INTRODUCTION Liberalization of the economy means to free it from direct or physical controls imposed by the government. Economic reforms were based on the assumption that market forces could guide the economy in a more effective manner than government control. Examples of one of other undeveloped countries like Korea, Thailand, Singapore, etc. that had achieved rapid economic development as a result of liberalization were kept in consideration .
What made India to liberalize
A Balance of Payments crisis in 1991 which pushed the country to near bankruptcy.
the Rupee devalued and economic reforms were forced upon India.
India central bank had refused new credit and foreign exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports
Reforms taken during liberalization
Abolition of industrial licensing and registration
Liberalizing the MRTP act
Freedom for expansion and production
Increase in the investment limit of the small industries
Freedom to import capital goods
Freedom to import technology
Free determination of interest rates
Impact of these reforms
Annual growth in GDP
A rate of growth that will double average income in a decade
Rapid Growth in all sectors.
Exports of information technology enabled services particularly strong.
Industrial Sector was among the first sectors to be liberalized in India in a series of measures. Industrial licensing has been abolished except in a small number of sectors where it has been retained on strategic considerations.
Abolition of industrial licensing
Reduction in d reservation of public sector
Facilitated easy access to foreign technology
Restriction were removed on expansion and,
Opening the economy to FDI.
Foreign Direct Investment in India
Foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries.
Foreign Investment Promotion Board (FIPB) is a competent body to consider and recommend foreign direct investment.
Trade policy allowing domestic providers (of goods and/or services) to compete more freely in world markets and foreign providers to compete more freely in domestic markets.
TRADE SECTOR REFORMS ELIMINATION OF IMPORT LICENSING RATIONALISATION OF TARIFF STRUCTURE ADOPTION OF FLEXIBLE EXCHANGE RATE
Financial liberalization (FL) refers to the deregulation of domestic financial markets and the liberalization of the capital account. In one view, it strengthens financial development and contributes to higher long-run growth. In another view, it induces excessive risk-taking, increases macroeconomic volatility and leads to more frequent crises. 3. Financial Liberalization
Financial Liberalization reforms REFORMS IN BANKING SECTOR REFORMS IN CAPITAL MARKET REFORMS IN INSURANCE
4. Fiscal Sector Reforms
India's fiscal sector reforms help to raise the rate of savings and investment in India. This further helps to enhance the productivity of public expenditures
India has established itself as one of the fastest growing economies in the world. India is also advancing towards the economical growth and improvement in literacy.
During 1999-2000, India's domestic savings and investment was estimated to grow by 23% and Indian economy was expected to grow by 6.4% although the average growth rate declined to 6.0% in comparison to earlier year.
In the first five year plan, India had attained an average annual growth rate by 3.5%.
Indian economy showed an average growth rate of 6.4%, which was 5.9% in the 80's. At the end of the 8th Five Year Plan, the annual growth rate of India reached 6.9 percent.
During the period from 1991-92 the Indian economy passed through a tough time. The overall economic growth in this period declined to 1.1% and the total fiscal deficit became 8% of the GDP.
Indian Foreign Exchange Reserves: a steady rise after liberalization
Foreign Investments after liberalization
Import duty Reductions after liberalization
Need for elimination of large number of Rules & Regulations in the books
Sharply reducing the number of implementing agencies
Moving towards single window clearance
Infrastructure: A Challenge and an opportunity
Investments required upto 2012 – US$ 334 billion
Power Generation - US$ 143 billion
Power Transmission & Distribution – US$ 116 billion