This MCQ module is based on: Privatisation, Globalisation & Reform-Era Performance
TOPIC 7 OF 23
Privatisation, Globalisation & Reform-Era Performance
🎓 Class 11
Economics
CBSE
Theory
Ch 3 — Liberalisation, Privatisation, Globalisation
⏱ ~25 min
🌐 Language: [gtranslate]
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3.4 Privatisation — Letting Go of the Public Sector Reins
Privatisation? means shedding the ownership or management of a government-owned enterprise. Government companies are turned into private companies in two ways: (i) the government withdraws from ownership and management of a public sector company; or (ii) the public sector company is sold outright to private parties.
📘 NCERT Definition — Disinvestment
Selling off part of the equity of Public Sector Enterprises (PSEs) to the public is called disinvestment?. According to the government, the purpose of the sale was mainly to improve financial discipline and facilitate modernisation. It was also envisaged that private capital and managerial capabilities could lift the performance of PSUs.
3.4.1 Navratnas, Maharatnas, Miniratnas — The Jewel Strategy
You may have read in your childhood about the famous Navratnas or "Nine Jewels" in the imperial court of King Vikramaditya — eminent persons of excellence in art, literature and knowledge. Borrowing the metaphor, the government identified profitable PSEs and gave them special status to boost efficiency, infuse professionalism, and let them compete in the liberalised global environment. They were granted greater financial, managerial and operational autonomy in running the company efficiently and raising profits.
| Status | Examples (NCERT) |
|---|---|
| Maharatnas | Indian Oil Corporation Limited; Steel Authority of India Limited |
| Navratnas? | Hindustan Aeronautics Limited; Mahanagar Telephone Nigam Limited; Indian Railway Catering and Tourism Corporation Limited |
| Miniratnas | Bharat Sanchar Nigam Limited; Airport Authority of India |
Many of these profitable PSEs were originally set up in the 1950s and 1960s when self-reliance was a defining element of public policy. They were created to provide infrastructure and direct employment so that quality output reached ordinary citizens at a nominal cost — and to keep the companies accountable to all stakeholders.
📌 NCERT Debate
Granting "ratna" status did improve performance. But scholars allege that instead of helping public enterprises expand and become global players, the government partly privatised them through disinvestment. Of late, the government has decided to retain them in the public sector and let them expand globally and raise resources from financial markets on their own.
The government also believed that privatisation would give a strong impetus to the inflow of foreign direct investment?. Beyond outright sale, autonomy itself became a managerial reform — by giving Maharatnas, Navratnas and Miniratnas freedom on procurement, capital expenditure and joint ventures, the government tried to cure the slow, file-driven culture of PSUs without selling them off completely.
Activity 3.4 — Disinvestment: Reform or Sale?
Some scholars say disinvestment is the wave of privatisation spreading worldwide to improve PSE performance. Others call it the outright sale of public property to vested interests. Debate the question. Then answer: do you think only loss-making companies should be privatised? Why?
- For disinvestment: raises revenue for the budget; subjects loss-making PSUs to market discipline; brings managerial expertise; lets the government focus on essentials.
- Against disinvestment: NCERT-cited critique — PSE assets may be undervalued and sold cheap; profits go to private shareholders, while losses had been borne by the public; weakens national champions.
- Only loss-makers? Selling only loss-makers raises little money; selling profitable ones realises the best price but transfers a national asset. A balanced answer recognises strategic value: defence, atomic energy, core railways must stay public regardless of profitability.
3.5 Globalisation — One Borderless Marketplace
Globalisation? is generally understood as the integration of a country's economy with the world economy. NCERT calls it a complex phenomenon that grows out of a set of policies pushing the world towards greater interdependence and integration. It involves networks and activities that cross economic, social and geographical boundaries — establishing a common national market and turning the world into "one whole or a borderless world".
3.5.1 Outsourcing — India as the Back Office of the World
Outsourcing? is one of the most visible outcomes of globalisation. In outsourcing, a company hires regular service from external sources, mostly from other countries — services that were earlier done in-house (legal advice, computer service, advertisement, security and so on, each provided by an internal department).
Outsourcing has intensified because of fast modes of communication, especially the growth of Information Technology (IT). Many services are now outsourced to India:
Voice-Based BPO
Call centres handling customer service, technical support and sales for global clients.
Record-Keeping & Accountancy
Back-office finance, payroll, audit support and bookkeeping for foreign firms.
Banking & Clinical Advice
Banking operations, insurance claim processing, even radiology and clinical advisory work.
Music, Film, Books & Teaching
Music recording, film editing, book transcription and online teaching are increasingly outsourced.
With modern telecom links including the Internet, the text, voice and visual data for these services is digitised and transmitted in real time across continents and national boundaries. Most multinational corporations — and even small companies — outsource to India because services can be obtained at a cheaper cost with reasonable skill and accuracy. NCERT identifies two specific reasons India became a destination for global outsourcing in the post-reform period: low wage rates and the availability of skilled manpower.
🏛 NCERT Box 3.2 — Indian Global Footprint
Owing to globalisation, many Indian companies have spread abroad. ONGC Videsh, a subsidiary of Oil and Natural Gas Corporation, has projects in 16 countries. Tata Steel (founded 1907) is among the world's top ten steel companies, with operations in 26 countries, sales in 50 countries and nearly 50,000 employees abroad. HCL Technologies — a top-five Indian IT company — has offices in 31 countries and about 15,000 employees abroad. Dr Reddy's Laboratories, once a small pharma supplier, today runs manufacturing and research centres worldwide.
3.5.2 The World Trade Organisation (WTO)
The WTO was founded in 1995 as the successor to the General Agreement on Tariff and Trade (GATT), which itself was set up in 1948 with 23 countries as the global trade organisation. GATT administered multilateral trade agreements and provided equal opportunities to all countries in the international market.
| Aim | Implication |
|---|---|
| Establish a rule-based trading regime | Nations cannot place arbitrary restrictions on trade. |
| Enlarge production and trade of services | Goes beyond goods — services are now under multilateral discipline. |
| Ensure optimum utilisation of world resources | Encourages efficient global allocation; protects the environment. |
| Cover trade in goods and services | Bilateral and multilateral trade through removal of tariff and non-tariff barriers, and greater market access for all members. |
India is an important member of the WTO and has been at the forefront of framing fair global rules, regulations and safeguards, advocating the interests of the developing world. India has kept its WTO commitments by removing quantitative restrictions on imports and reducing tariff rates.
⚠ WTO — A Contested Membership
Some scholars question how useful WTO membership is for India, since most international trade happens between developed nations. They say developed countries file complaints against agricultural subsidies in developing countries, while developing countries are forced to open their markets for developed countries but are denied real access to developed-country markets in return.
3.6 The Indian Economy During Reform Years — An Assessment
The reform process has now completed three decades. NCERT measures growth using Gross Domestic Product (GDP). Post-1991 India saw a rapid rise in GDP on a continual basis for two decades. The growth rate climbed from 5.6 per cent during 1980–91 to 9.4 per cent during 2021–22.
| Sector | 1980–91 | 1992–2001 | 2002–07 | 2007–12 | 2012–13 | 2013–14 | 2021–22* |
|---|---|---|---|---|---|---|---|
| Agriculture | 3.6 | 3.3 | 2.3 | 3.2 | 1.5 | 4.2 | 4.8 |
| Industry | 7.1 | 6.5 | 9.4 | 7.4 | 3.6 | 5.0 | 12.7 |
| Services | 6.7 | 8.2 | 7.8 | 10.0 | 8.1 | 7.8 | 9.2 |
| Total GDP | 5.6 | 6.4 | 7.8 | 8.2 | 5.6 | 6.6 | 9.4 |
*2021–22 figures relate to Gross Value Added (GVA), estimated from GDP by adding subsidies on production and subtracting indirect taxes.
Source: Economic Survey for various years, Ministry of Finance.
3.6.1 What the Numbers Show
- Agriculture growth has declined across the reform period.
- Industry reported fluctuation — a steep decline in 2012–13, then a continuous positive recovery and a strong 12.7% in 2021–22.
- Services have grown faster than overall GDP through 2007–22 — confirming that GDP growth is mainly driven by service sector growth.
- 2012–13 marks a setback: a sharp drop in agriculture (1.5%) and a notable industrial slowdown (3.6%).
3.6.2 The Forex and FDI Story
Opening the economy led to a rapid increase in foreign direct investment and foreign exchange reserves. Foreign investment — including FDI and FII? — rose from about USD 100 million in 1990–91 to about USD 23 billion in 2022–23. Forex reserves climbed from about USD 6 billion in 1990–91 to about USD 646 billion in 2023–24, making India one of the world's largest forex holders.
Since 1991, India has emerged as a successful exporter of auto parts, pharmaceutical goods, engineering goods, IT software and textiles. Inflation has been kept under control, on the whole, even as growth accelerated.
📌 NCERT Reading — A Mixed Verdict
The reform process has been widely criticised for not addressing some basic problems — employment, agriculture, industry, infrastructure development and fiscal management. Yet the evidence shown above is not entirely negative. NCERT explicitly invites the student: "the evidence examined so far shows that it is not completely true. What do you think?"
Activity 3.5 — Outsourcing & the World
NCERT asks: (a) Is employment in call centres sustainable? What kinds of skills should call-centre workers acquire to keep a regular income? (b) If MNCs outsource services to countries like India because of cheap manpower, what happens to people in the countries where these MNCs are headquartered?
- Sustainability of call-centre jobs: partly yes, partly no. Voice-only roles are vulnerable to AI-driven automation; sustainability rises if workers add domain skills (banking, healthcare, IT troubleshooting), data analytics and language proficiency.
- Required skills: communication, problem-solving, basic data and digital fluency, plus a learning mindset for upskilling — call-centre work can be a stepping stone to higher-end BPO roles.
- Impact on home countries: some workers in developed countries lose jobs; firms pass on cost savings to consumers as cheaper goods/services and shareholders as profits. Governments may then invest in reskilling, R&D, and higher-value roles for domestic workers.
Activity 3.6 — Five BPO Companies in India
Prepare a chart of five companies that run BPO services in India, along with their turnover. Hint at the wide range — Indian-owned, Indian-listed, and global subsidiaries operating in India.
- Tata Consultancy Services (TCS) — global IT services and BPO; Indian listed major.
- Infosys BPM — BPO arm of Infosys; finance, HR and analytics services.
- Wipro — IT, consulting and BPO across multiple verticals.
- Genpact — born out of GE Capital; an Indian-origin global BPO leader.
- HCL Technologies — IT services with a strong BPO portfolio across 31 countries.
- Note: turnover figures change yearly; cite the latest published annual report or stock-exchange filing.
📝 Competency-Based Questions — Privatisation, Globalisation, Growth
Source-based scenario: Disinvestment of PSEs began in 1991–92 when the government targeted Rs. 2,500 crore through equity sale (it actually mobilised Rs. 3,040 crore more than the target). The WTO was set up in 1995 as the successor to GATT. India's foreign investment rose from about USD 100 million in 1990–91 to about USD 23 billion in 2022–23. Services have grown faster than overall GDP through 2007–22. Use these facts to answer:
Q1. Which one of the following is the correct definition of disinvestment?
L3 ApplyAnswer: (b) — NCERT defines disinvestment as the privatisation of PSEs by selling off a part of their equity to the public.
Q2. Why has India been a favourite destination for global outsourcing in the post-reform period?
L4 AnalyseAnswer: NCERT credits two main advantages — low wage rates and the availability of skilled manpower. Combined with growth in IT and the Internet, these enabled real-time digital delivery of voice-based BPO, accountancy, banking, music recording, film editing, book transcription, clinical advice and even teaching. Cost savings let multinational and small companies alike outsource to India.
Q3. Critically evaluate the claim that "GDP growth in the reform years has been service-led".
L5 EvaluateAnswer: Table 3.1 confirms the claim — services grew at 10% during 2007–12 and 9.2% in 2021–22, both higher than overall GDP growth in those windows. Agriculture (3.6%→4.8%) lagged consistently and industry fluctuated (steep dip in 2012–13). However, services-led growth has limits: services employ relatively few people compared to agriculture, raising the worry of "jobless growth"; and services depend on a healthy industrial base for demand. So the claim is true but partial.
Q4. (HOT) The Navratna policy gives PSEs autonomy without privatising them. Argue whether this is a better model than disinvestment.
L6 CreateAnswer: A defensible answer says: autonomy is often the better first step. The Navratna model retains national ownership while letting boards decide on capex, JVs and procurement quickly — outcomes resemble private firms without the social cost of selling assets cheaply. NCERT itself notes that "granting status resulted in better performance". Disinvestment, by contrast, is one-time revenue and risks undervaluing public assets. A complete answer concedes that some loss-making PSEs may need disinvestment if autonomy fails to fix them — autonomy first, sale only as a last resort.
🔗 Assertion–Reason Questions
Options: (A) Both A & R true, R correctly explains A · (B) Both true, R does not explain A · (C) A true, R false · (D) A false, R true.
Assertion (A): The WTO was founded in 1995.
Reason (R): The WTO succeeded the General Agreement on Tariff and Trade (GATT), which was established in 1948 with 23 countries.
Answer: (B) — Both true, but R describes WTO's predecessor; it does not explain why WTO was founded in 1995. They are independent factual statements.
Assertion (A): India has been a favourite outsourcing destination since the reforms.
Reason (R): Low wage rates and availability of skilled manpower allow services to be obtained at a cheaper cost with reasonable accuracy.
Answer: (A) — Both true; R explains exactly why A holds, in NCERT's own words.
Assertion (A): Services have driven India's GDP growth in the reform years.
Reason (R): The growth rate of agriculture has steadily declined during the reform period.
Answer: (B) — Both true (Table 3.1 confirms both), but R does not explain services' lead — that is rooted in IT, BPO and finance, not in agriculture's slowdown.
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