Indian Economic Development 1947–90 and Economic Reforms since 1991
What this domain tests
Indian Economic Development 1947–90 and Reforms since 1991 tests planning, the mixed economy, import substitution, and the liberalisation–privatisation–globalisation (LPG) reforms, including WTO commitments.
Core rules
- Planning: Five-Year Plans began in 1951; goals included growth, equity, self-reliance, and modernisation. The mixed economy gave a large role to the public sector in heavy industry and infrastructure.
- Import substitution: protect domestic industry with tariffs, quotas, and licences to reduce import dependence. It built capacity but often sheltered high-cost, low-quality production.
- The 1991 crisis involved low reserves, high inflation, and fiscal imbalance. Reforms included liberalisation (deregulation, tax reform, trade opening), privatisation (disinvestment), and globalisation (FDI, trade, integration).
- The WTO, established in 1995, administers trade rules. India committed to tariff reduction and TRIPS while seeking flexibility on agriculture and food security.
Worked example
A domestic firm’s cost is ₹120 per unit; the world price is ₹100. A 25% tariff makes imports cost ₹125, so the domestic firm can sell at ₹120. After liberalisation the tariff falls to 10%, imports cost ₹110, and the firm must cut costs or exit. Reasoning: protection creates room for inefficiency; trade opening transmits world prices and forces productivity gains.
Traps
Dating liberalisation to 1947; saying LPG ended all public sector roles; confusing disinvestment with transfer of management control; treating the WTO as a lending agency; and ignoring agriculture’s continued importance.