Liberalisation, Privatisation and Globalisation: An Appraisal NCERT Solutions Class 12 PDF Download 2026

Ans: The reforms were introduced due to a severe macroeconomic crisis:
1. Balance of Payments Crisis: India's imports grew much faster than exports, leading to a huge deficit.
2. Depletion of Foreign Exchange: Reserves dropped to a level where they could only finance two weeks of imports.
3. High Inflation: Prices of essential goods were rising rapidly.
4. Poor Performance of PSUs: Public sector enterprises were running into massive losses, draining government revenue.
To secure a $7 billion bailout loan from the World Bank and IMF, India agreed to their conditions to open up the economy.

Ans: Outsourcing refers to the contracting out of some of a company's activities to a third party (often in a different country) that were previously performed internally.
India became a favourable destination because:
1. Availability of cheap labour: Wage rates in India are much lower compared to developed countries.
2. Skilled manpower: India has a large pool of educated, English-speaking, and IT-skilled professionals.
3. Favourable government policies and improved IT infrastructure.

Ans: Yes, outsourcing is highly beneficial for India as it creates millions of high-paying jobs, brings in foreign exchange, and boosts GDP and infrastructure development.
Developed countries oppose it because outsourcing shifts jobs (especially in IT, customer service, and accounting) from their countries to developing nations like India, leading to unemployment and wage stagnation in their own countries.

Ans: Disinvestment refers to the sale of part or whole of the shares of Public Sector Undertakings (PSUs) by the government to private individuals or financial institutions. Its aim is to improve financial discipline and facilitate modernization.

Ans:
Bilateral Trade: Trade agreements and exchange of goods/services between exactly two countries.
Multilateral Trade: Trade occurring among more than two countries, often governed by international bodies like the WTO.

Ans:
1. The role of the Reserve Bank of India (RBI) was changed from a 'regulator' to a 'facilitator' of the financial sector.
2. Private sector banks (both Indian and foreign) were allowed to be established to increase competition and efficiency.

Ans: Navaratnas are highly profitable Central Public Sector Enterprises (CPSEs) that the government granted enhanced financial, managerial, and operational autonomy to help them become global players. Example: Indian Oil Corporation (IOC), Bharat Heavy Electricals Limited (BHEL).

Ans: 1. To establish and enforce rules for international trade. 2. To provide a platform for negotiating trade agreements and resolving trade disputes among member nations.

Ans: The economic reforms of 1991 largely bypassed the agricultural sector, leading to its poor growth:
1. Reduced Public Investment: Government investment in agricultural infrastructure (irrigation, power, roads, research) fell significantly.
2. Removal of Subsidies: Reduction in fertilizer subsidies increased the cost of production, severely affecting small and marginal farmers.
3. Global Competition: Reduction of import duties on agricultural products exposed Indian farmers to highly subsidized foreign goods.
4. Shift to Cash Crops: Export-oriented policies caused a shift from food grains to cash crops, threatening food security and increasing market risks for farmers.

Ans: Globalisation is the process of integrating the domestic economy with the global economy.
Positive Impacts: 1. Massive growth in the IT and BPO sectors, generating employment. 2. Access to global markets for Indian exports and foreign direct investment (FDI). 3. Consumers enjoy a wider variety of high-quality goods at competitive prices.
Negative Impacts: 1. Domestic small-scale industries suffered due to cheap imports (e.g., Chinese toys, electronics). 2. It widened the gap between the rich and poor, and between urban (IT hubs) and rural areas. 3. Neglect of the agricultural sector.

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1. Abolition of Industrial Licensing: Licensing was abolished for almost all product categories, except a few like alcohol, cigarettes, hazardous chemicals, and explosives.
2. Contraction of Public Sector: The number of industries reserved exclusively for the public sector was reduced from 17 to just 3 (Atomic energy, Defence equipment, and Railways).
3. Dereservation of Small-Scale Industries: Many goods earlier reserved for SSIs were dereserved, and market forces were allowed to determine prices.
4. Foreign Investment: The limit of foreign equity participation was raised, and automatic approval for Foreign Direct Investment (FDI) was allowed in many high-priority industries.

Ans: Tax reforms (part of fiscal reforms) aimed to increase revenue and prevent tax evasion.
1. Reduction in Direct Taxes: Income tax rates and corporate tax rates were gradually reduced. It was felt that high rates encouraged tax evasion. Lower rates promote savings and voluntary disclosure of income.
2. Reforms in Indirect Taxes: Taxes on commodities (customs and excise duties) were reformed to facilitate the establishment of a common national market. (This eventually led to the introduction of GST).
3. Simplification: Tax procedures and filing were simplified to make them taxpayer-friendly.

Ans: Despite the reforms, the industrial sector witnessed a slowdown due to:
1. Cheaper Imports: Globalization allowed cheaper imports to flood the market, replacing demand for domestic industrial goods.
2. Lack of Infrastructure: Inadequate infrastructure (like power shortages, poor roads) remained a bottleneck for domestic manufacturing.
3. Non-Tariff Barriers in Developed Countries: While India removed quotas, developed nations maintained non-tariff barriers (like high quality standards) restricting Indian exports (e.g., textiles to the USA).
4. Decreased Investment: Government investment in infrastructure was curtailed to reduce the fiscal deficit.

Ans: Before 1991, the RBI acted as a strict regulator, meaning banks needed RBI's permission for almost every action, stifling growth. Post-1991, its role shifted to a facilitator. This allowed banks to make independent decisions on interest rates, opening branches, and operations without seeking prior approval. This was necessary to make the banking sector competitive, efficient, and capable of integrating with global financial markets.

Ans: Assertion (A) is False, but Reason (R) is True.
The NEP 1991 focused heavily on industry, services, and global integration (Reason is true). However, it neglected agriculture, leading to a decline in public investment and growth in the agricultural sector. Therefore, the assertion is false.

Ans: Devaluation means a deliberate downward adjustment of the value of a country's currency relative to foreign currencies by the government. In 1991, the Rupee was devalued against foreign currencies to make Indian exports cheaper in the international market, thereby increasing exports and bringing in much-needed foreign exchange to solve the balance of payments crisis.

Ans: GATT stands for General Agreement on Tariffs and Trade (established in 1948). It was a multilateral treaty to reduce trade barriers. GATT was transformed into a permanent international institution, the World Trade Organization (WTO), in 1995 to regulate and facilitate global trade.

Ans: Yes, many economists agree with this view. While developing nations like India opened their markets by removing tariffs and quotas, developed nations continued to protect their own markets using high subsidies for their farmers and stringent non-tariff barriers (like safety and quality standards) against imports from developing countries. This created an uneven playing field that favored developed economies.