Economic Reforms in India Prepared by :- Mansi Karandikar

Abhishek Agrawal

ContentsWhy economic reforms??Factors & objectives - ReformsForeign Investment – Policy ReformsForeign Trade & Exchange Policy ReformsIndustrial reformsPublic sector reformsFinancial & Fiscal reformsSocial reforms

Agricultural reformPovertyHealth & Education

conclusion

Why Economy reforms??** Background of Economic reforms**First introduced under Rajiv Gandhi regimeEnd of 1991- unprecedented crisisReserve of foreign exchange- 2 weeks ImportNo New Loans availableBOP- criticalFaith of International community shaken

Factors – Economic Reforms(A) International Factors(i) International scenario(ii) International pressure & condition

(B) Domestic Factors(iii) Increase in fiscal deficit(iv) Deficit in current account & increase in foreign

debt(v) BOP crises(vi) Monitoring inflationary pressure(vii)Unsatisfactory performance of public sector

Objectives of Economic reforms(1) Increase in the rate of Economic growth(2) Increase in competitiveness of industrial

sector(3) Reduction in Poverty and Inequality(4) Increase in Efficiency of public sector(5) Control over Fiscal deficit(6) Promoting FDI(7) Decline in Deficit of BOPs

Industrial PolicyObjectives of Industrial Policy-1991(i) Self Reliance(ii) Sound policy Framework(iii)Development of Small sector(iv)Foreign Investment & Technology

collaboration(v) Abolishment of Monopoly(vi)Rightful Role to Public sector(vii)Protection of Interest of Labourers

Features of Industrial Policy-1991Industrial licensingForeign InvestmentForeign TechnologyPolicy regarding public sectorMRTP limit

Foreign Investment – Policy Reforms

Need foreign capital in India1. Exploitation of natural resources2. Technological Gap3. BOP support4. Undertaking the Initial Risk

Reforms in Foreign Investment FDI Approval

Automatic approval by RBI Case to case approval by Government

Foreign Technology Agreement Foreign Investment Promotion Board (FIPB) Foreign Investment Implementation Authority (FIIA) Enhancement of Foreign Equity in Existing Companies Investment in 100% EOUs / EPZs Foreign Investment in Trading companies Opening of Liason/Branch office Foreign Investment in SSS Use of Foreign Brand Name Repatriation of Foreign Capital Taxation FDI in Power sector Foreign Investment in Telecommunication Foreign Investment in Petroleum Sector FDI in Road sector FDI in Drugs & Pharmaceuticals FDI in Banking sector FDI in Coal & Lignite

Reforms in Foreign Trade & Exchange Policy ReformsCash Compensatory Scheme (CCS) suspendedReplenishment Licensing Scheme ( Rep) All exporters entitled to have uniform (Rep) of 30% of (FOB) All supplementary licenses stand abolished except in case of SSS &

producers of life saving drugsAll additional licenses granted to Export house stand abolishedUnlisted OGL stand abolished & allowed to import thru Rep routeAdvance licensing for imports for exports remain openAll Import licensing for capital goods & raw materials have been

removed graduallyFinancial Institutions have also been allowed to trade Exim scripsThe rupee was expected to fully convertible on Trade account in 3

to 5 years

Fiscal reformsSimplification of tax policy was announced custom duty reduced from 110% in 1991 to

12.5% in 2006 Excise is now levied as VAT Corporate tax was brought down to 30% Introduction of FRBM IN 2004 state level sales taxes to the VAT

Financial Sector ReformsDeregulation of interest rateDeregulation of creditBanking sectorCo-operative banksDevelopment finance institutionsNon- banking financial institutionsInsurance sectorMoney marketCapital market

Deregulation of interest ratesBegan in September 1991 Withdrawal of minimum lending rate in

October 1994 hence giving full freedom to banks to determine lending rates for loans above Rs 2 lakh.

Focus is on soft interest rate regime, increasing operational efficiency and technological upgradation.

Deregulation of creditBegan in mid 1980s intensified in 1990sTo expand the pool of lendable resources,

rationalization of priority sector requirements and relaxation of balance sheet restrictions to improve the credit delivery system.

Banking sectorReduction in SLR and CRR, transparent

guidelines for entry and exit of pvt. Sector banks, public sector bks have been allowed direct access to capital market, regulated interest have been simplified.

To increase financial viability of banks, increase autonomy, greater entry to private sector banking, liberalizing capital markets, operational flexibility and competition and improving financial health of banks.

Co-operative banksNo significant improvement has been

observed in either in stability or efficiency parameters

Reform process started much later than the commercial banking sector

State co-operative and district co-operative banks incurring losses turned around and made some profits.

Development financial institutionsPolicy initiatives relate to audit connected

lending, loans against guarantees extended by banks

With a view to have an integrated view of the operations of financial institutions and commercial banks and to provide more comprehensive basis for the conduct of monetary and credit policies

Non banking financial institutionsPrudential regulations as prescribed for

commercial banks were extended to NBFCs.Penalties for non submission of periodic

returns to RBI as well as cancellation of certficate of registeration of NBFCs.

Non banking financial institutionsPrudential regulations as prescribed for

commercial banks were extended to NBFCs.Penalties for non submission of periodic

returns to RBI as well as cancellation of certficate of registeration of NBFCs.

Insurance sectorOpening up of insurance business to private

participation IRDA act, 1999To deepen insurance penetration by

enlarging consumer choices through product innovation.

FDI up to 26% allowed

Money market reformsCeiling of 10% on call money rates imposed

by IBA withdrawn in 1989The DFHI was set up to participate in call

money market both as borrower and lender New financial instruments such as inter bank

participation certificates, certificate of deposit, commercial papers and repos

Full fledged liquidity adjustment facility was introduced on june 5, 2000

CCIL was set up in 2002

Capital marketCo.s were given freedom to price their issues

under capital issues control act 1947Electronic trading system ADRs and GDRs and ECBs FIIs in capital market

Public sector reformsObjectives of public sector1. Ensure rapid economic growth &

industrialization of the country 2. Earn return on investment 3. promote redistribution of income and wealth4. to create employment opportunities5. balanced regional development6. dev. Of small scale and ancillary industries7. save and earn foreign exchange for economy

Policy initiatives(public sector)Restructuring Increase in autonomy and performance

accountabilityChanges in management in specific

enterpriseTechnological up gradationDisinvestment and privatization

Policy initiatives(public sector)Restructuring Increase in autonomy and performance

accountabilityChanges in management in specific

enterpriseTechnological up gradationDisinvestment and privatization

Social sector AgriculturePartial decontrol of fertilizer pricesRemoval of bottlenecks in agricultural marketingRelaxation of restrictions under the essential

commodities act, 1955Introduction of forward trading in important

commercial cropsReplacement of the revamped public distribution

system with targeted public distribution systemEstablishment of rural infrastructure development fundReplacement of quantitative control tariff

PovertyNational food for work programmeRural employment generation programmeJai prakash rozgar guarantee yojanaJawahar gram samridhi yojnaSwarna jayanti gram swarojgar yojanaNational social assistance programmeEmployment assurance schemePradhan mantri gramodaya yojana

UnemploymentNational rural employment programmeRural landless employment guarantee programmeScheme of training rural youth for self-employment Jawahar rojgar yojnaA faster and geographically diversified growth of

agricultureDevelopment of infrastructure and marketingArrangements for agro-based activitiesGreater attention to the needs of the small mfg sector as

a major source of industrial growthRevamping of training systems to introduce greater

flexibility to labour market trends

conclusionAscended a higher growth path so farIndians have found a new level of self-

confidence as respect for india has increased.Miles to go but…second generation of

reforms must focus on a similar empowerment of public sector .

We are in the midst of economic reforms and need to move to the next level of sustained growth.

ReferencesNew Indian Economy & Reforms-K.L. Gupta,

Harvinder KaurIndian Financial Sector- Niti BhasinIndia’s Economic Reforms – Vijay Joshi,

I.M.D. LittleImpact of Reform process on Indian

Economy- Dr. Babita AgrawalIndian Economy- Datt SundaramReserve bank of India Bulletine-2006