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The political environment includes alllaws,government agencies,and lobbying

groups that influence or restrictindividuals or organizations in thesociety.

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The political environment in an economy is

influenced by:� Philosophy of political parties

� Ideology of the party in power

� Nature of bureaucracy

� The political stability

� The foreign policy

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In 1991 Indian economy faced severemacro-economic imbalances:

� Huge deficit in the balance of

payments� Current Account Deficit rose to 3.2%

of GDP

� Foreign currency assets dipped fromUS $3.4 bn (march 1990) to US $975mn on July 12,1991

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The salient features of theNEP-1991:

LiberalisationExtending privatisation

Globalisation of the economy

The New Economic Policy of 1991

and the signing of GATT in 1993have reshaped the business environment inIndia.

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LIBERALISATION

Liberalization refers to a relaxationof previous government restrictions,usually in areas of social or economic policy. In some contextsthis process or concept is often, butnot always, referred to asd eregulation.

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PRIVATISATIONThe process of moving from a government-

controlled system to a privately run, for-

profit system.The repurchasing of all of a company's

outstanding stock by employees or aprivate investor. As a result of such an

initiative, the company stops beingpublicly traded.

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GLOBALISATION

Globalisation describes a process by whichregional economies, societies, and cultureshave become integrated through a globalnetwork of communication, transportation,

and trade. The term is sometimes used torefer specifically to economic globalization:the integration of national economies into theinternational economy through trade, foreigndirect investment, capital flows, migration,and the spread of technology.However,globalisation is usually recognized as beingdriven by a combination of economic,technological, sociocultural and political

factors.

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MAJOR MEASURES AS PART OF

THELPG

STRATEGY OF INDIADEVALUATION of Indian currency by 18-

19% against major currencies in theinternational foreign exchange market.

This measure was taken to resolve theBOP crisis.

Disinvestment:under the privatisationscheme,most of the public sector

undertakings have been / are being sold toprivate sector.

Dismantling of the industrial licensingregime:at present only six industries areunder compulsory licensing mainly onaccount of environmental safety.

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�Allowing FDI across a wide spectrum of

industries and encouraging non-debt flows.

E g. allowing FDI up to 100% under the automatic

route for most manufacturing activities SEZs.

�NRI scheme: The general policy and facilities for FDI as available to foreign investors/companies

are fully applicable to

NRIs as well.

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� Throwing open Industries reserved for the public sector to

private

participation. Now there are only three industries reservedfor the public sector.

� Abolition of the MRTP Act.

� The removal of quantitative restriction on imports.

� The reduction of the peak customs tariff from over 300%

to 30%.

� Wide ranging financial sector reforms in the banking,

capital marketing, insurance sectors, including deregulation

of interest rates.

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Globalization in India had afavorable impact on the overallgrowth rate of the economy.

Consequently India¶s position in theglobal economy has improved fromthe 8th position in 1991 to 4th place

in 2001; when GDP is calculated ona purchasing power parity basis.

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During 1991-92 the first year of Rao¶s reforms program, the Indianeconomy grew by 0.9% only.However the GDP growthaccelerated to 5.3 % in 1992-93,and 6.2% 1993- 94. A growth rateof above 8% was an achievedduring the year 2003-04.

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India¶s GDP growth rate can be seen from the

following graph since independence

India to become 3rd largest Economy by PPP in the world by 2012

PriceWaterhouseCoopers

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