1. By
Sushrut (11095)
Vipin(11044)
Rohit(11028)

2. Licence Raj
 As per Licence Raj, licenses and regulations were required to
set up and run businesses in India between 1947 and 1990.
 The Licence Raj was India's decision to have a planned
economy where all aspects of the economy are controlled by
the state and licences are given to a select few.
 Up to 80 government agencies had to be satisfied before
private companies could produce something and, if
granted, the government would regulate production.

3. Consequences
India had started out in the 1950’s with:
 high growth rates
 openness to trade and investment
 a promotional state
 social expenditure awareness
 macro stability

4. Continued…
However, by the 1980’s, the country was left with:
 low growth rates
 closure to trade and investment
 a license-obsessed, restrictive state
 inability to sustain social expenditures
 macro instability, indeed crisis

5. What was the condition ?
 Two sources of revenue
A) Tax
B) PSU profit
But both of sources were not generating revenue
 Why?
1) Inefficient management
2) Corruption
3) Excessive regulation

6. Continued…
5) Low productivity
6) Lack of infrastructure
7) Concentration of economic powers in few hands
8) Unbalanced development
9) Monopolistic tendency

7. Why Govt. requires money?
 To control
1) Unemployment
2) Poverty
3) Population
revenue generation?
Govt. expenditure > revenue
( Unsustainable growth)
 Govt. is borrowing money for development.

8. Consequences :
 Gross fiscal deficit for Govt. ( state & center)
 1980-81 9% of GDP
 1985-86 10.4% of GDP
 1990-91 12.4% of GDP
 For center Govt. alone
 1980-81 6.1% of GDP
 1985-86 8.1% of GDP
 1990-91 8.4% of GDP

9. continued…
 Exports were drastically reduced
 Forex were also reduced to such extent that India could
barely manage 3 weeks of imports.
Almost reduced to $ 1.2 billion.
 India was very close to default.

10. Actions taken immediately?
 Emergency loan of $ 2.2 billion from IMF by pledging 67
tons of India’s gold reserves.
 RBI had to airlift 47 tons of gold to Bank of England
 Also RBI had to airlift 20 tons of gold to Union bank of
Switzerland to raise money of $ 500 million.

11. Continued…
 Devaluation of rupee:
1. Exports become cheaper
2. Imports were more costlier
 India had fixed exchange rate system with basket of
currencies of major trading partners.
 Rupee devaluated between 18-19%
 Trade policy changed from restrictive to free tradable EXIM
sc rips which allowed exporters to to import 30% value of
their exports.

15. Industrial Policy
1991
 Objective:  Policy Initiatives
 Remove regulatory system
 Incentives for industries in 1. Industrial Licensing Policy
backward areas
 To Run the PSUs on business 2. Public sector Policy
lines
 Encourage Entrepreneurship 3. Foreign Investment
 Link Indian economy to
global market 4. Foreign Technology
 Develop indigenous
technology Agreements
 Promote productivity &
employment generation
5. MRTP Act

16. Industrial Licensing Policy
 Industrial Licensing - It is required to establish, to manufacture
goods at a specific location before 1991.
 In the new policy licensing requirement was abolished
except for
1. Distillation & Brewing of alcoholic drinks
2. Manufacturing Cigarettes & Tobacco substitutes
3. All types of electronic aerospace & Defence equipments
4. Industrial Explosives
5. Certain Hazardous chemicals
 Exempted factories have to furnish a memorandum to Industries
department
 Location:
 In the new policy projects can be established at any location
except cities . In a city of 1 million population it has to be
established 25kms away from city.

17. Public Sector Policy
 Number of Industries reserved for public sector reduced to 8 and
then to 2 ( Atomic energy & Railway )
 Growth of PSUs in the following Priority sectors
1.Essential infrastructure Goods & Services
2. Exploration & Exploitation of Oil & Mineral resources
3. Strategic Defence equipments
4. Technology development & building of manufacturing
capabilities in areas which are crucial for economic development
 Autonomy through MOU – Navaratnas
 Bringing down government equity to 26 % in non-Priority sector
PSUs
 Close down PSUs which can not be revived
 Fully protect the interest of workers

18. Foreign Investment
 Foreign Investment allowed up to 51 % of Equity
capital in FERA companies
 Foreign Investment allowed up to 26 % of Equity
capital in Defence productions sector.
 Up to 100 % in certain sectors ( real estate )
 Stock market opened for foreign investment
 EXIM Policy liberalised , tariffs reduced , lifted import
restrictions
 Foreign exchange rate policy liberalised , Rupee was
made fully convertible on current account and then
recently partly on capital account.

19. Foreign Technology Agreement
 Government will provide automatic approval for technological
agreements related to high priority industries within specified
parameters.
 Priority sectors are -Infrastructure , Exploration , Defence
products
 Indian companies will be free to negotiate the terms for
technology transfer with their foreign counterparts according to
their own commercial judgement.
 No permission is necessary for hiring of foreign technicians
and foreign testing of indigenously developed technologies.
Government will encourage foreign trading companies to assist
in our export activities

20. MRTP Act
Monopolies and Restrictive Trade Practices Act
 The government will not scrutiny the investment
decisions of MRTP companies
 Prior approval of MRTP companies for expansion not
required
 Restrictions on merger, acquisition and transfer of shares
will be replaced
 MRTP commission will be strengthened to take action
against restrictive & unfair trade practice. MRTP
commission will be empowered to enquire into the
complaints of customers
 MRTP Act is replaced by Competition Law

23. LIBERALIZATION

26. Structural Change in GDP Composition
Com pos ition of GDP (1991 v/s 2011)
Agriculture, 16.6%
2011 34.0%
42.7% 1991
Services, 57.7%
Industry, 25.7%
23.2%
• GDP has undergone a marked structural change over a span of two
decades
• Agriculture contribution has shrunk to 16.6% in 2011 from 34.0% in
1991
• Share of tertiary sector has increased commendably, in fact is
becoming engine of growth
• Flat growth in Secondary sector is however, a cause of worry given
the reducing employment elasticity of agricultural sector

27. FDI INFLOWS
157.8%
40000 180.0%
FDI as % of Total Foreign Inflows
35000 160.0%
102.5%
30000 140.0%
97.0%
94.2%
120.0%
83.7%
US$ Million
25000
76.5%
75.2%
100.0%
66.1%
59.3%
20000
56.4%
56.1%
53.8%
49.1%
80.0%
46.0%
43.8%
41.6%
41.8%
39.4%
15000
60.0%
27.5%
25.6%
14.1%
10000 40.0%
5000 20.0%
0 0.0%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
FDI Inflow s As % of Total foreign Investment Inflow s
• FDI inflows have grown multiple fold from just US$ 97 mn in 1991 to US$
30.4 bn with an average annual compound growth rate of 33.3%
• FDI inflows as a proportion of total foreign investment inflows has fallen
from 157.8% in 2008-09 to 49.1% in 2011 due to faster rise in portfolio
investment
• Indian companies have made an outward investment totaling US$80
billion in the first decade of the century mostly in developed economies

28. Social indicators
40.0% 35.6% 37.0%
35.0%
100.0% 35.0%
82.1%
74.0% 27.5% 28.3%
80.0% 65.5% 30.0% 25.7%
64.1%
52.2% 25.0%
60.0%
39.3% 20.0%
40.0% 15.0%
20.0% 10.0%
5.0%
0.0% 0.0%
Overall Males Females Total Rural Urban
1991 2011 1991 2005
• Overall literacy rate has gone up from just • Overall, poverty has declined by eight
over half to almost three-quarters during percentage points from as high as 35.6%
1991 and 2011 in 1991 to 27.5% in 2005
• Literacy level among female folk • Decline was more pronounced in
which constitutes about half of the urban areas as compared to rural
population has nearly doubled areas
• Urban poverty fell by double digits.
• Among young people, the rates are higher Rural poverty came down by seven
as the Right to Education law kicks in percentage points