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Economic liberalisation in IndiaFrom Wikipedia, the free encyclopedia

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The economic liberalization in India refers to ongoingeconomic reformsinIndiathat started on 24 July

1991. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime MinisterP. V.

Narasimha Raoinitiated some reforms. In 1991, after India faced a balance of paymentscrisis, it had to

pledge 67 tons of gold toUnion Bank of SwitzerlandandBank of Englandas part of a bailout deal with

theInternational Monetary Fund(IMF). In addition, IMF required India to undertake a series of structural

economic reforms[1]. As a result of this requirement, the government ofP. V. Narasimha Raoand his

finance ministerManmohan Singh(the presentPrime Minister of India) started breakthrough reforms,

although they did not implement many of the reforms IMF wanted.[2][3]

The newneo-liberalpolicies included

opening for international trade and investment,deregulation, initiation ofprivatization, tax reforms, and

inflation-controlling measures. The overall direction of liberalisation has since remained the same,

irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade

unionsand farmers, or contentious issues such as reforming labour laws and reducingagricultural

subsidies.[4]The main objective of the government was to transform theeconomic systemfromsocialismto

capitalism so as to achieve high economic growth andindustrializethe nation for the well-being of Indian

citizens.[5][6]

Today India is mainly characterized as amarket economy.[7]

As of 2009, about 300 million peopleequivalent to the entire population of the United States

haveescaped extreme poverty.[8]

The fruits of liberalisation reached their peak in 2007, when India

recorded its highest GDP growth rate of 9%.[9]With this, India became the second fastest growing major

economy in the world, next only to China.[10]

AnOrganisation for Economic Co-operation and

Development(OECD) report states that the average growth rate 7.5% will double the average income in a

decade, and more reforms would speed up the pace.[11]

Indian government coalitions have been advised to continue liberalisation. India grows at slower pace

thanChina, which has beenliberalising its economysince 1978.[12]

McKinsey states that removing main

obstacles "would free Indias economy to grow as fast as Chinas, at 10 percent a year" .[13]

For 2010, India was ranked 124th among 179 countries inIndex of Economic FreedomWorld Rankings,

which is an improvement from the preceding year.

Contents

[hide]

1 Pre-liberalisation policies

o 1.1 Impact

2 Narasimha Rao government (19911996)
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o 2.1 Crisis

3 Sustainability of Economic Liberalization

4 Later reforms

5 Impact of reforms

6 Ongoing economic challenges

o 6.1 Reforms at the state level

7 See also

8 References

9 External links

[edit]Pre-liberalisation policies

Part of a series on the

History of Modern India

Pre-Independence

British Raj(18581947)

Indian independence movement(18571947)

Partition of India(1947)

Post-Independence

Political integration of India(194749)

States Reorganisation Act(1956)

Non-Aligned Movement(1956)

Green Revolution(1970s)

Indo-Pakistani War of 1971

Emergency(197577)

1990s in India

Economic liberalisation in India

2000s in India

See also

History of India
http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Crisishttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Crisishttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Sustainability_of_Economic_Liberalizationhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Sustainability_of_Economic_Liberalizationhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Later_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Later_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impact_of_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impact_of_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Ongoing_economic_challengeshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Ongoing_economic_challengeshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Reforms_at_the_state_levelhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Reforms_at_the_state_levelhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#See_alsohttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#See_alsohttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Referenceshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Referenceshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#External_linkshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#External_linkshttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit&section=1http://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit&section=1http://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit&section=1http://en.wikipedia.org/wiki/History_of_the_Republic_of_Indiahttp://en.wikipedia.org/wiki/History_of_the_Republic_of_Indiahttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Political_integration_of_Indiahttp://en.wikipedia.org/wiki/Political_integration_of_Indiahttp://en.wikipedia.org/wiki/States_Reorganisation_Acthttp://en.wikipedia.org/wiki/States_Reorganisation_Acthttp://en.wikipedia.org/wiki/India_and_the_Non-Aligned_Movementhttp://en.wikipedia.org/wiki/India_and_the_Non-Aligned_Movementhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/The_Emergency_(India)http://en.wikipedia.org/wiki/The_Emergency_(India)http://en.wikipedia.org/wiki/1990s_in_Indiahttp://en.wikipedia.org/wiki/2000s_in_Indiahttp://en.wikipedia.org/wiki/History_of_Indiahttp://en.wikipedia.org/wiki/History_of_Indiahttp://en.wikipedia.org/wiki/File:Flag_of_India.svghttp://en.wikipedia.org/wiki/File:British_Raj_Red_Ensign.svghttp://en.wikipedia.org/wiki/File:Emblem_of_India.svghttp://en.wikipedia.org/wiki/File:Flag_of_India.svghttp://en.wikipedia.org/wiki/File:British_Raj_Red_Ensign.svghttp://en.wikipedia.org/wiki/File:Emblem_of_India.svghttp://en.wikipedia.org/wiki/File:Flag_of_India.svghttp://en.wikipedia.org/wiki/File:British_Raj_Red_Ensign.svghttp://en.wikipedia.org/wiki/File:Emblem_of_India.svghttp://en.wikipedia.org/wiki/History_of_Indiahttp://en.wikipedia.org/wiki/2000s_in_Indiahttp://en.wikipedia.org/wiki/1990s_in_Indiahttp://en.wikipedia.org/wiki/The_Emergency_(India)http://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/India_and_the_Non-Aligned_Movementhttp://en.wikipedia.org/wiki/States_Reorganisation_Acthttp://en.wikipedia.org/wiki/Political_integration_of_Indiahttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/History_of_the_Republic_of_Indiahttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit&section=1http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#External_linkshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Referenceshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#See_alsohttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Reforms_at_the_state_levelhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Ongoing_economic_challengeshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impact_of_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Later_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Sustainability_of_Economic_Liberalizationhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Crisis


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History of South Asia

This box:view talkedit

Further information:Economic history of IndiaandLicence Raj

Indianeconomic policyafterindependencewas influenced by the colonial experience (which was seen by

Indian leaders as exploitative in nature) and by those leaders' exposure toFabian socialism. Policy tended

towardsprotectionism, with a strong emphasis onimport substitution,industrializationunder state

monitoring,state interventionat the micro level in all businesses especially in labour and financial markets,

a large public sector, business regulation, andcentral planning.[14]Five-Year Plans of Indiaresembled

central planning in theSoviet Union. Steel, mining, machine tools, water, telecommunications, insurance,

and electrical plants, among other industries, were effectively nationalized in the mid-1950s.[15]

Elaborate

licences, regulations and the accompanyingred tape, commonly referred to asLicence Raj, were required

to set up business inIndiabetween 1947 and 1990.

[16]

Before the process of reform began in 1991, the government attempted to close the Indian economy to the

outside world. The Indian currency, therupee, was inconvertible and high tariffs and import licensing prevented

foreign goods reaching the market. India also operated a system ofcentral planningfor the economy, in which

firms required licenses to invest and develop. The labyrinthine bureaucracy often led to absurd restrictions up to

80 agencies had to be satisfied before a firm could be granted a licence to produce and the state would decide

what was produced, how much, at what price and what sources of capital were used. The government also

prevented firms from laying off workers or closing factories. The central pillar of the policy wasimport substitution,

the belief that India needed to rely on internal markets for development, not international tradea beliefgenerated by a mixture of socialism and the experience of colonial exploitation. Planning and the state, rather

than markets, would determine how much investment was needed in which sectors.

BBC[17]

In the 80s, the government led byP. V. Narasimha Raostarted light reforms. The government slightly

reduced Licence Raj and also promoted the growth of the telecommunications and software

industries.[citation needed]

TheVishwanath Pratap Singh(19891990) andChandra Shekhar Singhgovernment (19901991) did not

add any significant reforms.

[edit]Impact

The low annual growth rate of theeconomy of Indiabefore 1980, which stagnated around 3.5% from

1950s to 1980s, while per capita income averaged 1.3%.[18]

At the same time,Pakistangrew by

5%,Indonesiaby 9%,Thailandby 9%,South Koreaby 10% and inTaiwanby 12%.[19]

Only four or five licences would be given for steel, electrical power and communications. License

owners built up huge powerful empires.[17]

A hugepublic sectoremerged. State-owned enterprises made large losses.[17]
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Infrastructure investment was poor because of the public sector monopoly. [17]

Licence Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout

much of the country"[20]

and corruption flourished under this system.[10]

[edit]Narasimha Rao government (19911996)

Present Prime MinisterManmohan Singhwas then Finance Minister in Cabinet of Prime MinisterP V Narasimha Rao

[edit]Crisis

Main article:1991 India economic crisis

The assassination of prime ministerIndira Gandhiin 1984, and later of her sonRajiv Gandhiin 1991,

crushed international investor confidence on the economy that was eventually pushed to the brink by the

early 1990s.

As of 1991, India still had a fixedexchange ratesystem, where the rupee was pegged to the value of a

basket of currencies of major trading partners. India started havingbalance of paymentsproblems since1985, and by the end of 1990, it was in a serious economic crisis. The government was close to

default,[21]

[22]

its central bank had refused new credit andforeign exchange reserveshad reduced to the

point that India could barely finance three weeks worth of imports . Most of the economic reforms were

forced upon India as a part of the IMF bailout. [1]

A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for an IMF bailout, gold

was transferred to London as collateral, the rupee devalued and economic reforms were forced upon India. That

low point was the catalyst required to transform the economy through badly needed reforms to unshackle the

economy. Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies

broken, the economy was opened to trade and investment,private sector enterpriseand competition were
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encouraged andglobalisationwas slowly embraced. The reforms process continues today and is accepted by all

political parties, but the speed is often held hostage by coalition politics and vested interests.

India Report, Astaire Research[10]

[edit]Sustainability of Economic Liberalization

Go to :Economic_liberalization

[edit]Later reforms

TheBharatiya Janata Party(BJP)-Atal Bihari Vajpayeeadministration surprised many by continuing

reforms, when it was at the helm of affairs of India for five years.[23]

The BJP-ledNational Democratic AllianceCoalition began privatizing under-performing government

owned business including hotels,VSNL,Maruti Suzuki, Airports and began reduction of taxes, asoundfiscal policyaimed at reducing deficits and debts and increased initiatives for public works.

TheUnited Frontgovernment attempted a progressive budget that encouraged reforms, but the

1997Asian financial crisisandpolitical instabilitycreatedeconomic stagnation.

Economic and technology-related sanctions have repeatedly not proved to be very effective in

compelling nations to change their sovereign decisions made in enlightened self-interest. India faced

severe sanctions after Pokhran-I (five nuclear tests on 11 and 13 May 1998 at the Pokhran range in

Rajasthan Desert), and sanctions that were more comprehensive were imposed following Pokhran-II.

There were dire predictions of the collapse of the economy, double-digit inflation etc.

After five years, most of the sanctions have been lifted and the Indian economy is continuing to grow at

an acceptably satisfactory rate. The growth rate for 200304 was 6.0%. Though Indias Gross National

Income is only $477.4 billion by conventional calculations, it translates into $2,913 billion purchasing

power parity (PPP), according to the latest world development indicators. In PPP terms, it is the world's

fourth largest economy, behind only the US, China and Japan.

This list isincomplete;you can help byexpanding it.

[edit]Impact of reforms

TheHSBCGlobal Technology Center inPunedevelops software for the entire HSBC group.[24]
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kipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit&section=6http://en.wikipedia.org/wiki/Economic_liberalizationhttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit&section=5http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-9http://en.wikipedia.org/wiki/Globalisation


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The impact of these reforms may be gauged from the fact that total foreign

investment(includingforeign direct investment,portfolio investment, and investment raised

oninternational capital markets) in India grew from a minuscule US$132 million in 199192 to

$5.3 billion in 199596.[25]

Cities

likeNOIDA,Gurgaon,Gaziabad,Bangalore,Hyderabad,Pune,Chennai,Jaipur,IndoreandAhmedab

adhave risen in prominence and economic importance, become centres of rising industries and

destination forforeign investmentand firms.

Annual growth inGDP per capitahas accelerated from just 1 per cent in the three decades after

Independence to 7 per cent currently, a rate of growth that will double average income in a decade. [...]

In service sectors where government regulation has been eased significantly or is less burdensome

such as communications, insurance, asset management and information technologyoutput has grown

rapidly, with exports ofinformation technology enabled servicesparticularly strong. In those

infrastructure sectors which have been opened to competition, such astelecomsand Economicliberalisation in IndiaFrom Wikipedia, the free encyclopedia

This article needs additionalcitationsforverification. Please helpimprove this articleby adding

citations toreliable sources. Unsourced material may bechallengedandremoved.(April 2011)

The economic liberalization in India refers to ongoingeconomic reformsinIndiathat started on 24 July

1991. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime MinisterP. V.

Narasimha Raoinitiated some reforms. In 1991, after India faced a balance of paymentscrisis, it had to

pledge 67 tons of gold toUnion Bank of SwitzerlandandBank of Englandas part of a bailout deal with

theInternational Monetary Fund(IMF). In addition, IMF required India to undertake a series of structural

economic reforms[1]. As a result of this requirement, the government ofP. V. Narasimha Raoand his

finance ministerManmohan Singh(the presentPrime Minister of India) started breakthrough reforms,

although they did not implement many of the reforms IMF wanted.[2][3]The newneo-liberalpolicies included

opening for international trade and investment,deregulation, initiation ofprivatization, tax reforms, and

inflation-controlling measures. The overall direction of liberalisation has since remained the same,

irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade

unionsand farmers, or contentious issues such as reforming labour laws and reducingagricultural

subsidies.[4]

The main objective of the government was to transform theeconomic systemfromsocialismto

capitalism so as to achieve high economic growth andindustrializethe nation for the well-being of Indian

citizens.[5][6]

Today India is mainly characterized as amarket economy.[7]

As of 2009, about 300 million peopleequivalent to the entire population of the United States

haveescaped extreme poverty.[8]The fruits of liberalisation reached their peak in 2007, when India

recorded its highest GDP growth rate of 9%.[9]With this, India became the second fastest growing major

economy in the world, next only to China.[10]

AnOrganisation for Economic Co-operation and
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Development(OECD) report states that the average growth rate 7.5% will double the average income in a

decade, and more reforms would speed up the pace.[11]

Indian government coalitions have been advised to continue liberalisation. India grows at slower pace

thanChina, which has beenliberalising its economysince 1978.

[12]

McKinsey states that removing mainobstacles "would free Indias economy to grow as fast as Chinas, at 10 percent a year".

[13]

For 2010, India was ranked 124th among 179 countries inIndex of Economic FreedomWorld Rankings,

which is an improvement from the preceding year.

Contents

[hide]

1 Pre-liberalisation policies

o 1.1 Impact

2 Narasimha Rao government (19911996)

o 2.1 Crisis

3 Sustainability of Economic Liberalization

4 Later reforms

5 Impact of reforms

6 Ongoing economic challenges

o 6.1 Reforms at the state level

7 See also

8 References

9 External links

[edit]Pre-liberalisation policies

Part of a series on the

History of Modern India

Pre-Independence

British Raj(1858

1947)
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8/15

Indian independence movement(18571947)

Partition of India(1947)

Post-Independence

Political integration of India(194749)

States Reorganisation Act(1956)

Non-Aligned Movement(1956)

Green Revolution(1970s)

Indo-Pakistani War of 1971

Emergency(197577)

1990s in India

Economic liberalisation in India

2000s in India

See also

History of India

History of South Asia

This box:view talkedit

Further information:Economic history of IndiaandLicence Raj

Indianeconomic policyafterindependencewas influenced by the colonial experience (which was seen by

Indian leaders as exploitative in nature) and by those leaders' exposure toFabian socialism. Policy tended

towardsprotectionism, with a strong emphasis onimport substitution,industrializationunder state

monitoring,state interventionat the micro level in all businesses especially in labour and financial markets,

a large public sector, business regulation, andcentral planning.[14]Five-Year Plans of Indiaresembled

central planning in theSoviet Union. Steel, mining, machine tools, water, telecommunications, insurance,

and electrical plants, among other industries, were effectively nationalized in the mid-1950s.[15]

Elaborate

licences, regulations and the accompanyingred tape, commonly referred to asLicence Raj, were required

to set up business inIndiabetween 1947 and 1990.[16]

Before the process of reform began in 1991, the government attempted to close the Indian economy to the

outside world. The Indian currency, therupee, was inconvertible and high tariffs and import licensing prevented

foreign goods reaching the market. India also operated a system ofcentral planningfor the economy, in which

firms required licenses to invest and develop. The labyrinthine bureaucracy often led to absurd restrictions up to

80 agencies had to be satisfied before a firm could be granted a licence to produce and the state would decide

what was produced, how much, at what price and what sources of capital were used. The government also

prevented firms from laying off workers or closing factories. The central pillar of the policy wasimport substitution,

the belief that India needed to rely on internal markets for development, not international tradea belief

generated by a mixture of socialism and the experience of colonial exploitation. Planning and the state, rather

than markets, would determine how much investment was needed in which sectors.

BBC[17]
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9/15

In the 80s, the government led byP. V. Narasimha Raostarted light reforms. The government slightly

reduced Licence Raj and also promoted the growth of the telecommunications and software

industries.[citation needed]

TheVishwanath Pratap Singh(19891990) andChandra Shekhar Singhgovernment (19901991) did notadd any significant reforms.

[edit]Impact

The low annual growth rate of theeconomy of Indiabefore 1980, which stagnated around 3.5% from

1950s to 1980s, while per capita income averaged 1.3%.[18]At the same time,Pakistangrew by

5%,Indonesiaby 9%,Thailandby 9%,South Koreaby 10% and inTaiwanby 12%.[19]

Only four or five licences would be given for steel, electrical power and communications. License

owners built up huge powerful empires.[17]

A hugepublic sectoremerged. State-owned enterprises made large losses.[17]

Infrastructure investment was poor because of the public sector monopoly.[17]

Licence Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout

much of the country"[20]

and corruption flourished under this system.[10]

[edit]Narasimha Rao government (19911996)

Present Prime MinisterManmohan Singhwas then Finance Minister in Cabinet of Prime MinisterP V Narasimha Rao

[edit]Crisis

Main article:1991 India economic crisis
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10/15

The assassination of prime ministerIndira Gandhiin 1984, and later of her sonRajiv Gandhiin 1991,

crushed international investor confidence on the economy that was eventually pushed to the brink by the

early 1990s.

As of 1991, India still had a fixedexchange ratesystem, where the rupee was pegged to the value of abasket of currencies of major trading partners. India started havingbalance of paymentsproblems since

1985, and by the end of 1990, it was in a serious economic crisis. The government was close to

default,[21][22]its central bank had refused new credit andforeign exchange reserveshad reduced to the

point that India could barely finance three weeks worth of imports . Most of the economic reforms were

forced upon India as a part of the IMF bailout. [1]

A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for an IMF bailout, gold

was transferred to London as collateral, the rupee devalued and economic reforms were forced upon India. That

low point was the catalyst required to transform the economy through badly needed reforms to unshackle the

economy. Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies

broken, the economy was opened to trade and investment,private sector enterpriseand competition were

encouraged andglobalisationwas slowly embraced. The reforms process continues today and is accepted by all

political parties, but the speed is often held hostage by coalition politics and vested interests.

India Report, Astaire Research[10]

[edit]Sustainability of Economic Liberalization

Go to :Economic_liberalization

[edit]Later reforms

TheBharatiya Janata Party(BJP)-Atal Bihari Vajpayeeadministration surprised many by continuing

reforms, when it was at the helm of affairs of India for five years.[23]

The BJP-ledNational Democratic AllianceCoalition began privatizing under-performing government

owned business including hotels,VSNL,Maruti Suzuki, Airports and began reduction of taxes, a

soundfiscal policyaimed at reducing deficits and debts and increased initiatives for public works.

TheUnited Frontgovernment attempted a progressive budget that encouraged reforms, but the

1997Asian financial crisisandpolitical instabilitycreatedeconomic stagnation.

Economic and technology-related sanctions

Documents

Liberal is at Ion