Liberalisation, Privatisation and Globalisation

The 1991 reforms explained: liberalisation, privatisation and globalisation, the reforms in industry, finance, tax, foreign exchange and trade, outsourcing and the WTO.

Key ideas

Liberalisation removes restrictions and opens up sectors; privatisation sheds government ownership or management; globalisation joins the economy to the world economy.
Stabilisation measures are short-term (balance of payments, inflation); structural reforms are long-term (efficiency, competitiveness).
Industrial licensing was abolished for most products, and many small-scale goods were dereserved.
In finance, private Indian and foreign banks were allowed and foreign institutional investors could invest; taxes were simplified and GST later created one national market.
The rupee was devalued in 1991, and its value was later left more to the demand and supply of foreign exchange.
Outsourcing hires services such as call centres or accounts from outside, often from India.
The WTO (1995), successor to GATT (1948), runs a rule-based trading system and works to lower trade barriers.

Remember

After a devaluation	extra rupees paid = dollar value × (new rate − old rate)
Months of imports covered	reserves ÷ monthly imports
Disinvestment raises	shares sold × price per share
Price with a tariff	price × (100 + tariff) ÷ 100
Direct or indirect tax	income and corporation tax: direct; GST, customs and excise: indirect
PSU grades	Maharatna, Navratna and Miniratna
Change in growth rate	difference in percentage points: later − earlier

Watch out

Mixing up disinvestment (selling part of the equity) with devaluation (lowering the rupee).
Calling GST a direct tax.
Giving a change in growth rates as a per cent instead of percentage points.

Worked example

An exporter sells goods worth $47,900. How many rupees does the exporter get at ₹41 per dollar, and at ₹61 after a devaluation?

Working: 47,900 × 41; 47,900 × 61

Answer: ₹1,963,900 and ₹2,921,900, i.e. ₹958,000 more