Introduction The term ‘economic reforms’ refers to policy reforms undertaken by the central govt. since 1990 to attain certain significant achievements.

ECONOMIC REFORMS

SINCE 90’S

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:

Stabilization Restructuring Globalization

Major Causes

Increase in fiscal deficit Deficit in Balance of Payment External Borrowings Mounting Inflation Rate Failure of the public sector Industrial licensing policies

Major Economic Reforms

Fiscal Reforms:Reducing the Fiscal DeficitBanking SectorImport LicensingExport Orientation

Tax ReformsDirect TaxIndirect TaxResource Generation through Divestment

Structural Economic ReformsReorientation 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

Industrial Reform

Industrial licensing Foreign Technology MRTP limit Technological Development Development of small scale industries Right of Labor Foreign Investment Self reliance

The Next Generation Reforms

Political Reforms for Good Governance Re-engineering the Role of the

government Administrative and Legal Reforms Strategic Management of the Economy

with a focus on knowledgebase Agricultural Sector Reforms Industrial Restructuring Labour Sector Reforms Financial Sector Reforms

Major Economic Reforms

software and IT constitute only a small part of the Indian economy

more than 50% of India’s output comes from its manufacturing and

70% of its labor force is employed in agricultural.

FISCAL AND ADMINISTRATIVE REFORM

India’s fiscal reforms focused on generating revenue through rationalizing the tax structure and increasing compliance. Specifically, the reforms:

Lowered taxes Broadened the tax base; Removed exemptions and concessions to reduce

distortions; Simplified laws and procedures and increase

compliance, including using technology to better track tax payments.

To improve its tax system, India should:

Increase taxes on services and implement a tax on e-commerce;

Modernize tax administration through better utilizing technology;

Restructure tax collection and allocation system to increase revenues at local and state levels;

On the expenditure side

Reduce subsidies (which are generally

poorly targeted);

Downsize overstaffed public institutions, particularly at state and local levels;

Reduce bureaucratic controls and set performance targets;

Institute mechanisms like greater public transparency to increase accountability.

FINANCIAL SECTOR REFORMS

India has implemented reforms that have led to relatively well-functioning capital markets.

• Liberalized interest rates;

• Abolished cumbersome approval requirements for financial transactions;

• Liberalized capital markets through the abolition of the Controller of Capital Issues;

• Allowed companies to more easily sell stock.

THE WAY FORWARD

Allow investment in securities as an alternative to domestic saving in order to reduce reliance on foreign inflows in capital markets;

Allow pension funds to invest in stocks;

Improve and deepen debt markets for larger corporations;

Increase competition from commercial and foreign banks in the financial sector.

INTERNATIONAL TRADE AND INVESTMENT REFORMS

Recent reforms: Eliminated import licenses and reduced import duties

from rates that had been the world’s highest; Reduced tariffs; Liberalized trade in service and technology

industries; Improved recognition of international intellectual

property rights; Allowed 100% ownership in firms in a large majority

of industries (excluding banks, insurance, telecommunications, and airlines);

INDUSTRIAL SECTOR REFORMS

Industrial sector reforms:

Opened up the economy broadly to competition; and

Reduced reservations for some small-scale industries.

NEED OF INDUSTRAIL SECTOR IN INDIA’S DEVELOPMENT

Balanced occupational structure: Self reliant economy Expansion of employment

opportunities Increase in the rate of economic

growth

Performance of public sector Made large investments in basic and capital

goods industries :iron &steel,machine tools, electrical,engineering etc.Contributed in the direction of import substitution , export earnings and social sphere.

Public sector was perceived originally as holding the commanding heights of economy and leading technological advances.

But its contribution in terms of generating internal resources for further expansion has fallen short of expectations,inability to do so a major constraint on economic growth

INDUSTRIAL POLICY RESOLUTION, 1956 First industrial policy was adopted in

1948. First five year plan was completed and

parliament had accepted the “socialistic pattern of society”as the basic aim of social and economic policy.

These important developments necessitated a fresh industrial policy resolution.Hence,IPR was introduced

IPR DIVIDED INDUSTRIES INTO THREE CATEGORIES

FIRST

• Included 17 industries

• Developemnt would be the exclusive responsibilty of the state

SECOND

• Included 12 industries

• Were state owned and new enterprises would be set up the state

THIRD

• Left open to pvt sector

Objectives of IPR:

To accelerate the rate of growth and speed up industrialisation

To develop heavy and machine making industries

To expand public sector To reduce disparities in income and

wealth and to prevent monopolies and concentration of wealth and income.

Effects of policies on industrial development The share of industrial sector in GDP rose

from 11.8% in 1950-51 to 24.6% in 1990-91.implies development

People having less capital could start off with the business because of the policy of the government to promote small scale sector in the economy.It also created employment opportunities.

The policy of protection made it possible for indigenous industries (automobiles,electronics especially ) to prosper.

Public sector entered in those fields also where it wasn’t required.it also monopolised in the production of certain goods and services which proved disadvantageous to the economy like as in case of telecommunications earlier it was monopolised by govt due to absence of competition,one had to wait for long to get a connection.when this sector got opened up for pvt sector,services became cheap and easy.

There are areas where public sector is very much required like as in : defence and free medical treatment to poor.

There were instances where big industrialists misused the licensing policy .Industrialists were spending more time to obtain the license or to get favour from the ministers or bureacrats,in this process they could not give proper attention to production and management which adversely affected the industrial effeciency.

Because of absence of competition,there was no incentive for domestic producers to improve the quality and reduce the costs.they turned into ineffecient firms.the consumers had to suffer.

Indian industries were diversified in many fields during the period.it was achieved largely due to public sector

Significant Consequences Higher rate of growth Rapid growth of secondary and tertiary

Sectors Increase in Export and Imports Improved Balance of Payments Rise in value of Rupee Less reliance on foreign borrowings Overall development of Indian economy

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.

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