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The NCERT Class 11 Indian Economic Development Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal examines the economic reforms initiated in India in 1991 to address crises and integrate with the global economy. It covers the rationale behind liberalisation (removing restrictions), privatisation (transferring ownership to the private sector), and globalisation (opening up to international trade and investment), along with their impacts on agriculture, industry, services, and overall welfare. These solutions offer clear, concise, and CBSE-aligned answers for effective exam preparation. You can also download the free PDF for revision.
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NCERT Solutions Class 11 Indian Economic Development Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal
This section provides detailed and student-friendly answers for the Class 11 Indian Economic Development Chapter 3 exercise questions. Each answer is explained clearly to strengthen understanding and exam preparation.
Exercise
(Answer in Brief)
1. Why were reforms introduced in India?
Economic reforms were introduced in India in 1991 due to a severe balance of payments crisis, where foreign exchange reserves dwindled to levels that could barely cover two weeks of imports. High fiscal deficits, inflation rates exceeding 17%, inefficient public sector undertakings incurring losses, and mounting external debt pressured the government. The collapse of the Soviet Union, a key trading partner, and the Gulf War’s impact on oil prices exacerbated the situation. Reforms aimed to stabilise the economy, enhance efficiency, and integrate India with the global market through liberalisation, privatisation, and globalisation.
2. Why is it necessary to become a member of WTO?
Membership in the World Trade Organisation (WTO) is necessary for India to participate in global trade under a rules-based system that promotes fair competition and non-discrimination. It provides access to international markets, dispute resolution mechanisms, and protection against unfair trade practices. As a developing country, India benefits from special provisions like longer implementation periods for agreements. WTO membership also encourages domestic reforms, boosts exports, and attracts foreign investment, fostering economic growth while ensuring compliance with global standards.
3. Why did RBI have to change its role from controller to facilitator of the financial sector in India?
The Reserve Bank of India (RBI) shifted from a controller to a facilitator role post-1991 reforms to promote competition, efficiency, and innovation in the financial sector. Earlier, as a controller, the RBI tightly regulated interest rates, credit allocation, and bank operations under a planned economy. Reforms necessitated deregulation to allow market forces to operate, encouraging private and foreign banks. This facilitator role involves overseeing stability, providing guidelines, and enabling financial inclusion, aligning with liberalisation goals to make the sector more dynamic and responsive to economic needs.
4. How is RBI controlling the commercial banks?
The RBI controls commercial banks through monetary policy tools like the Cash Reserve Ratio (CRR), requiring banks to maintain a portion of deposits with the RBI; Statutory Liquidity Ratio (SLR), mandating investment in government securities; repo and reverse repo rates to influence liquidity; open market operations for buying/selling securities; and bank rate adjustments. It also conducts inspections, issues licenses, and enforces prudential norms like capital adequacy ratios to ensure stability, prevent failures, and regulate credit flow in alignment with economic objectives.
5. What do you understand by the devaluation of the rupee?
Devaluation of the rupee refers to a deliberate downward adjustment in the official exchange rate of the Indian rupee against foreign currencies, typically decided by the government or RBI. In 1991, the rupee was devalued by about 20% to make Indian exports cheaper and more competitive globally, while making imports costlier to reduce the trade deficit. This measure aims to correct the balance of payments imbalances, but can lead to imported inflation if not managed carefully.
6. Distinguish between the following (i) Strategic and Minority sale (ii) Bilateral and Multi-lateral trade (iii) Tariff and Non-tariff barriers.
(i) Strategic sale involves the government transferring a majority stake (over 50%) and management control of a public sector undertaking to a private entity, often through bidding, to enhance efficiency. Minority sale, however, entails selling a smaller stake (less than 50%), where the government retains control, primarily to raise funds without relinquishing ownership.
(ii) Bilateral trade occurs between two countries through mutual agreements, focusing on specific goods and services to balance trade relations. Multilateral trade involves multiple countries under frameworks like Wthe TO, promoting global rules, non-discrimination, and broader market access without exclusive bilateral preferences.
(iii) Tariff barriers are taxes or duties imposed on imports to raise their prices and protect domestic industries, generating government revenue. Non-tariff barriers include quantitative restrictions like quotas, standards, licenses, or subsidies that limit imports indirectly without direct taxation, often used to control quality or quantity.
Also Read: CBSE Class 10 Economics Chapter 1 NCERT Solutions
7. Why are tariffs imposed?
Tariffs are imposed to protect domestic industries from foreign competition by making imported goods more expensive, encouraging local production and self-reliance. They generate revenue for the government, correct trade imbalances by reducing imports, and provide infant industries time to mature. In developing countries like India, tariffs also safeguard employment and prevent dumping of cheap foreign goods, though they must comply with WTO norms to avoid trade disputes.
8. What is the meaning of quantitative restrictions?
Quantitative restrictions refer to non-tariff barriers that limit the quantity or volume of goods that can be imported or exported during a specific period. These include quotas, which set maximum import limits, or outright bans on certain items. In pre-reform India, they protected domestic markets but were largely removed post-1991 to promote free trade, except for essential items related to health, environment, or security.
9. Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why?
No, I do not fully agree with this view. Profitable public sector undertakings (PSUs) like ONGC or Indian Oil contribute significantly to government revenue, support social objectives such as employment generation in remote areas, and maintain strategic control over key sectors like energy and defence. Privatising them could lead to profit maximisation at the expense of public welfare, potential monopolies, and job losses. However, partial privatisation or disinvestment can improve efficiency without complete transfer, as seen in India’s Navratna policy, balancing fiscal needs with national interests.
10. Do you think outsourcing is good for India? Why are developed countries opposing it?
Yes, outsourcing is good for India as it creates millions of jobs in sectors like IT and BPO, boosts foreign exchange earnings, enhances skill development, and contributes to GDP growth (e.g., the service sector’s rise). It leverages India’s cost advantages and talent pool. Developed countries oppose it because it leads to job losses in their high-wage economies, as companies shift operations to low-cost destinations like India, causing unemployment and political backlash, often termed as ‘offshoring’ threats to domestic workers.
11. India has certain advantages which makes it a favourite outsourcing destination. What are these advantages?
India’s advantages as an outsourcing destination include a large pool of English-speaking, skilled professionals in IT and engineering; lower labour costs compared to developed nations; favourable time zone differences enabling 24/7 operations; robust telecommunications infrastructure; and government support through SEZs and tax incentives. Additionally, a stable democratic environment, an improved education system, and cultural adaptability make it attractive for global firms seeking efficient, cost-effective services.
12. Do you think the navaratna policy of the government helps in improving the performance of public sector undertakings in India? How?
Yes, the Navratna policy helps improve PSU performance by granting greater autonomy in decision-making, such as capital expenditure up to INR 1,000 crore without government approval, forming joint ventures, and strategic alliances. Introduced in 1997 for select profitable PSUs, it reduces bureaucratic delays, encourages innovation, and enhances competitiveness. For instance, companies like SAIL and BHEL have benefited from quicker investments and global expansions, leading to higher efficiency, profitability, and market orientation while retaining public ownership.
13. What are the major factors responsible for the high growth of the service sector?
The high growth of India’s service sector post-reforms is due to liberalisation allowing foreign investment in IT, telecom, and finance; the IT-BPO boom driven by global outsourcing; skilled human capital with English proficiency; technological advancements like internet proliferation; government policies such as Software Technology Parks; and rising domestic demand from urbanisation and middle-class expansion. This sector’s GDP contribution rose from 40% in 1990-91 to over 50% by the 2000s, outpacing agriculture and industry.
14. Agriculture sector appears to be adversely affected by the reform process. Why?
The agriculture sector has been adversely affected by reforms due to the removal or reduction of subsidies on fertilisers, power, and irrigation, increasing input costs for farmers. Liberalised trade exposed them to volatile global prices and cheap imports, leading to distress sales. Inadequate infrastructure, lack of credit access, and slow technological adoption worsened the situation. Public investment in agriculture declined, and WTO commitments limited support, resulting in stagnant growth (around 2-3% annually) and farmer indebtedness despite overall economic progress.
15. Why has the industrial sector performed poorly in the reform period?
The industrial sector’s poor performance post-reforms stems from inadequate infrastructure like power and roads, hindering efficiency; stiff global competition from cheap imports, especially from China; high interest rates and bureaucratic hurdles; labour laws restricting flexibility; and over-reliance on small-scale industries lacking scale. While liberalisation removed licenses, it didn’t sufficiently boost manufacturing, with growth averaging 6-7% against targets, leading to ‘jobless growth’ and a shift towards services.
16. Discuss economic reforms in India in the light of social justice and welfare.
Economic reforms have promoted growth, reducing poverty from 36% in 1993-94 to about 22% by 2011-12 through higher GDP (averaging 6-8%) and job creation in services. However, they widened inequalities, with benefits skewed towards urban, skilled populations, exacerbating rural-urban and regional divides. Social justice suffered as agriculture lagged, leading to farmer suicides and migration. Welfare aspects like health and education saw mixed results; while FDI improved access, public spending remained low. Reforms need inclusive measures like skill development, subsidies for vulnerable groups, and progressive taxation to align with equity, as unchecked globalisation can marginalise the poor.
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