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Economic reforms


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Complete Details regarding economic reforms

Published in: Business, Technology

Economic reforms

  1. 1. The term economic reform broadly indicates necessary structural adjustments to external events. It include the function of country’s spending to the level parallel to its income and thereby reducing fiscal deficits. This requires gradual reduction in import and increase in export. These adjustments also requires market change in order to make economy flexible.
  2. 2. The present process of economic reforms was born out of the crisis in the economy, which climaxed in 1991. The crisis compelled the government to adopt a new path-breaking economic policy under which a series of economic reform measures were initiated with the objective to deal with the crisis and to take the economy on a high-growth path.
  3. 3.  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
  4. 4. The top and immediate priority of the government was to stabilize the economy, bring the growth of the economy to its normal track and to win back confidence of masses in the country and the international financial community. The crisis management measures focussed largely on fiscal correction, industrial decontrol and balance of payments.
  6. 6. It means to free the economy from direct or physical controls imposed by the government. Prior 1991, government had imposed several types of controls on Indian economy e.g. industrial licensing system, price control or financial control on goods, import license, foreign exchange control, restriction on investment by big business houses, etc. These controls leads to fall in economy growth. Economic reforms were based on the assumption that market forces could guide the economy in a more effective manner than government control.
  7. 7.  Abolition of industrial licensing and Registration : According to new industrial policy , with the exception of 6 sectors, industrial licensing has been removed.  Concession from MRTP Act  Freedom from Expansion and Production to Industries  Increase in the Investment Limit of the Small Industries: It has been raised to Rs 1crore & Investment limit has been raised to Rs 25 lakh.
  8. 8.  Freedom to import capital goods  Freedom to import technology  Action plan for information Technology and software development.
  9. 9. Privatisation means allowing the private sector to set up more and more of industries that were previously reserved for public sector. It can take in three in forms: a. Change in ownership: Degree of privatisation judged by the extent of ownership transferred from public to private sector. This can have four forms: i) Total Nationalisation ii) Joint Venture
  10. 10. iii) Liquidation IV) Workers Co-operative b. Organizational Measures: It includes variety of measures to limit state control. i) A holding Company Structure ii) Leasing c. Operational Measures: Autonomy to the operators of the enterprise.
  11. 11.  To increase efficiency & competitive power of the enterprises  To strengthen industrial management.  To earn more & more Foreign currency.  To make optimum use of resources  To achieve rapid industrial development of the country.
  12. 12.  Reduction in economic burden  Increase in efficiency  Reduction in sense of irresponsibility  Scientific Management  Reduction in Political Interference  Encouragement of new Inventions
  13. 13.  Lack of social welfare  Class struggle  Increase in inequality  Increase in unemployment  Exploitation of weaker section
  14. 14.  Contraction of Public sector  Disinvestment  Sale of shares of public enterprises  Increase in private sector  Conversion of loans into shares is not necessary  Sick industries  Memorandum of understanding
  15. 15. Public sector in India includes all activities or institutions funded out of the government’s budget whether at centre or states. Public sector includes the following:  Govt. Dept. & Govt. Companies  Irrigation & power projects  Railways, post & telegraphs  Banking, insurance, financial and other services
  16. 16.  Conflict between the financial and social objectives  Problem of losses or low rate of return on investment  Lack of professionalism in management  Time & cost overruns in new projects  Underutilization of capacity  Operational inefficiency
  17. 17.  PSU Refocussing  Memorandum-of-Understanding (MOU) System of PSE  Financial & operational autonomy  Restructuring of sick units  Privatisation through disinvestment  Protection of PSU workers’ Interest
  18. 18. The disinvestment programme towards greater privatization of the economy was launched in the year 1991-1992 with the announcement of the new industrial policy in August 1991 and is an ongoing process even today. It involves sale of minority stake in a few PSU, strategic sales, initial public offering and rights offer. Between August 1991 and March 2003, in all 48 companies underwent the disinvestment process.
  19. 19.  Valuation of public sector unit  Method of disinvestment  The extent of disinvestment  Issues concerning labour
  20. 20. It is defined as a process associated with increasing openness, growing economic independence and Deeping economic integration in the world economy.  Reduction of trade barriers  Free flow of capital  Free flow of technology  Free movement of technology
  21. 21.  Stage I: Domestic company exports to foreign countries through the dealers or distributors of home country  Stage II: The domestic company exports to foreign countries directly on its own.  Stage III: The domestic company becomes an international company by establishing production and marketing operations in various key foreign countries.  Stage IV: The company replicates a foreign company in the foreign country by having all the facilities including R&D, full fledged human resources, etc.  Stage V: The company becomes a true foreign company by serving the needs of foreign customers just like the host country’s company serves.
  22. 22. Globalisation of markets Globalisation of Production Globalisation of Technology Globalisation of Investment
  23. 23. Reduction of import duties Encouragement of foreign investment Reducing custom duty Devaluation of currency Partial convertibility