Professional Documents
Culture Documents
Economic Policy
What is it?
in 1990-91-, Govt. was very low on cash, so they changed their economic policy, that's called
LPG.
What is License Raj? : you want to open a new mobile phone making company
you need to get licence from Govt..
Quota Raj.: even after you get the license, you can't produce as many phones as you wish,
you'll be given a quota, say 1000 mobiles per month - you can't manufacture more than that.
Inspector Raj: there will be a factory inspector, who will come and check how many
phones you actually made, he gives you the certification only then you can take out your phones
from warehouse to retail shops! so when all 3 combine -its heavy delay, red tape and corruption.
Earlier income tax was high, so people used every trick to evade it.
Now tax rates were reduced, more people came in Tax net.
Market to Determine Exchange Rate based on supply & demand of foreign currency.
(earlier RBI was doing that)
you don't have to pay high taxes on imported luxery items (gold watches / perfumes) like
you had to do previously.
Benefit of privatization
1. increased finacial discipline
2. modernisation
3. increased performance of PSU by
4. pvt Capital
5. Managerial tech.
6. FDI incoming
Problem
1. instead of making Navaratna a Global Player,
2. income generated from Disinvestment used to fill Revenue deficit
NavRatna
= profit making PSUs were given Nav ratna statuts = they get more autonomy in their
work
(Govt. doesn't interfere much when they're buying raw material or taking other
decisions.)
Import substitution is when we'll (or have to) buy Bajaj Scooter even when Japanese
Honda (foreigner) has a cheaper / better vehicle to offer. (but Honda prevented by Govt.
using above methods.)
this sounds great from patriotic point of view,but citizens are denied all luxeries of life,
even when they want to enjoy it.
Result of Import Substion strategy was that we were not importing any luxery electronic
items , walkman, VHS players, Stereos, cars etcs from Japan, Taiwan, America, etc.
thus we didnot have any high business relations with ASEAN or any other nation.
After LPG, our market was flooded with cheap electronic goodies. Our trade relations
with Japan, Singapore, ASEAN, & America improved.
Once Established, the Economic ties are harder to break than diplomatic / military pacts.
Thus more economic relations we have with the world= more friends we make.