Liberalisation, Privatisation and Globalisation

Why this chapter matters for UPSC: "Liberalisation, Privatisation and Globalisation: An Appraisal" is Chapter 3 of NCERT's Indian Economic Development (Reprint 2026-27). The current reprint rewrote two passages: the tax section now says the Constitution was amended in 2016 to empower the Union and the states to levy the Goods and Services Tax, and the growth table runs to 2021-22. The chapter explains why the 1991 balance of payments crisis led to the New Economic Policy, sorts its measures into stabilisation and structural reform, walks through liberalisation (industry, finance, taxes, foreign exchange, trade), privatisation (disinvestment and the "ratna" companies) and globalisation (outsourcing, the WTO), and then gives a sceptical appraisal of what the reforms did to growth, agriculture, industry, disinvestment and the budget. GS3 asks it from every side: why industrial growth lagged GDP after the reforms (Mains 2017), how liberalisation affected Indian companies (2013), why India needs FDI (2016), the rationale, revenue effects and compensation arrangements of GST (2013, 2019, 2020), and public expenditure in the post-reform period (2019, 2024). This page follows NCERT's sections in order, quotes NCERT's definitions, prints Table 3.1 and NCERT's figures first, and puts the crisis in the Reserve Bank of India's own account and the live figures (reserves, FDI, disinvestment, growth) dated to 2026.

🧠 First Principles — Read This First

A balance of payments crisis is a cash crisis in foreign currency. NCERT's description of 1991: "the government was not able to make repayments on its borrowings from abroad; foreign exchange reserves, which we generally maintain to import petroleum and other important items, dropped to levels that were not sufficient for even a fortnight." The cause, in NCERT's account, was a decade of spending more than the government earned, borrowing to fill the gap, and importing more than the country exported. The RBI's history of the period puts numbers on it: reserves fell by 71.2 per cent between the end of August 1990 and 16 January 1991, from US$3.1 billion to US$896 million.

Stabilisation stops the bleeding; structural reform changes the patient. NCERT divides the New Economic Policy into "stabilisation measures", "short-term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control", and "structural reform policies", "long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy". Devaluation and fiscal tightening belong to the first; delicensing, trade opening and disinvestment to the second.

L, P and G are three different things. Liberalisation removes domestic and external controls ("to put an end to these restrictions and open various sectors of the economy"); privatisation changes ownership ("shedding of the ownership or management of a government owned enterprise"); globalisation is the outcome, "integration of the economy of the country with the world economy". NCERT's appraisal treats them separately, and an answer should too.

PART 1 — Quick Reference

The Chapter at a Glance

Dates and Numbers (NCERT's figures first; the record named in each row)

Table 3.1, Growth of GDP and Major Sectors (NCERT, per cent)

*Gross value added. Source as printed by NCERT: Economic Survey for various years.

PART 2 — Concepts & Narrative

3.1-3.2 The Crisis and the New Economic Policy

NCERT opens with two readings of the pre-1991 record: one that the mixed economy's "variety of rules and laws ... ended up instead in hampering the process of growth and development", the other that India, starting "from near stagnation", built savings, a diversified industry and food security. Then the crisis: in 1991 "India met with an economic crisis relating to its external debt", reserves fell to "levels that were not sufficient for even a fortnight", and rising prices of essential goods made it worse.

The origin "can be traced from the inefficient management of the Indian economy in the 1980s". Development spending did not generate revenue, taxes did not rise enough, public enterprises earned little, and reserves borrowed abroad were at times "spent on meeting consumption needs". "In the late 1980s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable." Imports grew faster than exports; there was not enough foreign exchange even "to pay the interest that needed to be paid to international lenders", and "no country or international funder was willing to lend to India".

The RBI's history of these years adds the detail NCERT leaves out. The Gulf war raised oil prices in the second half of 1990-91; reserves "began to decline from September 1990", falling from US$3.1 billion at the end of August 1990 to US$896 million on 16 January 1991; at the end of December 1990 they covered "three weeks of import value". India drew on the IMF's compensatory and contingency financing facility (SDR 717 million) and the first credit tranche of a stand-by arrangement (SDR 552 million). The Government then used gold: in April 1991 it raised US$200 million from the Union Bank of Switzerland through the State Bank of India by selling 20 tonnes of government gold with an option to buy it back (repurchased in November-December 1991), and in July 1991 the RBI pledged 46.91 tonnes of gold with the Bank of Japan and the Bank of England for a loan of US$405 million, repaid between September and November 1991. Germany (US$60 million) and Japan (US$300 million) gave bilateral help.

NCERT's account of the deal: "India approached the International Bank for Reconstruction and Development (IBRD), popularly known as World Bank and the International Monetary Fund (IMF), and received $7 billion as loan to manage the crisis." The lenders "expected India to liberalise and open up the economy by removing restrictions on the private sector, reduce the role of the government in many areas and remove trade restrictions". "India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP)", whose thrust was "creating a more competitive environment in the economy and removing the barriers to entry and growth of firms". (The IMF's main programme was a stand-by arrangement of SDR 1,656 million, about US$2.2 billion, approved on 31 October 1991 and drawn over 20 months; the Aid-India Consortium committed US$6.7 billion for 1991-92. The RBI's history itemises these flows; NCERT gives only its single "$7 billion".)

3.3 Liberalisation

Some liberalisation began in the 1980s ("industrial licensing, export-import policy, technology upgradation, fiscal policy and foreign investment"), but the 1991 reforms "were more comprehensive". NCERT takes five areas.

Deregulation of industry. Regulation had worked in four ways: industrial licensing ("every entrepreneur had to get permission from government officials to start a firm, close a firm or decide the amount of goods that could be produced"), private firms barred from many industries, goods reserved for small-scale industry, and controls on prices and distribution. The 1991 reforms removed most of these. "Industrial licensing was abolished for almost all but product categories: alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs and pharmaceuticals." "The only industries which are now reserved for the public sector are a part of atomic energy generation and some core activities in railway transport." Many small-scale goods were dereserved, and "in most industries, the market has been allowed to determine the prices".

The record behind NCERT's sentences: the RBI's history says that in 1991 "industrial licensing for all, except 18 industries was abolished; investment caps on large industrial houses were removed; only six industries remained exclusively in the public sector". The list has shrunk since. The Department for Promotion of Industry and Internal Trade's current statement says "only 5 industries have been retained under compulsory licensing under the Industries (D&R) Act, 1951": distillation and brewing of alcoholic drinks (licensing in practice ceased after the Supreme Court's order of 29 January 1997), cigars and cigarettes, electronic aerospace and defence equipment, industrial explosives, and specified hazardous chemicals. Drugs and pharmaceuticals, in NCERT's list, are no longer on it. The small-scale reserved list was omitted entirely by Notification 998(E) of 10 April 2015.

Financial sector reforms. The financial sector (banks, investment banks, stock exchanges, the foreign exchange market) is regulated by the RBI, which "decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors, etc." The aim of reform "is to reduce the role of RBI from regulator to facilitator of financial sector". Private banks, Indian and foreign, were allowed; "foreign investment limit in banks was raised to around 74 per cent"; banks meeting conditions could open branches without RBI approval; Foreign Institutional Investors ("merchant bankers, mutual funds and pension funds") could invest in Indian financial markets. "Certain managerial aspects have been retained with the RBI to safeguard the interests of the account-holders and the nation."

Tax reforms. Fiscal policy covers taxation and public expenditure. Income tax rates have been cut since 1991, on the view that high rates encouraged evasion and that "moderate rates of income tax encourage savings and voluntary disclosure of income"; corporation tax "has been gradually reduced". Indirect taxes were reformed to build "a common national market". The 2026-27 text: "In the year 2016, Indian constitution was amended to empower state governments and union Government to come out with laws to impose Goods and Services Tax. This has led to introduction of GST in India. This is expected to generate additional revenue for the government, reduce tax evasion and create 'one nation, one tax and one market'." Procedures were simplified and rates lowered to encourage compliance.

Foreign exchange reforms. "In 1991, as an immediate measure to resolve the balance of payments crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange." It also began freeing the exchange rate from government control: "Now, more often than not, markets determine exchange rates based on the demand and supply of foreign exchange." The RBI records the devaluation in two steps, on 1 and 3 July 1991 (the first to "test the waters"), "17.38 per cent in terms of the intervention currency i.e., pound sterling and about 18.7 per cent in us dollar terms"; a dual exchange rate followed in March 1992, and the rate was unified about a year later.

Trade and investment reforms. India had protected industry with quantitative restrictions on imports and very high tariffs, which "reduced efficiency and competitiveness". The reforms aimed at "(i) dismantling of quantitative restrictions on imports and exports (ii) reduction of tariff rates and (iii) removal of licensing procedures for imports". Import licensing was abolished except for hazardous and environmentally sensitive industries; "quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed from April 2001"; export duties were removed. (The April 2001 date is India's notice to the WTO in dispute DS90: "with effect from 1 April 2001, it had removed the quantitative restrictions on imports in respect of the remaining 715 items".)

3.4 Privatisation

Privatisation "implies shedding of the ownership or management of a government owned enterprise", either by the government's withdrawal from ownership and management or by "outright sale of public sector companies". Selling part of the equity is disinvestment (key-term box). The government also hoped privatisation would "provide strong impetus to the inflow of FDI", and tried to improve public enterprises by giving them managerial autonomy.

Box 3.1, Navratnas and public enterprise policy. Named after the "Nine Jewels" of King Vikramaditya's court, the categories are meant "to improve efficiency, infuse professionalism and enable them to compete more effectively in the liberalised global environment": the government designates public sector enterprises as maharatnas, navratnas and miniratnas, with "greater financial, managerial and operational autonomy". NCERT's examples: Maharatnas, Indian Oil Corporation and Steel Authority of India; Navratnas, Hindustan Aeronautics, Mahanagar Telephone Nigam and Indian Railway Catering and Tourism Corporation; Miniratnas, Bharat Sanchar Nigam and the Airports Authority of India. NCERT notes that "the granting of status resulted in better performance", that scholars allege the government partly privatised these firms instead of helping them grow, and that "of late, the government has decided to retain them in the public sector".

3.5 Globalisation

Globalisation "is generally understood to mean integration of the economy of the country with the world economy", but NCERT calls it "a complex phenomenon", "an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration", making "the happenings in India ... influenced by events happening miles away", "creating a borderless world".

Outsourcing. "In outsourcing, a company hires regular service from external sources, mostly from other countries, which was previously provided internally or from within the country (like legal advice, computer service, advertisement, security)." It intensified with information technology: voice-based business processes ("popularly known as BPO or call centres"), record keeping, accountancy, banking services, music recording, film editing, book transcription, clinical advice "or even teaching" are outsourced to India, where "low wage rates and availability of skilled manpower" made it a destination. (The industry body NASSCOM's Strategic Review 2026 puts the technology industry's export revenue at US$246.4 billion for 2025-26, estimated, and US$233.3 billion for 2024-25.)

The World Trade Organisation. "The WTO was founded in 1995 as the successor organisation to the General Agreement on Trade and Tariff (GATT). GATT was established in 1948 with 23 countries as the global trade organisation to administer all multilateral trade agreements." Its aims: a rule-based regime "in which nations cannot place arbitrary restrictions on trade", larger production and trade in services, "optimum utilisation of world resources" and protection of the environment, through the removal of tariff and non-tariff barriers. India "has been in the forefront of framing fair global rules" and has kept its commitments by removing quantitative restrictions and cutting tariffs. NCERT also records the critics: most trade is among developed countries, and developing countries "feel cheated as they are forced to open their markets for developed countries but are not allowed access to the markets of developed countries".

Box 3.2, "Global Footprint", lists Indian firms abroad (ONGC Videsh, Tata Steel, HCL Technologies, Dr Reddy's), with figures NCERT dates to a 2014 web source.

3.6 Indian Economy during Reforms: An Assessment

"The reform process has completed three decades." NCERT reads Table 3.1 (PART 1): growth rose from 5.6 per cent in 1980-91 to 9.4 per cent in 2021-22; agriculture's growth declined; industry fluctuated; services grew faster than GDP in 2007-22, "this indicates that GDP growth is mainly driven by growth in the service sector". There was "a setback" in 2012-13; agriculture grew fast in 2013-14 and slowly in 2021-22; industry fell steeply in 2012-13 and then grew.

The external numbers improved: foreign investment (FDI and FII) "increased from about US $100 million in 1990-91 to US $ 23 billion in 2022-23", reserves "from about US $ 6 billion in 1990-91 to about US $ 646 billion in 2023-24", and "India is one of the largest foreign exchange reserve holders in the world". India became "a successful exporter of auto parts, pharmaceutical goods, engineering goods, IT software and textiles", and "rising prices have also been kept under control".

NCERT then turns sceptical: "The reform process has been widely criticised for not being able to address some of the basic problems facing our economy especially in areas of employment, agriculture, industry, infrastructure development and fiscal management."

• Growth and employment: reform-led growth "has not generated sufficient employment opportunities" (chapter 6, site page 7).
• Agriculture: "Reforms have not been able to benefit agriculture, where the growth rate has been decelerating." Public investment in irrigation, power, roads, market links and research and extension "has fallen"; partial removal of the fertiliser subsidy raised costs for small and marginal farmers; lower import duties, low support prices and the end of quantitative restrictions exposed farmers to international competition; export orientation shifted land from food grains to cash crops. NCERT's Mahadeva passage (a groundnut farmer in drought-prone Anantpur) shows all four pressures at once.
• Industry: "Industrial growth has also recorded a slowdown", because of cheaper imports and inadequate infrastructure; developing countries are "compelled to open up their economies" while developed countries keep "high non-tariff barriers": NCERT's example is that "USA has not removed their quota restriction on import of textiles from India and China".
• Disinvestment: "in 1991-92, it was targeted to mobilise Rs 2500 crore through disinvestment"; "in 2022-23, government was able to mobilise about Rs. 46,000 crores". Critics say assets were undervalued and the proceeds used "to offset the shortage of government revenues rather than using it for the development of PSEs and building social infrastructure".
• Fiscal policy: reforms "placed limits on the growth of public expenditure, especially in social sectors"; tax cuts "have not resulted in increase in tax revenue"; tariff cuts curtailed customs revenue; tax incentives to foreign investors further reduced revenue.

Box 3.3, the Siricilla tragedy. Power-sector reforms in many states ended subsidised electricity and raised tariffs; powerloom workers, whose wages are tied to cloth output, lost wages to power cuts and higher tariffs, and "50 powerloom workers committed suicide in a small town called 'Siricilla' in Andhra Pradesh". (Sircilla, as the district is now spelt, has been in Telangana since that state's formation in 2014.)

3.7 NCERT's Conclusion

Globalisation "has produced positive, as well as, negative results". Some scholars see it as an opportunity: "greater access to global markets, high technology and increased possibility of large industries of developing countries to become important players in the international arena". Critics call it "a strategy of the developed countries to expand their markets", which "has widened the economic disparities among nations and people". In India, some studies say the 1991 crisis came from "deep-rooted inequalities in Indian society" and the externally advised reforms "further aggravated the inequalities", with growth "concentrated only in some select areas in the services sector such as telecommunication, information technology, finance, entertainment, travel and hospitality services, real estate and trade, rather than vital sectors such as agriculture and industry which provide livelihoods to millions".

PART 3 — UPSC Integration

Three Frameworks

1. Crisis to cure in four steps. Cause (the fiscal and current-account deficits of the 1980s, the Gulf-war oil shock); trigger (reserves of US$896 million in January 1991; gold sold and pledged); bargain (IMF and World Bank support for the NEP); measures (stabilisation, then structural reform under L, P and G). This sequence answers any "background of the 1991 reforms" question.

2. Liberalisation as five markets opened. Product markets (licensing, reservation, price controls), financial markets (banks, FIIs, the RBI's role), the tax system (rates, GST), the currency market (devaluation, market-determined rates) and foreign trade and investment (quotas, tariffs, FDI). Each has a dated "then" and "now" on this page.

3. NCERT's appraisal as a balance sheet. Gains: growth, services, reserves, FDI, exports, inflation. Costs: jobless growth, agricultural distress and falling public investment, industrial slowdown under import competition, disinvestment for revenue, social spending squeezed. A 15-mark answer gives three of each with one number.

Confused Pairs

• Stabilisation (short term: BoP, inflation) vs structural reform (long term: efficiency, competitiveness).
• Devaluation (a government decision, July 1991) vs depreciation (a market movement): NCERT's exercise 5 asks what devaluation means.
• FDI (lasting interest, management) vs FII (portfolio investment in financial markets).
• Strategic sale (control passes) vs minority sale (equity sold, control retained), exercise 6.
• Tariff vs non-tariff barrier (quotas, standards), exercise 6.
• GATT (1948, 23 countries, an agreement) vs WTO (1995, an organisation).
• Maharatna (14) vs Navratna (26) vs Miniratna (Category I 49, Category II 9), with HAL's move from the second to the first in 2024.

Exam Strategy

• Prelims: the crisis numbers (reserves of US$896 million on 16 January 1991; two-stage devaluation on 1 and 3 July 1991; gold to UBS in April 1991 and the Bank of England and Bank of Japan in July); the licensing list then (NCERT's seven categories; 18 in 1991) and now (DPIIT's five); 74 per cent foreign investment in banks; QRs removed April 2001; GST's articles (246A, 269A, 279A) and the 2016 amendment; WTO 1995 and GATT 1948 with 23 countries; the ratna counts and examples.
• Mains: NCERT's stabilisation and structural-reform definitions; the appraisal paragraphs on agriculture, industry, disinvestment and fiscal policy; dated figures for reserves, FDI and growth; the conclusion's two views of globalisation.
• Avoid: "gold was pledged to the Bank of England and UBS in May 1991" (two separate operations: a sale to UBS in April, a pledge to the Bank of Japan and the Bank of England in July); "GST was introduced by the 122nd Amendment" (122nd was the Bill; the Act is the 101st); "drugs and pharmaceuticals still need an industrial licence"; "HAL is a Navratna"; "India's GDP grew 5.8 per cent in 2020-21" (it fell 5.8 per cent).
• Cross-reading: chapter 2 (site page 2) for the controls the reforms removed; chapter 6 (site page 7) for jobless growth; chapter 8 (site page 10) for China's reforms of 1978 and Pakistan's of 1988; NCERT Class XII Contemporary World Politics, chapter 7, for globalisation's politics.

Practice Questions

NCERT's exercises, worked

1. Reforms were introduced because of the 1991 balance of payments crisis (reserves for under two weeks of imports, debt-service difficulties, rising prices), the conditions attached to World Bank and IMF support, and the inefficiency of the controlled economy.
2. Membership gives access to other members' markets under rules, a forum to resist arbitrary restrictions, and a voice in framing trade rules for developing countries.
3. To let banks and financial institutions take more decisions themselves, deepen markets and raise efficiency, while the RBI keeps prudential oversight.
4. Through reserve requirements (how much money banks keep), interest-rate regulation, directed lending norms and supervision.
5. Devaluation is a deliberate reduction by the government of the official value of its currency against foreign currencies (India, 1 and 3 July 1991).
6. (i) A strategic sale transfers management control with the shares; a minority sale sells a part of the equity while the government keeps control. (ii) Bilateral trade is between two countries; multilateral trade is among many under common rules. (iii) Tariffs are taxes on imports; non-tariff barriers are quotas, licences, standards and other restrictions.
7. To protect domestic industry, raise revenue or correct the balance of payments.
8. Quantitative restrictions are limits on the quantity of goods that may be imported or exported (quotas).
9. A balanced answer: profitable PSUs earn revenue for the state and serve strategic aims, so privatising them is not obviously efficient; the argument for privatisation is stronger for loss-makers and for sectors where competition can work.
10. Outsourcing brings jobs, export earnings and skills to India; developed countries oppose it because of job losses at home.
11. Low wages, a large English-speaking skilled workforce, and modern telecommunication links.
12. Yes, partly: autonomy has improved the performance of the ratna companies, but critics say status has also been a step towards disinvestment.
13. Growth of IT and IT-enabled services, finance, telecom and trade; rising incomes and demand; outsourcing; liberalisation of service industries.
14. Falling public investment in irrigation, power, roads and research; partial withdrawal of fertiliser subsidies; lower import duties and international competition; a shift to export crops.
15. Cheaper imports, inadequate infrastructure and investment, and non-tariff barriers in developed-country markets.
16. Reforms raised growth and reserves but, NCERT argues, did not create enough jobs, squeezed social spending and concentrated gains in some service sectors, so their record on social justice and welfare is contested.

Additional exercise (the growth time series). NCERT's table (2011-12 prices): 2012-13 5.5; 2013-14 6.4; 2014-15 7.5; 2015-16 8.0; 2016-17 8.3; 2017-18 6.8; 2018-19 6.5; 2019-20 3.9; 2020-21 5.8; 2021-22 9.4. Plot it, but correct one entry: real GDP fell 5.8 per cent in 2020-21 (Economic Survey 2025-26, Statistical Appendix Table 1.7: Rs 145.35 lakh crore in 2019-20 to Rs 136.95 lakh crore in 2020-21), so the line dips below zero before the 2021-22 rebound (9.7 per cent in the latest estimate of the same series).

Practice (UPSC-pattern, not past papers)

17. "The 1991 reforms were a response to a crisis of foreign exchange, not of growth." Examine, using the RBI's account of 1990-91 and NCERT's background section. (GS3, 15 marks)
18. Compare India's licensing regime in 1991 with today's. What did delicensing achieve, and what controls remain? (GS3, 10 marks)
19. Disinvestment receipts have been used to "offset the shortage of government revenues". Evaluate this criticism with reference to the targets and receipts since 1991. (GS3, 10 marks)
20. How did the GST change the fiscal relationship between the Union and the states? Refer to Articles 246A, 269A and 279A. (GS2/GS3, 15 marks)

📦 Revision Capsule

Sources

• NCERT, Indian Economic Development (Class XI), ch. 3 "Liberalisation, Privatisation and Globalisation: An Appraisal", Reprint 2026-27: ncert.nic.in PDF.
• Reserve Bank of India, The Reserve Bank of India, Volume 4: 1981-1997, ch. 12 "Management and Resolution of the 1991 Crisis": rbidocs.rbi.org.in PDF; RBI, History chronology 1991-2000: rbi.org.in.
• Department for Promotion of Industry and Internal Trade, Status of Industrial Licensing: Policy and Procedures: dpiit.gov.in PDF; FDI equity inflow April 2025 to March 2026: dpiit.gov.in PDF.
• The Constitution of India (as on 11 November 2025), Articles 246A, 269A and 279A with footnotes on the Constitution (One Hundred and First Amendment) Act, 2016, Legislative Department.
• GST Council, PIB release on the recommendations of the 56th meeting, 3 September 2025: gstcouncil.gov.in PDF.
• WTO, dispute DS90, India: Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products: wto.org.
• Department of Public Enterprises, list of CPSEs schedule-wise and Ratna-wise (January 2026): dpe.gov.in PDF; PIB, HAL's Maharatna status, 14 October 2024: static.pib.gov.in PDF.
• DIPAM, disinvestment receipts, 2022-23: dipam.gov.in.
• RBI, Weekly Statistical Supplement, foreign exchange reserves as on 25 September 2026: rbi.org.in.
• Economic Survey 2025-26, Statistical Appendix, Table 1.7 (GDP at constant prices, 2011-12 series) and chapter 2 (disinvestment), Ministry of Finance: indiabudget.gov.in; MoSPI, provisional estimates of GDP for 2025-26, 5 June 2026.
• NASSCOM, Strategic Review 2026, executive summary (technology industry exports).