India in 1990

INDIA IN 1990

India : The Golden BirdPolitical Journey From 1947 -1991

1947

1970

1980-

1985

1987-

1991

• Independence• Pt. Jawaharlal

Nehru: The First Prime Minister Of India

• State Of Emergency

• Oil Prices

• Civil War, Sri Lanka

• BJP In Power• Rajiv Gandhi

Assassination

• Rise Of Political Parties

• Invasion At Golden Temple

Economic Reforms

Why economic reforms?

1985 – BOP problems 1990 – serious problem

Central Bank refused new credit and foreign exchange reserves had reduced International Monetary Fund

Value of Rupee depreciating

Manmohan Singh- 1991 Budget

He introduced the LPG Model.

Manmohan Singh's 1991 Budget: the day that changed India forever

Manmohan Singh: The man who saved the Indian Economy in 1991 Manmohan Singh: Father of Indian reforms

-thehindu

Liberalization GlobalizationPrivatization

The healing process begins…

Pre- Liberalization Policy

• Annual growth rate was stagnated at 3.5% - “Hindu Rate of Growth”

• Only four or five licenses would be given for steel, power and communications

• License Raj

• After Independence, India adhered to socialist policies.• Rely on internal markets for development, not international trade.

Highlights of the LPG Policy• Foreign Technology Agreements• Foreign Investment• MRTP Act, 1969 (Amended)• Industrial Licensing• Deregulation• Beginning of privatisation• Opportunities for overseas trade• Steps to regulate inflation• Tax reforms• Abolition of License -Permit Raj

Post liberalization Policy• Opening of the economy, making it more competitive• It allows 100% foreign ownership • In 2007, when India recorded its highest GDP growth

rate of 9%.• India became the second fastest growing major

economy in the world, next only to China. • Income inequality• For 2010, India was ranked 124th among 179

countries in Index of Economic Freedom World Rankings.

• We have high economic development, infrastructure development and urbanization.

“I do not minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, “no power on earth can stop an idea whose time has come.” I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.”

POLICY GIVEN BY GOVERNMENT IN 1990S

Trade Policy

Reforms

Foreign Investme

nt

Narasimham

Committee

TRADE POLICY REFORMS

• Main FeaturesFreer Imports and Exports

Rationalisation of Tariff Structure

Decanalisation Devaluation and Convertibility of Rupee on Current AccountTrading Houses

Special Economic Zones

Agriculture Export Zones

FOREIGN INVESTMENT

It allowed level playing

field to foreign

players in a number of sectors.

Floating exchange

rate system was adopted.

Rupee was made

convertible in current account

Tax rate applicable on

foreign companies have come

down progressively

FDI limits in a number of sectors has

been progressively

increased.

FDI investments and returns can now be

easily repatriated.

Initially, FDI up to 100% was allowed in number of

sectors except for sectors like

Media, Banking, Aviation,

Insurance, Retail

NARASIMHAM COMMITTEE – I (1991)

Objective:To improve the financial health of the banking sector & to look into the structure ofthe banking system in India.NARASIMHAM COMMITTEE - II (1998)Objective:To make the banking system stronger & look into the possibility of mergers &acquisitions.

EFFECT

FREE TRADE POLICY• Free trade is a policy

followed by some international markets in which countries' governments do not restrict imports from, or exports to, other countries

SECTOR DISTRIBUTION OF GDP

• Employment elasticity is the growth of employment relative to growth of Economy. Reforms of 1991 is a shift in era in Indian economic realm. Post Liberalization the major change occurred is the shift in population from agriculture to Manufacturing and Services

EMPLOYMENT ELASTICITY

MIGRATION TO CITY STARTED

• This make possible transfer of real time human labor across the nation even human is not there.

DEVELOPMENT OF IT

• india’s annual average growth rate from 1990 – 2010 has been 6.6 % which isalmost double than pre reforms era. GDP growth rate surpassed 5% mark in early 1980’s. This made impact of 1990’s reforms on growth unclear

• Some believe that 1980’s reforms were precursor to LPG reforms. Other things apart, it is clear that 1980 reforms led to crash of economy in 1991, which wa remedied by LPG reforms which were quite more comprehensive. It was IMF loan which gave government to adjust its economy.

IMPACT ON SMALL SCALE IN INDIA

• This impact shall be studied right from the beginning of colonization in 18th century. Colonization can be considered as 1st wave of globalization. In pre colonization era, India’s textiles and handicraft was renowned worldwide and was backbone of Indian economy. With coming of industrial revolution along with foreign rule in India, Indian economy suffered a major setback and much of its indigenous small scale cottage Industry was destroyed.

• After independence, government attempted to revive small scale sector by reserving items exclusively for it to manufacture. With liberalization list of reserved items was substantially curtailed and many new sectors were thrown open to big players.

• Small scale industry however exists and still remains backbone of Indian Economy. It contributes to major portion of exports and private sector employment. Results are mixed, many erstwhile Small scale industries got bigger and better. But overall value addition, product innovation and technology adoption remains dismal and they exist only on back of government support. Their products are contested by cheaper imports from China. Policies of government toward SSI were covered in previous article access here and here

IMPACT ON AGRICULTURE• share of agriculture in

domestic economy has declined to about 15%. However, people dependent upon agriculture are still around 55%. Cropping patterns has undergone a huge change, but impact of liberalization can’t be properly assessed.

IMPACT ON SERVICES SECTOR• Software, BPO, KPO, LPO industry

boom in India has helped India to absorb a big chunk of demographic dividend, which otherwise could have wasted.

• Exports of these services constitute big part of India’s foreign Exchange earnings. In fact, the only three years India had Current Account surplus, I.e. 2000-2002, was on back of this export only.

• Private Banks such as ICICI, HDFC, Yes Bank and also foreign banks, raised standards of Indian Banking Industry

• Here too IT is on path of bringing banking revolution.

• New government schemes like Pradhan Mantri Jan dhan Yojana aims to achieve their targets by using Adhaar Card. Having said this, Public Sector Banks still remain major lender in the country.

• These markets has thrown open wide array of associated services such as Investment Banking, Asset Management, Underwriting services, Hedging advice etc. These collectively employ lakhs of people all over India.

EFFECTS OF INDUSTRIAL AND TRADE REFORMS

• After Industrial Reform Import and Export rose sharply. Consumption of goods accelerated. In Budget 1989 ,it was shown that Industrial Reform raised the taxes and

proposed around $340 million job creation package.

• After Trade Reform FDI went up by 49% equity. Income tax rate reduced from 56% to 40% and corporate tax from 57% to

46%. Rupee was devalued by 24%

According to 1994 survey,• Only 15% of population had idea what

liberalization meant.• What Indian saw at village level was rising in

price and reduce in subsidies.

EFFECTS OF REFORM

Television Entries of STAR TV, ZEE TV, SUN TV and STAR SPORTS

Reform in Airlines Entry of East West airlines

Banking sector In 1994, ICICI and UTI(Axis) entered.

Telephone SectorPeople waited years to get there first telephone before but, By mid 1990s there were cellphone operators and a few years later phone companies were begging you to buy their stuff.

The period from 1991-1994 was probably the most glorious time periods in recent Indian history.