CBSE Class 11 Economics Chapter 3: Liberalisation, Privatisation & Globalisation - An Appraisal NCERT Solutions

Reviewed by NCERT Help Editorial Team · Updated on 29 Jul 2026

NCERT Solutions PDF Class 11 PDF

This chapter delves into the critical economic reforms of Liberalisation, Privatisation, and Globalisation (LPG) introduced in India in 1991. The NCERT Solutions provide a detailed appraisal of these policies, explaining the rationale behind their introduction, such as the severe economic crisis faced by India, including a balance of payments crisis, high inflation, and fiscal deficits. The solutions clarify the roles of institutions like the RBI and WTO, the meaning of economic terms like devaluation and quantitative restrictions, and differentiate between various disinvestment strategies like strategic and minority sales. They also discuss the impact of these reforms on trade barriers and the role of public sector undertakings. These solutions are designed to help students understand the complexities of India's economic transformation and prepare effectively for their examinations by offering clear explanations and structured answers to all questions.

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Board	CBSE
Class	Class 11
Subject	Economics.
Session	2026
Language	English
Type	NCERT Solutions
Chapter	3. Liberalisation, Privatisation & Globalisation - An Appraisal

Chapter summary

Chapter 3 of the Class 11 Economics textbook focuses on the Liberalisation, Privatisation, and Globalisation (LPG) reforms in India. The NCERT Solutions cover the reasons for introducing these reforms, the functions of the RBI and WTO, the concept of currency devaluation, and distinctions between different types of trade and trade barriers. It also addresses the privatization debate concerning profitable public sector undertakings. These solutions offer a clear breakdown of the appraisal of India's economic policies post-1991.

Learning outcomes

Understand the reasons behind the introduction of economic reforms in India in 1991.
Explain the shift in the role of the RBI from a regulator to a facilitator.
Define and explain the concept of devaluation of the rupee.
Differentiate between strategic sale and minority sale in disinvestment.
Distinguish between bilateral and multilateral trade agreements.
Identify and explain tariff and non-tariff barriers to trade.
Analyze the arguments for and against privatizing profitable public sector undertakings.

Topics covered

Paper topics

Reasons for Economic Reforms in India
Balance of Payments Crisis
Inflation and Fiscal Deficit
Role of RBI (Regulator vs. Facilitator)
Financial Sector Reforms
Devaluation of Rupee
Disinvestment Methods (Minority Sale, Strategic Sale)
Bilateral vs. Multilateral Trade
Tariff Barriers
Non-Tariff Barriers (Quantitative Restrictions)
Privatisation of PSUs
Appraisal of LPG Reforms

Important topics

Reasons for 1991 Reforms
Shift in RBI's Role
Devaluation of Rupee
Strategic vs. Minority Sale
Tariff and Non-Tariff Barriers
Privatisation Debate

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Questions and Solutions

Question 1

Why were reforms introduced in India?

Solution: In 1991, India faced a severe economic crisis, which necessitated the introduction of major economic reforms. The key reasons included:

Low Economic Growth: National income was growing at a very slow rate of 0.8%.
High Inflation: The inflation rate had reached a concerning level of 16.8%.
Balance of Payments Crisis: India faced a critical shortage of foreign currency, with the balance of payments deficit reaching approximately 10,000 crores.
High Debt Burden: The country was heavily indebted, paying substantial interest charges of around 30,000 crores annually.
Low Foreign Exchange Reserves: Foreign exchange reserves were as low as 1.8 billion dollars, sufficient for only about three weeks of imports.
Gold Sales: To manage the crisis, India had to sell a significant amount of gold to the Bank of England.
International Loans: India had to apply for loans amounting to 7 billion dollars from international financial institutions like the World Bank and the IMF.
Fiscal Deficit: The government's fiscal deficit was over 7.5% of the GDP.
Deficit Financing: Deficit financing was around 3%.
Trade Disruptions: Trade relations with the Soviet block had broken down.
Reduced Remittances: Remittances from Non-Resident Indians decreased due to the war in Arab countries.
High Petroleum Prices: The cost of petroleum products was very high, impacting the economy.

Question 2

How many countries are members of the WTO?

Solution: As of the current information, there are 164 member countries in the World Trade Organization (WTO).

Question 3

What is the most important function of RBI?

Solution: Following the liberalization reforms of 1991, the role of the Reserve Bank of India (RBI) significantly shifted from being a 'regulator' to a 'facilitator' within the financial sector. Previously, the RBI directly controlled and fixed the interest rate structure for commercial banks. However, as a facilitator, the RBI now primarily enables the free play of market forces, allowing commercial banks greater autonomy to decide their own interest rate structures. This change promotes competition within the banking sector rather than relying solely on direct controls.

Question 4

How was RBI controlling the commercial banks?

Solution: Prior to the economic liberalization in 1991, the Reserve Bank of India (RBI) exercised significant control over banking institutions. This control was primarily exerted through various regulatory tools, including:

High Bank Rate: A higher bank rate made borrowing from the RBI more expensive for commercial banks, influencing their lending capacity.
High Cash Reserve Ratio (CRR): By mandating a high percentage of deposits that banks must hold with the RBI, CRR limited the amount of funds available for lending.
High Statutory Liquidity Ratio (SLR): Requiring banks to maintain a high proportion of their deposits in liquid assets (like government securities) also restricted their lending activities.

The financial sector, which includes banking and non-banking financial institutions, the stock exchange market, and the foreign exchange market, was under the direct regulation and control of the RBI during this period.

Question 5

What do you understand by devaluation of rupee?

Solution: Devaluation of the rupee refers to the official reduction in the value of a country's currency in terms of gold or foreign currencies. When a currency is devalued, it becomes more expensive for domestic residents to import goods from other countries, as more rupees are needed to buy the same amount of foreign currency. Conversely, devaluation makes exports cheaper for foreign buyers, as they can purchase more Indian goods with their currency. This policy is often used to boost exports and reduce imports.

Question 6 (i)

Distinguish between the following: (i) Strategic and Minority sale

Solution: The government has employed various methods for disinvestment (selling off stakes in public sector undertakings). Two primary methods are:

Minority Sale: In this method, the government offers a portion of its equity in a Public Sector Undertaking (PSU) to investors, typically through a domestic public issue. The government retains a majority stake and control over the PSU.
Strategic Sale: This method involves the government selling a significant stake, usually above 51 percent, in a PSU. This often includes transferring management control to the private buyer, aiming to improve efficiency and performance.

Question 6 (ii)

Distinguish between the following: (ii) Bilateral and Multi-lateral trade

Solution: The distinction between bilateral and multilateral trade lies in the number of countries involved in the trade agreement:

Bilateral Trade Agreements: These are trade agreements established between two specific countries. They focus on regulating trade relations, tariffs, and other aspects of commerce exclusively between those two nations.
Multilateral Trade Agreements: These agreements involve three or more countries. They aim to liberalize trade on a broader scale, often setting rules and reducing barriers among all participating member nations. The World Trade Organization (WTO) is a prime example of a framework governing multilateral trade.

Question 6 (iii)

Distinguish between the following: (iii) Tariff and Non-tariff barriers

Solution: Trade barriers are restrictions imposed on international trade. They can be categorized as follows:

Tariff Barriers: These are taxes or duties imposed on imported goods. Tariffs increase the price of imported products, making them less competitive compared to domestically produced goods. The primary purpose is to protect domestic industries and generate revenue for the government.
Non-Tariff Barriers: These are restrictions on trade that do not involve direct taxes on imports or exports. They can include measures like quotas (quantitative restrictions), import licenses, embargoes, subsidies to domestic producers, and stringent quality standards. These barriers aim to control the volume or value of trade.

Question 7

Why are tariffs imposed?

Solution: Tariffs are imposed on imported goods primarily to make them more expensive in the domestic market. By increasing the cost of imports, tariffs aim to:

Protect Domestic Industries: They reduce the competitiveness of foreign goods, encouraging consumers to buy locally produced items and thereby safeguarding domestic industries from foreign competition.
Generate Government Revenue: Tariffs serve as a source of income for the government.
Correct Trade Imbalances: In some cases, tariffs can be used to reduce imports and improve the country's balance of trade.

Question 8

What is the meaning of quantitative restrictions?

Solution: Quantitative restrictions (QRs) refer to non-tariff barriers that limit the quantity or amount of specific goods that can be imported into or exported from a country during a particular period. Instead of affecting the price of goods like tariffs do, QRs directly control the volume of trade. Examples include setting quotas on the number of units of a product that can be imported or imposing outright bans on certain imports or exports.

Question 9

Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why?

Solution: No, I do not fully agree with the view that all profit-making Public Sector Undertakings (PSUs) should be privatized. While privatization can bring benefits like increased efficiency and better management, privatizing profitable PSUs raises several concerns:

Loss of Revenue for Government: Profitable PSUs are a significant source of revenue for the government through dividends and taxes. Privatizing them would mean losing this steady income stream.
Reduced Public Sector Presence: It would diminish the government's role in key economic sectors.
Social Objectives: Some profitable PSUs may be fulfilling important social objectives or operating in strategic sectors that require government oversight.
Funding for Loss-Making Units: The profits generated by these PSUs often help in modernizing them, making them more competitive, and can also be used to support loss-making but essential PSUs. Privatizing the profitable ones leaves the government with only the loss-making entities to manage.

Therefore, a case-by-case analysis is needed, considering the strategic importance, social role, and potential benefits of privatization versus retaining public ownership.

Common mistakes

Confusing the roles of RBI before and after liberalization.
Misunderstanding the implications of devaluation on imports and exports.
Not clearly distinguishing between different types of disinvestment strategies.
Confusing quantitative restrictions with tariffs.

Revision tips

Focus on the economic conditions in India that necessitated the 1991 reforms.
Clearly understand the changing role of the RBI and its impact on the financial sector.
Memorize the definitions and differences between key terms like devaluation, tariffs, and quantitative restrictions.
Analyze the pros and cons of privatization for profitable PSUs.
Review the distinctions between strategic and minority sales.

Practice MCQs

Q1. What was a major reason for introducing economic reforms in India in 1991?

Q2. How did the role of the RBI change after liberalization in 1991?

Q3. Devaluation of the rupee makes:

Q4. Which of the following is an example of a non-tariff barrier?

Q5. In which method of disinvestment does the government offload more than 51% of its equity?

Frequently asked questions

Why were economic reforms introduced in India in 1991?

Economic reforms were introduced in 1991 due to a severe economic crisis, characterized by a low national income growth rate, high inflation, a significant balance of payments deficit, high interest payments on debt, and critically low foreign exchange reserves.

What is the main function of the RBI in the context of liberalization?

After liberalization, the RBI's role shifted from being a strict regulator that fixed interest rates to a facilitator that allows market forces to determine interest rates for commercial banks, promoting competition.

What does devaluation of the rupee mean?

Devaluation of the rupee means a reduction in its official value concerning gold or foreign currencies. This makes imports more expensive and exports cheaper.

What is the difference between strategic sale and minority sale in disinvestment?

In a minority sale, the government offers equity to investors through a public issue, retaining control. In a strategic sale, the government offloads more than 51% of its equity, transferring ownership and management control.

What are quantitative restrictions?

Quantitative restrictions are a type of non-tariff barrier that limits the quantity or amount of specific goods that can be imported or exported.

Should profit-making Public Sector Undertakings (PSUs) be privatized?

There is a debate on this. While privatization can bring efficiency, privatizing profitable PSUs might deprive the government of crucial revenue needed for modernizing other PSUs and maintaining social welfare programs.

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