India's inadequate infrastructure is hindering its goal of achieving 9-9.5% annual economic growth. While the government has increased infrastructure spending, reforms have been slow and a lack of long-term funding options constrains growth. Key issues include delays from securing land and environmental clearances, as well as a lack of private sector participation. Faster infrastructure development is critical to support India's growing economy and meet increased demand from urbanization.

1. Infrastructure Bottlenecks &
Economic Development in India
Programme: Post GraduationDiploma in Management
Course: Macro Economics
Group- 3
Sambit Biswal- 32
NIdhi Pratap- 26
Shweta- 43
Uma- 53
Saswat Rn. Parida- 39
Siba Narayan Dora- 42
Deepak Kumar Mishra- 15

2. Background :
India's inadequate infrastructure is a major roadblock to the country's target of achieving a 9.0%-9.5% annual
growth in 2012-2017. That's according to a report that Standard & Poor's Ratings Services published today, titled
"Can India's Developing
Infrastructure Keep Pace
With Economic Growth?".
The report looks at the key
factors hindering the
development of
infrastructure in the country.
"An immediate consequence
of increasing urbanization in
India (BBB-/Stable/A-3) in
recent years has been
manifold growth in demand
for infrastructure. Such
demand supports our stable outlook for the sector," said Standard & Poor's credit analyst Rajiv Vishwanathan.
"We expect the demand to keep increasing in step with growth in the Indian economy. The country's power
deficit is fueling demand for energy projects, while rapid industrialization and urbanization are creating an
urgent need for efficient road and rail connectivity and other improvements in infrastructure."
The Indian government has stepped up infrastructure spending in recent years. Nevertheless, the slow pace of
reforms and a lack of long-term funding options constrain the sector's growth.
"We believe reforms to create a robust framework with transparent policies for project execution and funding
will be critical to keep up the pace of infrastructure development in India," said Mr. Vishwanathan. "Constraints
in securing clearances, land rights, and long-term funding could cause companies to fall short of their targets."
The twelfth five-year plan focuses on removing some of these roadblocks and creating a sustainable framework
for private-sector participation. Nevertheless, the fate of the infrastructure sector over the next few years will
depend on the ability of India's leaders to execute these plans.
Statement of the Problem:

3. “Infrastructure Bottlenecks & Economic
Development in India.”
Analysis:
India and China have been the world's two
fastest growing economies. However, the dragon
nation has consistently outpaced its Asian
counterpart. Apart from the exchange rate policy
- which gives China an unfair advantage in
world trade - infrastructure is the major dividing
factor between the differential growth rates
amongst the two Asian giants.
Infrastructure development is a key to any
country's economic growth. And it is a known
fact that India is facing huge infrastructure problems. The government has taken various steps to address these
issues but with little success. Every year the government allocates trillions of rupees towards infrastructure
development.
Now, one wonders despite such gargantuan allocation why is the progress on this front so slow. India is a
democratic country unlike China - a communist economy - with a single party government. Infrastructure
projects are typically awarded by the government. And India has a history of coalition governments.
So essentially when the government decides to award the project, it requires an approval from the allies as well.
This proves to be time consuming. Secondly, if the project falls outside the geographical purview of the ally, the
entire process faces severe roadblocks. This is because the allies have to keep their votebank happy. And to woo
them they need to shower some goodies. Now how is that possible? - Bring in as much investment as possible
into your hinterland!
Land acquisition proves to be another major issue in infrastructure development. Around 70% of the
infrastructure projects are delayed because of land acquisition problems. Whenever any infra project is executed
lot of people need to be displaced. However, these people, mostly villagers, are not keen on moving despite
being offered a fair price for displacement. They file court cases to bring stay orders on the projects extending
the time line for the projects.

4. It is high time that India adopts a legislation that prevents the displaced people from lodging cases, unnecessarily
extending the time line. Litigation if any, should primarily relate to the fair price regarding their land rather than
allowing homeowners to block land acquisitions by going to court. This phenomenon is prevalent in the
developed world and the results are to see for us.
Land acquisition issue typically is
more relevant for road projects.
However, we believe that the
government is taking right steps in
this direction. NHAI is in the final
stages of acquiring 80% of the land
for the projects to be awarded till
June. The pace of land acquisition
has also improved four times than it
was earlier. In order to bolster
investments in the sector, the
government should encourage
connectivity amongst rural India by
improving interior roadways. This
can be done by encouraging private companies to bid for these projects with government providing the balance
amount through viability gap funding.
Apart from land acquisition, utilization of the funds available for infrastructure spending is a moot point. Let us
take the example of Bandra-Worli sea link. The initial cost of building the bridge was estimated to be around Rs
3 bn. However, various reasons led to the increase in cost by more than five fold to Rs 16 bn! To say the least the
traffic data on the bridge is not encouraging either (50% below initial estimates!).
Now, one wonders whether Mumbai needed such an iconic structure or basic improvement in the pathetic
condition of the roads and railway lines. It is for the government to take prudent steps in infrastructure
management. It is believed that the poor condition of India's infrastructure is impacting the country's GDP
growth rate by at least 2 percentage points annually. If the government think tank can find out a solution to the
infrastructure problems, it will not be long before we overtake the dragon nation!
Infrastructure bottlenecks continue to stifle the economic growth in the India :

5. India inherited colonial economy at the time of her independence. Infrastructure at this stage was below the level
from where effective growth could be carried out.
Thus Infrastructure bottlenecks both social and economic has been the cause of concern for economic
development.
To achieve fast growth of economy, various factors are responsible, including Natural and Mineral resources,
Capital, skill and technology, Liberal and Cooperative Government Policy and Infrastructure.
Except infrastructure, India is good with all other factors in India. Infrastructure for an industry includes
transportation, raw-material, power, policies of government, services, resources etc. Due to lack of
transportation, India's primary as well as secondary sector suffers with loss of financial losses. Goods are not
able to reach its destination in time. Agricultural Produces are not able to reach its market in time, which inhibits
the agricultural growth.
Further Power, electricity and fuels are other main setbacks- which disturbs the economic growth in India. India
currently need about 1 lakh MW power extra than what it currently entails, otherwise this will continue haunting
the overall development of entire economic structure of the country.
Infrastructure bottlenecks affect India’s competitiveness:
Port and road infrastructure bottlenecks coupled with difference in tax structure across states are impacting
India’s competitiveness in the global market.
According to an ongoing study by industry body Confederation of Indian Industry (CII) and Friedrich-Naumann-
Stiftung fur die Freiheit (FNF), “road infrastructure in the country has not kept pace” with overall growth in
economic activities.
The country also lacks of “efficient and cheap trans-shipment facilities between rail hubs and sea ports”.
On the sidelines of a seminar in Kolkata, Sanjay Budhia, Chairman, CII National Committee on Exports and
Imports, said these challenges before domestic trade would ultimately impact India’s exports.
CII will, in early 2014, submit a report on the barriers to internal trade and ways to promote exports.
According to Budhia, faster implementation of Goods and Services Tax (GST) would ease internal trade by
reducing compliance costs. However, exclusion of petroleum and alcohol from GST regime might pose
challenges to domestic trade.

6. Demanding more benefits to Special Economic Zones, Budhia said SEZs should also get incentives available
under the focus market scheme, focus product scheme (chapter 3 of Foreign Trade Policy) to boost export. He
also claimed the Minimum Alternate Tax should be removed from the SEZs to encourage the industry to execute
their committed investment in these zones.
Economic Development of India:
The economic development in India followed socialist-inspired policies for most of its independent history,
including state-ownership of many sectors; India's per capita income increased at only around 1% annualised rate
in the three decades after its independence. Since the mid-1980s, India has slowly opened up its markets through
economic liberalisation. After more fundamental reforms since 1991 and their renewal in the 2000s, India has
progressed towards a free market economy.
In the late 2000s, India's growth reached 7.5%, which will double the average income in a decade. Analystssay
that if India pushed more fundamental market reforms, it could sustain the rate and even reach the government's
2011 target of 10%. States have large responsibilities over their economies. The annualised 1999–2008 growth
rates for Tamil Nadu (9.9), Gujarat (9.6%), Haryana (9.1%), or Delhi (8.9%) were significantly higher than for
Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (6.5%).India is the tenth-largest economy in the world
and the third largest by purchasing power parity adjusted exchange rates (PPP). On per capita basis, it ranks
140th in the world or 129th by PPP.
The economic growth has been driven by the expansion of services that have been growing consistently faster
than other sectors. It is argued that the pattern of Indian development has been a specific one and that the country
may be able to skip the intermediate industrialisation-led phase in the transformation of its economic structure.
Serious concerns have been raised about the jobless nature of the economic growth.
Favourable macroeconomic performance has been a necessary but not sufficient condition for the significant
reduction of poverty amongst the Indian population. The rate of poverty decline has not been higher in the post-
reform period (since 1991). The improvements in some other non-economic dimensions of social development
have been even less favourable. The most pronounced example is an exceptionally high and persistent level of
child malnutrition (46% in 2005–6).
The progress of economic reforms in India is followed closely. The World Bank suggests that the most important
priorities are public sector reform, infrastructure, agricultural and rural development, removal of labour
regulations, reforms in lagging states, and HIV/AIDS. For 2015, India ranked 142nd in Ease of Doing Business
Index, which is setback as compared with China 90th,Russia 62nd and Brazil 120th. According to Index of

7. Economic Freedom World Ranking an annual survey on economic freedom of the nations, India ranks 123rd as
compared with China and Russia which ranks 138th and 144th respectively in 2012.
Agriculture
India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing
accounted for 18.6% of the GDP in 2005, employed 60% of the total workforceand despite a steady decline of its
share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic
development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis
placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of
modern agricultural practices and provision of agricultural credit and subsidies since the green revolution
India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper.
It also has the world's largest cattle population (193 million). It is the second largest producer of wheat, rice,
sugar, groundnut and inland fish. It is the third largest producer of tobacco. India accounts for 10% of the world
fruit production with first rank in the
production of banana and sapota, also
known as chiku.
The required level of investment for the
development of marketing, storage and
cold storage infrastructure is estimated to
be huge. The government has implemented
various schemes to raise investment in
marketing infrastructure. Amongst these
schemes are Construction of Rural Go
downs, Market Research and Information
Network, and Development / Strengthening
of Agricultural Marketing Infrastructure,
Grading and Standardisation.[
Main problems in the agricultural sector, as listed by the World Bank, are
 India's large agricultural subsidies are hampering productivity-enhancing investment.
 Overregulation of agriculture has increased costs, price risks and uncertainty.
 Government interventions in labour, land, and credit markets.

8.  Inadequate infrastructure and services.
Researchand development :
The Indian Agricultural Research Institute (IARI), established in 1905, was responsible for the research leading
to the "Indian Green Revolution" of the 1970s. The Indian Council of Agricultural Research (ICAR) is the apex
body in kundiure and related allied fields, including research and education. The Union Minister of Agriculture
is the President of the ICAR. The Indian Agricultural Statistics Research Institute develops new techniques for
the design of agricultural experiments, analyses data in agriculture, and specialises in statistical techniques for
animal and plant breeding. Prof. M.S. Swaminathan is known as "Father of the Green Revolution" and heads the
MS Swaminathan Research Foundation. He is known for his advocacy of environmentally sustainable
agriculture and sustainable food security. Was labertihrNuttenim Club.
Industrial output
India is tenth in the world in factory output. Manufacturing sector in addition to mining, quarrying, electricity
and gas together account for 27.6% of the GDP and employ 17% of the total workforce. Economic reforms
introduced after 1991 brought foreign competition, led to privatisation of certain public sector industries, opened
up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving
consumer goods. In recent years, Indian cities have continued to liberalise, but excessive and burdensome
business regulations remain a problem in some cities, like Kochi and Kolkata.
Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and
required political connections to prosper was faced with foreign competition, including the threat of cheaper
Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on
designing new products and relying on low labour costs and technology.
Services
India is fifteenth in services output. Service industry employ English-speaking Indian workers on the supply side
and on the demand side, has increased demand from foreign consumers interested in India's service exports or
those looking to outsource their operations. India's IT industry, despite contributing significantly to its balance of
payments, accounts for only about 1% of the total GDP or 1/50th of the total services.
During the Internet bubble that led up to 2000, heavy investments in undersea fibre-optic cables linked Asia with
the rest of the world. The fall that followed the economic boom resulted in the auction of cheap fiber optic cables
at one-tenth of their original price. This development resulted in widely available low-cost communications

9. infrastructure. All of these investments and events, not to mention a swell of available talent, resulted in India
becoming almost overnight the centre for outsourcing of Business process. Within this sector and events, the
ITES-BPO sector has become a big employment generator especially amongst young college graduates. The
number of professionals employed by IT and ITES sectors is estimated at around 1.3 million as on March 2006.
Also, Indian IT-ITES is estimated to have helped create an additional 3 million job opportunities through indirect
and induced employment.
India's resource consumption
Oil:
India consumes the second-largest amount of oil in the Asia-Pacific region behind China. The combination of
rising oil consumption and fairly unwavering production levels leaves India highly dependent on imports to meet
the consumption needs.
Natural gas:
As per the Oil and Gas Journal, India had 38 trillion cubic feet (1.1×1012 m3) of confirmed natural gas reserves
as of January 2007. A huge mass of India's natural gas production comes from the western offshore regions,
particularly the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are
also major producers of natural gas. As per EIA data, India produced 996 billion cubic feet (2.82×1010 m3) of
natural gas in 2004.[22]
India imports small amounts of natural gas. In 2004, India consumed about 1,089×109 cu ft (3.08×1010 m3) of
natural gas, the first year in which the country showed net natural gas imports. During 2004, India imported
93×109 cu ft (2.6×109 m3) of liquefied natural gas (LNG) from Qatar.
Sector Organization :
As in the oil sector, India's state-owned companies account for the bulk of natural gas production. ONGC and
Oil India Ltd. (OIL) are the leading companies with respect to production volume, whilst some foreign
companies take part in upstream developments in joint-ventures and production sharing contracts (PSCs).
Reliance Industries, a privately owned Indian company, will also have a bigger role in the natural gas sector as a
result of a large natural gas find in 2002 in the Krishna Godavari basin.
The Gas Authority of India Ltd. (GAIL) holds an effective control on natural gas transmission and allocation
activities. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign
investors, private domestic companies, and national oil companies to hold up to 100% equity stakes in pipeline

10. projects. Whilst GAIL's domination in natural gas transmission and allocation is not ensured by statute, it will
continue to be the leading player in the sector because of its existing natural gas infrastructure.
Issues:
Regulation, public sector, corruption :
India ranked 133rd on the Ease of Doing Business Index in 2010, compared with 85th for Pakistan, 89th for
People's Republic of China, 125th for Nigeria, 129th for Brazil, and
122nd for Indonesia.
Extent of corruption in Indian states, as measured in a 2005 study by
Transparency International India. (Darker regions are more corrupt)[23]
Corruption in many forms has been one of the pervasive problems
affecting India. For decades, the red tape, bureaucracy and the Licence
Raj that had strangled private enterprise.[24] The economic reforms of
1991 cut some of the worst regulations that had been used in corruption.
Corruption is still large. A 2005 study by Transparency International
(TI) India found that more than half of those surveyed had firsthand experience of paying a bribe or peddling
influence to get a job done in a public office.[23] The chief economic consequences of corruption are the loss to
the exchequer, an unhealthy climate for investment and an increase in the cost of government-subsidised
services. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by
the government, like education, healthcare, judiciary, police, etc., to be around 211 billion (US$3.4 billion).[23]
India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and
compared with China, the average time taken to secure the clearances for a startup or to invoke bankruptcy is
much greater.
The Right to Information Act (2005) and equivalent acts in the states, that require government officials to furnish
information requested by citizens or face punitive action, computerisation of services and various central and
state government acts that established vigilance commissions have considerably reduced corruption or at least
have opened up avenues to redress grievances.The 2006 report by Transparency International puts India at 70th
place and states that significant improvements were made by India in reducing corruption.

11. Employment
India's labour force is growing by 2.5% every year, but employment is growing only at 2.3% a year.[28] Official
unemployment exceeds 9%. Regulation and other obstacles have discouraged the emergence of formal
businesses and jobs. Almost 30% of workers are casual workers who work only when they are able to get jobs
and remain unpaid for the rest of the time.[28] Only 10% of the workforce is in regular employment.[28] India's
labour regulations are heavy even by developing country standards and analysts have urged the government to
abolish them.[1][29]
From the overall stock of an estimated 458 million workers, 394 million (86%) operate in the unorganised sector
(of which 63% are self-employed) mostly as informal workers. There is a strong relationship between the quality
of employment and social and poverty characteristics.[30] The relative growth of informal employment was more
rapid within the organised rather than the unorganised sector. This informalisation is also related to the
flexibilisation of employment in the organised sector that is suggested by the increasing use of contract labour by
employers in order to benefit from more flexible labour practices.[3]
Children under 14 constitute 3.6% of the total labour force in the country. Of these children, 9 out of every 10
work in their own rural family settings. Around 85% of them are engaged in traditional agricultural activities.
Less than 9% work in manufacturing, services and repairs.[31] Child labour is a complex problem that is basically
rooted in poverty. The Indian government is implementing the world's largest child labour elimination program,
with primary education targeted for ~250 million. Numerous non-governmental and voluntary organisations are
also involved. Special investigation cells have been set up in states to enforce existing laws banning employment
of children (under 14) in hazardous industries. The allocation of the Government of India for the eradication of
child labour was US$10 million in 1995–96 and US$16 million in 1996–97. The allocation for 2007 is
US$21 million.
Environmental degradation & Environmental issues in India :
About 1.2 billion people in developing nations lack clean, safe water because most household and industrial
wastes are dumped directly into rivers and lakes without treatment. This contributes to the rapid increase in
waterborne diseases in humans. Out of India's 3119 towns and cities, just 209 have partial treatment facilities,
and only 8 have full wastewater treatment facilities (WHO 1992).114 cities dump untreated sewage and partially
cremated bodies directly into the Ganges River.]Downstream, the untreated water is used for drinking, bathing,
and washing. This situation is typical of many rivers in India as well as other developing countries. Globally, but
especially in developing nations like India where people cook with fuel wood and coal over open fires, about
4 billion humans suffer continuous exposure to smoke. In India, particulate concentrations in houses are reported

12. to range from 8,300 to 15,000 μg/m3, greatly exceeding the 75 μg/m3 maximum standard for indoor particulate
matter in the United States. Changes in ecosystem biological diversity, evolution of parasites, and invasion by
exotic species all frequently result in disease outbreaks such as cholera which emerged in 1992 in India. The
frequency of AIDS/HIV is increasing. In 1996, about 46,000 Indians out of 2.8 million (1.6% of the population)
tested were found to be infected with HIV.
Conclusion:
(1) New Industrial Policy :
Under Industrial Policy, keeping in view the priorities of the country and its economic development, the roles of
the public and private sectors are clearly decided. Under the New Industrial Policy, the industries have been
freed to a large extent from the licenses and other controls. In order to encourage modernisation, stress has been
laid upon the use of latest technology. A great reduction has been effected in the role of the public sector.
Abolition of Licensing:
Before the advent of the New Industrial Policy, the Indian industries were operating under strict licensing
system. Now, most industries have been freed from licensing and other restrictions.
(ii) Freedom to Import Technology:
The use of latest technology has been given prominence in the New Industrial Policy. Therefore, foreign
technological collaboration has been allowed.
(iii) Contraction of Public Sector:
A policy of not expanding unprofitable industrial units in the public sector has been adopted. Apart from this, the
government is following the course of disinvestment in such public sector undertaking. (Selling some shares of
public sector enterprises to private sector entrepreneurs is called disinvestment. This is a medium of
privatisation.)
(iv) Free Entry of Foreign Investment:
Many steps have been taken to attract foreign investment. Some of these are as follows:

13. (a) In 1991, 51% of foreign investment in 34 high priority industries was allowed without seeking government
permission.
(b) Non-Resident Indians (NRIs) were allowed to invest 100% in the export houses, hospitals, hotels, etc.
(c) Foreign Investment Promotion Board (FIPB) was established with a view to speedily clear foreign investment
proposals.
(d) Restrictions which were previously in operation to regulate dividends repatriation by the foreign investors
have been removed. They can now take dividends to their native countries.
(v) MRTP Restrictions Removed:
Monopolies and Restrictive Trade Practices Act has been done away with. Now the companies do not need to
seek government permission to issue shares, extend their area of operation and establish a new unit.
(vi) FERA Restrictions Removed:
Foreign Exchange Regulation Act (FERA) has been replaced by Foreign Exchange Management Act (FEMA). It
regulates the foreign transactions. These transactions have now become simpler.
(vii) Increase in the Importance of Small Industries:
Efforts have been made to give importance to the small industries in the economic development of the country.
(2) New Trade Policy
Trade policy means the policy through which the foreign trade is controlled and regulated. As a result of
liberalisation, trade policy has undergone tremendous changes. Especially the foreign trade has been freed from
the unnecessary controls.
The age-old restrictions have been eliminated at one go. Some of the chief characteristics of the New Trade
Policy are as follows:
(i) Reduction in Restrictions of Export-Import:
Restrictions on the exports-imports have almost disappeared leaving only a few items.
(ii) Reduction in Export-Import Tax:

14. Export-import tax on some items has been completely abolished and on some other items it has been reduced to
the minimum level.
(iii) Easy Procedure of Export-Import:
Import-export procedure has been simplified.
(iv) Establishment of Foreign Capital Market:
Foreign capital market has been established for sale and purchase of foreign exchange in the open market.
(v) Full Convertibility on Current Account:
In 1994-95, full convertibility became applicable on current account.
Here it is important to clarify the meaning of current account and full convertibility. Therefore, this has been
done as follows:
Current Account:
Transactions with the foreign countries are placed in two categories: (i) transaction with current account, for
example, import-export, (ii) Capital account transactions, like investment.
Full Convertibility:
In short, full convertibility means unrestricted sale and purchase of foreign exchange in the foreign exchange
market for the purpose of payments and receipts on the items connected with current account. It means that there
is no government restriction on the sale and purchase of foreign exchange connected with current account.
On the other hand, sale and purchase of foreign exchange connected with capital account can be carried on under
the rates determined by the Reserve Bank of India (RBI),
(vi) Providing Incentive for Export:
Many incentives have been allowed to Export- oriented Units (EOU) and Export Processing Zones (EPZ) for
increasing export trade.
(3) Fiscal Reforms

15. The policy of the government connected with the income and expenditure is called fiscal policy. The greatest
problem confronting the Indian government is excessive fiscal deficit. In 1990-91, the fiscal deficit was 8% of
the GDP. (It is important to understand the meaning of fiscal deficit and GDP.)
(i) Fiscal Deficit:
A fiscal deficit means that the country is spending more than its income,
(ii) Gross Domestic Product (GDP):
The GDP is the sum total of the financial value of all the produced goods and services during a year in a country.
Generally, the financial deficit is calculated in the form of GDP’s percentage. Presently, the government of India
is making efforts to take it to 4%.
Solutions of Fiscal Deficit
In order to handle the problem of fiscal deficit, basic changes were made in the tax system. The following are the
major steps taken in this direction:
(i) The rate of the individual and corporate tax has been reduced in order to bring more people in the tax net.
(ii) Tax procedure has been simplified.
(iii) Heavy reduction in the import duties has been implemented.
(4) Monetary Reforms
Monetary policy is a sort of control policy through which the central bank controls the supply of money with a
view to achieving the objectives of the general economic policy. Reforms in this policy are called monetary
reforms. The major points with regard to the monetary reforms are given below:
(i) Statutory Liquidity Ratio (SLR) has been lowered. (A commercial bank has to maintain a definite percentage
of liquid funds in relation to its net demand and time liabilities. This is called SLR. In liquid funds, cash
investment in permitted securities and balance in current account with nationalised banks are included.)
(ii) The banks have been allowed freedom to decide the rate of interest on the amount deposited.

16. (iii) New standards have been laid down for the income recognition for the banks. (By recognition of income, we
mean what is to be considered as the income of the bank. For example, should the interest on the bad debt be
considered as the income of the bank directions have been issued in this context.
(iv) Permission to collect money by issuing shares in the capital market has been granted to nationalised banks.
(v) Permission to open banks in the private sector has also been granted.
(5) Capital Market Reforms
The market in which securities are sold and bought is known as the capital market. The reforms connected with it
are known as capital market reforms. This market is the pivot of the economy of a country. The government has
taken the following steps for the development of this market:
(i) Under the Portfolio Investment Scheme, the limit for investment by the NRIs and foreign companies in the
shares and debentures of the Indian companies has been raised. (Portfolio Investment Scheme means investing in
securities.)
(ii) In order to control the capital market, the Securities and Exchange Board of India (SEBI) has been
established.
(iii) The restriction in respect of interest on debentures has been lifted. Now, it is decided on the basis of demand
and supply.
(iv) The office of the Controller of Capital Issue which used to determine the price of shares to be issued has
been dispensed with. Now, the companies are free to determine the price of the shares.
(v) Private sector has been permitted to establish Mutual Fund.& the registration of the sub broker has been
made mandatory.
(6) Phasing out Subsidies
Cash Compensatory Support (CCS) which was earlier given as export subsidy has been stopped. CCS can be
understood with the help of an example.
If an exporter wants to import some raw material which is available abroad for 100, but the same material is
available in India for 120 and the governments wants the raw material to be purchased by the exporter from India
itself for the protection of indigenous industries, the government is ready to pay the difference of 20 to the
exporter in the form of subsidy.

17. The payment of 20 will be considered as CCS. In addition to this, the CCS has been reduced in case of fertilizers
and petro products.
(7) Dismantling Price Control
The government has taken steps to remove price control in case of many products. (Price Control means that the
companies will sell goods at the prices determined by the government.) The efforts to remove price control were
mostly in respect of fertilizers, steel and iron and petro products. Restrictions on the import of these products
have also been removed.