ECONOMIC REFORMS

SINCE 1991
A PRESENTATION BY:
JOSEPH K.A.
TRAINING ASSOCIATE- ECONOMICS
KVS-ZIET, GWALIOR
© KVSZIETGWLRJKA2019-20PGTECON
 NEED FOR ECONOMIC REFORMS
 In 1991 economic reforms were
introduced in India because 1991 was the
year of crisis for the Indian economy. It
is clear from the following facts:
a. national income was growing at the rate
of 0.8%.
b. Balance of payment crisis was to the
extent of 10000 crores.
c. India sold large amount of gold to Bank of
England.
d. Foreign exchange reserves were only
1.8 billion dollars which were sufficient
for three weeks imports only.
e. Fiscal deficit was more than 7.5%.
f. Trade relation with soviet block had
broken down.
g. Remittances from Non-Resident Indians
stopped due to war in Arab countries .
ECONOMIC REFORMS SINCE
1991- NEW ECONOMIC POLICY
(NEP)
1. Components on NEP.

 Macroeconomic stabilisation – Demand side

Management.
 Structural adjustment – supply side management.
 ECONOMIC REFORMS
2. NEP- policy of liberalisation, privatisation anf
Globalisation(LPG)
In the NEP 1991, structural reforms
can be seen with respect to:
I. Liberalisation
II. Privatisation
III. Globalisation
LIBERALISATION

Liberalisation means removing all

unnecessary controls and
restrictions like permits licenses,
protectionist duties, quotas, etc.
imposed by the government.
 LIBERALISATION MEASURES
A. Industrial sector reforms
1. Abolishing of industrial licensing:
Industrial licensing was abolished for
all projects except for industries.
These industries are:
I. Liquor
II. Cigarettes,
III. Industrial Explosives,
IV. Defence Equipments,
V. Drugs and pharmaceuticals, and
VI. Dangerous chemicals.
 2.Contraction of public sector.

The number of indusries

exclusively reserved for the
public sector has been reduced
from 17 to 3.
The only industries reserved for
the public sector are:
defence equipment, atomic
energy generation, and railway
transport.
3. Reforms in small scale sector.
According to the new policy
investment limit of small scale
industries has been increased to one
crore with a view to modernise them.
4. Concession in the MRTP Act.
The new act gives more emphasis to
the prevention and control of
monopolistic, restrictive and unfair
trade practices.
5. Expansion of production capacity.
After delicensing, producers enjoy the
freedom of what to produce and in what
quantity.
6.Freedom to import capital goods.
liberalisation also implied in import
sector. Now industrialists are free to
import capital goods with a view to
upgrade their technology and plant
capacity of production.
B. FINANCIAL SECTOR REFORMS
1. Liberalisation implied:
1. There was a substancial shift in role of the
RBI from ‘regulator’ to ‘ a facilitator’ of the
financial sector.
2. After Liberalisation in 1991,RBI as a
facilitator would only facilitate free play of
market forces and leave it to the commercial
banks to decide their interest structure.
3. Thus, with liberalisaton, competition
prevails rather than controls.
Financial sector reforms…..
2.Both cash reserve ratio and statutory liquidity
ratio have been reduced to increase
availability of funds with commercial bank to
advance more credit.
3.Bank rate had been reduced. It lowered the
interest rate charged by the commercial
banks thus, encouraging credit.
4.Foregn institutional investors such as
merchant bankers, mutual funds and pension
funds are now allowed to invest in Indian
financial markets.
.
 FINANCIAL SECTOR REFORMS…..

5.There was establishment of private

sector banks, indian as well as foreign.
Foreign investment limit in banks was
raised to around 50 %.
6.The stock market has been made to
statutory body
C. TAX REFORMS/FISCAL REFORMS

After liberalisation policy of 1991:

1. both direct and indirect taxes were
reduced.
2. The procedure for paying taxes was
simplified.
3. Non-planned expenditure by
government was reduced.
D. FOREIGN EXCHANGE
REFORMS/EXTERNAL SECTOR REFORMS

In 1991,as an immediate measure to solve the

balance of payment crisis, the Rupee was
devalued against foreign currencies.

It also freed the determination of rupee value in

the foreign exchange market from government
control, and made it subject to a market
determined exchange rate.
E. TRADE POLICY REFORMS
The trade policy reforms aimed at :
1. Abolition of import licensing system
except in case of hazardous and
environmentally sensitive
industries;
2. Removal of quantitative restrictions
on imports;
3. Reduction of tariff rates.
 PRIVATISATION
Privatisation is defined as
the transfer of a function,
activity or organisation , from
the public sector to the private
sector.
Privatisation measures
1. Disinvestment
Disinvestment is a sale of a part of equity
holding held by the government in any public
sector undertaking to private investor.
2. Policy of Navratnas
The government has decided to give special
treatment to some of the important profit
making PSUs and they were given the status of
navratnas.
These navratnas were granted financial and
operational autonomy in the working of the
companies.
These navratnas are:
a) Bharat Electronics Limited(BEL).
b) Bharat heavy electricals
limited(BHEL).
c) Bharat petroleum corporation
limited(BPCL).
d) Coal India limited(CIL)
e) Gas authority of India
limited(GAIL).
 GLOBALISATON
Globalisation refers to growing economic
interdependence among countries in the
world with regard to technology , capital,
information , goods , services, etc.
1. Reduction of trade barriers to

permit free flow of goods and

services across national frontiers.
2. Creation of an environment in which

free flow of capital can take place.

The term globalisation has 4 parameters:
1. Reduction of trade barriers to
permit free flow of goods and
services across national frontiers.
2.Creation of an environment in which
free flow of capital can take place.
3. creation of an environment to allow
free technology among the nation
states
4.creation of an environmental in
which free movement of labour can
take place in different countries of
the world.
 Outsourcing
Outsourcing means obtaining goods and
services by contract from an outside source.
The main services which are being
outsourced from india by developed
countries are :voice-based business
proces(known as BPO or call centre),
banking services, railway inquiry,
record keeping, accountancy, music
recording , book transcription, clinical
advice , teaching etc.
Genpact , HCL BPO, Wipro BPO are
some top most companies offering
BPO services in India.
India is a favourate outsourcing destinations.
The advantages that india has are:
a. India can provide a ready supply of
skilled people at relatively lower
prices.

b. India has the advantage of time

difference as it is located on the
other side of the developed
countries.
 Main organisations for facilitating globalisation.

1. International monetary fund(IMF). The IMF came

into official existence on december 27,1945 with
the signing of its articles of agreement.it
commenced financial operations on march 1,1947.
2. The world bank or international bank for
reconstruction and development(IBRD)
3. World trade organisation(WTO)
ACHIEVEMENTS OF THE POLICY OF LPG
1. Rise in GDP growth. since the introduction of
economic reforms in 1991,country has
shown rise in GDP growth rate.in 1991-
92,growth rate of GDP WAS 1.3%. In the 9th
plan GDP grew at 5.5 % and in 10th plan at
7.2%.
2. Rise in foreign exchange reserves.foreign
exchange reserves which were only US 5.8
billion dollars in 1991 have shown a
tremendous rise to US 295.5 billion dollars in
2012-13.
3.Control of inflation. The plus point of
economic reforms is that it has controlled
inflation from 16.8 in 1991 to 7.6% in 2012-13.

4.Rise in integration with the world economy.

India is now much more integrated with the
world economy and has benefited from this
integration in many ways.
The outstanding success of IT and IT-Enabled
Services(ITES) has shown what Indian skills
and enterprises can do _given the right
government.
5. Rise in inflow of foreign capital. FDI was at
US 33.0 billion dollars in 2011-12.

6.Controlling fiscal deficit. Continuesly

increasing fiscal deficit was a serious
problem in front of government .
It was as high as 8.5% of GDP prior to 1991.
Due to LPG policies governments receipts
has been increased lead of fall in fiscal
deficit around 5% of GDP.
SOLUTIONS:SECOND
GENERATION REFORMS
Second gneration reforms are develop
driven and include measures, such as:
1. Corrective policies to focus on smalll
,marginal , middle and large farmers who
suffer from productivity stagnation.

2. Generate employment oppurtunities,

including those that can be provided by
micro and small enterprise.

3. To develop quality infrastructure.

4. To
provide essential public services to
the poor and to establish
accountability of service providers.
5. To expand vocational training
institutes not only in terms of
number of persons they train but
also in terms of number of different
skills and trades they teach for
meeting industry requirements.
6. Reforming labour laws.
SECOND GENERATION REFORMS……
7. To reduce public debt and
consequently , the burden of interest
and debt-servicing charges.
8. To protect the environment
- That is, to improve air quality , to
have clean rivers and water bodies
and to raise energy efficiency.
JOSEPH K.A.
TRAINING ASSOCIATE-ECONOMICS
KVS- ZIET, GWALIOR