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UNIT II : ECONOMIC REFORMS SINCE 1991
Chapter 3 LIBERALISATION, PRIVATISATION AND GLOBALISATION
- In 40 years of planned developed, India had achieved strong industrial bases & self sufficiency food grains.
- Nevertheless, still large population was dependent on agriculture for its livelihood.
- In 1991, India face a crisis so had to follow reform….
- In this chapter:
- Circumstance those forced to/Background of Economic Crisis.
- What is economic reform.
- Its Process & its implications for India.
- Three models/Mechanisms of E.R./Measures that the government has adopted
- Liberalization: (Impacts on different sectors: industrial, financial, tax reform, foreign exchange market, trade, investment)
- Privatization; Meaning; Navratnas and Public Enterprise Policies; FDI, FII & its kind
- Globalization; Meaning; Outsourcing; Global footprint;
- WTO & related issues
- INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT under:
- Growth and Employment:
- Reforms in Agriculture:
- Reforms in Industry:
- Disinvestment:
- Reforms and Fiscal Policies:
- Conclusion:
- Mean of PROGRESS of a society- There is a consensus in the world today that economic development is not all and the GDP is not necessarily a measure of progress of a society. —àK.R. Narayanan, Former President of India
- Some scholars argue; over the years, which rules & laws made for controlling the policy of mixed economy hampered the process of growth & development.
- Other scholar says- after starting from stagnation, india has achieved growth in savings, diversification in industrial sector, & ensured food security.
- After independence, india received much loan (external debts) from other countries, international economics institutions for…..
- BACKGROUND OF THE CRISIS | CIRCUMSTANCE THOSE FORCED TO ECONOMIC REFORMS IN 1991:
- Origin of the financial crisis-1980s;
- Inefficient management of the Indian economy. (Deficit Budget)
- Various challenges (unemployment, poverty, population explosion etc.); Government couldn’t overshoot revenue.
- But; High expenditure on Development policies, social sector and defence [not provide immediate returns]
- Couldn’t utilise the rest of its revenue in a highly efficient manner.
- income from PSUs was less & couldn’t fill growing expenditure.
- Borrowed foreign exchange was spent on meeting consumption.
- No attempt: to reduce profligate spending, not sufficient attention to boost exports.
- In the late 1980s; Government was not able to make repayments/interest.
- Limited foreign exchange reserves (not sufficient for even a fortnight to import essential commodities)
- Prices of essential goods raised.
- no country or international funder was willing to lend to India.
- IN THIS SITUATION:………..
India approached the IBRD (World Bank, IMF) for loan.
IBRD agreed $7 billion loan but expected to LPG.
India announced new economic policy (1991)
Motive behind NEP:
- creating a more competitive environment in economy
- removing the barriers to entry and growth of firms
Policies can be classified into two groups:
STABILISATION MEASURES:
- short term measures, to correct weaknesses in BOP & to control inflation.
STRUCTURAL REFORM MEASURES:
- long-term measures, to improve the efficiency of the economy.
- Increasing international competitiveness by removing the rigidities of Indian economy.
IBRD + IDA= World Bank
World Bank Group consists of five development institutions.
- IBRD: provides loans, credits, and grants.
- IDA: provides low- or no-interest loans to low-income countries.
- IFC: provides investment, advice, and asset management to companies and governments.
- MIGA: insures lenders and investors against political risk such as war.
- ICSID: settles investment-disputes between investors and countries.
Government initiated a variety of policies which fall under three heads:
- LIBERALISATION:
- Introduced to put an end to those restrictions (hindrances in growth) and open various sectors of the economy.
- in 1980s; measures were also introduced for industrial licensing, export-import policy, technology upgradation, fiscal policy and foreign investment. But; 1991’s initiative were more comprehensive in various sectors:
- DE-REGULATION OF INDUSTRIAL SECTOR:
- Before 1991; regulatory mechanisms:
- Industrial licensing
- Private sector was not allowed in many industries
- Some goods could be produced only in SSI
- Controls on price fixation & distribution of products.
- reform policies (1991) reduced/removed many of these restrictions;
- licensing was abolished (Excepting alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs and pharmaceuticals)
- Now; Reserved Industries for the public sector; A part of defence equipment, atomic energy generation & railway transport; NOW; atomic energy and railway operations.
- Many goods produced by SSI now; de-reserved
- market has been allowed to determine the prices.