and IMF, which expected liberalisation, a smaller government role and removal of trade restrictions. India accepted and announced the NEP.

• Stabilisation measures: short-term, to correct the balance of payments and control inflation (maintain reserves, keep prices in check).
• Structural reforms: long-term, to improve efficiency and international competitiveness by removing rigidities.

Worked example

Suppose a country's reserves can pay for only two weeks of imports and lenders refuse to lend. Distinguish the stabilisation and structural measures it might take. [3 marks]

Try it first, then show the solutionSolution

1. Stabilisation (short-term): borrow from the IMF, curb inflation, rebuild reserves.
2. Structural (long-term): deregulate industry, open trade, reform finance and taxes.
3. Both featured in India's 1991 NEP.

Answer: Stabilisation fixes the immediate BoP and inflation problem; structural reforms raise long-run efficiency.

Liberalisation: industry and finance

NCERT section 3.3

Deregulation of industry: before 1991, (i) licensing to start, close or decide output, (ii) many industries closed to the private sector, (iii) goods reserved for small-scale industry, and (iv) price and distribution controls. After 1991, licensing was abolished for almost all products except alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace, and drugs and pharmaceuticals. Only a part of atomic energy generation and some core railway activities remain reserved for the public sector. Many small-scale goods were dereserved, and markets set most prices.

Financial sector reforms: reduce the RBI's role from regulator to facilitator. Private banks, Indian and foreign, were allowed; the foreign investment limit in banks was raised to about 74%; qualifying banks could open branches without RBI approval; foreign institutional investors (merchant bankers, mutual funds, pension funds) could invest in Indian financial markets. Some managerial controls remain with the RBI to protect depositors.

Worked example

Suppose an entrepreneur in 1985 and another in 2000 each want to start a toy factory. How would their experiences differ? [3 marks]

Try it first, then show the solutionSolution

1. 1985: a government licence was needed and toys might be reserved for small units; output and expansion were controlled.
2. 2000: no licence for toys; most small-scale reservations removed; the market sets output and price.
3. So entry is far easier after deregulation.

Answer: Licence and reservation hurdles before 1991; free entry after reforms.

Liberalisation: tax, foreign exchange and trade reforms

NCERT section 3.3

Tax reforms (fiscal policy): income tax rates were steadily reduced, as high rates encouraged evasion; moderate rates encourage saving and voluntary disclosure; corporation tax was lowered; indirect taxes were reformed towards a common national market, and procedures simplified.

Foreign exchange reforms: in 1991 the rupee was devalued to resolve the BoP crisis, raising foreign exchange inflows; it set the stage for the rupee's value to be decided by markets, by demand and supply of foreign exchange.

Trade and investment reforms: (i) dismantling quantitative restrictions on imports and exports; (ii) reducing tariff rates; (iii) removing import licensing (except for hazardous and environmentally sensitive industries). Quantitative restrictions on imports of manufactured consumer goods and agricultural products were fully removed from April 2001, and export duties were removed to make Indian goods competitive.

Worked example

Why did the government devalue the rupee in 1991? [1 mark]

Try it first, then show the solutionSolution

1. A cheaper rupee makes exports cheaper and imports dearer.
2. This was an immediate step to resolve the balance of payments crisis and raise foreign exchange inflows.

Answer: To ease the BoP crisis by attracting foreign exchange.

Privatisation and disinvestment

NCERT section 3.4

Privatisation means shedding government ownership or management of a public enterprise, either by withdrawing from ownership and management or by outright sale. Disinvestment is selling part of the equity of public sector enterprises (PSEs) to the public. The government's aims: improve financial discipline, facilitate modernisation, use private capital and managerial skill, and attract FDI.

To improve efficiency without selling them, profitable PSUs were given autonomy as maharatnas, navratnas and miniratnas (NCERT examples: Indian Oil Corporation and Steel Authority of India as maharatnas; Hindustan Aeronautics as a navratna; Bharat Sanchar Nigam among miniratnas). Many of these were formed in the 1950s and 1960s.

Criticism: assets have been undervalued and sold cheaply; disinvestment proceeds have been used to cover revenue shortfalls rather than to develop PSUs or build social infrastructure; scholars argue that instead of helping PSEs become global players, the government partly privatised them.

Worked example

Suppose the government sells 10% of its shares in a profitable public sector oil company to the public. What is this called, and give one argument for and one against it. [3 marks]

Try it first, then show the solutionSolution

1. Selling part of a PSE's equity is disinvestment.
2. For: brings private capital and market discipline, and raises resources.
3. Against: assets may be undervalued, and the proceeds may simply finance the deficit.

Answer: Disinvestment; it brings discipline but risks undervaluing national assets.

Globalisation, outsourcing and the WTO

NCERT section 3.5

Globalisation is the integration of a country's economy with the world economy: networks and activities that cross economic, social and geographical boundaries, so that events far away affect India. It aims at a "borderless world".

Outsourcing: a company hires regular services from external sources, mostly from other countries, that were earlier provided internally (legal advice, computer services, advertising, security). Fast communication and IT intensified it: BPOs and call centres, record keeping, accountancy, banking services, music recording, film editing, book transcription, clinical advice and teaching are outsourced to India because of low wages and skilled manpower.

WTO: founded in 1995 as the successor to GATT (set up in 1948 with 23 countries). It administers multilateral trade agreements, aims at a rule-based trading regime without arbitrary restrictions, enlarges production and trade of services, ensures optimum use of world resources and protects the environment. India has removed quantitative restrictions and cut tariffs as committed. Critics say most trade is among developed nations, and developing countries must open markets while developed nations keep farm subsidies.

Worked example

Suppose a bank in London moves its customer helpline to a call centre in Gurugram. Which process is this, and why does India attract such work? [3 marks]

Try it first, then show the solutionSolution

1. A company hiring a regular service from another country: outsourcing.
2. IT and telecom allow real-time service across continents.
3. India offers lower wages with skilled, English-speaking workers.

Answer: Outsourcing, attracted by low wages and skilled manpower.

Appraisal of the reforms

NCERT section 3.6

Positive: GDP growth rose from 5.6% (1980-91) to as high as 8.2% (2007-12) and 9.4% in 2021-22, driven mainly by services; foreign investment (FDI and FII) grew from about USD 100 million in 1990-91 to USD 23 billion in 2022-23; foreign exchange reserves rose from about USD 6 billion in 1990-91 to about USD 646 billion in 2023-24; India became a successful exporter of auto parts, pharmaceuticals, engineering goods, IT software and textiles; prices were kept under control.

Concerns:

• Employment: reform-led growth did not create enough jobs.
• Agriculture: growth decelerated; public investment in irrigation, power, roads, market links and research fell; partial removal of fertiliser subsidy raised costs for small farmers; cheaper imports, low support prices and a shift to export crops hurt food security.
• Industry: cheaper imports replaced demand for domestic goods; infrastructure was inadequate; developed countries kept barriers to Indian exports.
• Disinvestment: assets undervalued; proceeds used to offset revenue shortfalls.
• Fiscal policy: tariff cuts and tax incentives to foreign investors reduced revenue.

Growth of GDP and major sectors (% a year), as given in NCERT Table 3.1 (Economic Survey)

Sector	1980-91	1992-2001	2002-07	2007-12	2021-22
Agriculture	3.6	3.3	2.3	3.2	4.8 (GVA)
Industry	7.1	6.5	9.4	7.4	12.7 (GVA)
Services	6.7	8.2	7.8	10.0	9.2 (GVA)
Total GDP	5.6	6.4	7.8	8.2	9.4

Worked example

Using NCERT's growth table, show which sector drove growth after 1991 and which lagged. [3 marks]

Try it first, then show the solutionSolution

1. Growth of GDP and major sectors (% a year), as given in NCERT Table 3.1 (Economic Survey)

   Sector	1980-91	1992-2001	2002-07	2007-12	2021-22
   Agriculture	3.6	3.3	2.3	3.2	4.8 (GVA)
   Industry	7.1	6.5	9.4	7.4	12.7 (GVA)
   Services	6.7	8.2	7.8	10.0	9.2 (GVA)
   Total GDP	5.6	6.4	7.8	8.2	9.4

2. Services grew fastest (up to 10% in 2007-12).
3. Agriculture slowed (3.6% in 1980-91 to 2.3% in 2002-07).

Answer: Services drove growth; agriculture lagged.

Demonetisation (concept)

NCERT section NCERT Introductory Macroeconomics, Box 3.2

Demonetisation means withdrawing the legal tender status of currency notes. In November 2016 the Government of India declared the old ₹500 and ₹1,000 notes no longer legal tender, and new ₹500 and ₹2,000 notes were introduced. The aims were to tackle corruption, black money, terrorism financing and fake currency. People could deposit old notes in bank accounts till 31st December 2016 (and with the RBI, with a declaration, till 31st March 2017).

Effects noted by NCERT: long queues and a cash shortage hurt economic activity for a while; but tax compliance improved as more people entered the tax net, savings moved into the formal financial system (giving banks more to lend), and households and firms began shifting to electronic payments.

Worked example

Suppose a shopkeeper who kept his earnings in cash outside the books had to deposit old notes in his bank in 2016. How could this improve tax compliance? [3 marks]

Try it first, then show the solutionSolution

1. Old notes could only be exchanged by depositing them in bank accounts.
2. Large deposits became visible to tax authorities.
3. Undisclosed income was brought into the tax net and formal system.

Answer: Deposits made hidden cash visible, widening the tax base.

Goods and Services Tax (concept)

NCERT section 3.3 (tax reforms)

In 2016 the Constitution was amended to empower the Union and state governments to make laws imposing a Goods and Services Tax, which came into force on 1st July 2017. GST is a single indirect tax on the supply of goods and services, replacing many central and state indirect taxes.

NCERT lists its expected benefits: additional revenue for the government, reduced tax evasion, and "one nation, one tax, one market". Because tax paid on inputs can be set off against tax on output at each stage, tax is effectively charged only on the value added, avoiding a tax on tax.

Worked example

Suppose GST is 18%. A manufacturer sells goods for ₹100 (tax ₹18) to a wholesaler, who sells for ₹150 (tax ₹27) to a retailer, who sells for ₹200 (tax ₹36) to a consumer. How much tax does each pay to the government, and what is the total? [3 marks]

Try it first, then show the solutionSolution

1. Manufacturer: ₹18.
2. Wholesaler: 27 − 18 (input credit) = ₹9; retailer: 36 − 27 = ₹9.
3. Total = ₹36 = 18% of the final price ₹200: tax only on value added, no tax on tax.

Answer: ₹18, ₹9 and ₹9; total ₹36.

Liberalisation, Privatisation and Globalisation: An Appraisal in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Liberalisation: Economic Reforms of 1991
• Globalisation, Outsourcing, the WTO and an Appraisal of the Reforms
• Privatisation, Disinvestment and PSU Autonomy

Liberalisation, Privatisation and Globalisation: An Appraisal: key facts

Three heads of reform

Liberalisation (remove controls), privatisation (reduce state ownership), globalisation (integrate with the world)

Two types of NEP measures

Stabilisation (short-term: BoP and inflation); structural (long-term: efficiency and competitiveness)

Trade reforms

Remove quantitative restrictions; cut tariffs; abolish import licensing (except hazardous and environmentally sensitive industries)

Key numbers (NCERT)

1. 1.IMF/World Bank loan USD 7 billion (1991); reserves about USD 6 billion (1990-91)
2. 2.about USD 646 billion (2023-24); foreign investment about USD 100 million (1990-91)
3. 3.USD 23 billion (2022-23)

Key dates

GATT 1948; NEP 1991; WTO 1995; QRs removed April 2001; demonetisation November 2016; GST 1st July 2017

GST under input credit

Tax paid at each stage = tax on output − tax paid on inputs; total = tax on final value

How the board asks Liberalisation, Privatisation and Globalisation: An Appraisal

The question patterns to expect, and the method that works for each.

Tricks to remember Liberalisation, Privatisation and Globalisation: An Appraisal

Short memory aids. Say each one aloud once, then use it on a question the same day.

• L-P-G

  Liberalisation removes rules; Privatisation reduces state ownership; Globalisation links to the world.

  Use it when: Three heads of reform.

• Short S, long S

  Stabilisation is short-term; Structural is long-term.

  Use it when: NEP measures.

• 6 → 646

  Reserves grew from about USD 6 billion (1990-91) to about USD 646 billion (2023-24).

  Use it when: Appraisal numbers.

• 48-95-2001-2016-2017

  GATT, WTO, QRs gone, demonetisation, GST.

  Use it when: Dates.

Liberalisation, Privatisation and Globalisation: An Appraisal: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section E style)

Read the situation, then answer every part. In the board paper this is a 4-mark question split into 1 + 1 + 2 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Liberalisation, Privatisation and Globalisation: An Appraisal

The slips examiners see most often, and what to write instead.

• ✗Mistake: Calling the 1991 devaluation "depreciation"

  Mixing terms.

  ✓Do this: It was a government decision: devaluation; later the market determined the rate.

  Usually costs: 1 mark.

• ✗Mistake: Treating privatisation as only outright sale

  Missing disinvestment.

  ✓Do this: Privatisation includes withdrawal from ownership or management and partial sale (disinvestment).

  Usually costs: 1 mark.

• ✗Mistake: Saying all industries were delicensed

  Overgeneralising.

  ✓Do this: Name the exceptions (alcohol, cigarettes, hazardous chemicals, explosives, electronics, aerospace, drugs).

  Usually costs: 1 mark.

• ✗Mistake: Writing only benefits in an appraisal

  One-sided answers.

  ✓Do this: Give both achievements and concerns with NCERT evidence.

  Usually costs: 2-3 marks in a 6-mark answer.

• ✗Mistake: Getting GST's dates wrong

  Two dates.

  ✓Do this: Constitutional amendment 2016; GST in force from 1st July 2017.

  Usually costs: 1 mark.

NCERT exercise guide: Liberalisation, Privatisation and Globalisation: An Appraisal

What each exercise in the NCERT chapter tests, how to approach it, and a question of the same kind solved step by step. Questions here are written in our own words.

Liberalisation, Privatisation and Globalisation: An Appraisal: previous year questions

• Asked in 2 of the 2 board papers we hold (2026 to 2026), on average 6.5 marks per paper; 4 questions in all, counting OR alternatives. In 4 of 4 sample papers.

Counted from the real papers on our previous year papers page, not estimated. Average marks are over every board paper we hold, with an OR pair counted once. Chapter tags are ours.

Solved board questions from Liberalisation, Privatisation and Globalisation: An Appraisal

Real questions from recent papers. Try each one first, then open our step-by-step solution with marks per step.

Every Liberalisation, Privatisation and Globalisation: An Appraisal question, by year

Practice questions on Liberalisation, Privatisation and Globalisation: An Appraisal

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   The New Economic Policy was announced in:
   (a) 1985
   (b) 1991
   (c) 1995
   (d) 2001

   Hint

   BoP crisis year.

   Answer

   (b) 1991

2. Q2 · 1 mark · MCQBoard level

   Selling part of the equity of public sector enterprises to the public is called:
   (a) liberalisation
   (b) globalisation
   (c) disinvestment
   (d) deregulation

   Hint

   Partial sale.

   Answer

   (c) disinvestment

3. Q3 · 3 marks · Short answerBoard level

   State three causes of the 1991 economic crisis.

   Hint

   Fiscal, prices, BoP.

   Answer

   Government spending far exceeded revenue, making borrowing unsustainable; prices of essentials rose sharply; imports grew faster than exports and reserves fell to about two weeks of imports.

4. Q4 · 3 marks · Short answerBoard level

   What is outsourcing? Why has India become a favoured destination?

   Hint

   Services from outside the firm.

   Answer

   Hiring regular services from external sources, mostly from other countries, earlier done in-house. India offers low wages and skilled manpower, with IT enabling real-time service.

5. Q5 · 3 marks · Short answerHarder board level

   Explain the three trade policy reforms after 1991.

   Hint

   QRs, tariffs, licensing.

   Answer

   Dismantling quantitative restrictions on imports and exports (fully removed for consumer and farm goods from April 2001); reducing tariff rates; abolishing import licensing except for hazardous and environmentally sensitive industries.

6. Q6 · 3 marks · Short answerHarder board level

   Explain the maharatna, navratna and miniratna policy and its effect.

   Hint

   Autonomy.

   Answer

   Profitable PSUs were given greater autonomy in managerial decisions to improve efficiency and help them expand, even globally; NCERT notes that the status led to better performance.

7. Q7 · 3 marks · Short answerHarder board level

   Using NCERT's figures, explain how India's external position changed after reforms.

   Hint

   Reserves and foreign investment.

   Answer

   Reserves rose from about USD 6 billion in 1990-91 to about USD 646 billion in 2023-24; foreign investment from about USD 100 million to USD 23 billion (2022-23); India became a major exporter of auto parts, pharmaceuticals, engineering goods, IT software and textiles.

8. Q8 · 1 mark · Assertion-reasonHOTS / competency

   Assertion (A): Reform-led growth in India has been criticised as "jobless".
   Reason (R): Growth after 1991 was led mainly by the service sector, which did not create enough employment.
   (a) Both true and R explains A (b) Both true, R does not explain A (c) A true, R false (d) A false, R true

   Hint

   Growth and employment.

   Answer

   (a)

9. Q9 · 4 marks · Short answerHOTS / competency

   Suppose developed countries keep subsidising their farmers while asking India to cut tariffs on farm imports under WTO rules. Evaluate India's position.

   Hint

   Critics of WTO.

   Answer

   Critics argue developing countries are forced to open markets while being denied fair access to developed markets; subsidised farm exports can undercut Indian farmers. India pushes for fair global rules protecting developing countries, while honouring commitments such as removing QRs.

10. Q10 · 3 marks · Short answerHarder board level

    Explain demonetisation and two of its effects.

    Hint

    November 2016.

    Answer

    Withdrawal of legal tender status of old ₹500 and ₹1,000 notes in November 2016. Effects: short-term cash shortage and disruption; improved tax compliance and shift of savings and payments into the formal and digital system.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.How much did India borrow from the IMF and World Bank in 1991?Show answer

   USD 7 billion.

2. 2.What is the RBI's role after reforms?Show answer

   From regulator to facilitator.

3. 3.What foreign investment limit in banks does NCERT mention?Show answer

   About 74%.

4. 4.When were quantitative restrictions on consumer goods and farm imports fully removed?Show answer

   April 2001.

5. 5.Name two maharatnas given in NCERT.Show answer

   Indian Oil Corporation and Steel Authority of India.

6. 6.When did GST come into force?Show answer

   1st July 2017.

7. 7.Which notes were demonetised in November 2016?Show answer

   Old ₹500 and ₹1,000 notes.

8. 8.Which sector led growth after reforms?Show answer

   The service sector.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Can you list four causes of the 1991 crisis?
• ☐Can you distinguish stabilisation and structural measures?
• ☐Can you name the industries still requiring licences?
• ☐Can you explain financial sector reforms?
• ☐Can you explain the 1991 devaluation and trade reforms?
• ☐Can you define privatisation and disinvestment?
• ☐Can you explain outsourcing and the WTO?
• ☐Can you give NCERT's figures on reserves and foreign investment?
• ☐Can you explain the impact on agriculture and industry?
• ☐Can you explain demonetisation and GST?

Liberalisation, Privatisation and Globalisation: An Appraisal: frequently asked questions