INDIA’S ECONOMIC REFORMS:

AN OVERVIEWATION & DEFLATION

SUBMITTED BY GROUP 2

Ankit Kumar 1108

Apoorva Bansal 1111
Niladrit Mondal 1135
Prasad Ambekar 1140
Rohit Vijay 1147
Sagar Srivastava 1149
Shwetangi Rathore 1158
Yathakumar 1173
THE HISTORY OF
ECONOMIC
DEVELOPMENT IN INDIA
SINCE INDEPENDENCE
 Background
This presentation discusses India's economic
development strategy, its accomplishments,
shortcomings, and potential problems.
 01 Rapid
industrialization

INITIAL
STRATEGY 02 Import Reduction

03 Privatization
 THE INITIAL RESULTS
Industrialization was a moderate success, Many SOEs were run on political rather than economic
considerations, so they produced losses that drained government resources rather than as the
planners had hoped augmenting them. The SOEs could also not be counted on to generate mass
employment due to their capital and skill rather than labor-intensive character. One government
method for financing expenditures was the creation of new money, which resulted in significant
inflation
 Green Revolution

Change in
Strategy
interventionist Aproach
About Turn
A NEW CHANGE
ECONOMIC
REFORMS
NEED FOR ECONOMIC REFORMS

Poor performance of Rise in fiscal deficit

the industrial sector

Inflation Adverse balance of

payments
OBLIGATORY REFORM
An involuntary decision taken by the government of the time
in the wake of the BoP crisis. Despite the fact that the
changes were intended to enhance growth and
competitiveness, the process of economic reforms in India
was met with harsh criticism from practically every sector of
the economy.
LIBERALISATION
PRIVATIZATION
GLOBALIZATION
 1
First Generation (1991-2000)
Promotion to Private Sector, Public Sector Reforms, External
Sector Reforms, Financial Sector Reforms and Tax Reforms.

Second Generation(2000-2001)

2 Factor Market Reforms,Public Sector Reforms,Reforms in

Government and Public Institutions,Legal Sector Reforms and

Reforms in Critical Areas

Generation of
Economic
3
Third Generation(2002-2007)
Reforms Commits to the cause of a fully functional Panchayati Raj Institution

(PRIs).

4
Fourth Generation
Coined this generation as a fully ‘information technology-enabled'
India.
PERFORMANCE OF INDIAN

ECONOMY UP TO 2008
 ECONOMIC GROWTH STRUCTURAL CHANGE

Increase in the national income of a country

Denotes the changes in the composition of

indicating the value sectoral shares of the GDP.

of goods and services produced in the

economy during a year

SAVINGS AND INVESTMENT INFLATION

Domestic savings in India comprises the impact of the reforms had been the

household sector, the private acceleration of infl ationary trends in the

corporate sector and the public sector. economy
 EXTERNAL SECTOR EMPLOYMENT

Sharp increase in the coverage of imports by The growth and structure of employment

exports earnings during the 1990s and during the pre- and post-reform period.
subsequent decade.
 UNEMPLOYMENT POVERTY

Reduction of unemployment is the major Reduction of poverty is one of the basic social

concern of the economic reforms. objectives of the country.

GENESIS OF ECONOMIC CRISES
IN THE YEAR 1991 THE GROSS FISCAL DEFICIT OF THE
CENTER INCREASED FROM 6.1% OF GDP TO 8.4%

THE INTERNAL DEBT OF THE GOVERNMENT

INCREASED FROM 35% OF GDP TO 53% OF GDP

INTEREST PAYMENTS INCREASED FROM 2% OF GDP

TO 4% OF THE GDP

GOVERNMENT EXPENDITURE INCREASED TO 20%

ESTIMATED EXTERNAL DEBT WAS 38% OF GDP

CDA CONTINUED TO DETERIORATE, PEAKING TO

2.5% OF THE GDP
INFLATION REACHED DOUBLE-DIGIT LEVEL

WHOLESALE PRICE INDEX INCREASED TO 12.1%,

WHILE THE CONSUMER PRICE INDEX REGISTERED AN
INCREASE OF 13.6%
WORDS OF ECONOMIC EXPERTS
WE LIVED IN AN ERA WHEN MONEY DIDN’T MATTER. THEY SPENT DOLLARS OR RUPEES AS IF THERE WAS NO
TOMORROW, AND LEFT BEHIND A BURDEN ON THE COUNTRY, BOTH IN TERMS OF FISCAL DEFICIT AND SHORT-
TERM DEBT.
—I.G. PATEL, NOTED ECONOMIST AND FORMER GOVERNOR OF RBI

IF THE PRESENT CRISIS IS THE GREATEST WE HAVE FACED SINCE INDEPENDENCE, IT IS FOR NO UNDERLYING ECONOMIC
FACTOR WHICH IS MORE ADVERSE NOW THAN WHAT WE HAVE HAD TO CONTEND WITHIN THE PAST SEVERAL DECADES, IT IS
BECAUSE SUCCESSIVE GOVERNMENTS IN THE 1980S FAILED TO FULFIL THEIR RESPONSIBILITIES TO THE NATION FOR THE
SAKE OF SHORT-TERM PARTISAN POLITICAL GAINS AND OUT OF SHEER POLITICAL CYNICISM.
—I.G. PATEL, DURING A LECTURE AT IIM-B ON 28 OCTOBER 1991

THE PROBLEM CAME LATER. SINCE THE MID-EIGHTIES, WE HAVE BORROWED EXCESSIVELY AND THE FISCAL DEFICIT HAS GONE
OUT OF CONTROL. WE COULD HAVE AVOIDED THIS SITUATION IF WE HAD ATTENDED TO THE BALANCE-OF-PAYMENTS
PROBLEM MUCH EARLIER. THEN THERE IS THE FACT THAT THE TERMS OF ASSISTANCE HAVE HARDENED (…) INTERNATIONAL
INTEREST RATES HAVE GONE UP, OUR DEBT PROFILE HAS WORSENED AND THE TERMS OF COMMERCIAL BORROWING HAVE
HARDENED.
—DR MANMOHAN SINGH, ECONOMIC ADVISER TO PRIME MINISTER CHANDRA SHEKHAR, IN AN INTERVIEW WITH SANJAYA
BARU, THE ECONOMIC TIMES, 5 MARCH 1991

FISCAL DEFICIT AND BALANCE-OF-PAYMENTS DEFICIT HAVE REACHED UNSUSTAINABLE LIMITS. WE HAVE
OVER-BORROWED BOTH AT HOME AND ABROAD TO FINANCE THE GROWTH OF PUBLIC SPENDING. THUS, HARD
DECISIONS ARE NEEDED TO OVERCOME THIS CRISIS.
—DR MANMOHAN SINGH’S CONVOCATION SPEECH, IIM-B, 15 APRIL 1991

THE POLITICAL SUPPORT VARIED. IN THE MID-80S, WE HAD A LITTLE BIT OF REFORM BURST WHEN RAJIV GANDHI WAS PRIME
MINISTER. BUT MACRO IMBALANCES HAD STARTED IN THE ’80S AND DURING THE LAST TWO TO THREE YEARS OF THE RAJIV-
LED GOVERNMENT, THERE WAS LITTLE APPETITE FOR HARD DECISIONS BECAUSE OF THE BOFORS CONTROVERSY AND THE
RIFT BETWEEN RAJIV GANDHI AND FINANCE MINISTER V.P. SINGH IN 1987.
—ECONOMIST SHANKAR ACHARYA IN AN INTERVIEW WITH THE INDIAN EXPRESS, 7 JULY 2016
VISHWANATH PRATAP SINGH GOVERNMENT

V.P. SINGH FORMED THE ‘NATIONAL FRONT

GOVERNMENT’ ON 2 DECEMBER 1989

MONTEK SINGH AHLUWALIA, THE SPECIAL

SECRETARY IN THE PRIME MINISTER’S OFFICE
(PMO), PREPARED A NOTE ON ‘RESTRUCTURING
INDIA’S INDUSTRIAL AND TRADE POLICIES’ ON
THE DEMAND OF V.P. SINGH WHICH WAS THEN
KNOWN AS 'M-DOCUMENT'

THE GOVERNMENT AUTHORIZED THE THEN

FINANCE MINISTER, MADHU DANDAVATE, TO
NEGOTIATE WITH IMF, BUT ON 7 NOVEMBER
1990, THE GOVERNMENT LOST THE VOTE OF
CONFIDENCE AND HAD TO RESIGN
 CHANDRA SHEKHAR GOVERNMENT
CHANDRA SHEKHAR INHERITED AN ECONOMY IN
DEEP CRISIS WITH FOREIGN EXCHANGE RESERVES
GOING DOWN TO A CRITICAL LEVEL.

THE CHANDRA SHEKHAR GOVERNMENT FELL ON 6

MARCH 1991, AND, AFTER THE INTERIM BUDGET
WAS PASSED BY PARLIAMENT, THE PRESIDENT
DISSOLVED LOK SABHA ON 13 MARCH. CHANDRA
SHEKHAR WAS REQUESTED BY THE PRESIDENT TO
CONTINUE AS PRIME MINISTER TILL THE NEW
GOVERNMENT WAS FORMED.
DESPITE LEADING A CARETAKER GOVERNMENT, HE
HAD SAVED INDIA FROM DEFAULTING ON PAYMENT
OF EXTERNAL DEBTS BY MORTGAGING GOLD
RESERVES TO RAISE FUNDS. THE PREVENTION OF
DEFAULT WAS A HUGE ACHIEVEMENT OF HIS
GOVERNMENT.
YASHWANT SINHA'S ROLE

YASHWANT SINHA WAS FINANCE MINISTER IN

CHANDRA SHEKHAR GOVERNMENT
IN DECEMBER 1990, SINHA PRESENTED A MINI
BUDGET AND INTRODUCED NEW INDIRECT TAX
LEVIES TO SHOW THE WORLD THAT THE
GOVERNMENT WAS SERIOUS ABOUT RAISING
RESOURCES.
THE CONGRESS PARTY WAS NOT CLEAR IN ITS
APPROACH TO A REFORM-ORIENTED BUDGET.

THE CONGRESS GOVERNMENT, WHICH

PREVENTED HIM FROM PRESENTING THE SAME
BUDGET, ADOPTED IT AS ITS OWN AND
PRESENTED THE BUDGET AS ITS OWN WHEN
NARASIMHA RAO BECAME PRIME MINISTER.
 P.V. NARASIMHA RAO GOVERNMENT
A NEW GOVERNMENT WAS FORMED UNDER THE
LEADERSHIP OF P.V. NARASIMHA RAO OF THE CONGRESS
PARTY ON 24 JUNE 1991.

PM RAO INDUCTED DR. MANMOHAN SINGH INTO THE

GOVERNMENT AS FINANCE MINISTER.

THE VERY FIRST DECISION OF THE GOVERNMENT WAS TO

ANNOUNCE THE DEVALUATION OF THE RUPEE AND THE
NEXT STEP WAS TO LIBERALIZE THE ECONOMY AND BRING
AN END TO THE LICENSEPERMIT- QUOTA RAJ THROUGH THE
INTRODUCTION OF A NEW INDUSTRIAL POLICY.
RAO WAS IN FACT THE AUTHOR OF THE MOST RADICAL
SHIFT IN INDIA’S ECONOMIC POLICY SINCE JAWAHARLAL
NEHRU’S FAMOUS INDUSTRIAL POLICY RESOLUTION OF
1956 HIS BIGGEST ACHIEVEMENT WAS SPEARHEADING THE
ECONOMIC REFORMS OF 1991
NEHRU’S RESOLUTION HAD DECLARED THAT INDIA WOULD
STRIVE TO ESTABLISH A SOCIALISTIC PATTERN OF
SOCIETY. IN 1991 PV MOVED AWAY FROM THAT PATTERN
TO UNLEASH PRIVATE ENTERPRISE’.
 Mortgaging Gold

Industrial Policy Reforms

Trade Policy Reforms

MAJOR Fiscal Reforms

STEPS Financial Sector Reforms

Banking Sector Reforms

Tax Reforms

CPSEs Reforms
 MORTGAGING GOLD

Chandra Sekhar Govt. pledged

20 metric tonnes of gold on
16th May 1991
Government received $200
million Narasimha Rao
authorized second round
INDUSTRIAL POLICY REFORMS
Deregulated industry from
the handcuff of licensing raj
Abolished system of
industrial license
Some materials like arms,
atomic substances, narcotics
need approval
Encouraged disinvestment of
central government's equity
 TRADE POLICY REFORMS
V.P. Singh announced the Exim
Policy for 1985-88
Import licensing abolished for
capital goods
Quantitative restrictions on
imports of goods were removed
Exim policy was replaced by FTP in
2004
FISCAL REFORMS
Government cut 5 % expenditures of all
ministries
It reduced fiscal deficit from 8.4% OF GDP
in 1990-91 to 1991-92
It increased again in in 1998-99 due to decrease in
tax rate of individuals and corporates
FRBM enacted in 2004
 FINANCIAL SECTOR REFORMS
They were driven by two contradicting forces -

To reduce the control

over banks and other
financial market
participants.
To regulate the financial
sector.
FOREX MARKET REFORMS
It started with adoption of current
account convertibility.
Foreign Dealers and Banks were
allowed to perform their activities and
functions.
The Exim scrip scheme was
replaced by a system of partial
convertibility of the rupee on the
current account of BoP.
CAPITAL MARKET REFORMS
It was initiated with the
introduction of free pricing of
equity issues.
SEBI was set up as supreme
regulator of the Capital Market.
An automated electronic
exchange system was
introduced.
Mutual Funds industry was
brought under the control of
SEBI.
MONETARY & BANKING SECTOR REFORMS
It plays a crucial role in controlling
the money supply and targeting the
interest rate.
A committee was set up, which
paved the way for licensing new
commercial banks in the private
sector.
This committee also worked on
issues like the size of banks and
capital adequacy ratio.
TAX REFORMS
In 1985 government announced a
fiscal policy and recognised the fiscal
situation was deteorating.
A technical group was established to
review the central excise duties
which led to the introduction of the
Modified System of Value-Added
Tax (MODVAT).
Another committee in 2002
suggested introduction of GST.
CPSEs REFORMS

The government would divest part of

its holdings in select public enterprises
to raise resources, to encourage
broader public participation and
market accountability.
The term Disinvestment was
introduced.
The concept of strategic sales of public
sector companies came into vogue.
POST-REFORMS SCENARIO
These reforms affected the
Indian economy in different
ways.
Today, India's economy is the
7th largest on the basis of
Nominal GDP.
India is 3rd largest on
purchasing power parity.
GROSS DOMESTIC PRODUCT
GDP is used as an indicator to
judge whether the economy is
increasing or decreasing for
further planning.
India's GDP has increased 6.3
times compared to its size 25
years ago.
With the revision of the formula,
India is now the fastest-growing
economy globally, with a growth
rate of 7.6% in 2015–16.
FOREIGN DIRECT INVESTMENT
FDI has been an essential source of
non-debt financial resources for the
country's economic development.
The first year of reforms saw a total
foreign investment of only $74
million which has steadily risen since
then.
More than 90% of the total FDI
inflows are now through the
automatic, and the government
abolished FIPB in 2017-18.
FOREIGN INSTITUTIONAL INVESTMENT
A foreign institutional investor (FII)
is an investor registered in a
country outside of the one it is
investing in.
FIIs are not long-term investors
and are sensitive to domestic and
international volatility.
The FII inflows and outflows are
based on economic and political
stability of the country.
FOREIGN EXCHANGE RESERVES
It consists of the foreign currency
assets, special drawing rights,
and gold held by central banks.
Its depletion was one of the causes
that forced the government to
bring in economic reforms.
It depleted to $1 billion from $5.8
billion in 1991. But today, this
number is around $360 billion.
PER CAPITA INCOME
PCI is the average income of every
citizen arrived at by dividing the
GDP by the country's population.
It is not precisely the proper
indication to show the country's
development.
It rose to 7.5% in 2015-16
compared to the growth rate of
7.3% from last year.
CONCLUDING REMARKS
These reforms have helped free the
domestic economy from a control
regime.
The inflation rate, running in double
digits, is now controlled.
They have opened the door for
wider growth potential and
unleashed powerful entrepreneurial
forces of the country.
WHY ECONOMIC REFORMS ARE NOT ACCEPTED?
Foreign enterprises and foreign investments are
looked upon with suspicion.
There is a disconnect between the crucial issues and
the issues that touch people's daily lives.
A major weakness in our planning process has been
the top-down approach.
Pro-reformers identify economic reforms with
foreign investment and foreign investment alone.
Reforms have not addressed the problems of Indian
agriculture effectively.
ALTERATION CORRECTION

REFORMS

DEFECTS BETTER FORM

THE PRE-1991
REFORM PHASE
WHAT In 1947
NECESSITATED
society was
THESE predominantly
CHANGES rural and feudal

Insignificiant
Industries

adopt an import-
substituting inward-
looking socialist model
What necessitated these changes
High import tariffs were put in place FERA Act 1973
Under FERA guidelines, Indian companies
with more than 40 per cent of foreign holdings
IMPORTS
were required to obtain permission from the
RBI for operating or opening up new offices in
consumer intermediate capital India.
goods goods goods

non- limited
non-
permissible
limited
permissible permissible permissible inclusivity
automatically open general automatically open general Agriculture was given more priority as
permissible license permissible license
opposed to capital-intensive manufacturing
and extractive sectors
non- limited
permissible permissible

automatically
permissible
open general
license
improve agricultural
productivity
government doled out subsidies and at the
same time not tax agricultural income.
 Introducing Taxation

To undertake Maximum marginal rate 7 per cent during

the 1960s and 1970s
nation-building
High tariffs on the external front
activities
ACTIVITIES PERFORMED
Established the National Planning
Commission in 1950
 On Finance End: deficit
financing

Domestic banks were asked to keep a portion of RBI to lend money in exchange of
their demand and time liabilities for priority government securities
sector lending
Deficit financing is
14 largest commercial banks were nationalized inflationary
on July 1969
Controling inflation:
58,000 new bank branches were opened Administer a very high rate of interest
between 1969 and 2005.
Irony:
Denied credit to millions of farmers,
traders, and small businessmen,
IDRA -1951
To use scarce economic resources properly

Laid down the rules for licensing

A license was required to:

To establish a new firm
Manufacture a new product
Expansion of existing capacity
Changing the existing location

IDRA was applicable to:

Units employing 50 or more workers if
using power
Units employing100 or more workers if
not using power

 RESULT
Three fold increase in the growth rate Did not translate much into growth of per-capita
income, growing between 1 and 1.5 per cent

1950 and 1980 ‘Hindu Rate of Growth' Because of increasing population growth and
Average growth rate of 3.56 percent a decline in mortality

Three times the ‘Colonial’ rate of growth The economy grew at a slower pace of around
during the previous 30 years 3.5 per cent in comparison to the planned
targeted growth rate of 5 per cent.
 BUGS
IN
THE PRE-1991
REFORM PHASE
 Corruption

Trade unions Banks

BUGS

IMF External

Farmers
 THE 1991
REFORM ERA
 financial sector industrial sector infrastructure

freeing of interest rates, virtual abolition of expansion of investment in roads,

reduction in statutory liquidity
and cash reserve ratios,
introduction of capital adequacy
norms,
reduction in direct lending,
limited privatization,
significant expansion in the
variety of financial instruments of
comprehensive investment limited privatization of ports,
licensing, privatization and
abolition of restrictions on introduction of competition in
monopoly houses, telecommunication
significant opening up of
activities previously reserved for
public sector

intermediation

The above reforms tell us that most of these were undertaken primarily
aiming at controlling the fiscal deficit and making the Indian economy
more competitive.
Towards the end, the government initiated steps towards curtailing the
profit of the interest groups and bringing in competition through

liberalization and globalization.

 LIBERALIZATION GLOBALIZATION

removing tariff and non-tariff barriers and

removal of government control and allowing
thereby exposing domestic players to foreign
markets to determine the price.
competition
Stabilization of Fiscal Deficit

Practice of issuing ad hoc Treasury Bill was abolished and replaced with WMA from the central bank

Government also took initiatives for disinvestment in PSUs

To make industry more competitive, licensing requirement was abolished

India also liberalized its procedure for outward FDI

More competition because of foreign participation in the insurance sector is likely to bring down
insurance premium and make insurance products covering health, automotive, fire, etc., more
affordable.
Globalization through
Trade Liberalization
Major areas impacted :

Tariff barriers
Import and Exports
Currency
Investors
Financial Sector Liberalization

Financial sector reforms were implemented in a

phased manner starting 1996–97 following the
recommendations of Mr M. Narasimham, Chairman
of the Committee of the Financial System, which
was set up in 1991.
 OUTCOME OF THE REFORM
REDUCTION IN CRR AND SLR
The outcome of the reforms process in
financial sector came in the form of
dismantling of the administered interest
rate. Because of the deregulation of
interest rate, there was a sharp reduction
in CRR and SLR. Price of government
securities became market determined
and government could no longer borrow
from the market without any limit.
INVESTMENT IN INDIAN
STOCK MARKETS
Firms could freely seek finance through
capital market subject to regulations of
the SEBI. Indian companies were allowed
to access international markets through
dollar and euro equity shares.
Investment norms for NRIs were
liberalized and FIIs were allowed to
register and invest in Indian stock
markets. Government also did away with
higher rate of capital gain taxation which
applied to foreign and NRI investments.
FOREIGN COMPETITION
Because of liberalization, the government
welcomed more private participation.
Globalization, by opening up the
economy, also made sure that the
domestic firms faced foreign
competition. So that the domestic firms
get a level playing field, interest rates
were cut and domestic firms were
allowed to borrow from the foreign
capital market.
 OUTCOME OF THE REFORM Ctd..
BOOST TO THE DOMESTIC
CORPORATE PERFORMANCE.
modified VAT reduced tax liability, and
the abolition of octroi speeded up the
movement of goods across states in India.
INCREASE IN OUTWARD FDI
PROPOSALS APPROVED
The rise in both the number and the
amount of approved proposals is
reflective of large overseas acquisition
deals by Indian corporates facilitated by
progressive liberalization of external
sector policies. During 2007, about 96
per cent were of large investments
(US$ 5 million and above)
INCREASE IN TAX COLLECTION
AND REDUCTION IN POVERTY
Buoyed by an increase in economic
activities, the total tax collection also
increased during 2004–05. Total tax
collection increased because of expansion
in economic activities. Per capita income
increased from 8,594 during 1981 to
25,954 in 2009. From 1993 to 2004,
poverty declined at 0.8 percentage points
per year, whereas between 2004 and
2011, it declined at 2 percentage points
per year.
OUTCOME OF THE REFORM
STANDARD OF LIVING
Standard of living has gone up, and this
becomes evident from the increase in
consumption of superior items such as
fruits, milk, fish, mutton, daal, etc.
Ctd..
INCREASE IN FDI
FDI inflow increased from 0.1 per cent of
GDP in 1992–93 to 3 per cent of GDP in
2008–09. Net capital inflow continued
their upward trend reaching a record
high in excess of 9 per cent of GDP (US$
107 billion) in 2007–08. 1
11 reasons give by Mr Abhijit Sen of
NICCO for his company's growth after
deregulation.
 Graphs

Fig 1. Financial Sector Liberalization and Fig 2. More FDI Inflow

Interest Rate
BUGS IN THE PRESENT

1991 REFORM ERA

Inequality
Avoidance by the state government to provide toilets to
households under Total Sanitation Scheme (TSC) or Nirmal
Bharat Abhiyan (NBA).
Corruption
Rising fiscal deficit
Red tape in the infrastructure sector
VARIOUS SOCIAL WELFARE PROGRAMS
LAUNCHED BY THE GOVERNMENT

Integrated Rural Development Programme (IRDP)

Swarnajayanti Gram Swarozgar Yojana (SGSY)
MGNREGA
National Rural Health Mission (NRHM)

REALLYGREATSITE.COM
 MAJOR CHANGES AFTER THE

IMPLEMENTATION

Increased literacy rate

Social Disparities being narrowed
Education & Health
SCOPE FOR FUTURE REFORMS

The Indian economy has a long road ahead as far as converting

our status to rich income nations
Reforms are a continuous process and will continue to happen
To sustain economic growth at a 6 plus percent level, it is
necessary that the policymakers and the politicians look at the
following issues
 INFRASTRUCTURE
The economic reforms are still to reach the infrastructure sector. The only
exception is a telecommunication
Without privatization or commercialization of infrastructure (power and
port), the full potential of the industrial sector cannot be realized.
Red tapism is preventing the participation of the private sector
The problem basically is to coordinate among various stakeholders.
For instance, power sector projects requires clearances from 56 different
authorities and ministries, each one of these ministries operates
independently of one another and getting clearance from each one is the
main obstacle
 INFRASTRUCTURE Ctd..
In addition to this, there are issues related to pricing and successful
completion of power projects
For instance, due to political leadership electricity board became
bankrupt
An example of better infrastructure providing impetus growth is the
"Golden Quadrilateral" which connects four metro cities It has reduced
the travel time and eased movement of goods and people.
 LABOUR MARKET
Lack of labour market reforms prevents India to properly use its demographic
dividend
As per the NSS estimate, between 1983–84 and 1993–1994, workforce in India
grew at the rate of 2.09 per cent per year. Between 1999–2000 and 2009–10,
this figure was 2.48 per cent.
There is lack of unification and harmonization of labour laws across states.
It has increased corruption and rent-seeking activities
There are 51 central and 170 state labour statutes, some of which pre-date
independence, to demonstrate how they make it hard for firms with more than a
handful of staff to fire people and allow disputes to become legal endurance
tests.
 LABOUR MARKET Ctd..
To bypass labour laws, corporates have started hiring labourers from third
parties and uses ‘contract’ workers
Until 1976, the IDA (Industrial Disputes Act) allowed firms to lay off or
retrench workers as per economic circumstances
An amendment in 1976 made it compulsory for the employers with more than
300 workers to seek prior approval of the appropriate government before
workers could be dismissed.
A further amendment in 1982 widened the scope of this regulation by making
it applicable to employers with 100 workers or more.
 CORPORATE LAW
Even if a firm is bankrupt the firm owner cannot simply close the firm and pay off the
debt.
This is because laws governing corporate insolvency are different than the ones
governing bankruptcy
The directors of a sick company can approach the Board of Industrial and Financial
Reconstruction (BIFR)—a quasi-judicial body under the Sick Industrial Companies Act.
The law stipulates that a company older than five years can approach the BIFR if it
has accumulated losses equal to or exceeding its net worth. The BIFR in turn can
either revive the potentially viable units by giving soft loans, or if it feels that they are
unviable, refer the matter to the High Court to decide the closure of the company.
 CORPORATE LAW Ctd..
There are few other problems

the BIFR talks about reviving the sick unit under the same
management who has already failed in the first place
some senior bureaucrats with limited knowledge of how a company
runs and yet deciding on viability of the firm, may not always be
rationale.
not allowing the firm to venture into new businesses and thereby
paying off the debt is also not logical.
under the present bankruptcy law, only manufacturing units can
apply for relief services firms are kept outside the purview of
bankruptcy law
 CORPORATE LAW Ctd..
All these resulted in making our labour market quite rigid
because of the lack of labour market reforms, around 92
per cent of labourers find employment in the unorganized
sector where protective labour legislation is often non-
existent.
Growth process would have been inclusive with the
labour-intensive mode of production—something that is
expected to happen with labour market reforms
 JUDICIARY
Weak governance emerges from a weak judiciary
Investors will not be willing to invest if there is
delay in settlement of disputes and weak
governance.
In India we have 10.5 judges per million
population
 POLICY PRESCRIPTIONS

Infrastructure
problem infrastructure is lack of coordination

Create a sovereign entity that would coordinate across different ministries and departments
and act independently towards implementing infrastructure projects.
For example, in Japan, the infrastructure ministry covers land, infrastructure, and transport
Government can save money by awarding projects based on public-private partnership
contracts
The government can also think about some financial innovations
there is a need for bringing independent regulators in other areas of energy such as coal and
petroleum to reduce mispricing
Bringing in independent regulators is expected to reduce much of the waste and corruption in
the energy sector
 LAND ACQUISITION

Problem Getting land for infrastructure or for building industry

Policies for releasing agricultural land for nonagricultural purposes should be

designed in a fashion so that farmers continue to remain as stakeholders.
Farmers can be given part of the land in developed form.
For instance, Mayawati—a political leader from Uttar Pradesh—promised giving
13 per cent of the land in developed form. Another way is to offer jobs, something
that the ex-Gujarat chief minister and the present Indian Prime Minister, Mr
Narendra Modi did. If a factory is built on the procured land, one member from
the family gets a job.
The whole matter of land transfer, administering of compensation, and settlement
has to be handled by an independent quasijudicial authority
Corruption

To curb corruption there is a need for both political and judicial

reforms
there is a need to undertake judicial reforms.
Once prosecution starts, it should not go beyond few years and
judgement should be delivered.
creation of some effective institution that would share part of the
burden with the courts
For Instance, National Human Right Commission, Election
Commission, etc.
ADMINISTRATIVE AND LABOUR MARKET REFORM

civil service reforms are important for improving

governance.
need to make bureaucracy and police independent of
the legislature (politics).
there is also a need for downsizing, identifying surplus
manpower, retraining, voluntary retirement schemes,
contractual appointment, and lateral entry that are
expected to improve efficiency of the bureaucracy.
ADMINISTRATIVE AND LABOUR MARKET REFORM Ctd.

need for labour market reforms.

the manufacturing sector in India usually employs

capital-intensive mode of production and there is

demand for job only in the high-skill-type

manufacturing sector.
Labour market reforms will open up opportunities for

low-skill-type manufacturing workers as well

Direct CAsh Transfer Scheme
Connecting Banks to post-Office for financial inclusion
THANK YOU