Economic Reforms

since

1991

Introduction:July 1991,India has taken a series of

measures to structure the economy and improve the BOP position. The new economic policy introduced changes in several areas.

The policy have salient feature which are: -

1.Liberlisation (internal and external)

2.Extending Privatization 3.Globalisation of the economy Which are known as “LPG”.

(libearlisation, privatisation, globalisation)

2

Economic Reforms in India

Meaning of Economic Reform: The term economic reform

broadly indicates necessary structural adjustments to external events. It include the function of country’s spending to the level parallel to its income and thereby reducing fiscal deficits.

This requires gradual reduction in import and increase in export. These adjustments also requires market change in order to make economy flexible.

New Economic Policy

New Economic policy: A new plan in action by the

government to influence production and capital formation of a country is known as NEP.

NEP-New economic policy It was started in the year 1991. Major effects of NEP were done

by P.V.Narasimhan & Manmohan Singh.

Reasons for implementing NEP: There were poor performance of

public sector. The scope for private sector was

limited. There were sudden fall in Foreign

Exchange Reserves(FER). There were more expenditure

than incoming. International investors were not

encouraged by government. Tax notes were very high so

people started evading taxes.

Main Features Of Economic Reforms

ECONOMIC REFORMS

LIBERALISATION

PRIVATISATION

GLOBALISATION

WHAT IS LIBERALIZATION?

Liberalisation: Free from direct or physical control

by the government in the way of trade is known as liberalisation.

Before 1991 the were some controls of Govt. they are:

Industrial licensing system was a rigid process.

They were controlling the price. Import licensing. Restrictions on investment.

Economic reforms under Liberalization:

There were four reforms under liberalization:

Industrial reforms Financial reforms Fiscal reforms External reforms

Industrial reforms: Abolition of licensing except some

products like cigar etc. Contradiction to public sector i.e.

number of items produced by public sector were reduced.

Govt. given freedom to import capital. Dereservation of production units. Producer’s given freedom to what to

produce & how much to produce.

Financial reforms: R.B.I was turned into felicilitator. Due to this dramatically change

the banking sector of the country had expanded a lot.

It also allowed Foreign Institutional Investors(FII) to invest money in Indian market.

Fiscal reforms: It relates to total revenue and

total expenditure of government. Before liberalisation, the taxes

were very high & this encouraged tax evasion by the people.

After Liberalisation, taxes were reduced.

The procedure for paying taxes was simplified.

Non-planned expenditure by the Govt. was reduced

External reforms: Foreign exchange reserves: In 1991, Devaluation of rupee so by this

foreign countries can buy Indian good. This provided good flow of trade. At presently, exchange rate is determined by

supply & demand in international market. Foreign trade policy: Abolition of import licensing except for some

cases. Quantitative restrictions were removed. Tariff restrictions were moderated. Export duties has withdrawn.

Advantages of liberalization Industrial licensing Increase the foreign investment. Increase the foreign exchange

reserve. Increase in consumption and

Control over price. Check on corruption. Reduction in dependence on

external commercial borrowings

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Disadvantages of Liberalization

Increase in unemployment. Loss to domestic units. Increase dependence on

foreign nations Unbalanced development

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whatis

Privatization

Privatisation:

Privatisation is defined as the transfer of function, activity or organization from the public sector to private sector.

Two ways for Privatisation:1) Sale of public sector units to

private sector.2) With drawl of public sector

units-joint.

Objectives ofPrivatisation To increase efficiency &

competitive power of the enterprises

To strengthen industrial management.

To earn more & more Foreign currency.

To make optimum use of resources

To achieve rapid industrial development of the country.

Mesures Adopted For Privatisation

Contraction of Public sector Disinvestment Sale of shares of public

enterprises Increase in private sector Conversion of loans into shares

is not necessary Sick industries Memorandum of understanding

Advantages of Privatisation:

Reduction in economic burden Increase in efficiency Reduction in sense of

irresponsibility Scientific Management Reduction in Political

Interference Encouragement of new

Inventions

Disadvantages of Privatization

Industrial sickness. Lack of welfare. Class struggle. Increase in inequality Opposition by employees. Problem of financing. Increase in unemployment. Ignores the weaker sections. Ignores the national

importance

Public sector reforms The reforms introduced to support

public sector units are: Introduction of some awards like: Navaratnas E.g: BPCL,MTNL,Etc. Maharatnas E.g: CIL, ONGC, Etc. Miniratnas E.g: BSNL, ITDCL, Etc.

World Trade Organization: The World Trade

Organization (WTO) is a large international organization to regulate trade that was established in 1995.

As of 15 December, 2005, there were 153 member countries. In the WTO, agreements are made on trade between countries. 

Established: 1st January 1995.Created by: Uruguay Round negotiations (1986-94).Budget: 185 million Swiss francs for 2008.Secretariat staff: 625. Head: Pascal Lamy (Director-General).Membership: Countries on map. 153 countries (on 23 July 2008).New member: Ukraine

The primary aim of WTO is to implement the new world trade agreement.

To promote multilateral trade . To promote free trade by abolishing tariff

& non-tariff barriers. To enhance competitiveness among all

trading partners so as to benefit consumers.

To increase the level of production & productivity with a view to increase the level of employment in the world.

To expand & utilize world resources in the most optimum manner.

To improve the level of living for the global population & speed up economic development of the member nations.

To take special steps for the development of poorest nations.

Objectives of WTO:

• Freer trade cuts the cost of living•It gives consumers more choice, & a broader range of qualities to choose from.•Trade raises incomes.• Trade stimulates economic growth, & that can be good news for employment• The basic principles make the system economically more efficient, & they cut costs.• The system allows disputes to be handled constructively.• A system based on rules rather than power makes life easier for all.

Advantages of WTO:

Disadvantages of WTO•The WTO dictates policy•The WTO is for free trade at any cost•The WTO destroys jobs, worsens poverty•Small countries are powerless in the WTO•Weaker countries are forced to join the WTO•The WTO is the tool of powerful lobbies•Non-tariff barriers•Competition

What is

Globalisation:It is defined as a process associated with increasing openness, growing economic independence and Deeping economic integration in the world economy.

Reduction of trade barriers Free flow of capital Free flow of technology Free movement of technology

Outsourcing: It is a system of hiring business services

from the outside world is known as Outsourcing.

Advantages of outsourcing:1) Easy availability of cheap labour2) Reasonable degree of skill3) Virgin market4) Lack of competitive competitors5) Cheap and abundant availability of raw

material6) Revolutionary growth of I.T industry in

India

Positive Effects of Globalisation: Adoption of new & flexible production

methods. Reconstruction of production & Trade

patterns. Raise of Foreign capital. Qualitative improvement in the country. Rise in the generation of employment. Rise in Banking and Foreign sector

efficiency. Increase in the technology.

Loss of domestic industriesExploits Human resourceDecline in incomeUnemploymentTransfer of natural resourcesLead to commercial and

political colonismWidening gap between rich

and poorDominance of foreign

institutions34

Negative Effects of Globalisation

Positive Effects Of NEP:

Impressive increase in growth rate of GDP. I.T industry has achieved global

recognition. Increase in the Govt. revenue i.e. increase

in national income. Increase in foreign exchange reserves. Flow of private & foreign investment. Recognition of India as an emerging power. Shift from monopoly market to competitive

market. Decline in poverty

Negative Effects Of NEP: Neglect to agriculture. Urban concentration of growth

was high but neglected rural. Preference for handicraft were

low. There is cultural erosion in the

country. It is like economic colonization.

DONE BY

PRANAV KRISHNA

Thank you