Economic Reforms in India started in the year 1985 after Rajiv Gandhi took over as the Prime Minister. On July 23,1991, India launched a process of economic reforms in response to a fiscal and balance of payments (BoP) crisis. The Prime Minister in his first national broadcast said : " The public sector has entered into too many areas where it should not be. We shall open the economy to the private sector in several areas hither to restricted to it."
Some of the measures initiated by his government were:-
* Electronics industry was freed from the restrictions of the MRTP Act. Foreign firms were welcomed in this area.
* The share of free sale sugar was increased to help the sugar industry.
* The ceiling on asset limit of big business houses was raised from Rs 20 cr to Rs 100 cr.
* A Scheme of broad banding was introduced. This implies that within the overall capacity, firms were free to produce a range of commodities.
* Cement was decontrolled and a number of licenses were issued to private sector units to produce cements.
Some of the measures initiated by his government were:-
* Electronics industry was freed from the restrictions of the MRTP Act. Foreign firms were welcomed in this area.
* The share of free sale sugar was increased to help the sugar industry.
* The ceiling on asset limit of big business houses was raised from Rs 20 cr to Rs 100 cr.
* A Scheme of broad banding was introduced. This implies that within the overall capacity, firms were free to produce a range of commodities.
* Cement was decontrolled and a number of licenses were issued to private sector units to produce cements.
The process of reforms in India has to be achieved with the three aims of the Economic Policy:-
* Liberalisation
* Globalisation
* Privatisation
* Liberalisation
* Globalisation
* Privatisation
What is Liberalisation?
The process of decreasing traits of a state economy and increasing traits of a market economy is liberalisation. The main aim of the Liberalisation was to dismantle the excessive regulatory framework that curtailed the freedom of enterprise. The aim of the new economic policy was to save the entrepreneurs from unnecessary bureaucratic permission and delays to start an undertaking. Therefore, the government started dismantling the regime of industrial licensing and controls. On April 14,1993 the Cabinet Committee on Economic Affairs decided to remove 3 more items from the list of 18 industries reserved for compulsory licensing namely Motor Cars, white goods and raw hides skin and patent leather. Liberalising the automotive industry led to better designs in two wheelers, unleashing the urge to compete in global markets and widening the domestic markets through better quality and standards. Therefore, liberalisation led to globalisation.
The process of decreasing traits of a state economy and increasing traits of a market economy is liberalisation. The main aim of the Liberalisation was to dismantle the excessive regulatory framework that curtailed the freedom of enterprise. The aim of the new economic policy was to save the entrepreneurs from unnecessary bureaucratic permission and delays to start an undertaking. Therefore, the government started dismantling the regime of industrial licensing and controls. On April 14,1993 the Cabinet Committee on Economic Affairs decided to remove 3 more items from the list of 18 industries reserved for compulsory licensing namely Motor Cars, white goods and raw hides skin and patent leather. Liberalising the automotive industry led to better designs in two wheelers, unleashing the urge to compete in global markets and widening the domestic markets through better quality and standards. Therefore, liberalisation led to globalisation.
What is Globalisation?
Globalisation intends to integrate the Indian economy with the World economy. It is primarily economic phenomenon, involving the increasing interaction, or integration, of national economic systems through the growth in international trade, investment and capital flows.
Globalisation has four parameters:-
1. Reduction of trade barriers so as to permit free flow of capital and services across national frontiers.
2. Creation of an environment in which free flow of capital can take place.
3. Formation of an environment permitting free flow of technology among nation states.
4. An environment where free movement of labour can take place in different countries of the world.
To pursue the objectives of globalisation, the following measures have been taken:-
* Reduction of Import Duties:- A reduction in import duties from 300% to 35 % ,the extension of MODVAT credit on taxes paid on inputs, Special Import License (SIL) have been important measures for improving tax systems.
* Encouragement of Foreign Investment:- Approval for direct investment upto 51% foreign equity in high priority industries like Mining,metal and alloy industries and other manufacturing industries. The basic purpose of this move is to facilitate direct foreign investment in India.
* Encouragement to Foreign Technology Agreement:- Automatic permission was granted for foreign technology agreements upto Rs 1 crore, 5% royalty for domestic sales,8% for exports upto 7 years from commencement of production.
Globalisation has four parameters:-
1. Reduction of trade barriers so as to permit free flow of capital and services across national frontiers.
2. Creation of an environment in which free flow of capital can take place.
3. Formation of an environment permitting free flow of technology among nation states.
4. An environment where free movement of labour can take place in different countries of the world.
To pursue the objectives of globalisation, the following measures have been taken:-
* Reduction of Import Duties:- A reduction in import duties from 300% to 35 % ,the extension of MODVAT credit on taxes paid on inputs, Special Import License (SIL) have been important measures for improving tax systems.
* Encouragement of Foreign Investment:- Approval for direct investment upto 51% foreign equity in high priority industries like Mining,metal and alloy industries and other manufacturing industries. The basic purpose of this move is to facilitate direct foreign investment in India.
* Encouragement to Foreign Technology Agreement:- Automatic permission was granted for foreign technology agreements upto Rs 1 crore, 5% royalty for domestic sales,8% for exports upto 7 years from commencement of production.
What is Privatisation?
It deals with the transfer of businesses from the state to the private sector. It indicates transfer of ownership of a public sector undertaking to a private sector, either wholly or partially.
It can take three forms:-
(1) Ownership measures:- Total decentralisation implies 100% transfer of ownership of a public enterprise to private sector. 51% transfer of ownership to the private sector shifts the balance in favour of private sector,74% transfer of ownership to the private sector implies dominant ownership to the private sector.
It can take three forms:-
(1) Ownership measures:- Total decentralisation implies 100% transfer of ownership of a public enterprise to private sector. 51% transfer of ownership to the private sector shifts the balance in favour of private sector,74% transfer of ownership to the private sector implies dominant ownership to the private sector.
(2) Organizational measures:- It includes financial restructuring and basic restructuring, Leasing and many decentralised pattern of management.
(3) Operational measures:- These includes, grant of autonomy to public enterprise, provision of incentives for workers and executives, investment planning etc.
Macroeconomic reforms, structural reforms, trade policy reforms, exchange rate reforms, financial sector reforms were the major amongst the economic reforms of India.
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