Economic reforms in

india new regimen of

lpg

Presented By
Anil Bishnoi
Amit joshi
Amrish pal
Anand kishore
 Agenda

 Introduction
 Major Causes
 Major economic reforms
 Role Of Manmohan Singh
 Significant Consequences
 Various Sectors Affected
 Conclusion
Introduction
 The term ‘economic reforms’ refers to policy
reforms undertaken by the central govt.
since 1990 to attain certain significant
achievements through the main approaches
which are as follows:
 Liberalization
 Privatization
 Globalization
Economic liberalisation in India
 The economic liberalisation in India refers to ongoing
economic reforms in India that started in 1991. After Independence
in 1947, India adhered to socialist policies.


 In the 1980s, Prime Minister Rajiv Gandhi initiated some reforms. In
1991, after India sold 67 tons of gold to the
International Monetary Fund (IMF), the government of P. V. Narasimha
Rao and his finance minister Manmohan Singh started breakthrough
reforms.
 The new neo-liberal policies included opening for international trade
and investment, deregulation, initiation of privatization, tax reforms,
and inflation-controlling measures.


CONT………
 As of 2009, about 300 million people—equivalent to the entire
population of the United States—have
escaped extreme poverty.


 The fruits of liberalisation reached their peak in 2007, when India

recorded its highest GDP growth rate of 9%.With this, India
became the second fastest growing major economy in the
world, next only to China.


 An Organisation for Economic Co-operation and Development

(OECD) report states that the average growth rate 7.5% will
double the average income in a decade, and more reforms
would speed up the pace.


 In the 80s, the government led by Rajiv Gandhi started light

reforms. The government slightly reduced License Raj and
also promoted the growth of the telecommunications and
software industries.[citationneeded ]
Impact

 The low annual growth rate of the economy of India before

1980, which stagnated around 3.5% from 1950s to
1980s, while per capita income averaged 1.3% At the
same time, Pakistan grew by 5%, Indonesia by 9%,
Thailand by 9%, South Korea by 10% and in Taiwan by
12%.
 Only four or five licences would be given for steel, power
and communications. License owners built up huge
powerful empires.
 A huge public sector emerged. State-owned enterprises
made large losses.
 Infrastructure investment was poor because of the public
sector monopoly.
 License Raj established the "irresponsible, self-
perpetuating bureaucracy that still exists throughout
much of the country and corruption flourished under this
system.[

Narasimha Rao government (1991–
1996)
 Main article: 1991 India economic crisis
 The assassination of prime minister Indira Gandhi in
1984, and later of her son Rajiv Gandhi in 1991,
crushed international investor confidence on the
economy that was eventually pushed to the brink
by the early 1990s.
 As of 1991, India still had a fixed exchange rate
system, where the rupee was pegged to the value
of a basket of currencies of major trading
partners. India started having
balance of payments problems since 1985, and
by the end of 1990, it was in a serious
economic crisis. The government was close to
default,[19] its central bank had refused new credit
and foreign exchange reserves had reduced to
the point that India could barely finance three
weeks’ worth of imports.

 Impact of reforms
 The impact of these reforms may be
gauged from the fact that total
foreign investment (including
foreign direct investment,
portfolio investment, and investment
raised on international capital markets) in
India grew from a minuscule US$132
million in 1991–92 to $5.3 billion in 1995–
96.
 Cities like Gurgaon, Bangalore, Hyderabad,
Pune and Ahmedabad have risen in
prominence and economic importance,
became centres of rising industries and
destination for foreign investment and
Privatization
 Privatization is the incidence or
process of transferring ownership of a
business, enterprise, agency or public
service from the government to the
private sector. In a broader sense,
privatization refers to transfer of any
government function to the private
sector including governmental
functions like revenue collection and
law enforcement.

Measures adopt for privatization.
 Contraction of public sectors
 Sales of shares of public sectors to the
private sector.
 Sick public sectors industries.

 Memorandum of understanding

 National renewal fund.


Privatization- important aspects
1)Privatizing loss making or profit making units:-
a)There does not seem to be enough reasons for

privatizing a profit making unit.

b)In 1994 Govt. offered 20% equity of such good

units to public for raising resources via mutual

funds/financial institutions and raised Rs.4950
crore.
c)Financial institutions may further sell it to the

public which permit backdoor entry for private

sector.
d)Why would private sector be willing to buy a

loss making sick unit?

e)Real estate and other physical assets attract

private sector.
2)Joint ventures:-JVs generally have three kind of
proposals:-
1)25% ownership by private sector and workers

also to be included to 5%.

2)Government retains 51% equity and sells 49%

to private sector.
3)74% of equity is transferred to the private

sector nand govt. retains 26%.

3)Disinvestment :-

Selling of the PSU shares to raise funds.

(SCI,IBP,BALCO,AIR INDIA etc.)


 Disinvesment
 Disinvestment means disposal of public
sectors units equity in the market or in
others words selling of a public
investment to a private entrepreneur.
It means selling of government share
in one psu to other psu or private
sector or banks
 disinvestment

 InIndia, disinvestment has progressed

slowly. It has been carried out in a
hasty, unplanned and hesitant
manner. As a result, the progress
has been quite poor
Impacts of privatization
1)Advantages:-
a)Better resource availability.

b)Real cost pricing,efficient utilities.

c)Focus on technological advancement.

d)Proper management.

e)No bounds on wages.

f)Increase in competition

2)Disadvantages:-
a)No job security.

b)Can lead to monopoly.

c)Real cost pricing will affect the poor.

d)Negligence for backward and far flung areas.


 Globalization


 G lo b a liza tio n d e scrib e s a n o n g o in g

p ro ce ss b y w h ich re g io n a le co n o m ie s,
so cie tie s, a n d cu ltu re s h a ve b e co m e
in te g ra te d th ro u g h a g lo b e -sp a n n in g
n e tw o rk o f exch a n g e .
§ e co n o m ic g lo b a liza tio n : th e in te g ra tio n o f
n a tio n a le co n o m ie s in to th e
in te rn a tio n a le co n o m y th ro u g h tra d e ,
fo re ig n d ire ct in v e stm e n t, ca p ita l
flo w s , m ig ra tio n , and the spread of
te ch n o lo g y
§
§ N o t o n ly p ro d u cts a n d fin a n ce s, b u t a lso
id e a s a n d cu ltu re s h a ve b re a ch e d th e
Trends in Globalization

 International Trade:


 International Financial Flows:



 International Migration:



Advantages of Globalization

 Increase Productivity And Higher Living
Standards
 Increase In Trade In Goods And Services
 Provide New Opportunities For Growth

 Globalization of Financial Markets

 Increased Flow Of foreign Market Capital

 Impact on Poverty
 Increase The Level Of Interdependence And
Competitiveness
 Induce Domestic Firms To Improve Technology
Disadvantages of Globalization
 Takeover of National Firms


 Ruin of Traditional Crafts And Industries



 Brings Instability


 Widens The Disparity


Major Economic Reforms

 Fiscal Reforms:
 Reducing the Fiscal Deficit
 Banking Sector
 Import Licensing
 Export Orientation
 Tax Reforms
 Direct Tax
 Indirect Tax
 Resource Generation through Disinvestment
 Structural Economic Reforms
 Reorientation of Planning

Banking Reforms

 Changing in rate SLR and CRR

 Entry of Public and Private Sector in
capital market
 Operational Flexibility
 Relaxation in Licensing of Private Bank
 Improve standard of supervision , audit
and technology
 Interest rate deregulation and financial
repression.


Industrial Reform

 Industrial licensing
 Foreign Technology
 Technological Development
 Development of small scale industries
 Right of Labor
 Foreign Investment
 Self reliance
Various Sectors
Affected
Indicators Of External Sector

Year Growth of Exports- Growth of Imports- Exports/ imports

BOP(%) BOP(%) (%)

90-91 9 14.4 66.2

95-96 20.3 21.6 74

00-01 21.1 4.6 78.5

2005-2006 23.4 32 67
Balance Of Payment
Foreign Exchange Reserves

Year Gold Foreign Currancy

80 - 81 370 5850
90 - 91 3496 2236
2000 - 2001 2725 39554
Indian Growth Experience
Sector Agriculture Industry Services GDP
(Per cent)
Per
Capita
National
Income
1951-52 to 1960-61 3.1 6.1 4.6 3.9 1.9
1961-62 to 1970-71 2.5 5.4 4.9 3.7 1.3

1971-72 to 1980-81 1.8 4.4 4.2 3.2 0.8

1981-82 to 1990-91 3.1 7.6 6.7 5.6 3.2

Crisis Year: 1991-92 -1.5 -1.2 4.5 1.3 -1.5
1992-93 to 2001-02* 3.4 6.1 7.7 6.1 4.1
2002-03 to 2005-06* 1.9 8.3 8.7 7.0 5.6

* Data up to 1999-2000 are at the base year 1993-94 and data

from 2000-
01onwards are at the base year 1999-2000
Source: Central Statistical Organisation
 Macro economic Indicators
Indicators 1989-90 1994-95 1999-00 2000-01 2001-02 2002-03
A. Growth of GDP (%) 5.6 6.3 6.1 4.4 5.6 4.4

B. GDP Growth by Sectors (%):

i. Agriculture & Allied 2.7 4.9 0.3 -0.4 5.7 -3.1

ii. Industry, of Which Manufacturing 6.7 8.3 4 7.3 3.4 6.1

iii. Services 6.7 6 10.1 5.6 6.8 7.1

C. Inflation Rate (WPI Index (%)) 9.1 10.4 4.8 2.5 5.2 3.2

D. Current Account Balance as % of -3.1 -1.1 -0.5 -0.5 na

GDP
E. Foreign Exchange Reserves (US $ 3.37 19.65 35.06 39.55 51.05 69.89
Bn.)
F. Exchange Rates (Rs/US $) 16.6 31.4 43.33 45.51 47.69 48.44

G. Rate of Growth of :
i. Exports (%) 18.9 18.4 10.8 21 -1.6 20.4
ii. Imports (%) 8.8 22.9 17.2 1.7 1.7 14.5
iii. Exports as % of GDP 6.4 9.6 9.1 10.4 9.9

iv. Imports as % of GDP 9.3 10.5 12.4 11.8 11.6 na

H. Fiscal Deficit as % of GDP 7.9 4.7 5.4 5.6 5.9 5.5

I. Revenue Deficit as % of GDP 2.6 3.1 3.5 4.1 4.2 3.9

J. Saving Ratio as % GDP 22.3 24.9 24.1 23.4 24 na

K. Investment as % of GDP 24.9 25.4 25.2 24 23.7 na

GROWTH RATE OF INDIA'S REAL
GDP PER CAPITA
 Conclusion

♦Reforms have put the Indian economy on a higher

growth path.
♦Equally important to resolve the immediate
liquidity problem.
♦To restore the economy on the path of rapid and
healthy economic growth.
♦

Bibliography
 Ministry Of finance
 Vikalpa- The Journal for Decision Makers
 Books Referred;
 Economic Reforms in India:Where are We and
Where do We Go?(Rakesh Mohan)
 ECONOMIC REFORM IN INDIA-(Sandeep Ahuja,Jaime
Allentuck-Jan,2006)
 Indian Economy
 Indian Economic crises
 Role of Manmohan Singh in Economic reforms
 www.Wikipidia.com
 www.planningcommision.gov.in
 www.rbi.org.in
 www.sribd.com
 

 Thank You