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ecoNOMIC REFORMS :§, 4

2
;

SINCE 1991: NEW -2

0 ;;
N
;
0
N i N
0
N

ecoNOMIC POLICY --4

Years

-
-6

-8 (-7.2)

,. @po us!)
Meaning of Economic Reforms
0
,:s (New Economic Policy)
:P
:P
0 Elements of NEP (New Economic Policy)
An Appra isal of LPG Policies: Performance of the
0 Indian Economy During Reforms
s= t. l±'i l • •-

FOCUS
It was realised that the strategy of growth adopted during the period 1950-1990 had led t o an
inefficient management of the economy. The system of controls, quotas and protection of the
domestic industry had led to floating inefficiencies, and therefore, stagnation of the economy
interms of GDP growth. Accordingly, the strategy of growth was comprehensively revised,
and many policies were almost reversed. Economic reforms were initiated in the year 1991.
liberalisation, Privatisation and Globalisation are three principal elements of these reforms.
Together, these reforms were captioned as 'NEP' {New Economic Policy). The present chapter
focuses on a comprehensive discussion of NEP. __..,. . . .,__.. .

1. MEANING OF ECONOMIC REFORMS

(NEW ECONOMIC POLICY)
After inde e d
econ
.
P n ence, India adopted a mixed
Liberalization, Privatization
omyfram.ewo
capitali . rkt O comb"me the advantages of ,,,11A "1,,,,,,,,,,""'""h/ / and Globalization
stic econo \ 1/-
¾-'¾-d
\\ ll/1111,&,

Howev my as well as socialist economy. . _ • in India

er, over the
toward years, the policies pursued
s controlli
started h . ng and regulating the economy Econom~forms
d
eve\oprn a.i:npenng th e process of growth and
--~~That Change~dia
ec 0norny ent.uJ. . The ineffi c1ent
· management of the
Ee timately l d c::::;~~::::- :
onornic Poli e to the adoption of New
Refol""-IS.
"h,. , cy, unfoldin g a senes
· of ,Economic
NEP-1991

Indian Econornic oevetoprnent
,~ . E"'°f'g,o"'h a,ddertlopn>'"'-
"°'"""'""~'.~
" '" '' ' "'~ ""' " "' " '
as inrernanonal_Bankd
S@"'"'°°''"
pod
W• •••"'-'""'' ,.a
••'""""'""' M•"'""
;, ,..,..<,
--M-
,,.,oMFl,
•• ,rusS '"'""" ""
~'"••~-''"''"'
°' ••'"''"''"''-
,, • ,,,,, .,,- •
w r,-"'
restrictions and liberalised
. .,,,....
''"'""'"" , ,,, ,a••
~-·"., - of
Additionally, it was
also required that the
participation of the
government sector would
be red uced in areas in
which it had established
monopoly.
Ir was by agreeing to these
conditions that NEP was
launched beginning 1991.
Thus, NEP was more a
matter of compulsion,
rather than a considered
mdependenr choice of the
government.
Why Controls are
1
imposed after all? • J
In the context of tbe Indian
experience, controls were
imposed by tbe government
with a view to:
(i) checking tbe gro~ ,
of private monopolies, l
and
(ii) minimising tbe hold
oflarge industrial
houses on the financial
resources of the country.
'11 Illustration: Some
were nationalised inbanks
sixties
because these were owned
by the big industrial houses
who would use banking
funds primarilyto meet
tbeir own financial needs.
,. r, £ 9{]
.;::;y
1
Economic Refo rms Since 1991 : New Economic Policy
. reforJlJS refer to a set of econornic policies direct d 0 . e foreign exchange control, restrictions on investment by big BRAIN ,.~.
m""""' , ' <o , !Jcenc ,
. ess houses, etc. TEASER
« , 1, busin
, .,, r, m, Y'" 1991 ili" tl,e Gov«nm,n< of In .
p ,, ,,
' ··) It was
(11
experienced by the government that several shortcomings had
ed in the economy on account of these controls.
Read the news headUne given
below and answer the question
1 (NeW Economic Policy), unfolding a series of econo . dra lau
,n:p that follows:
ernerg
• India had asked for a $1.8
""
m, """°"'' '",f me cri«sof90',. Th« < bro,d oompon m,c " 'o,~, ,' OS (iii) T h ese
controls had given rise to corruption, undue delays and inefficiency. billion bailout loan from the
. . W"1"'"'"
. . . . . ,nu of NEp •n" h rate of GDP had fallen sharply and high-cost economic system
International Monetary Fund
(,! Th• pah<Y of (LI ,n place of Urensing (LH wt
(IMF), which demanded
(1·v) Gro . . .
(rather than a low-cost compet1t1ve economic system) came into being.
de-regulation in return :
,., ITT''·
Source: financialexpress.co m
0 onhe, State any two factors that
. f these facts, liberalisation of the economy was considered as a key
(;;} Thepoll<Y"fpd"'tis,tion(Plinplareofqu t (Q) ' 1n View o t of NEP. Greater reliance was to be placed on market forces (of
compelled lndla t o make a
loan from t he IMF.
fonh,
rnponen Ans. The Gulf Wa r leading to
wd md" "" co and dernand) rather than checks and controls. spike In oil prices and
("'"··) Tb< pa1,cy ,f globili"rion (GI in plac< of P" . ah11 1
supp y Jes of developing countries (Korea, Thailand, Singapore) that had
balance of payments
crisis for India were the
importS- m,<s (Pl fo, " Exa~P d id growth due to liberalisation were considered as worthy of
two major reasons which
compelled India to seek
achieve rap
Thus, LPG was set to replace LQP in 1991. '"''
,, emulation.
loan from IMF.
,p--~
The economic reforms introduced in 1991 can broad ly be classified into:
I
(i) Stabilisation Measures: Short-term measures ai med at correct" E co~o~;c ~;~P~ i ~ii;lgflJiiioii:·_~s-'its lcey ccinipori; nt) w~~e based on tli.e assum~ti~n that
deficit in balance of payments and controlling inflat io n. ing the marke: force~ woj&d·d,riv:·ille eccino~i t:~!i/ds the path of ~ompetitive s.ci~ ,and d~ p_ment.
(ii) Structural Reforms: Long-term measures aimed at improving the lev
of efficiency in the economy by 1ncreas1ng competitiveness and red . el
Economic Reforms under Liberalisation
rigidities in various sectors of Indian econo my. ucing
Liberalisation included the following reforms:
(1) Industrial Sector Reforms
2. ELEMENTS OF NEP (NEW ECONOMIC POLIC~
Liberalisation virtually implied de-regulation of industrial sector of the
Liberalisation, privatisation and globalisation are the three main elements o: economy, Following observations highlight how it happened:
NEP. (i) Abolitio n of Industrial Licensing: In July 1991, a new industrial
policy was announced. It abolished the requirement of licensing except
Th ree Main Elements of NEP
for the following five industries: (a) liquor, (b) cigarette, (c) defence
1
f l J
equipments, (d) industrial explosives, and (e) dangerous chemicals.
Liberalisation
~~-------~
Privatisation Globalisation (ii) Contraction of Public Sector: Under the new industrial policy, number
of industries reserved for public sector was reduced from 17 to 8.
In 2010-11, the number of these industries was reduced merely to three
Liberalisation including: (a) Atomic energy, (b) Railways, and (c) Defence equipments.
• ::
Liberalisation of the economy means freedom of the pro d ucrn
· g unit~ (re~.n (iii) De-reservation of Production Areas: Many production areas which
direct or physical controls of the governmen t. Though a fiew liberal isano
n· earlier were reserved for SSI (small-scale industries) were de-reserved.
. hcensm
. . g' expo Forces of the market were allowed to determine allocation of resources
measures were introduced in 1980s in areas of industrial
.
impon . technology upgradation fiscal policy and foreign
pohcy, . . vestment,,
m (rather than the directiv e policy of the government).
some notable observations in this regard:
· o ar,
reform policies initiated in 1991 were ' more comprehensive. Followui, (iv) Expansion of Production Capacity: Earlier production capacity was
linked with licensing . Now, freedom from licensing implied freedom
1
(") p · 1991 ·ols 00
r;o_r to , government had imposed several types of cont! -~ from capacity const rai nts. 'What to produce and how much to
. .
produce' w as now a matter of producer's choice depending on market
private enterprises in the domest ic economy. These included in
--
licensing syste · · ds iinP0 conditions.
m, pnce control or financial control on goo '

· oevelopment
Indian Economic
RBI-The ApeX Bank of the Cw,try
Consequent upon
from 'a regulator' to 'a facilitator' of the financial sector.
Now market forces (rather than controls) decide the interest rate structure, volume and the pattern
ofinvestment
-
Reidlhenew511Ndlinegi\len
below and - l h e question
lllatfollaws:
gMl1YIIS1I. Including !hen
Finance Minister MnTlohan
Sing/\ initiated eQlnOll'ic
reforms in'991. These refonns
ilm!dto _ l h e _
by doing - - lhe
Lkence Ra;.·
Sot.rte: ftnaodalexpress.com
Uber•llslng tho financial sector
r,quir<d • shift In tho rote of
RBI from belncJ • - - - to
•---·
-~.fadUtalar.
::263
Economic Refo rms Since 1991: New Economic Poli cy
Ca ital Goods: L1'b era1·1sat1on
· also ill] . DEMONETISATION
to J111port P . al d . Pl1e,
(v) free d0 111 • ·a1·
the mdustn is
ts to import cap1t goo s with a ' "
.,e1v
, netisation, introduced in 2016, is closely related to financial
freedom fior Perroission was no longer required to oerrW nd consequences in the context of the Indian econ sector reforms. Let us understand its
I concept a omy.
upgrad1.ng their rechn° ogy.
. co international agreements for the im froill
the government to enter in Port of conceptfsation 1s
. a po l.icy action
.
of t he government that withd ,
th st
oernone ~rrency. Once the status of 'legal tender' is withdrawn t~aws_ e atus of 'legal tender' from the
technology. st1
eXisti~g ~ed merely to pieces of paper. These notes lose their a~cee ~x~ ng currency (or the currency notes)
are re ower to buy goods and services in the market. p ce as a medium of exchange, or they
(2) Financial 5ector Refonns . . . lose ttieir November
P
. cl d . (i) banking and non-banking financial institut' 8, 2016 that the Government of India announced d
financial sector ID u es. . exchange market. ions' It was on d ,.1 000. The people were required to deposit th d emonetisation of the currency notes
ket and (iii) foreign t 500 an ' , e emonet,sed·currency n t ·h h b
o f .
within a period of 2 months. The demonetised notes were replaced by new currency notes of~
o es500
witand
t e 2,000.
anks
(i i) stock exchange mar '
In India, financial sector is regulated and controlJed
by the Reserve Bank oflndia (RBI). sasic purpose . . . .
Basically, demonetisation aims at curbing illegal transactions and anti-social activities (funded through
Liberalisation implied a substantial shift in th e roJ illegal transactions).
of the RBI from 'a regulator' to 'a facilitator' of thee principal Merits
financial sector. (i) It helps unearth (find out) black money.
(ii) Reduction of black money leads to shrinkage of shadow economy (an economy with unrecorded
As a regulator (prior to liberalisation), the RBI production act1v1ty and tax evasion).
would itself fix interest rate structure for the (iii) When shadow economy shrinks and tax evasion is reduced, government revenue tends to rise.
collllllercial banks. But as a facilitator (after (iv) Demonetisation compels people to deposit their demonetised notes with the banks. Accordingly,
liberalisation), the RBI would only facilitate the financial-base of the banking sector tends to expand.
free play of the market forces and leave it to the (V) Acheck on funding to terrorists helps combat anti-social activities in the economy.
(vi) With cash almost disappearing from the market, people were driven to digital mode of transactions.
commercial banks to decide their interest rate structure. Now, competi tion This was a big move towards cashless (or low cash) economy. It also promoted banking habits of the
(rather than control) rules the decision-making process. people, a big leap towards financial inclusion.
iliepolicy ofliberalisation, there has been a substantial shif; in the"role of the RBI Principal Demerits
(i) In an underdeveloped economy like India, people are used to cash-transactions. With demonetisation,
" people are stripped of (deprived of) cash in hand. It impairs (disturbs) their routine transactions and
therefore, their normal living. Thus, demonetisation in 2016 led to a serious social chaos (unrest) in India.
~-·•·'
(ii) Cash-crunch (owing to demonetisation) jolts production activity in the shadow economy. Accordingly,
jobs are lost and poor people are further marginalised.
Free play of the market forces has led to the emergence of private bankers- (iii) A jolt to production activity in the shadow economy invariably hurts the overall level of economic
both domestic as well as international-in the Indian banking industry. activity (including production, consumption and investment) in the economy. The economy starts facing
'slowdown'. At the macro leve~ the process of slowdown is often a long-drawn process, as it tends to
Liberalisation has also allowed FIi (Foreign Institutional Investors) to invest
cumulate over time. India is yet to recover from the slowdown triggered by demonetisation in 2016.
in Indian financial markets. Foreign investment limit in banks was raised ro
(iv) Nearly 90 per cent of the workforce in India is engaged in informal economy (or unorganised sector of
around 74 per cent. (Examples of Fil: Merchant bankers, mutual fund s and the economy) for their Livelihood. And this segment of the economy is highly cash dependent and cash-
pension funds.) Banks fulfilling certain conditions are allowed to set-up new sensitive. Ahuge cut in liquidity (foUowing note ban) implied that cash purchase of inputs and cash payment
branches without the approval of RBI and rationalise their existing branch of wages became impossible. These led to an instantaneous cut in production activity. Consequently, there
was a large-scale lay-off. Daily wagers lost their employment from day-1 of demonetisation.
networks.
(v) Exchange of demonetised currency with the valid currency leads to long queues at_the_ banks. People nd
Though banks have been given permission to generate resources from Juclia feel hurt when they find it difficult to use their own money. Accordingly, consumption is lowered a
and abroad, certain managerial aspects have been retained with the RBI to inducement to invest is lost.
th
safeguard the interests of the account-holders and the nation. In short, demonetisation causes loss and gain of opportunities. It is very difficult to precise_ly assess e net
'I impact f d . . . hl · l unrest is an 1mmed1ate short
Consequent upon these changes, financial sector in India has shown a multi· . 0 emonet1sation over a short penod of time. Nevert e ess, soCJa
period loss, which people in India have successfully managed.
dimensional growth and is· PIaymg
· a s1gruficant
• . role in the growth and
11
Note· F f . f p · t Work at the end of the text.
· or urther details on Demonetisation, students are advised to re er to roiec _
development of the economy.
[ 9l · ] Ii
. 1nd1an Econornic oeveloprnent
(
J) Taii: Refor!JlS
.Jll ortant co!llpon
eforJllS are an I p .
ent of fiscal policy of the govern
f the government.
filent o
r
----
GSf
Goodsan d Services Tax) has been introduced iri India with a view
GST( . . . a uniform tax structure across all parts of the country. It is
co proVJd'.ng lace of all taxes on goods and services, and it is a uniform tax
TaJC r diture pohcy o a one taii: in P of the country. Thus, GST carries the slogan of'one tax, one
f',,call'olk1_
revenue and expen _ . ( ) direct ta.xes, and (b) indirect taxes.
c1ass1fied as. a across
· n
allstates
onem Ii d
..
arket'. GST is expected to generate add1uonaJ tax revenue
• It refers to revenue and Broadly, caxes are the burden of which cannot be shifted oat:!~
-'•the' gove,-.nent
,~ '
increase tax comp ance an reduce tax evasion.
e.rpendirure palicy of the those caxes, onto
govem men t.
Direct tai:es are corporation tax, wealth tax.) One wh ~ - . Structure of GST Tax Reform
III Jes: Income tax, o Pav1 Tlle sasic d •ces have been classified into different categories. Each
11 is a palicy th•< seeks
ochers. (Ei:a P th burden of it. · Goodsry an fsefVlds carries a specific rate of taxation. And, there is a category of goods which is 'tax-
to achi~e stability
O goo
in the economy by such a taJC hi!llself bears e ds and services) are those taxes, the bu d catego , •dering the needs and means of poorer section of the society.
managing the revenue es (levied on goo r en of empt , cons1
and expendi ture of the Indirect tai: th rs [E:x:amples: GST (Goods and Service -,. ex . flow chart shows the structure of GST:
government.
. be shifted onto o e · s , ax) Following Structure of GST
which can ] 0 who pays such a tax [Example: A shopkeeper paying GS;1
custom duty. ne . ,,. ) c the goverrunent ) can sh 1"ft t h e b urden of th . Category of Goods . . . Tax Rate
(Goods and Semces • ax O • 1s ta.i SanitarY napkins, fortified milk, fr~sh frmts and vegetables 0%
the goods by adding the tax amount to the basic . 5%
the final buyers of Price Coffee, tea, spices and electnc vehicles
0010 Butter, frozen meat products, ayurvedic medicines and spectacles 12%
of the goods sold. Pasta, pastries & cakes and detergents 18%
. lib alisau·on cax stracture was quite complex and tax rates 11, 28%
Pnor co er , ere Automobiles, dishwasher and vending machines
. hi h tt· h tax rates induced tax evasion, causing loss of revenue to th·
qwte g . 1g , Typical Characteristics
goverrunent. Three typical characteristics of GST must be noted:
Following liberalisation, income tax and corporate tax have graduall y been (i) GST is levied at each stage of value addition.
reduced. Indirect cax strUcture has also been reformed to establish a common (ii} GST focuses on the supply of goods rather than their production. Tax is levied as and when goods
are supplied (or w hen goods leave their destination for their buyers).
national market for goods and services.
(iii) GST paid by the producers on the purchase of inputs is allowed to be adjusted by the producers in
In 2016, the Indian Parliament enacted Goods and Services Tax (GST) Acr their payment of GST proceeds to the government.
2016, co simplify and introduce a unified indirect tax system in India. This law
Principal Merits
came into effect from July 2017. This has raised tax compliance and th erefo re, Four principal merits of GST are as under:
tax revenue of the government. (i) It is simplified tax structure, as it is one tax instead of all the indirect taxes, and it is a uniform tax
across all parts of the country.
(4) Foreign Exchange Reforms (ii) Since refund of GST on inputs is available to the producers only when they buy inputs from
the registered suppliers, it ensures higher degree of transparency in business: Black money
Foreign exchange reforms were to resolve BoP crises in the country. transactions are reduced.
Devaluation was the first step initiated in this regard, in 1991. (iii) Being a uniform tax across all parts of the country, GST has enhanced size of the market for the
domestic producers. ·
Indian currency was devalued in relation to foreign currencies. It implied 2 (iv) GST has raised government revenue as there is a higher degree of transparency in business.
fall in the value of rupee vis-a-vis (say) US dollar or British pound. Im plying
Some Teething Problems and Demerits
that a US dollar or British pound could be exchanged for more rupees th an
Any new concept always suffers from some teething problems when it comes to its implementation.
before. Or, implying that a US dollar or British pound could buy more goodi So is GST. The teething problems ofGST are often highlighted as its demerits. Two observations are
th
in e lo dian market. Consequent upon devaluation, exports tended 10 rise, notable in this context:
which led to a rise in the supply (inflow) of foreign currency into the Indian (i) GST is yet to cover all goods produced in the country. Electricity generation, alcohol, petrol and
economy. This was c "d d b . rern~ diesel are some notable products out of the ambit of GST.
onsi ere to e a significant step relating to ex
sector reforms in the country. (ii) ?ST rat_es across different goods and services are still not finally settled, and to that extent
~ncerta.inty looms in the economy. This uncertainty hampers decision-making and therefore,
.....__ investment in production activity.
_Note: For funhe_
r details on GST, students are advised to refer to Project Work at the end of Introductory Macroeconomics.
Wei
02 11
 Indian Economic Development
Economic Reforms Since 1991: New Economic Policy
i,evawatlon . . Ii I wering the value of our currency ID
'~

1 oevaJuaaon unp es
world.
O
. relat10n
. to other c
urrenci
es of

th
1 I
, Features of Trade Policy after Liberalisation
SaUe~ ->;1• - rt quotas have been abolished.
(i) )!DPO . . . .
I eonsequendy, a US dollar or a British pound can be exchanged for more rupees than befo (ii)\Jmpo
'f' . rt licensing. (except m case of goods which are not envnonment-friendly and are hazardous)
·•bas been abolished. _ _
Jmpl,.. . . ,US"""'" British po,md "" b,y moce goods in d,dmlfan m"kct. "
(iii) Thi
ere ·s a moderation/reduct10n of import duty to enhance competitiveness in the domestic
1 This is expected to increase
· · and decrease
exporrs d · imporrs. Consequently
th the su pply of c 1 market.
1 exchange into the Indian econom)' 1s ~ecte to nse to manage e BoP crises
_ . •ore·gn
(iv) Expo rt duty has been withdrawn to enhance competitiveness of Indian goods in the international
Followed by devaluation in 1991, India opted for 'Float Exch ang R
international market Exchange value of the Indian rup ee in
. the ei ate' in th' ( m~~et. trade policy after liberalisation is to facilitate int~gration of the Indian market with
v) the
Bne gly, ·h · hi · h h h ·· th th
obal market Wit a Vlew to ac eVIng growt t roug competition ra er an
money market (or foreign exchange market) was left to th e f nternatio nzj e,rotection.
market forces. ree play of t,h

Thus, exchange rate of the Indian rupee in the inte rnat1onal

. mo
privatisation
now determined by the forces of supply and demand • ney market IS.
Privatisation is the process of involving the private sector in the ownership or
(5) Trade and Investment Policy Reforms operatl·on of a state owned enterprise.
It implies gradual withdrawal of government ownership/management from
Trade and Investment Policy underwent a substantial change in the Wakeof
the public sector enterprises. It may happen in two ways:
liberalisation.
(i) Outright sale of the government enterprises to the private
These reforms in this area focused on:
entrepr:.eneurs or
(i) increasing international competitiveness of the domestic industry,
(ii) Withdrawal of the government ownership and management from the
(ii) inducing foreign investment in the domestic economy, and
mixed enterprises (the enterprises jointly owned and managed by the
(iii) bringing efficient foreign technology into the economy. government and the private entrepreneurs).
The aim of these reforms was also to promote the efficiency of local ind ustries
and promote modern technology. I DON'T CONFUSE LIBERALISATION WITH A LAISSEZ-FAIRE SYSTEM
Trade and investment policy reforms were carried out in the form of: Let us first understand the concept of laissez-faire. It refers to a system in which there is no intervention by
: the state in the functioning of an economy. All decisions relating to allocation of resources and the goods &
(i) Dismantling of Quantitative Restrictions on Imports and Expom I services to be produced are taken by producers on the basis of market forces of supply and demand. Role of
Quantitative restrictions on imports of manufactured consumer goods the government is restricted just to the maintenance of law & order and defence of the country from external
and agricultural goods were removed. aggressions: it is nothing beyond being a night watchman of the country.
(ii) Reduction in Tari.ff Rates: Tariff restrictions were considerably Liberalisation should not be confused with a laissez-faire system. Liberalisation only implies a situation
wherein the government allows greater degree of freedom and flexibility to the private entrepreneurs in ,
moderated, rather withdrawn from many items of export and import.
matters r~lati_ng to_allocation of resources. To illustrate, pursuing the policy of liberaUsati_on, the government i
(iii) Removal of Import Licensing: The policy of import licensing was I may abolish Licensing/registration of the enterprises as an essential requirement. L1kew1se, the government
abolished except in case of hazardous and environmentally sensitive ' may Liberalise or abolish limits on the production capacity of the firms. But all this is in consonance with dire~t ,
industries Quantitaa· · • r d I participation of the government in production activity. Thus, liberalisation does not exclude governments
· ve restnct10ns on imports of manuiacture
consumer goods and · ul al c in intervention in the economy; it does not rule out the existence of checks and controls by the government
. agnc tur products were also fully removed I ro It only implies greater degree of freedom to the private entrepreneurs in deciding their areas of economic
April 2001.
I activity and expanding their scale of production.
(iv) Removal of Ex ort D . ro
. P uties: Export duties were removed
lllcrease the competitive .. . .
market. position of Indian goods in the internanon

'1®J
am JI
 --~
1ndian Economic Development Economic Reforms Since 1991: New Economic Policy

DI~ . . .
Oisuivesonent is a palicy instr11ment to promote pnvansanon. NAVRATNAS
or unden .
1 It occurs when the government sells off its share capital of PS Us (public sect
terrn den·ved from 'nine jewels'
d ·d int·fy-
the court
· dof king
· Vikramaditya
· who were men of eminence and rare·
"'•~) ' I
It is a The government starte 1 en mg. m ustnes of eminence and excellence on the basis of their

I
1
- • r,,,,,of .,.-rod• ili< umw in c,,eof pri,atiu tio, ';, wisdorn-
erformance an d bestowed on to them the titles of Maharatnas, Navratnas and Miniratnas. Some examples
nd
01 It is wen as a remedi11 measure to improve production and managerial effi . ~re as u e:: (i) Indian Oil Corporation (IOC) limited, and (ii) Steel Authority of India Limited (SAIL).
•~=--
c...:1:..,. mod~oon.
. . c1ency' as Well
Of m.,,, ...-w, U ,hn"" li • me,n• w ~nag< fi"'1 defici< b h governm ent, • ;
y t e
Maharatna _ H. dustan Aeronautics Limited, and (ii) Mahanagar Telephone Nigam Limited (MTNL).
Navratnas:.(i)(i) Binh ar at Sanchar Nigam Limited (BSNL), (ii) Airport Authority of India Limited, and (iii) Indian
Miniratnas. . d Tourism Corporation Limited (IRCTC).
Railway Catenng an
\
Need for Privatisation
fJ
Need for privatisation was felt m_ainl~ because of poor performance of Pst
Note the following observations m this regard:
(i) The process of industrialisation was initiated during Second Five Ye,.
Plan assigning a key role to PSUs/PSEs. '
-

(ii) The Industrial Policy Resolution, 1956 clearly and categorically stat,'
•lndianOil
•
BSNL
(!...,.,t4:tfil~
• 'ffiwl'SAIL P.'-
(~!J
the significance of PSUs/PSEs in the process of growth an;
development.
AIRPORTS AUTHORllY OFIHDIA MTNL IRCTC
Navratnas
(iii) Doubtless it was on account of the spread of PSU s that India cou!c
diversify its industrial base between the period 1951-1991. These enterprises have often been quoted by the government as the epicentre of growth in the Indian
economy. And, it is not denying the fact that these enterprises brought about an exemplary shift in the concept
(iv) Also, it was on account of the spread of PSUs that the Indian econom, of industriaUsation in the economy. These enterprises served not only as a significant source of employment,
underwent a structural transformation: people started shifting from but also as an infrastructural base that induced private investment in diverse areas of industrial growth.
agriculture to industry as their source of livelihood, and there 11as , In the wake of privatisation, the government had initially thought of disinvestment of Navratnas as well
gradual increase in the percentage contribution of industry to GDP. But, owing to a stiff poUtical resistance, it is now decided to develop Navratnas as global players in their
PSUs gave us Navratnas (nine jewels of the Indian industry, besides , respective areas of industrialisation.
host of mini ratnas).
(v) Gradually, most public sector enterprises turned into a deadweight io,- Obvious Gains and Imperative Losses of Privatisation
(or a social liability). Mounting losses of PSUs became unsustainable
Obvious Gains
(vi) Leakage, pilferage, inefficiency and corruption had become so rampant
(i) Privatisation implies supremacy of 'self-interest' over 'social interest'.
in PSUs that their privatisation was considered as the only remedy.
When 'self-interest' prevails, the entrepreneurs work with 100 per cent
(vii) Accordingly in 1991, the government decided to phase out publi:
commitment, and 'efficiency' becomes the condition of survival for the
enterprises
_ . by selli ng ·its equity
- to the private entrepreneur·s
Pnvatisation was t I b . ownership of a large num ber of workers. High productivity is the obvious result.
_ 0 rep ace pu lie
enterprises. (ii) Privatisation expects private enterprises to work in a competitive
environment -both domestic as well as international. Competition
(viii) However in view 0 f th - o
_' eir efficient performance Navratnas were r induces upgradation and modernisation. These are the essential
be reta.med as bl' '
decided pu ic sector enterprises. Indeed, the government has
conditions of growth and development.
th . to upg_rade their functional freedom with a view to enhancing
elf competitive strength. (iii) Privatisation promotes diversification of production. Unlike PSUs, private
enterprises invariably generate high profits. These are used for expansion
~ ll 00 iii
 Indian EconomJC DeveLOP""''"
~ •s-n!Pil
Coru11me~·<Cl\'rrtt!?nr)'
mearu tha1 producnon
of ~oods and "'"'ces
is de1,nruned by th•
consumm' chakt' as
reflected thro.u~h th•
marit1 pncr $tnlcrure.
Consumer is SO\"tf?:ign, .u
n 1.s according to h.is chOke
and prdmnc<5 tb,.r the
producersd<ad• what u,
producr and how much ro
produo,.
Sirc,ll.a, in Andhra Pradesh, is a sma~ town, known for its powerloom industry. This industry is the rnai
soorce of UveLihood for most people in the town. Privatisation of power supply to this industry led 10 n
substantial hike in power-tariff. Implying an unsustainable burden on the industry. Cut in wages has been:
serioos consequence, as wages are Linked to the production of cloth which has suffered a huge decline. Whe
wages are cut beyond the point of subsistence, what do the workers do? Committing suicide is considere:
as a desperate option. This is what the workers did in Sircilla. About 50 workers committed su icide whichis
known as Sircill.a Tragedy.
Globalisation, ill fact,
';. tbeou-oftbe
policies ofLibonlialioa
and Printiuti'!!...--
At the international level,
it is a process ofbringing
the world economies,
economically and socially,
doser to each other
in a manner such that
each country .becomes
instrumental to the process
of Global Growth.
'16n
and diversification of production. . MNCs (Multinational c0 0 Economic Ref s·
Orms tnce 1991: New Economic Policy
. a rp rat,o
are a testimony to the fact that pnvate sector enterp nses .1 it is expected that capital and technology w·n
l
ticular Y,
fl
----~-
a 1, 1 ow from the
redefining the benchmark of growth. re Cap b 1) par d countries of the world towards India.
develope
Privatisation promotes consumers' sovereignty. Hi '•f
(iv) ' · . 1· ·d h gher d out;;;ing
consumers sovereignty imp 1es wt er c oice and bet ter quaJ·
ityegr, e "
or 1· ,,
,r,.
1 This is an important outcome of the process of
globalisation.
Imperative Losses
(i) Socialistic pattern of the society (in which 'social interest' . 1 1tre•'ers to a system of hiring business
. .services
. . 1 th . is ac from the outside world. These sernces include:
top priority) 1s left to survive on y as eorencal possibi'l•tty. It I Cord,,'.
call centres, transcription, clinical advice,
practical relevance once PS Us are sold off to the private ent repreneur
os,1ii teaching/coaching and the like.
1
(ii) Privatisation encourages the free play of market force S. BUt . ·
1 India is emerging as an important destination of
process, goods are produced only for those who have the me in tn, outsourc/ng particularly, BPO (business process
10
them. When prices rise (which is an obvious tendency in a system ans d .bu,•
1 outsourcing, also called call centres). This is Outsourcing: Sourcing Services from Outside
by the free play of market forces), weaker sections of the soci.ety " t· because of two important reasons:
deprivation. Sircilla Tragedy is a notable evidence to this pOtnt.
. suff,1
(i) Availability of cheap labour in India, or relatively low wage rate for the skilled workers, and
(ii) A revolutionary growth of IT industry in India.
SIRCILLA TRAGEDY
Policy Strategies Promoting Globalisation
of the Indian Economy
Following are some important policy strategies that have influenced the
process of globalisation of the Indian economy:
(1) Increase in Equity Limit of Foreign Investment: Equity limit
of foreign capital invesnnent has been raised from the initial
40 per cent. It now ranges between 51 to 100 per cent.
Globalisation
In 47 high priority industries, foreign direct investment to the extent of
Globalisation means integrating the economy of a country with the economio
100 per cent has been allowed without any restriction and red-tapism.
of other countries under conditions of free flow of trade and capital acro11
borders. Export trading houses have also been allowed foreign capital investment
up to 100 per cent.
Globalisation may be defined as a process associated with increasi ng opcnnes<
growi ng economic interdependence and deepening economic integrationt: However, Foreign Exchange Management Act (FEMA) has been
the world economy. enforced. Compliance to FEMA has been accorded high priority.
Economic reforms aim ;,;i1,; (2) Partial Convertibility: To achieve the objective of globalisation,
at integrating the Indian panial convertibility of Indian rupee has been allowed for the following
economy with the global transactions:
economy. _... '~,ij_{ ;~~! (i) Import and export of goods and services,
As a result, there will '·:·~,~~-; 1:~ ,~~ ,;... ~
··...,~:,,.~ -
• 1)! • \ ~:, (ii) Payment of interest or dividend on investment, and
be unrestricted flow . . ' :·~. (iii) Remittances to meet family expenses. It is called partial convertibility
of goods and services (f; :.
technology and expertis~ because it does not cover capital transactions.
between India and rest of Partial convertibility refers to the sale and purchase of foreign currency
the world. . . Economic Integration of World Econon11es (for foreign transactions) at the market price.
GlobaLisat,on:
[IQS
 ... Trade pobcy: In conformity with Economic Reforms Since 1991: New Economic Policy
Indian Economic oevelopment( ) Long-ter... . .
I""' u,d< P'Jicy ,,.nfo<ctdfo<' Jong« dm,tio econo
. .
( rn1c r
- 3 fo<• <' .. . . n nen\ ,,,

...,~
WORLD TRADE ORGANISATION (WTO)

....,. ,,
.• Tm•![·barriers. mainly 1mpl)~ng that it is a bberal policy, y ~Ve",, ., WfO commenced its operations on January 1, 1995 under Marrakesh

,.,.,.
refer to barners ohn. h
,,,,. '""
U d,<,hi, potiC/, ,JI resuictio,S ,nd coo,ro" on f0< .
' OP" comP'nuoo
...,,.d. .. .
o "co•<>&•d. d, h._, h
Agreement, signed by 123 countries. It replaced the General
Agreement on Tanffs
. and Trade (GAIT). GATT. was. established in 1948
. h 23 countries as the global trade organisation to administer all
'
Q
'<J>,0 E O G
-<.. -</;1
·1/-
'er to Barring some specu,c goods, most goo ds are traded f wit ·tateral trade agreements bY prov1'd·ing equal opportunities to -..J y
:...\
r,in-tarilfbarflers ·C 0'' l
mut1 . . . _
••• ym• Mof, estri . ntr1·es in the international market for trading purposes World O \, o
'I
0
1 . uou-barners,
rall. . . . . T
( ) Reducuon 1n ar1 s. . ff . In order t o encourage c ct1• all C
,.,,,.,~'""" ompetir deOUorganisation
. 1.s expected to play an .important role .1n the ·context \
q- ~ • r.e• 4 buri•• b~• 1,ee, wimd>""' oo mos< goods <nded b '""" m lobalisation of the world economies.
fg
· wh·· at 1s 1t supposed to do?
... .,.,.,.,
(or restrictions on the "'"' m, wo<Id.
200
etwee ' ' ~: ,,,,,,1 oFollowing observations may be note d'in t h•1s regard:
(5) Withdrawal of Quantitative
. . Restrictions:
h b Since l, theq (i) wro is expected to promote free trade by eliminating tariff and non-tariff barriers/ restrictions by the
restrictions on unport items ave een totally with uan1nz member countries.
_, . 'th! all d' , . . drawn T
coruorm1ty Wl n 1a s commitment to the WTO · hi\ · (ii) It intends to promote competition and free access to the global markets by the member countries.
(iii) It is expected to facilitate bilateral as well as multilateral trade agreements .
(iv) It is to ensure optimum utilisation of the world resources by enlarging size of the global market
first Generation Reforms and Second Generation Reforms through tariff-free movement of the goods and services across different parts of the world.
. Generation Reforms
Distinction is sometimes drawn between First . . Second
and . Generat'ion Refonn As of 201 6, the wro has 164 members.
, c,m c,onrioo Rofom> n• •h•• whoch. do d d•"i°'re '°'
. . "Y. "•"'""'
h actioo, Th•• reform'
government ' Impact of WTO on the Indian Economy
be carried out simply through the executive an a m1mstrat1ve mac inery of the se;:
Following are the expected benefits of WTO:
. . . . . ive
Second Generation Reforms, on the other hand, are those which require legislat' action
. · T
IVe set-u Of (i) It is expected that WTO will offer greater
reforms cannot be earned out through the eJOst1ng adm1mstrative and execut· · h,, export opportunities to the Indian economy.
goverrunent. Accordingly, Second Generation Reforms are often delayed. p ll, Accordingly, our share in international trade is
expected to increase in future.
(ii) Under Multi-fibre Arrangements (MFA), our
3. AN APPRAISAL OF LPG POLICIES: textile and readymade garment trade was

PERFORMANCE OF THE INDIAN ECONOMY I subject to quota restrictions. As per provisions

of the WTO, all these restrictions have been
removed. It has helped India to increase its 1;%,i
DURING REFORMS exports of garments and textile. Particularly, wro Head Office in Geneva
Briefly referred to as LPG policies, the term implies policies relat,I· our textile exports to America and European
Bihttnland
countries have shown a substantial rise. It has promoted textile industry and generated employment
liberalisation (L), privatisation (P) and globalisation (G). An appraisal oil'

--
Multilattnl Tncle
Agretmenu policies implies an appraisal of NEP (New Economic Policy) or an app1,
• Bilateral uade agreements of Economic Reforms initiated since 1991. Appraisal of LPG or NEPr~:
refer to rrade agreements
of one country with the
other. Or, these are trade
agreements between
any two countries of the
world.
Multilateral trade
agreements refer to
trade agreements of
1
1 one country with many
111 countries of the world.
I Or, these are trade
agreements among many
countries of the world.
opportunities.
(iii) Due to 'agreed' reduction in trade barriers and reduction in subsidies to the domestic producers
of agricultural goods in the developed countries, prices of these goods are expected to rise in the
that the reader appreciates or understands the Good and Bad effects oi\ international market. Accordingly, India's exports of agricultural products are expected to rise.
by stud~ng the performance of the Indian economy during the reform pli,) But it must be noted with emphasis that wro agreement is offering only an asymmetric treatment
(something which is not uniformly distributed for all nations of the world) to capital market and labour
market. WTO advocates free movement of capital across different nations, not the free movement
Good Effect of labour, while both labour and capital are commodities of the factor market. Certainly, free flow of
Following observations highlight the good effect of LPG por1cies on theIn~
capital fosters the commercial interests of MNCs of the developed nations. They can exploit markets
in less developed countries. But the free flow of labour which would have fostered the commercial
economy:
interest of LDCs like India is not encouraged by wro. Accordingly, Indian Labour does not find free
.
(I) Vibrant Economy: Indian economy has defimtely. beco1ne ad~·
c access to the lucrative factor market in developed countries. (Lucrative factor market refers to the
··cy ~ ~ rG',
VI'b rant economy. Overall level of economic actlVI

as md1cated by GDP growth. Post LPG policies, t h e growth

. . O I
. Ji)S
market offering high wage rate.)
-- -
Tw."1
·
mcrease d from 5.6 per cent during 1980-91 to 8.2 per cent dunng-
Doz
Indian Economic Development
rn
and FD
:::!I! (2) Stimulant to
Foreign investment
includes FOi (Foreign
Direct Investment) ,ad
FIi (Foreign Institutional
Investment). (3) Check on Fiscal Deficit: Mounn_ng fiscal ~efic1t has been a s .
FDI refers to investment
by the foreigners by
way of their business
. d.
establishments m 1n 13·
It implies ownership
and control of business: ( ) Increase in Foreign Exchange Reserves: Depletion of fo
4 fi
Examples: Coke, Pepsi,
D .omiao·s, McDonald.
FIi refers to investment
in Indian companies (by
way of purchasing their
equit:y'Of shares) by the
foreign banking ,ad
non-banking institutions.
Ir does .not involve any
kind of direct control on
the management of the
Indian companies where
investment is made. Fil,
unlike FD!, is simply (5) Check on Inflation: Owing to a greater flow of goods and se rv1ces1
an investment in the
stock market in India
by the foreign banking
and non-banking
institutions.
(6) Consumer's Sovereignty: Consumers sovereignty has expanded Ol,r
(7) Flow of Private Foreign Investment: Private foreign investment h11
. Economic R 1 1
Industrial Production: LPG policies ha
. . .
. l nt to industnal production m the Indian
. Ve War
kid . significant to note that private
It is . . .
. .
ore1gn investm
e orms Since 1991· New
.
·
. .
Economic Policy
a great surnu a econ 0 i
anied with mnovattve techniques of d . ent 1s often
. th policies that IT industry in India has ach· illy. J1· acco mp pro uct1on.
owing to ese ieved \ ognition of India as an Emerging Econ .
.tion gl,~ (S) Rec om1c Power- 1 . .
recogm · . . . ' PG policies and the consequent rise in th · t is owing
to L e overall !eve! of .
•vity that India is now being recognised a economic
th the process of investment m the Indian economy er,,,1 actl , s an emerging e .
power m · the world. conom1c
reat to ·
F as high as 8.5 per cent of GDP has been brought <low
rom
f GDP
n to 1
aro n, T h.1s recognition (particularly by developed nation Of h
. , . . s t e world) not
3.5 per cent O · . 0
nl raises India s economic ranking in the world b
Y dence of the g1obal mvestors
• in the India ' ut also boosts
rex rese con . . . n economy as their
was one of the compelling reasons for the government to shhn·,. erred destmauon of mvestment. India has also b . ·
1 pre fi . . ecome a leading
LPG policies. Ir. exporter of auto parts, engmeenng goods, IT software and textiles.
Thanks to these policies, forex reserves of the country have now hift from Monopoly Market to Competitive Market· L h
h (9) A S . . • aunc of
comfortable level. While in 1990-91, the foreign exchange res reac t<l, LPG policies has caused a significant shift in the structure of the Indian
. . erves w.
US$ 6 billion, m 2018-19, these reserves mcreased to US $413 . '•: rnarkets.
b11\ 1, .
while at the end of December 20 21, t h ese rose to US$ 633.61 4 b· . ·, Indian markets are now increasingly shedding its monopolistic character,
1ihon
and becoming more and more competitive in nature.
Good amount of forex reserves enhances economic confiden ·
. . . ce of t'c
global mvestors m the Indian markets. ·. For instance, a couple of decades back, products like cars, refrigerators,
. • ACs and PCs were the monopoly markets of select brands only. Now a
the economy, rate of inflation has been lowered. · variety of these products are available at competitive prices.
In the years 2011-12 to 2013-14, inflation was in the range of 6-9 percent Briefly, owing to LPG policies, the Indian economy has definitely gained a
per annum. , rowth momentum'. The process of growth has not only accelerated, but has
For year 2021-22, RBI estimates reveal that inflation will move Ill• I ~so become more diversified. There is a definite change in welfare level of the
range of 4.1-4.4 per cent. people. Recognition of the Indian economy as an emerging economic power
in the world is of crucial significance.
It may be noted that high inflation leads to a rise in interest rate, impl)in!
a rise in the cost of investment. Accordingly, growth rate is hurdled.
Bad Effect
time. This is evident from the fact that a large variety of goods ani All that glitters is not gold. There is a negative side of the story as well.
services from the diverse global markets are now within the easy reach Following observations highlight the negative effect of LPG policies in India:
of the buyers. (1) Neglect of Agriculture: Post New Economic Policy (NEP) of 1991,
Producers are widely responding to the consumers choice and preferenc1. growth of GDP has largely been driven by the secondary and tertiary
sectors of the economy.
Consequently, overall level of expenditure of the households has tendiJ
to rise. Implying an overall rise in the welfare status of the people Agricultural sector has suffered a serious neglect and its growth rate has
slided/ slipped to a miserably low level (2-3 per cent per annum).
taken a quantum jump after the adoption of LPG policies. Some important observations in the context of NEP and agricultural
sector of the Indian economy are noted as under:
This has been a matter of great relief to the government in view of ti,
facts that: (i) Fall in Investment: After the reforms were introduced, public
investment in the agriculture sector declined, especially in
(i) domestic economy was not generating enough of surplus for
reinvestment, and agricultural infrastructure sector: irrigation, power, roads, research,
extension services and market linkages.
(ii) indigenous technology was getting obsolete.
0:02
Indian Economic Development
Infrastructural investment p_la'.ed a crucial role in nurturing Cr
Revolution. Under NEP, this investment almost dried up to eel
agriculture in a state ofl urch•
I
e
e,,
{JneJJl
(3 ) .
inves
wth
P .
. .
Joyment: Globahsat1on has incre d
tment and foreign technology. New techn I
ase
Economic R f

the influ
o ogy has st"1
But, at the same time, it has stifled (ch 0 k d)
e orms Since 1991· N

x of foreign
mulated GDP
· ew Economic Policy
7
gro · e theo 0
ent. It is a labour saving technology . PP rtunities of
(ii) Withdrawal of Subsidies: Partial withdrawn of fertilizer sub .
51
ernP1oyrn ' Owing to Which
has led to an increase in input costs. It has adversely hit thee conani·dy bour has reduced in the process of GDP absorption
of 1a . growth. lnde d ,.
1 is an emergmg challenge of the Indian e e , Jobless
interest of small and marginal farmers. , gro wth conomy.
. . ,vestment: NEP has encouraged disinvestm b
(iii) Cut in Import Duty: In the wake of trade-related reforms , llll
. po (4) p1s1n. od in so far as it is used as a tool to load olfth
ent y the gove
rnment.
duties on agricultural products have been reduced and quanf . . It 1s go e 1oss-makin
. . native en used as a tool to manage fiscal deficit dis. g assets.
restrictions on the import of agncultural products have bee n i·r But, Wh investment hi hi" h
I ted . fficiency of the government as a manager of the g g ig ts
Consequently, the Indian farmer has been exposed to unsust a1.nabJe· ine overnment.
. bserved that as a quick-fix solution to the proble ffi
global competition. It 1s o mo seal deficit
sets of PS Us are often undervalued causing a subst . 11 '
the aS ant1a oss to the
(iv) Shift in Cropping Pattern: Economic reforms (under NEP) 11ave
exchequer.,
also led to a shift in cropping pattern. The farmers are increas·1ng1y
shifting to cash crop in place of subsistence crops (food era ps.) , o the extent the proceeds
-r
. from disinvestment have been used for
offsetting the shortage m revenue of the government (rather than
Commercialisation is good as it promotes competitiveness, bUt
investment in increasing the efficiency and profitability of the other
is bad as it exposes the subsistence farmer to uncertainties of the PSUs), disinvestment (in the wake of NEP) is definitely a questionable
market. policy instrUmf nt of the government.
As a result, there has been an upward pressure on the prices of the (S) Fiscal Policy: Owing to NEP, fiscal policy of the government has come
food grains. This has tended to compound the problem of poverty in under a severe stress.
India. During the reform period, the Government of India had reduced tax
Slow growth of agricultural sector must ultimately hinder the process of rates, to induce more people to pay tax and prevent tax evasion. But this
growth of the industrial sector as well. This is because: has not yielded an anticipated result: tax-net continues to be small and
(i) Agricultural sector is an important source of raw material for the tax revenue continues to be low. This has strifled public expenditure on
industrial sector. social welfare.

(ii) Agricultural sector is the principal source of labour supply to the
industrial sector, and
(iii) Agricultural sector is a significant source of demand for the
industrial products like tractors and threshers.
(2) Slowdown in Industrial Growth: As India has removed its
quantitative and qualitative barriers on imports, there have been
cheaper imports of industrial products, which have replaced the dema nd
of domestic goods.
(6) Lopsided Grow th Process: LPG has accelerated the growth process of
The developing countries have to remove their barriers to free trade;
however, the developed countries impose high tariffs on their imports
to restrict the access of developing countries in their markets.
For example, although all quota restrictions on exports of textiles and
clothing have been removed in India, USA has not removed their quota
The reform period also marked a reduction in tariff rates and custom
duties, curtailing the option of the government ·to earn additional
revenues from these sources.
To increase foreign investment, tax incentives have been given to foreign
investors which further compounded the problem of low revenue
income of the government.
The cumulative impact of the curtailed sources of revenue has led to a
constraint on welfare expenditure of the government.
the Indian economy, but it is lopsided.
It 1·s not an mclusive
. growth process. It does not ·me Iude all the sectors of
th e economy. Instead, it is increasingly relying
• on 'servi·ce sector' of the
economy.

--
restriction on import of textiles from India and China.
OiC
.:........

Indian Economic Development
J
~ cud
~ Daali"S
Economic Dualism: It
refers to disintegration
of th• ,conomy into
traditional and modem
sector< of production.
While the traditional
secto.r relies upcn
traditional technology,
the modem sector
is driven by modem
technology.
Social Dualism: It
refers to disintegration
of the society into 'haves'
(enjoying high social
status) and 'have-nots'
(living with low social
status).
115
·--u" :,,nee 1991: New Economic Policy
l ct it is just an 'IT-focused' growth process which is . ti' on where MNCs
. a s1tua . are exploiting the Indian rn arkets
'I'
1n a ' wing the process of m . dustn'al'1sat10n,
. besides ne I grad u,11).
IJ!lPJytng
II their. Products and m the process,
.. domestic producers are
over•s hado g ecti n
farming sector. g the
co se. alised oWI•ng to their poor competitive strength.
It is alarming to note that, owing to liberalisation
. and global·isat,o
. niargin of Consumerism:. Spread of MNCs
. in the country as a
Indian farmer is shifting to the producnon of cash crops for the n, the (9) spreadquence 0 f LPG policies has resulted m a large-scale spread of
1 conse .
markets, causing a shortfall of domestic supplies of food grains foreig U]llensro.
We are often forced to import food grains despite Green Revolu .
cons • nr of gJohal brands in the
d thmarket
. has induced the masses to
Rising prices of food productS towards the end of 2009 should tio~ A vane,, endthn'ft ' going beyon eir means.
a wake up call to the fact that LPG policies are almost negIectin
s_erve niesp ..
beco dian society
. is adapting itself to the western culture of spending
farming sector of the economy. g the The In .
h borrowmg.
(7) Urban Concentration
. .of Growth Process: LPG pol·1c1es
. h
resulted m the concentration
. of growth
. process in urban areas. Th·'"e thJ'oug and SIZ
. e of the market for the traders and the manufacturers,
of any MNC, you will hardly find its trace in the rural areas of tnl
the This may
but certaI exp
·nJy enhanc es vulnerability of the households as consumers.
country.
Which -Way to Go?

---___,_
= •·._........
... _ ----- ---.=ech ,- ·, . _
;:---=,~~ 'l
:=:;:::::~ -- or should we not subscribe to the LPG policies? It is a deb t bl
- r •
--'_::\=',
. ._ .
', ·,. - - • . .
,----------~- Should we aa e

-.:_-: .&• =--·.:=-~ roJ.}J:~~-mahlrtdra-

- . . ~.;_ . -r_ --:----. ... ....- . . '--~=--
. \- \__11111! . .- - - --- issue. But
avoiding the pros & cons of LPG, the +2 graders can definitelymak
. e
one cone rete observation:

-.-~ ~-'"_..:,-,-
-=-- TATL1"--~
-- ~ [
;---_· ;:~-~-- :; =- \ ,,,.,,\ \ \ \
That LPG policies are the only way out to accelerate the pace of growth and
development.

:-- -,.,C--&f.--
.--- ,--;--,, ~E===·~
-=~,. ·t.~~e,
.~
-1- · - - - - - - / ~ ,---ii : --'\- - " -· -

. /
I
. 1
/ , : \ \
\come\opossible
' '
\, ',.
Indeed perusal of LPG policies was to a great extent a matter of economic
compulsion rather than a matter of choice for the politicians of the country.

· - ,_CYI I:.N_r·
- ,- - ~ ,--"7 I ; \~ -~ ~- - However, a compulsion should never mean an abject surrender. It is strongly

4-t=O~~ ~ ~ -Mohasis_.
-i.b. -' _ :_ reco=ended that LPG policies are pursued with guarded precautions.
1

- -

lii'~1eash 1heNe,1
I I , \' I _____.!___ \ \ .
Notably:

- -\
I, ,--- (i) We must see to it that we do not surrender to big players in the
Concentration of MNC IT Companies in Urban Areas deepens the 'Rural-Urban Gulf' international markets.

(ii) We must see to it that we do not compromise with economic interest

All MN Cs are focusing only on urban areas, where they find conducive
of our domestic producers, while allowing a free access to the foreign
infrastructural facilities. This has further widened the 'rural-urban gulf'.
investors in the Indian markets.
Rural-urban gulf implies economic dualism which deepens social
dualism as well. (iii) We must see to it that we do not become economically subservient to
multinational corporations.
Economic and social dualism are always a big threat to the process of
growth and development. (iv) We must be in a position to channelise FD! (foreign direct investment)
(8) Economic Colonialism: India suffered nearly 200 years of political more into areas of infrastructure rather than retail trading or fast-food
colonialism during the British rule. junctions like KFC and Dominos.
Now, while MNCs are expanding their economic control, we might
suffer a sort of economic colonialism.

[ 113
Indian Economic Development

1Q,tf,'l§ i:mffltf& Revision Window!r-- - - - - -

Economic Reforms: Econo mic reforms refer to all those measures which ai ~
n
'
more efficient, · · an d deve Ioped . L'1b er al'1sat1on,
compet1t1ve · · · · and global're .ctering the e
pnvat1sat1on
1sation c
elements of economic reforms in India. are th e Pr

Liberalisation: Liberalisation implies freedom of the producing units from control .

government. Liberalisation includes industrial sector reforms, financial sector c s irnposed
re10rms
foreign exchange reforms. ' tax re

Industrial Sector Reforms: (i) Abolition of industrial licensing, (ii) Contraction-:;----

(iii) De-reservation of production areas, (iv) Expansion of production capacity (v) F pubJrc
, reedom .
capital goods. to r

Financial Sector Reforms: These refer to the reforms in country's monetary and bank'
mg P0 hcres
Tax Reforms: These refer to increasing the revenue of the government and lowering the .
expendw
a way that it causes no adverse effect on production and economic welfare.

Foreign Exchange Reforms: These reforms were focused on: (i) Increasing international com ..
,upetnrv
of industrial sector, (ii) Promotion of foreign investment in the economy, (iii) Promotion of adopti
modern technology.

Trade and Investment Policy Reforms: (i) Dismantling of quantitative restrictions on imporn
exports, (ii) Reduction in tariff rates, (iii) Removal of import licensing, (iv) Removal of export dutie

Privatisation: It implies partial or full ownership and management of public sector enterprises b
private sector.

Measures of Privatisation: (i) Outright sale of the government enterprises to the private entrepren
(ii) Withdrawal of the government ownership and management.

Globalisation: It is a process associated with increasing openness, growing economic interdepend

and deepening economic integration in the global economy.

Policy Strategies to Promote Globalisation: (i) Increase in equity limit of foreign inve 5rn
(ii) Partial convertibility, (iii) Long-term trade policy, (iv) Reduction in tariffs, (v) Withdraw,
quantitative restrictions. -
Good Effect of the LPG Policies: (i) Virbrant economy, (ii) Stimulant to industrial prodfluct
1·0 at
(iii) Check on fiscal deficit, (iv) Substantial increase in foreign exchange reserves, (v) Check on .
nd1a a
(Vl') Consumer's sovereignty,
· (Vll") Fl ow of pnvate
· c ·
,ore1gn ·
mvestment, " ') R ecognition of l
(Vlll

emerging economic power, (ix) A shift from monopoly market to competitive market. . - - - -
5t . I gro
1
Bad Effect of the LPG Policies: (i) Neglect of agriculture, (ii) Slowdown in indu fl(a ") Ur
Vll
(iii) Unemployment, (iv) Disinvestment, (v) Fiscal policy, (vi) Lopsided growth process,
concentration of growth process, (viii) Economic colonialism, (ix) Spread of consumerism,

114