Economic Liberalisation

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    THE ROAD TO ECONOMICTHE ROAD TO ECONOMICREFORMSREFORMS

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    The Initial Years 1947The Initial Years 1947 --19911991Industrial Policy DraftsIndustrial Policy Drafts -- 1948, 19561948, 1956Planning approach to EconomicPlanning approach to Economic

    DevelopmentDevelopment

    Mahalanobis ModelMahalanobis ModelCommanding height of theCommanding height of the P.S.U.sP.S.U.sGreen RevolutionGreen RevolutionSignals of a paradigm shift in the MidSignals of a paradigm shift in the Mid --80s80s

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    19911991 The Watershed YearThe Watershed YearBOP crisisBOP crisis

    -- LicenseLicense RajRaj , fixed demand, complacency, fixed demand, complacency-- Lack of export competitivenessLack of export competitiveness-- Export earning< import expenditureExport earning< import expenditure-- Steady import demandSteady import demand-- Gulf War and Fall of USSR, situation accentuatedGulf War and Fall of USSR, situation accentuated-- Verge of sovereign default Verge of sovereign default

    Liberalisation beginsLiberalisation begins

    -- Making economy outward lookingMaking economy outward looking-- Increasing element of competitionIncreasing element of competition-- Transfer of resources to productive areasTransfer of resources to productive areas

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    New Industrial PolicyNew Industrial Policy

    --

    19911991

    Abolition of industrial licensing Abolition of industrial licensingRole of Public sector dilutedRole of Public sector dilutedFree entry to foreign investment andFree entry to foreign investment andtechnologytechnology

    Abolition of phased manufacturing Abolition of phased manufacturingprogramprogramRemoval of mandatory convertibility clauseRemoval of mandatory convertibility clauseIndustrial location policy liberalisedIndustrial location policy liberalisedMRTP limit goesMRTP limit goes

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    OTHER REFORMS OF THEOTHER REFORMS OF THE IstIst GEN..GEN..1.1. Attempts to contain fiscal deficit and inflation Attempts to contain fiscal deficit and inflation

    2.2. Lower rates of income taxLower rates of income tax3.3. Corporation tax lowered to 40%Corporation tax lowered to 40%4.4. Reduction in customs dutyReduction in customs duty

    5.5. Excise on adExcise on ad -- valorum basis, slabs reducedvalorum basis, slabs reduced6.6. Operational freedom to banks andOperational freedom to banks andcomputerizationcomputerization

    7.7. CRR and SLR reducedCRR and SLR reduced8.8. Exchange rate on free float basisExchange rate on free float basis9.9. SEBI created, wired stock marketsSEBI created, wired stock markets

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    THETHE IIndIInd GEN. REFORMS..GEN. REFORMS..1.1. Reforms in telecom sectorReforms in telecom sector

    2.2. FERA replaced by FEMA FERA replaced by FEMA 3.3. Thrust on increasing FDI and FII inflowsThrust on increasing FDI and FII inflows4.4. Banking sector reformsBanking sector reforms ---- reducereduce NPAsNPAs, C.A., C.A.

    Ratio, Pvt. Banks, Mergers etc.Ratio, Pvt. Banks, Mergers etc.5.5. Infrastructure creation ( privatization , BOOT)Infrastructure creation ( privatization , BOOT)6.6. MRTP act goesMRTP act goes7.7. Disinvestment of govt. share inDisinvestment of govt. share in PSUsPSUs8.8. Insurance sector reformsInsurance sector reforms Pvt. Players, cheapPvt. Players, cheap

    insuranceinsurance

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    IstIst Gen Reforms vs.Gen Reforms vs. IIndIInd Gen ReformsGen ReformsIst Gen Reforms IInd Gen Reforms

    1992-97 1997-2002 Mainly Stabilisationpolicies

    Mainly StructuralReforms

    Prerequisite to IIndGen reforms

    Logical Extension of the ongoing process

    Limited to a fewinstitutional reforms

    Brought reforms tonew frontiers

    Stiff politicalresistance

    Widespread popularsupport

    Touched banking & taxation reforms

    Carried theseforward

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    Assessing The Impact of Reforms Assessing The Impact of Reforms .. Agriculture Agriculture

    Overemphasis on industry and servicesOveremphasis on industry and services

    Consequent drop in public investmentConsequent drop in public investment

    40% in GDP in 1980, 33% in 1990, 23% in40% in GDP in 1980, 33% in 1990, 23% in20052005

    56% of country56% of country s workforces workforce

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    IndustryIndustry Performance hampered by physicalPerformance hampered by physical

    infrastructureinfrastructure No progress made to correct antiquatedNo progress made to correct antiquated

    labour lawslabour laws Protectionism not yet goneProtectionism not yet gone

    Shortage of credit to SMEsShortage of credit to SMEs Very high entry and exit barriers Very high entry and exit barriers

    Assessing The Impact of Reforms .. Assessing The Impact of Reforms ..

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    ServicesServices

    Robust growth performanceRobust growth performance

    Liberalisation of financial sector provided impetusLiberalisation of financial sector provided impetus

    Substantial fillip from IT, ITESSubstantial fillip from IT, ITES

    40% of GDP in 1990, 50% in 200540% of GDP in 1990, 50% in 2005

    Assessing The Impact of Reforms Assessing The Impact of Reforms ......

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    A. A. Securitisation ActSecuritisation Act to reduce NPAsto reduce NPAs7% of gross advances7% of gross advances

    Volume Volume -- Rs. 1,00,000 croreRs. 1,00,000 crore

    Lenders have right to seize and sellLenders have right to seize and sellcollateral assets to recover dues withoutcollateral assets to recover dues withoutlegal processlegal processImpactImpact -- Lower credit ratesLower credit rates

    TheThe IIIrdIIIrd Gen. ReformGen. Reform

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    B. FRBM Act, 2004B. FRBM Act, 2004Tighter fiscal disciplineTighter fiscal disciplineCurb on government expenditureCurb on government expenditure

    At present, fiscal deficit At present, fiscal deficit -- 1,30,000 Crores,1,30,000 Crores,

    4.3% of GDP4.3% of GDPRevenue deficit to be eliminated by 2009Revenue deficit to be eliminated by 2009

    Fiscal deficit to be contained below 3%Fiscal deficit to be contained below 3%ImpactImpact beneficial for both publicbeneficial for both publicand businessesand businesses

    TheThe IIIrdIIIrd Gen. ReformsGen. Reforms