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Modern India Economic
Reforms 1991
Group 1
IMI
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Sir, I do not minimise the difficulties that lie ahead on thelong and arduous journey on which we have embarked.
But as victor Hugo once said, no Power on earth can stop
an idea whose time has come.
I suggest to this august House that the emergence of Indiaas a major economic power in the world happens to be one
such idea. Let the whole world hear it loud and clear.
India is now wide awake.
We shall prevail. We shall overcome.
-Dr. Manmohan Singh
(budget speech 1991)
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Pre 1991 India: A Closed Economy
Rupee inconvertible
License Raj
High tariff and import duties Restrictive Labour laws
State run affairs
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Need for Reforms?
The current account deficit was 3.1% of GDP
The central governments fiscal deficit was
7.9% of GDP in 1989-90 Foreign-exchange reserves was of US$2.2
billion.
Indian economy was facing bankruptcy.
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Role Of IMF and World Bank
IMFs reasons for Indias situation:
The balance of payments crisis:
brought on when India ramped up exports to the
erstwhile Soviet Union by 50% in hard currency.
Debt waiver for small farmers.
The IMF and WB blamed the poor macroeconomic
policies under the Congress regime of the 1980s.
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IMFs Solution
Indias two choices:
1. To undertake reforms that will promise the
needed external support.
2. disorderly and painful transition
Loans only on fulfilment of demand:
Shipment of Gold
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Reform Measures
Devaluation
Disinvestment
Abolishment of License Regime Allowing Foreign Direct Investment (FDI)
Abolition of the (MRTP) Act
Wide-ranging financial sector reforms
The removal of quantitative restrictions onimports.
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Impact of Economic Reforms
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Overall Impact
Improvement in Performance of the Economy the average annual growth rate between 1992-93 and 1999-2000 was 6.3%
Growth in EmploymentOpportunities and Better Emoluments
coming up of many new domestic private companies as well as multinationalcompanies
Large Reserves of Foreign Exchange
increased from US$ 5.8 billion in 1990 to US$ 42.2 billion in 2001.
Easy Availability of Bank Loans
Easier Access to Foreign Technology
Significant Fall in Poverty Ratio
The poverty ratio decreased from 36% in 1993 - 94 to 26.1% in 1999 2000
significant growth in the government expenditure on health and educationsector
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Increase expenditure in health and education
life expectancy : 63.3 years in 2000
infant mortality rate : 69 per thousand live births in 2000.
Fall in Inflation Rate
Remarkable Growth in Foreign Trade
Increasing Foreign Direct Investment
Growth rate in FDI inflows: 244% between 1980-81 and
1990-91 and 588% between 1990-91 and 2002-03.
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Serv
ice Sector
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Civil Aviation Growth in Air Travel
1 March 1994 : Repealment of the AirCorporation Act .
1 February 1995 : Six operators given thestatus of scheduled operators .
Growth : no. of passengers carried in the
domestic sector increased from 42% during1981 to 1990-91 to 76% during 1990-91 to2002-03 .
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Telecom Industry
Pre-reforms : government could never meet
the demand for telephones.
Post reforms :
Prices of services felldrastically.
no. of telephone connections
1991 : 5.07 million(fixed lines)
2003 : 54.62 million
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I.T. Industry
Growth : US $ 150 million in 1991-92 to US $
5.7 in 1999-2000.
exports software and services to nearly 95countries around the world.
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Manufacturing Sector
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Growth of Automobile industry
The number of registered motor vehicles increased from 51.73lakhs in 1980-81 to 2.14 crores in 1990-91 and to 5.5 crores in2000-01
Increase in technological sophistication Adherence to the global environmental norms regarding emission
standards
Quality certifications.
The upward trend in exports also reflects the changing nature
of technological sophistication of the Indian automotive sector.
The growth is much more apparent in segments such aspassenger cars, and recently, in the 2- and 3- wheelers
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METALLURGY ( Steel and Iron)
Major developments Large plant capacities that were reserved for public
sector were removed;
Export restrictions were eliminated;
Import tariffs reduced from 100 percent to 5 percent;
Decontrol of domestic steel prices;
Foreign investment was encouraged, and the steelindustry was part of the high priority
industries for foreign investments and implyingautomatic approval for foreign equity participation upto 100 percent;
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PRODUCTION OF FINISHED CARBON STEEL (In million tonnes)Year Main
Producers
Secondary
Producers
Grand
Total
% of share of
Secondary Producers
1991-1992 7.96 6.37 14.33 14.5%
1992-1993 8.41 6.79 15.20 44.7%
1993-1994 8.77 6.43 15.20 42.3%
1994-1995 9.57 8.25 17.82 46.3%
1995-1996 10.59 10.81 21.40 50.6 %
1996-1997 10.54 12.18 22.72 53.6 %
1997-1998 10.44 12.93 23.37 55.32 %
1998-1999 9.86 13.24 23.82 57.32 %
1999-2000 11.20 15.51 26.71 58.07 %
2000-2001 12.51 17.19 29.7 57.88 %
2001-2002 13.05 17.58 30.63 57.40 %
2002-2003 14.39 19.28 33.67 57.27 %
2003-2004 15.19 21.00 36.19 58.03 %
2004-2005 15.61 24.44 40.05 61.02 %
2005-06 (Prov.) 16.236 26.400 42.636 61.92 %
2006-2007 17.390 37.756 55.146 68.46 %
2007-2008 17.765 40.565 58.233 69.54 %
2008-2009 17.216 46.229 63.445 72.86%
2009-2010 18.038 51.093 69.131 73.9 %
2010-2011
(Prov)
18.280 57.461 75.741 75.86%
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PRODUCER - WISE PRODUCTION OF PIG IRON (In million tonnes)
Year Main
producers
Secondary
producers
Grand
total
%age share of the
Secondary Producers
1991-1992 1.49 0.10 1.59 6.3%
1992-1993 1.68 0.17 1.85 9.2%
1993-1994 1.98 0.27 2.25 12.0%
1994-1995 2.01 0.78 2.79 28.0%
1995-1996 1.74 1.06 2.80 37.9%
1996-1997 1.73 1.57 3.30 47.5%
1997-1998 1.70 1.68 3.39 49.5%
1998-1999 1.37 1.60 2.97 53.87%
1999-2000 1.24 1.94 3.18 61.08%
2000-2001 0.96 2.15 3.11 69.13%
2001-2002 1.02 3.05 4.07 75.04 %
2002-2003 1.11 4.18 5.29 79.05 %
2003-2004 0.97 4.25 5.22 81.48 %
2004-2005 0.625 2.603 3.228 80.63 %
2005-06 (Prov) 1.006 2.850 3.856 73.91 %
2006-2007 0.860 4.133 4.993 82.77%
2007-2008 0.936 4.378 5.314 82.38 %
2008-2009 0.589 5.662 6.211 90.51 %
2009-2010 0.731 5.215 5.946 87.7 %
2010-2011
(Prov)
0.579 5.006 5.585 89.63 %
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Financial Sector
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Regulated Capital Market Free for all atmosphere too many scandals
SEBI
Transparent Market
Investor rights.
Exchange Control and Convertibility On Current account transactions
Foreign Institutional Investment in India Equity
International borrowings
The Insurance sector New players-new insurance based product
Intense Competition
IRDA
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Banking and credit policy
Reduced CRR and SLR
Deregulation of Interest Rate
Fixing prudentialNorms
Introduction of CRAR
Operational Autonomy
Banking Diversification New Generation Banks
Improved Profitability and Efficiency
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Agriculture Sector
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In the early 1950s, half of Indias GDP came from theagricultural sector. By 1995, that contribution was halvedagain to about 25 per cent.
Private sector has been allowed and encouraged toparticipate in the import and export of major agricultural
products.
This shift from agriculture based economy has been good forIndia and as of now 52% of GDP comes from service industry
Year 1951 1965 1976 1985 1991 1999
Percentage share ofGDP 52.2 43.6 37.4 32.8 28.3 24.4
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Conclusion
Indias economy clearly is on the move and most
certainly has the potential to emerge as a global
economic power within next twenty to twenty-
five years. However, this potential can be made
a reality only if India mobilizes adequate political
will and quickly commits itself to design and
fully implement the next phase of deepersecond-generation reforms.
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