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Economic reforms


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Economic reforms

  1. 1. Meaning of Economic Reform• The term economic reform broadly indicatesnecessary structural adjustments to externalevents.• It includes the function of country’s spending tothe level parallel to its income and therebyreducing fiscal deficits.• This requires gradual reduction in import andincrease in export.• These adjustments also require market changein order to make economy flexible.
  2. 2. The Crisis of June 1991• The present process of economic reformswas born out of the crisis in the economy,which climaxed in 1991.• The crisis compelled the government toadopt a new path-breaking economic policyunder which a series of economic reformmeasures were initiated with the objectiveto deal with the crisis and to take theeconomy on a high-growth path.
  3. 3. Need of Economic Reforms• 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. Early Crisis Management Measures asTrend Setters to The Reform Process• The top and immediate priority of thegovernment was to stabilize the economy, bringthe growth of the economy to its normal trackand to win back confidence of masses in thecountry and the international financialcommunity.• The crisis management measures focussedlargely on fiscal correction, industrial decontroland balance of payments.
  6. 6. Liberalisation• It means to free the economy from direct or physicalcontrols imposed by the government.• Prior 1991, government had imposed several types ofcontrols on Indian economy e.g. industrial licensingsystem, price control or financial control on goods,import license, foreign exchange control, restrictionon investment by big business houses, etc.• These controls leads to fall in economy growth.• Economic reforms were based on the assumption thatmarket forces could guide the economy in a moreeffective manner than government control.
  7. 7. Measures taken for Liberalisation• Abolition of industrial licensing andRegistration: According to new industrialpolicy , with the exception of 6 sectors,industrial licensing has been removed.• Concession from MRTP Act• Freedom from Expansion and Production toIndustriesContd…
  8. 8. Measures taken for Liberalisation• Increase in the Investment Limit of the SmallIndustries– It has been raised to Rs.1crore &– Investment limit has been raised to Rs.25 lakh.• Freedom to import capital goods• Freedom to import technology• Action plan for information Technology andsoftware development.