Download - Economic Liberalisation

8/13/2019 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

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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