CES

FM-1 ELEMENTS OF FINANCIAL MANAGEMENT

SUBMITTED BY: - SHUBHAM GARG

BBA- V ‘C (FINANCE)
0151BBA162

SUBMITTED TO: - MR. ANUJ KUMAR

Ques1) Briefly explain the economic reforms that happened in India after 1991 & also mention
its effect on financial services sector?

Ans1) As we all know India is a developing country& is 7th largest in terms of land area &
second-most populated country in the world. India’s total gdp in terms of purchasing power
parity (ppp) is $9.489 trillion which is third highest in the world & India’s total nominal gdp is
$2.454 trillion which is 7th highest in the world. India’s gdp has grown in past several years
while having a growth of 6.1% at present. The gdp value of India represents 3.65 % of world
economy. India is importing goods like petro products, precious stones, iron, steel, chemicals,
vehicles, etc. India is exporting goods like cereals, organic chemicals, equipments, parts, cotton,
iron& steel, clothing, etc. main operating sectors are textile, mining, agriculture, banking&
finance, etc. Bop (balance of payment) has improved during 2013-2014 particularly in the last 2-
3 decades, the result of which can be seen in Indian gdp. India has now become the fastest
growing economy among the world which has resulted in improvement of its economic power.
Indian economic policy after independence was influenced by the colonial experiences& leaders
exposure to Fabian socialism. Before the economic reforms of 1991; five-year plans of India
resembled central planning of the soviet-union. Steel, mining, machine tools, water, media,
insurance, electrical plants were effectively nationalized in the mid 1950’s.rules & regulations
were harsh & there were elaborated licenses accompanying red tape commonly referred to as
licence raj. Before the economic reforms began in1991, the government attempted to close
economy to outside world, it was a very difficult task if somebody wanted to import a good in
India as rules & regulations were very strict & the government of India also prevented firms
from laying off workers or closing factories during this period of time. The attempts were made
to liberalize the economy in 1966 & 1985 but the government failed to do so because the reforms
were not that accurate which can help Indian economy to stand among economies of the world.
Before 1991 income tax & customs department became inefficient in checking tax evasion.
Infrastructure investment was poor due to public sector monopoly. Public sector faced high
losses due to lack of investment & there as Indian economy declined & faced a huge financial
recession. For this government changed reforms after the year 1991 & transferred the licenses
from public to private sector. Private sector has emerged by this time & various restrictions have
been removed to revive the economy. Due to which exports have grown positively from 5% to
15%.improved performance of trade sector has been a major contributing factor to India's
accelerated growth performance. Various economic policies like LPG (Liberalization
Privatization Globalization), Fdi (foreign direct investment, merchandise trade policy, etc were
launched to help revive the economy.

The first aspect of new economic policy was liberalization. Liberalization of an economy means
removing or relaxing government controls & restrictions on economic activities. There was relief
to foreign investors as govt. promoted fdi under LPG policy. Indian currency was revalued &
new industrial & trade policies were formulated. After liberalization government focused on
privatization. Government made disinvestment & allowed private sector to participate to help
flow of capital throughout the economy. Third & last aspect of LPG policy is globalization. By
globalization we mean reduction or removal of government restriction on the movement of
goods & services, capital, technology & talent across national boundaries. Globalization resulted
in competition & built employment opportunities for India. Indian market expected due to
globalization & infrastructure was developed & standard of living became higher. The new
economic policy was a great step of government towards achievement of a world power
economy that is what it is now.

Government of India also promoted FDI during this stage of economic development.fdi is a type
of investment which involves the injection of foreign funds into an enterprise that operates in
different countries of origin from the investor. India has recorded as 1st most important fdi
destination as calculated in 2017. The sectors, which attracted higher inflows after economic
reforms of 1991, were services; telecommunication, construction, computer& technology,
etc.mauritius, Singapore, the USA & the U.K. were among the leading sources of fdi. in 2008 fdi
stood at $27.3 billion & in 2009 it was $24.2 billion & in 2011 it declined to $19.43 billion a
significant decrease from both 2008 & 2009.india has changed its fdi policy from time to time it
has allowed 100% fdi in various sectors like education, defence, pharmaceuticals, civil aviation,
etc for complete foreign ownership.fdi resulted in employment generation, transfer of technology
from developed nations to developing ones, resulted in lower prices for consumer & created a
demand for exports.

Financial sector reforms are at the center of the economic liberalization that was initiated in India
in mid 1991. There can be seen a high growth in financial sector after reforms of 1991.it was
growth phase for financial sector because economic reforms reframed the economy & outcomes
of which were marvelous. Indian economy needed an efficient banking system & a well-
functioning capital market to mobilize savings of household & channel them to productive uses.
Prior to 1991 system of multiple regulated interest rates prevailed but post 1991 system of
interest rates was modified. financial services means the economic services provided by the
finance industry which includes a broad range of businesses that manage money including banks,
credit card companies, credit rating companies, accountancy, companies, stock brokerages,
investment fund, export import banks, etc. The government of India introduced several reforms
which contain certain measures to facilitate easy access to finance for micro, small& medium
enterprises. These measures include launching credit guarantee fund scheme for micro & small
enterprises. The government of India attempted to make financial system more viable,
operationally efficient, more responsive & improve their allocate efficiency. Domestic banks
were given access to cheap loans from abroad & allocated those resources to domestic
production sectors a financial system network is a network of financial institutions, financial
markets, financial instruments & financial services to facilitate the transfer of funds in the
economy. As economic reforms took place Indian finance also changed with time. Reforms
helped in reopening long-standing policy questions about the equity market. After reforms a new
system was invented for critical financial infrastructure such as exchanges, depositors & clearing
corporations. Exchange membership for foreign securities norms was enabled.