NCERT Solutions Class 12th Economics (India Economic Development) Chapter – 3 Liberalisation, Privatisation and Globalisation An Appraisal Notes In English

NCERT Solutions Class 12th Economics (Economic Development of India) Chapter – 3 Liberalisation Privatisation and Globalisation An Appraisal 

NCERT Solutions Class 12th Economics (Economic Development of India) Chapter – 3 Liberalisation Privatisation and Globalisation An Appraisal 

?Chapter – 3?

✍ Liberalization, Privatization and Globalization A Review✍

Notes

In independent India, a mixed economic structure was accepted incorporating the features of socialist and capitalist economy. The inefficient management of the Indian economy led to a financial crisis by the 1980s. The public sector and taxes are the sources of income for the government for the implementation of government policies and administration. Many economic reforms were carried out in India by the Government of India since 1991.

need for economic reform

The economic condition of India in 1990-91 was very pathetic. During 1991, India was faced with an economic crisis due to foreign debt and the government was not in a position to repay the loans taken from abroad.

The deficit in the foreign trade account was increasing.
From 1988 to 1991, the rate of its growth was so high that by 91, the deficit became 10,644 crores.
At the same time, forex reserves fell sharply to the emergency adequacy level of just two weeks.
In 1990-91, the Government of India borrowed a huge amount from the International Monetary Fund as a financial facility.
47 tonnes of gold had to be pledged to the Bank of England to pay off short-term foreign loans.
The Indian economy was faced with a crisis of inflation, the rate of which had gone up to 12%.
Inflation led to an increase in the distribution and market prices (purchase prices) of agricultural products.
As a result, the monetary deficit of the budget increased. Simultaneously the import price increased and the foreign exchange rate decreased. As a result, India faced the problem of fiscal and trade deficit.

So India had only two options left.

1) Improve the Indian economic condition by increasing exports as well as increasing foreign exchange flows by borrowing from abroad.
2) Establish fiscal discipline and bring about an objective structural adjustment.

Main features of economic reform

In order to solve the problem of the economy, the Government of India made many economic reforms.

Liberalization of industrial policy of the government.
Promotion of foreign investment through privatization of industries.
Abolition of licenses as part of liberalisation.
Reduction in import duty on import and export goods by liberalizing the import and export policy so that import of raw materials required for industrial development and raw materials for production of export oriented goods will be comparatively easier.
The devaluation of the domestic currency in terms of dollar value.
Received a lot of foreign loans from the International Monetary Fund and the World Bank to improve the country’s economic condition and structural adjustment.
Reforms in the banking system and tax structure of the nation.
Establishing a market economy by reducing investment by the government.

Liberalization, Privatization and Globalization (LPG) – The new model of economic reform is also called LPG model. The primary objective of this model is to establish the Indian economy as a rapidly developing economy in front of the larger economies of the world.

Liberalization – Liberalization refers to the reduction of government control imposed in socio-political and economic policies. The process of economic liberalization started in India with financial reforms from 24th July 1991.

Privatization – Privatization refers to the transfer of ownership, management and control of public sector enterprises, business and services to the private sector.

Globalization – Globalization generally means the integration of the economy of the country with the world economy.

Some of the main points of LPG policy in India are as follows –

Foreign technical agreement
M. R . Tea . P . Act 1969
Foreign Investment
Industrial Licensing Regulation
Commencement of Privatization and Disinvestment
Overseas Business Opportunities
Inflation Regulation
Tax Reforms
Financial Sector Reforms
Banking Reforms
Abolition of License and Permit Raj.

Evaluation

The concepts of liberalization, privatization and globalization are related to each other and they have both positive and negative effects on the economy.

Some economists believe that globalization provides new opportunities for the economy, which opens the doors of new markets with better technology and increase in production capacity.

While the other group believes that it does not protect the domestic industries of developing countries. Looking at the Indian context, we find that globalization has improved the living facilities and has expanded new employment opportunities in the fields of entertainment, communication, transportation etc.

Positive impact

Higher economic prosperity rate
Increase in foreign investment Increase in
foreign exchange reserves
Controlled inflation
Change in export structure Change in
export direction
Established consumer sovereignty

Negative Effects
Ineffectiveness of agriculture Employmentless
economic prosperity
Inequality in income distribution
Profit oriented society
Negative impact on privatization Over
exploitation of resources
Environmental weathering

devaluation of rupees

When there is a fall in the exchange rate due to the decision of the controlling authority, due to which the value of one currency becomes less in comparison to other currency, it is called devaluation.

As a result, imports become expensive and exports become cheap. Hence exports increase. And imports are reduced. In this way the balance of trade is corrected.

Why is it necessary to be a member of the World Trade Organization?

IMF And to get loan from World Bank and to do free trade with other countries it is necessary to be a member of WTO. Without becoming a member of the WTO, a country cannot take advantage of globalizing world trade.

How many members does it have in total?

At present there are 164 members. Afghanistan became the 164th member on 29 July 2016.

Demonetization (November 8, 2016) – Government of India on 8 November 2016 announced that the two highest denomination monetary currency Rupee 1000 and Rupee 500 will no longer be legal currency with immediate effect. except for certain purposes and places.

Due to this, 86% of the currency issued in circulation became illegal immediately. Under certain restrictions and provisions, the work was done to replace the old currency by depositing it in the banks. This is the last and latest demonetization so far.

Meaning of Demonetization – Demonetization is a process under which the legal status of a unit of a monetary currency is withdrawn. In other words, declaring the existing legal currency unit out of circulation by the government is called demonetisation.

Generally , after demonetisation, units of new monetary currency are brought into circulation in place of the units of old monetary currency.

In 1946, the Reserve Bank of India had demonetized 1000 and 10000 notes for the first time in India. In 1954, 3 new monetary currency units of Rs 1000, Rs 5000 and Rs 10, 000 were introduced in circulation. After this, in 1978, the Government of India again demonetized these notes to prevent illegal taking and giving and anti-social activities.

• The amount of black money in the economy had increased tremendously.
• The flow and circulation of fake notes had increased in India.
• Fake notes and big notes were also being used to support terrorism and Naxalism.
• Fiscal expansion was reduced due to hoarding of large notes.
•  There was a liquidity crunch in the bank system.
•  Informal economy was growing as compared to formal economy of India.
•  Parallel economy was running. The above reasons were being seen as a disruption of the economy. To overcome these obstacles, the path of demonetization was adopted.

Potential Benefits of Demonetization

Reduction in corruption.
Reduction in illegal activities by high denomination counterfeit notes.
Attack on accumulation of black money.
Increase in the amount of savings.
Fall in interest rates.
The expansion of the formal economy.
Restriction on anti-social activities.

Features of Demonetization

• Demonetisation led to expansion of tax administration and tax structure.
• Increase in government revenue through voluntary income declaration.
• Demonetisation was a sign that tax evasion would be taken seriously by the government in the times to come.
• The formal relationship between saving and investment in the financial system expanded.
• The liquidity base for providing loans to banks widened, resulting in a reduction in interest rates.
•  Cash transaction economy declined and Indian economy followed towards cashless economy.
• Digital transactions and plastic currency were encouraged.

effects of demonetization

Decrease in cash transactions.
Increase in bank deposits.
Increase in financial savings.
Reduction in interest rates.
Fall in the prices of real estate.
Increase in digital transfers among new users.
Increase in income tax.
Increase in revenue of the government.
Increase in tax base of income tax.

Goods & Service Tax ( 1 July 2017 )

The Goods and Services Tax is the biggest tax reform ever in the second generation reforms in India’s economic reforms process. This tax reform is going to be the most comprehensive and complete move towards indirect tax reforms in India.

Yes . s . Tea . On 10 November 2009, the Empowered Committee of State Finance Ministers constituted to consider the Dohre G. s . Tea . tax was offered. Which gives the power to levy tax to both the center and the state.

Yes . s . Tea . The Constitution was amended to implement because the Central Government had the right to levy tax on the production of goods and the State Governments had the power to levy tax on the sale of goods.

The power to levy tax on services was also with the central government. Similarly, the right to impose tax on the import of goods and services was with the center itself. The Constitution was amended to bring uniformity in these differences.

Meaning of Goods and Services Tax

The Goods and Services Tax is a comprehensive indirect tax that is levied on the national level of manufacturing, production, sale and consumption of goods and services without distinction.

This tax will replace almost all indirect taxes being levied by the Central and State Governments. This multi-point tax regime will lead to a single-point tax regime.

Under this, every person shall be liable to pay tax on his product and shall be entitled to receive an input tax receipt for the tax paid on his habits.

Types of Goods and Services Tax

There are 3 types of Goods and Services Tax

State Level Goods and Services Tax – This is a tax that is paid to the revenue department of the state government. It is generally similar to the Federal Goods Service Tax. This tax will replace the existing state level VAT (Value Added Tax) or sales tax.

Federal Goods and Services Tax – This is a tax that is paid to the Revenue Department of the Central Government. It is almost equal to the state level Goods Service Tax. It replaced central government taxes such as excise duty and service tax. In case of local sale G. s . Tea . 50% is transferred to the Central Government in the form of Federal Goods Service Tax.

Integrated Goods and Services Tax – This tax is levied on inter-state purchases and sales. A part of it is transferred to the central government and the remaining part to the state government.

Objectives of Goods and Services Tax:-

Do not abolish the multipoint tax system.
To eliminate the cascading effect of tax on the cost distribution and production of goods and services.
To promote the competition of goods and services in the market.
Positive contribution to the growth rate of GDP.
Integration of various indirect taxes.

Rates of Goods and Services Taxes 

In India it is divided into 5 rates.

All basic needs have been kept on the purview of zero percent goods and services tax for the rest of the goods and services.

such as food, beds, salt, books, etc.

Goods and Services Tax is levied at the rate of 5% on certain high consumption items.

For example, cheese, canned foods, tea, coffee etc.

12% on high mass consumption items like mobiles, sweets, medicines etc.

Goods and Services Tax is levied at the rate of 18% on all types of services.

Goods and Services Tax is levied at the rate of 28% on all other Bilasi goods. Petrol, gas, crude oil, diesel etc. have been kept out of the purview of Goods and Services Tax.

This tax was first imposed in France in 1954. Currently this tax is applicable in about 150 countries. In India, this tax was implemented from July 1, 2017 with the slogan ‘One Nation’ ‘One Tax’.