XIIth Chp. 7 Indian Economic Reforms

8/10/2019 XIIth Chp. 7 Indian Economic Reforms

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ECONOMICREFORMS:1991- BHAGIRATH BARIA


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WHAT ARE ECONOMICREFORMS?Changes in economic policies since 1991

What are Economic Policies?

-Policies of a Government to change one or more than oneeconomic variable.

-Economic variables are those factors that are subject toeconomic laws and principles. E.g. GDP, inflation,unemployment, investment, savings, etc.


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POLICIES BEFOREECONOMIC REFORMS OF1991, PG. 59 TH AND 60 TH

Restrictions onPrivate sector

Development ofPublic sector

Infrastructurefacilities

Encouragementto Private sector


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3. INFRASTRUCTURALFACILITIESAgricultural and Industrial sectors depend on Infrastructure-services:

1. Economic Infrastructure- for the supply of PHYSICALCAPITAL

2. Social Infrastructure- for the supply of HUMAN CAPITAL

3. Before 1991, Government primarily supplied theseservices [telecommunications by BSNL, Oil by ONGC,Electricity by state controlled companies such as Guj.

Electricity Board, etc.


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Infrastructure

Economic

PHYSICALCAPITAL

Base forHUMAN

CAPITAL

Social

HUMANCAPITAL

Base forPHYSICALCAPITAL


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MSP ANALYSIS FOR WHEAT

0

200

400

600

800

1000

1200

0 20 40 60 80 100 120

D e m a n

d a n

d S u p p

l y o f W

h e a

t [ K g s .

]

Price of wheat [Rs.]

Minimum support price analysis for Wheat producers


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SUBSIDY ANALYSIS

0

200

400

600

800

1000

1200

0 20 40 60 80 100 120

D e m a n

d a n

d S u p p

l y o f

W h e a

t [ K g s .

]

Price of wheat [Rs.]

Subsidy analysis for Wheat producers


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NECESSITY OF NEWECONOMIC REFORMS1951-1981: National income grew by 3.5% per year and population by1.5%, hence PCI grew by 2%

- How? Explain the above data.

East Asian countries were achieving more growth rates than India

Private sector was given more importance in these countries comparedto India where Government was given more importance

1978- China gave up Socialism for increased role for market-basedeconomic policies

1991- Russia [U.S.S.R.] disintegrated, adopted market-based economicpolicies

Foreign exchange crises in India [Loans from the I.M.F.], increased ourFiscal Deficits

Explain fiscal deficit with an example


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MAJOR ECONOMICREFORMS IN AND AFTER1991

E c o n o m

i c R e f o r m s

i n

1 9 9 1

Liberalization

Privatization

Globalization


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1. LIBERALIZATION,PG. 61 ST

Reduction in restrictions and controls imposed bythe government on public economic activities

E.g. Reduction in reserved commodities for Public

sectorThis increases the scope of private sectorparticipation

E.g. Today we have private and Multinational firmsin many sectors in India- thanks to Liberalization


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Principal changes were:

1. 18 reserved industries for Government, reduced to just 3 [Pg. 61 st ]

-Defence, Arms and Ammunitions and others

-Nuclear Power generation

-Railways2. Removal of Industrial Licensing requirements

[except for environmentally risky industries]

3. M.R.T.P. Act removed

4. 64 commodities out of 800 reserved commoditiesfor small sector were made open to larger firms


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2. PRIVATIZATIONTransfer of ownership of an industrial unit from Public[Government] control to a Private owner.

-E.g. If Indian Government sells a part of or the entire railwayservices corporation to Mr. Mukesh Ambani.

-Major changes:

Many sectors now opened up to private sector. Was done toincrease competition and efficiency. E.g. Vodafone, Airtel,Idea, etc. in telecommunication sector.


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Privatization includes following changes inownership

-Govt. sells a part of shares [less than 50%] to Privatecompany/companies (Management controlled by theGovt.)

-Govt. sells a part of shares [more than 50%] to privatecompany/companies (Management NOT controlled bythe Govt.)

Main objective of Privatization:

-Improve work efficiency of PSUs and make themprofitable

-Free the Government from the burden of loans andinterest

-Raise Monetary resources for the Government

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XIIth Chp. 7 Indian Economic Reforms