The document discusses India's economic liberalization that began in 1991. It overviews the key reforms like abolishing industrial licensing, liberalizing the MRTP Act, allowing private sector entry into industries previously reserved for public sector, allowing more foreign direct investment and trade. The reforms aimed to transform India from a socialist to a market-based economy and achieve higher growth. Major sectors like industry, services, agriculture and banking saw significant changes and growth due to the liberalization.

1. A
PRESENTATION
ON
LIBERALISATION LIBERALISATION
Institute
Shri. Patel Kelavni Mandal College
Of Tech. & B.ed Junagadh
2010 - 2011

2. Kelvin Bhalodiya
Jaydeep Bhalani
Nehal Godhasara
Divyesh Chauhan
Prashant Jivani

4. INTRODUCTION
The industrial policy was announced on July 24, 1991 by
the government, headed by prime minister P.V Narasimha
Rao. The New Industrial Policy (NIP) was a big departure
from the erstwhile industrial policy.
The important objectives are:
(a) The key objective of industrial policy was rapid
industrialisation of the country.
(b) to maintain sustained growth in the productivity and
gainful employment, and
(c) to attain international competitiveness. Therefore, the
basic philosophy of the New IP, 1991 has been the
continuity with change.

5. These changes pertain broadly to five areas viz.,
(a) Industrial licensing.
(b) Public sector policy.
(c) MRTP Act, 1969.
(d) Foreign investment.
(e) Foreign technology agreements.
The new government assumed office in June 1991. it
made a decision to organize sale of gold.
The exchange rate of the rupee was adjusted, and massive
devaluation of the rupee was carried against major
currencies to improve the trade and payment situation. In
this situation, India needed major economic overhauling.

6. DEFINATION OF L.P.G.
Liberalisation
 Liberalisation refers to relaxation of previous
government restrictions usually in areas of social and
economic policies.
Thus, when government liberalizes trade it means it has
removed the tariff, subsidies and other restrictions on the
flow of goods and services between countries.

7. Privatisation
 It refers to the transfer of assets or service functions
from public to private ownership or control and the
opening of the hitherto closed areas to private sector
entry.
Privatisation can be achieved on many ways-
franchising, leasing, contracting and divesture.

8. Globalisation
 Globalisation means integrating the domestic economy
with the world economy.
It is a process which draws countries out of their
insulation and makes them join rest of the world in its
march towards a new world economic order.

9. Reason for implementing LPG
 Various distortions like poor technological development
shortage of foreign exchanges; and imprudent borrowings
from abroad and mismanagement of foreign exchange
reserves.
 Low foreign exchange reserves.
 Burden of national debt.
 Inflation.

11. Introduction of Liberalisation
 The economic liberalisation in India refers to
ongoing economic reforms in India that started on 24
July 1991. After Independence in 1947, India adhered
to socialist policies. In the 1980s, Prime Minister Rajiv
Gandhi initiated some reforms.
In 1991, after India faced a balance of payments crisis,
it had to sell 67 tons of gold to the International
Monetary Fund (IMF) as part of a bailout deal, and
promise economic restructuring.
The government of P. V. Narasimha Rao and his finance
minister Manmohan Singh (the present Prime Minister)
started breakthrough reforms.

12. The new neo-liberal policies included opening for
international trade and investment, deregulation, initiation
of privatization, tax reforms, and inflation-controlling
measures.
The main objective of the government was to transform
the economic system from socialism to capitalism so as to
achieve high economic growth and industrialize the nation
for the well-being of Indian citizens. Today India is
mainly characterized as a market economy.

13. Meaning
 Liberalisation 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.

14. 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

15. Reforms taken during Liberalisation
 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

16. Impact of these reforms
 Average annual growth of services shifted to 8.1%
during 1991-2001 from 6.9% during 1981-1991.
 A rate of growth that will double average income in a
decade.
 Rapid Growth in communication services, financial
services, business service & community services.
 Exports of information technology enabled services
particularly strong.

18. Industrial licensing
Industrial licensing is governed by industries
(Development and Regulation) act 1951. it is a very
effective tool used by the government to regulate the
private sector.
It abolished all industrial licensing, irrespective of the
level of investment, except for 18 industries related to
security and strategic concern, social reasons, concerns
related to safety and overriding environment issues,
manufacture of products of hazardous nature and articles
of elitist consumption.

19. Later, this list was trimmed, and as of now license is
required only for 6 items listed in Annexure II. These are
as follows.
1. Distillation and brewing of alcoholic drinks.
2. Cigars and cigarettes of tobacco and manufactured
tobacco substitutes.
3. Electronic Aerospace and defense equipment.
4. Industrial explosives including detonating fuses,
safety fuses, gun powder, nitrocellulose and matches.
5. Hazardous chemicals.
6. Drugs and pharmaceuticals.

20. Public Sector
The statement of industry policy 1991 reduce the list of
industries reserved for the public sector to eight from 70
and further for more area where de resaved which
trimmed the list of four.
Public sector monopoly was limited only for 8 industries
of security and strategic relevance. This was also later
trimmed and only railways, arms and ammunition and
allied items of defence equipments, defence aircraft and
warships, atomic energy, minerals specified in the
schedule to the atomic energy, remained. Presently, only 2
sector are under public sector monopoly: Atomic energy
& Railway transport.

21. Various Sector
A. Industry and services
Industry accounts for 28% of the GDP and employ 14%
of the total workforce.
The Indian industrial sector underwent significant
changes as a result of the economic reforms of
1991, which removed import restrictions, brought in
foreign competition, led to privatisation of certain public
sector industries.

22. India is 13th in services output. The services sector
provides employment to 23% of the work force and is
growing quickly, with a growth rate of 7.5% in 1991–
2000, up from 4.5% in 1951–80.
Even sectors like Insurance which were earlier reserved
for public sector were not only opened for private sector,
when foreign investment was allowed up to 26%.
Under the 1997, WTO financial servicers agreement,
India is committed to permit 12 foreign bank branches
annually.

23. Fig. 1.A : Annual growth in
number of companies
18.00%
16.00%
14.00%
12.00%
Year to year growth
10.00%
Government Companies
8.00%
Non-Government
6.00% Companies
4.00%
2.00%
0.00%
-2.00%
1993-94 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
Year

24. 100% foreign investment is permitted in information
technology Unit setup exclusively for exports.
100% of FDI is allowed in E commerce. Automatic
approval is allowed for Foreign equity in software &
almost all area of Electronics.

25. B. Agriculture
India ranks second worldwide in farm output. Agriculture
and allied sectors like forestry, logging and fishing
accounted for 15.7% of the GDP in 2009–10, employed
52.1% of the total workforce,
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 in India.

26. India is the largest producer in the world of milk, jute and
pulses, and also has the world's second largest cattle
population with 175 million animals in 2008.
It is the second largest producer of rice, wheat, sugarcane,
cotton and groundnuts, as well as the second largest fruit
and vegetable producer, accounting for 10.9% and 8.6%
of the world fruit and vegetable production respectively.

27. C. Banking and finance
Prime Minister Indira Gandhi nationalized 14 banks in
1969, followed by six others in 1980, and made it
mandatory for banks to provide 40% of their net credit to
priority sectors like agriculture, small-scale industry, retail
trade, small businesses, etc.
To ensure that the banks fulfill their social and
developmental goals. Since then, the number of bank
branches has increased from 8,260 in 1969 to 72,170 in
2007 and the population covered by a branch decreased
from 63,800 to 15,000 during the same period.

28. India's gross domestic saving in 2006–07 as a percentage
of GDP stood at a high 32.7%. More than half of personal
savings are invested in physical assets such as land,
houses, cattle, and gold.
The public sector banks hold over 75% of total assets of
the banking industry, with the private and foreign banks
holding 18.2% and 6.5% respectively.
Since liberalisation, the government has approved
significant banking reforms.

29. MRTP Act, 1969
MRTP Act, 1969 The New Industrial Policy, 1991
proposes to amend suitably the Monopolies and
Restrictive Trade Practices Act, 1969.
MRTP can be divine into four part :
1. Monopolistic practices
2. Restrictive trade practices
3. Unfair tread practices
4. Controlling the concentration of economic power.
Principle objective of MRTP act are as under:
1. Prevention of concentration of economic power &
control of monopolies
2. Prohibition of monopolistic, restrictive and unfair
trade practices.

30. This restricted the growth of Indian industry and units like
TISCO,TELCO,HINDALCO and Ranbaxy, which
through having the capacity to become global players,
remained confined to India, producing substandard goods.
In 1991, the MRTP Act was restructured and pre-entry
restrictions removed with respect to new undertaking,
expansion ,amalgamation, merger, takeover, registration,
etc.

31. Foreign investment
The 1956 Industrial policy accepted the role of foreign
equity, since independence we have always looked at
foreign equity as some sort of economic slavery.
But in last 50 years, the enormous underutilization of
resources, unemployment, poor infrastructure and
pervasive poverty compelled the government to open the
doors for foreign equity.

32. Today, India welcomes foreign equity in almost every
sector. In 1991, it allowed:
1) Automatic approval for foreign equity participation up
to 51% granted to high priority industries listed every
in Annexure IV.
2) Foreign trading companies are allowed to invest up to
51% in Indian trading house engaged in export
activity.
3) In hotel and tourism related industry, up to 51%
foreign equity is allowed.
4) Even in the mining sector foreign investment up to
50% was allowed.

33. Fig. 1.C : Contribution to GDP
1800000
1600000
1400000
1200000
Rupees crores
1000000
Government Companies
800000 Non-Government
Companies
600000
400000
200000
0
1993 1994 1995 1996 1997 1998 1999 2000* 2001* 2002*
Year

34. Foreign Technology Agreements
Foreign Technology Agreements The New Industrial
Policy proposes to give automatic permission for foreign
technology agreements in identified high priority
industries. Further, it also proposes to allow other
industries to import foreign technology subject to the
fulfillment of certain conditions.
•The RBI grants automatic approval by the means of the
regional offices to Indian industries for foreign
technology collaboration
•The royalty period should not exceed 7 years from the
date of starting of the business or 10 years from the date
mentioned in the agreement

35. Balance of payments
Since independence, India's balance of payments on its
current account has been negative. Since economic
liberalisation in the 1990s, precipitated by a balance of
payment crisis.
India's exports rose consistently, covering 80.3% of its
imports in 2002–03, up from 66.2% in 1990–91.However,
the global economic slump followed by a general
deceleration in world trade saw the exports as a
percentage of imports drop to 61.4% in 2008–09.

36. India's growing oil import bill is seen as the main driver
behind the large current account deficit, which rose to
$118.7 billion, or 9.7% of GDP, in 2008–09. Between
January and October 2010, India imported $82.1 billion
worth of crude oil.
India's reliance on external assistance and concessional
debt has decreased since liberalisation of the economy,
and the debt service ratio decreased from 35.3% in 1990–
91 to 4.4% in 2008–09.
In India, External Commercial Borrowings (ECBs), or
commercial loans from non-resident lenders, are being
permitted by the Government for providing an additional
source of funds to Indian corporate. India's foreign
exchange reserves have steadily risen from $5.8 billion in
March 1991 to $283.5 billion in December 2009.

37. Challenges Ahead
1) Governance
Need for elimination of large number of Rules &
Regulations in the books
Sharply reducing the number of implementing
agencies
Moving towards single window clearance
2) Infrastructure: A Challenge and an opportunity

38. CONCLUSION
The New Industrial Policy, 1991 certainly differs
significantly from the earlier philosophies, approaches,
etc. of the government. For instance, prior to 1991, scope
of public sector was expanded by reserving more number
of industries for the public sector.
But now, its scope has been reduced drastically by
reducing the number of industries reserved for the public
sector. Like this, a large number of changes can be noticed
in the new policy.

39. This process has been continuing even in post
liberalization era. Adding to this, the government has
taken a number of steps to give effect to its policy
decisions included in the New Industrial Policy, 1991.
Though the economy has been benefited significantly
from these measures, the economy has not been able to
reap the full benefits of the Economic Reform Package
owing to the political instability, etc.

40. Arguments in the favor of
Liberalization
 Increase in rate of economic growth
 Increase in competitiveness of industrial sector
 Reduction in poverty and inequality
 Fall in fiscal deficit
 Control on prices
 Decline in deficit of BOP
 Increase in Efficiency

41. Arguments in the Against of
Liberalization
 Less importance to agriculture.
 Pressure by IMF and World Bank.
 More depending on Foreign Debt.
 Dependence on Foreign technology.
 Problem of Unemployment.