Economic Reforms in India

Ms. Manpreet Assistant Prof.In Mgt. CUHP

 Since independence several attempts were

made for rapid growth through the process of economic Planning

No substantial gains were achieved

Huge investments were made in public sector

enterprises but these enterprises yielded poor returns. Lack of optimum resources, inadequacy of infrastructural resources, absence of sufficient motivation, poor investment all contributed to the slow development of economy,
Ms. Manpreet Assistant Prof.In Mgt. CUHP

 In early 1990,s ,the Gulf War led to sharp

increase in the oil Prices. Foreign Exchange Reserves declined from Rs. 5480 Crores (1990) to Rs. 1666 Crore (Jan,1991). It was accompanied by net outflow of NRI deposits. It created payment crises. New government assumed office in 1991 had to act swiftly to deal with the deteriorating economic environment. Therefore govt. followed a policy of stabilization and introduced Ms.macroeconomic Manpreet Assistant Prof.In Mgt. CUHP certain economic trends and structural reforms.

Economic Reforms
Economic reforms broadly indicate necessary

structural adjustment s to the external events. It requires reduction of countries spending to the level parallel to its income and thereby reducing fiscal deficit. It requires gradual reduction of import restrictions and elimination of export restrictions. These adjustment s require market obtained structural change in order to make economy efficient and flexible.
Ms. Manpreet Assistant Prof.In Mgt. CUHP

Need of Economic Reforms

Increase in fiscal deficit

Increase in adverse balance of payment.

Gulf Crisis Fall in foreign Exchange Reserve. Rise in Prices. Poor Performance of Public Sector Undertaking.

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Economic Reforms in IndiaPhase I

It had its origin in 1985 when Mr. Rajiv Gandhi

took over as Prime Minister. The prime Minister in his first national broadcast said, The public sector has entered into too many areas where it should not be. We shall open the economy to the private sector in several areas hitherto restricted to it . Consequently a number of measures were taken to remove controls open areas to private sector players
Ms. Manpreet Assistant Prof.In Mgt. CUHP

 The focus was on:

Improvement in productivity.
absorption of modern Technology Full utilization of capacity Greater role of private sector

Ms. Manpreet Assistant Prof.In Mgt. CUHP

 The govt. introduced the following main

measures: Cement was totally decontrolled. The share of free sale of sugar in open market was enlarged. The ceiling of asset limit of big business houses was enhanced from 20 Cr. To 100 Cr. 94 drugs were completely delicensized New textile policy was introduced Electronic industry was liberalized from MRTP restrictions. Export import policy 1985 was announced in Ms. Manpreet Assistant Prof.In Mgt. CUHP order to pave the way for easier import export .

Economic Reforms in IndiaPhase II

The economic reforms introduced under Rajiv

Gandhi regime did not yield the desired results. The deficit of balance trade during the sixth plan was 5930 cr. It jumped to 10840 Cr. In seventh plan ie 1985-19990 India was forced to approach World Bank and IMF to provide huge loan of $7 Billion. The world bank while sanctioning the loan insisted that the govt must put its economy back on veils. In 1991 the importance of mega industrialization Ms.was Manpreet Assistant Prof.In Mgt. the CUHP new govt. went for open realized and

 Dr. Manmohan Singh the finance minister in 1991

sent a proposal to IMF thereby focusing on the reform process in India. The main macro economic objectives of economic reforms in India include: Attaining economic growth at the rate of 3% to 3.5% in 1991-92 and 4% in 1992-93 Reducing the annual rate of inflation by 9% in 199192 followed by 6% in 1992-93 Relieving the critical balance of payments situation and rebuilding foreign exchange reserves to $2.2 billion in 1991-92 Reducing current account deficit in the budget from GDP in 1990-91 to 2% by 1992-93. Ms.2.5% Manpreetof Assistant Prof.In Mgt. CUHP

Main Features of Economic Reforms or New Economic Policy

Liberation.

Privatization.
Globalization.

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Liberalization
It means to free the economy from direct or physical

controls imposed by the govt. Measures taken for Liberalization: 1.Abolition of Industrial Licensing and Registration Under new economic policy private sector was freed to a large extent. A new industrial policy was announced in this respect, with the exception of 6, industrial licensing was abolished for all the industries.

Ms. Manpreet Assistant Prof.In Mgt. CUHP

 Concession form Monopolistic Act

Freedom for expansion and Production to

Industries. Increase in the investment limit of the small industries Freedom to import capital goods. Freedom to import Technology Free determination of Interest Rates. Action plan for Information Technology and software Development

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Privatization
Is a general process of involving the private

sector in the ownership or operation of a state owned enterprise. It can take three forms: Change in ownership Organizational Measures Operational Measures.

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Causes of Privatization
Disintegration of Socialist Economies

Inefficient Public Sector

Uneconomic Price policy Burden on the govt.

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Objectives of Privatization
To increase the efficiency and competitive power

of the enterprise. To reduce deficit financing and public deficit. To strengthen industrial management. To earn more and more foreign currency To make optimum use of economic resources and diffuse their ownership To achieve rapid industrial development of the country.

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Objectives of Privatization
Increase the efficiency and competitive power of

the enterprises. Reduce deficit financing and public deficit Strengthen industrial management Earn more and more foreign currency Make optimum utilization of resources

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Measures adopted for privatization

Contraction of public sector

Defense, atomic energy, mining of atomic minerals, and railways were kept reserved for public sector Disinvestment in existing Public sector undertakings Shares of public sector worth Rs. 10,257 Crore were sold between 1999 to 2006. Increase in private sector investment(45% to 55%) Sick industries Sick Industrial Companies Act 1985 was amended Ms. Manpreet Assistant Prof.In Mgt. CUHP in December 1991

Disinvestment in PSUS
IN JULY 1991, the New Industrial Policy was

announced by the government. The policy envisaged disinvestment of a part of Governments holdings in selected Public Sector Undertakings in order to improve the performance of public sector enterprises. Rangarajan Committee recommendations emphasized the need for substantial disinvestment. Holding of 51% or more equity by the government was recommended only for 6 scheduled industries, namely coal and lignite, mineral oils, ammunition and defense equipment, atomic Ms. Manpreet Assistant Prof.In Mgt. CUHP energy, radioactive minerals, and railway

Rangarajan Committee on Disinvestment

The committee on disinvestment in Public Sector

enterprises set up by government of India under the chairmanship of C. Rangarajan ,in 1993 in its report made a number of recommendations. It stated the best method for disinvestment is offering shares to the general public at a fixed price through a general prospecting. In all those units which are reserved for the public sector the percentage of equity disinvestment should be 49% so that the government, by holding majority of shares, retains control over the management.
Ms. Manpreet Assistant Prof.In Mgt. CUHP

GLOBALISATION
It means integrating the economy of a country

with the economies of other countries under conditions of freer flow of trade and capital and movement of persons across borders. The growing interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital inflows and also through the more rapid and widespread diffusion of technology.
Ms. Manpreet Assistant Prof.In Mgt. CUHP

Features of globalization
The business expands throughout the world.

Goods and services are bought and sold from/to

any country in the world The difference between domestic and foreign markets comes to an end. Products are planned and developed keeping in mind the markets of the entire world. Outsourcing of goods and services can be done.

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Types of globalization
Globalization of markets

Globalization of production
Globalization of technology Globalization of investment

Ms. Manpreet Assistant Prof.In Mgt. CUHP

Ms. Manpreet Assistant Prof.In Mgt. CUHP