he economic liberalization in india refers to ongoing reforms in india

8/3/2019 He Economic Liberalization in India Refers to Ongoing Reforms in India

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he economic liberalization in India refers to ongoing reforms in India. After Independence in1947, India adhered to socialistpolicies. The extensive regulation was sarcastically dubbed asthe "Licence Raj"; the slow growth rate was named the "Hindu rate of growth". In the 1980s, thePrime MinisterRajiv Gandhi initiated some reforms. His government was blocked by politics. In1991, after the International Monetary Fund(IMF) had bailed out the bankrupt state, the

government ofP. V. Narasimha Rao and his finance ministerManmohan Singh startedbreakthrough reforms. The new policies included opening for international trade and investment,deregulation, initiation ofprivatization, tax reforms, and inflation-controlling measures. Theoverall direction of liberalization has since remained the same, irrespective of the ruling party,although no party has yet tried to take on powerful lobbies such as the trade unionsand farmers,or contentious issues such as reforming labor laws and reducing agricultural subsidies.[1]

As of 2009, about 300 million people equivalent to the entire population of the entire UnitedStates has escaped extreme poverty.[2] The fruits of liberalization reached their peak in 2007,with India recording its highest GDP growth rate of 9%.[3] With this, India became the secondfastest growing major economy in the world, next only to China.[4] AnOrganisation for

Economic Co-operation and Development (OECD) report states that the average growth rate7.5% will double the average income in a decade, and more reforms would speed up the pace.[5]

Indian government coalitions have been advised to continue liberalization. India grows at slowerpace than China.[6]McKinsey states that removing main obstacles "would free Indias economyto grow as fast as Chinas, at 10 percent a year".[7]

Contents

[hide]

1 Pre-liberalisation policieso 1.1 Impact

2 Rajiv Gandhi government (1984-1989) 3 Narasimha Rao government (1991-1996)

o 3.1 Crisis

o 3.2 Reforms

3.2.1 Other 4 Later reforms 5 Impact of reforms 6 Ongoing economic challenges

o 6.1 Reforms at the state level

7 See also 8 References

9 External links

[edit] Pre-liberalisation policies
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iberalisation_in_India#Crisishttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Otherhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Later_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impact_of_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Ongoing_economic_challengeshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Reforms_at_the_state_levelhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#See_alsohttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Referenceshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#External_linkshttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit&section=1http://en.wikipedia.org/wiki/Economy_of_India


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Further information:Economic history of India andLicense Raj

Indian economic policyafterindependencewas influenced by the colonial experience (whichwas seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabiansocialism. Policy tended towardsprotectionism, with a strong emphasis on import substitution,

industrialization, state intervention in labor and financial markets, a large public sector, businessregulation, and central planning.[8]Five-Year Plans of India resembled central planning in theSoviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electricalplants, among other industries, were effectively nationalized in the mid-1950s.[9]Elaboratelicences, regulations and the accompanying red tape, commonly referred to as Licence Raj, wererequired to set up business in Indiabetween 1947 and 1990.[10]

Before the process of reform began in 1991, the government attempted to close the Indianeconomy to the outside world. The Indian currency, the rupee, was inconvertible and high tariffsand import licensing prevented foreign goods reaching the market. India also operated a systemof central planning for the economy, in which firms required licenses to invest and develop. The

labyrinthine bureaucracy often led to absurd restrictions up to 80 agencies had to be satisfiedbefore a firm could be granted a licence to produce and the state would decide what wasproduced, how much, at what price and what sources of capital were used. The government alsoprevented firms from laying off workers or closing factories. The central pillar of the policy wasimport substitution, the belief that India needed to rely on internal markets for development, notinternational trade a belief generated by a mixture of socialism and the experience of colonialexploitation. Planning and the state, rather than markets, would determine how much investmentwas needed in which sectors.

BBC[11]

[edit] Impact

The low annual growth rate of the economy of India before 1980, which stagnated around3.5% from 1950s to 1980s, while per capita income averaged 1.3%.[12] At the same time,Pakistan grew by 5%, Indonesiaby 9%, Thailand by 9%, South Koreaby 10% and inTaiwan by 12%.[13]

Only four or five licences would be given for steel, power and communications. Licenseowners built up huge powerful empires.[11]

A huge public sector emerged. State-owned enterprises made large losses.[11]

Infrastructure investment was poor because of the public sector monopoly.[11]

License Raj established the "irresponsible, self-perpetruating bureaucracy that still exists

throughout much of the country"

[14]

and corruption flourished under this system

[4]

.

[edit] Rajiv Gandhi government (1984-1989)

In the 80s, the government led by Rajiv Gandhistarted light reforms. The government slightlyreduced License Raj and also promoted the growth of the telecommunications and softwareindustries.
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The Vishwanath Pratap Singh government (1989-1990) and Chandra Shekhar government(1990-1991) did not add any significant reforms.

[edit] Narasimha Rao government (1991-1996)

[edit] Crisis

Main article: 1991 India economic crisis

The assassination of prime ministerIndira Gandhi in 1984, and later of her sonRajiv Gandhi in1991, crushed international investor confidence on the economy that was eventually pushed tothe brink by the early 1990s.

As of 1991, India still had a fixed exchange rate system, where the rupee was pegged to the valueof a basket of currencies of major trading partners. India started havingbalance of paymentsproblems since 1985, and by the end of 1990, it was in a serious economic crisis. The

government was close to default[15], its central bank had refused new credit and foreign exchangereserves had reduced to the point that India could barely finance three weeks worth of imports.

A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for anIMF bailout, gold was transferred to London as collateral, the Rupee devalued and economicreforms were forced upon India. That low point was the catalyst required to transform theeconomy through badly needed reforms to unshackle the economy. Controls started to bedismantled, tariffs, duties and taxes progressively lowered, state monopolies broken, theeconomy was opened to trade and investment, private sector enterprise and competition wereencouraged and globalisation was slowly embraced. The reforms process continues today and isaccepted by all political parties, but the speed is often held hostage by coalition politics and

vested interests.

India Report, Astaire Research[4]

[edit] Reforms

The Government of Indiaheaded byNarasimha Rao decided to usher in several reforms that arecollectively termed as liberalisation in the Indianmedia.Narasimha RaoappointedManmohanSingh as a special economical advisor to implement liberalisation.

The reforms progressed furthest in the areas of opening up to foreign investment, reformingcapital markets, deregulating domestic business, and reforming the trade regime. Liberalizationhas done away with the Licence Raj(investment, industrial and import licensing) and endedmany public monopolies, allowing automatic approval offoreign direct investment in manysectors.[16] Rao's government's goals were reducing thefiscal deficit,privatization of the publicsector, and increasing investment in infrastructure. Trade reforms and changes in the regulationofforeign direct investment were introduced to open India to foreign trade while stabilizingexternal loans. Rao's finance minister, Manmohan Singh, an acclaimed economist, played acentral role in implementing these reforms. New research suggests that the scope and pattern of
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these reforms in India's foreign investment and external trade sectors followed the Chineseexperience with external economic reforms.[17]

In the industrial sector, industrial licensingwas cut, leaving only 18 industries subject tolicensing. Industrial regulation was rationalized.[15]

Abolishing in 1992 the Controller of Capital Issues which decided the prices and numberof shares that firms could issue.[15][18]

Introducing the SEBI Act of 1992 and the Security Laws (Amendment) which gave SEBIthe legal authority to register and regulate all security market intermediaries.[15][19]

Starting in 1994 of theNational Stock Exchange as a computer-based trading systemwhich served as an instrument to leverage reforms of India's other stock exchanges. TheNSE emerged as India's largest exchange by 1996.[20]

Reducing tariffs from an average of 85 percent to 25 percent, and rolling backquantitative controls. (The rupee was made convertible on trade account.)[21]

Encouraging foreign direct investment by increasing the maximum limit on share offoreign capital in joint ventures from 40 to 51 percent with 100 percent foreign equitypermitted in priority sectors.[22]

Streamlining procedures for FDI approvals, and in at least 35 industries, automaticallyapproving projects within the limits for foreign participation.[15][23]

Opening up in 1992 of India's equity marketsto investment by foreign institutional

investors and permitting Indian firms to raise capital on international markets by issuingGlobal Depository Receipts(GDRs).[24]

Marginal tax rates were reduced.

Privatization of large, inefficient and loss-inducing government corporations wasinitiated.

[edit] Other

[edit] Later reforms

Atal Bihari Vajpayee's administration surprised many by continuing reforms, when it wasat the helm of affairs of India for five years.[25]

The Vajpayee administration continued with privatization, reduction of taxes, a soundfiscal policy aimed at reducing deficits and debts and increased initiatives for publicworks.

The UF government attempted a progressive budget that encouraged reforms, but the1997 Asian financial crisisand political instability created economic stagnation.
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Strategies like forming Special Economic Zones- tax amenities, good communicationsinfrastructure, low regulation to encourage industries has paid off in many parts of thecountry.

The Golden Quadrilateralproject aimed to link India's corners with a network of modernhighways.

Right to Information Act (2005) Indo-US civilian nuclear agreement (2008)

This list isincomplete; you can help by expanding it.

[edit] Impact of reforms

The HSBC Global Technology Center in Punedevelops software for the entire HSBC group[26].

The impact of these reforms may be gauged from the fact that total foreign investment (includingforeign direct investment, portfolio investment, and investment raised on international capitalmarkets) in India grew from a minuscule US $132 million in 1991-92 to $5.3 billion in 1995-96.[22]

Cities like Bangalore,Hyderabad, Pune and Ahmedabadhave risen in prominence and economic

importance, became centres of rising industries and destination for foreign investment and firms.

Annual growth in GDP per capita has accelerated from just 1 per cent in the three decades afterIndependence to 7 per cent currently, a rate of growth that will double average income in adecade. [...] In service sectors where government regulation has been eased significantly or isless burdensome such as communications, insurance, asset management and informationtechnology output has grown rapidly, with exports of information technology enabled servicesparticularly strong. In those infrastructure sectors which have been opened to competition, suchas telecoms and civil aviation, the private sector has proven to be extremely effective and growthhas been phenomenal.

OECD[5]

[edit] Ongoing economic challenges

Main article: Economy of India

Problems in the agricultural sector.
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Highly restrictive and complex labour laws.[5][27][28][29][30][31][32][33][34]

Inadequate infrastructure, which is often government monopoly.[32]

Failing education.

Inefficient public sector.

Corruption

This list isincomplete; you can help by expanding it.

OECD summarized the key reforms that are needed:

In labour markets, employment growth has been concentrated in firms that operate in sectors notcovered by Indias highly restrictive labour laws. In the formal sector, where these labour laws

apply, employment has been falling and firms are becoming more capital intensive despiteabundant low-cost labour. Labour market reform is essential to achieve a broader-baseddevelopment and provide sufficient and higher productivity jobs for the growing labour force. Inproduct markets, inefficient government procedures, particularly in some of the states, acts as abarrier to entrepreneurship and need to be improved. Public companies are generally lessproductive than private firms and the privatisation programme should be revitalised. A numberof barriers to competition in financial markets and some of the infrastructure sectors, which areother constraints on growth, also need to be addressed. The indirect tax system needs to besimplified to create a true national market, while for direct taxes, the taxable base should bebroadened and rates lowered. Public expenditure should be re-oriented towards infrastructureinvestment by reducing subsidies. Furthermore, social policies should be improved to better

reach the poor and given the importance of human capital the education system also needs tobe made more efficient.

OECD[5]

[edit] Reforms at the state level

See also: Economic disparities in India

TheEconomic Survey of India 2007by OECD concluded:

At the state level, economic performance is much better in states with a relatively liberalregulatory environment than in the relatively more restrictive states".[5]

The analysis of this report suggests that the differences in economic performance across statesare associated with the extent to which states have introduced market-oriented reforms. Thus,further reforms on these lines, complemented with measures to improve infrastructure, educationand basic services, would increase the potential for growth outside of agriculture and thus boostbetter-paid employment, which is a key to sharing the fruits of growth and lowering poverty. [5]
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[edit] See also

Economy of India Globalization in India License Raj Hindu rate of growth

[edit] References

1. ^ "That old Gandhi magic". The Economist.November 27,1997.http://economist.com/displaystory.cfm?story_id=S%26%29H%2C%2BPQ%27%25%0A.

2. ^Nick Gillespie (2008). "What Slumdog Millionaire can teach Americans abouteconomic stimulus". Reason.http://www.reason.com/blog/show/131810.html.

3. ^ https://www.cia.gov/library/publications/the-world-factbook/geos/in.html#Econ4. ^ abc "The India Report". Astaire Research.

http://www.ukibc.com/ukindia2/files/India60.pdf.5. ^ abcdef"Economic survey of India 2007: Policy Brief". OECD.http://www.oecd.org/dataoecd/17/52/39452196.pdf.

6. ^ "India's economy: What's holding India back?". The Economist. March 6th 2008.http://www.economist.com/opinion/displaystory.cfm?story_id=10808493.

7. ^ "The McKinsey Quarterly: IndiaFrom emerging to surging". The McKinseyQuarterly. http://business.indian-network.de/artikel/The%20McKinsey%20Quarterly-%20India-From%20emerging%20to%20surging.pdf.

8. ^ Kelegama, Saman and Parikh, Kirit (2000).Political Economy of Growth and Reformsin South Asia. Second Draft. http://www.eldis.org/static/DOC12473.htm.

9. ^ Sam Staley (2006). "The Rise and Fall of Indian Socialism: Why India embraced

economic reform". http://www.reason.com/news/show/36682.html.10.^ Street Hawking Promise Jobs in Future,The Times of India,2001-11-2511.^ abcd"India: the economy". BBC. 1998.

http://news.bbc.co.uk/2/hi/south_asia/55427.stm.12.^ "Redefining The Hindu Rate Of Growth". The Financial Express.

http://www.financialexpress.com/news/redefining-the-hindu-rate-of-growth/104268/.13.^ "Industry passing through phase of transition". The Tribune India.

http://www.tribuneindia.com/50yrs/kapur.htm.14.^ Eugene M. Makar (2007).An American's Guide to Doing Business in India.15.^ abcdeIndia's Pathway through Financial Crisis. Arunabha Ghosh. Global Economic

Governance Programme. Retrieved on 2 March 2007.16.^ Panagariya, Arvind (2004).India in the 1980s and 1990s: A Triumph of Reforms.

http://ideas.repec.org/p/wpa/wuwpit/0403005.html.17.^ Jalal Alamgir,India's Open-Economy Policy: Globalism, Rivalry, Continuity (London

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22.^ abLocal industrialists against multinationals. Ajay Singh and Arjuna Ranawana.Asiaweek. Retrieved on 2 March 2007.

23.^ FDI in India. Kulwindar Singh. Retrieved on 2 March 2007.24.^ India's Economic Policies. Indian Investment Centre. Retrieved on 2 March 2007.25.^ J. Bradford DeLong (2001). "India Since Independence: An Analytic Growth

Narrative". http://www.j-bradford-delong.net/Econ_Articles/India/India_Rodrik_DeLong.PDF.26.^ "HSBC GLT frontpage".http://www.hsbcglt.com/. Retrieved 2008-08-22.27.^ "IMF calls for urgent reform in Indian labour laws".

http://news.indiainfo.com/2006/04/20/2004imf-labour-laws.html.28.^ Kaushik Basu, Gary S. Fields, and Shub Debgupta. "Retrenchment, Labor Laws and

Government Policy: An Analysis with Special Reference to India". The World Bank.http://www.worldbank.org/html/prdph/downsize/docs/india.pdf.

29.^ R. C. Datta / Milly Sil (2007). "Contemporary Issues on Labour Law Reform in India".http://atlmri.googlepages.com/RCD_MILI.pdf.

30.^ Aditya Gupta (2006). "How wrong has the Indian Left been about economic reforms?".

http://www.ccsindia.org/interns2006/How%20Wrong%20is%20left%20about%20ecoonimic%20reforms%20in%20India%20-%20Aditya.pdf.31.^ "Why India needs labour law reform". BBC. 2005.

http://news.bbc.co.uk/2/hi/south_asia/4103554.stm.32.^ ab "A special report on India: An elephant, not a tiger". The Economist. 11 December

2008. http://www.economist.com/specialreports/displayStory.cfm?story_id=12749735.33.^ "India Country Overview 2008". The World Bank. 2008.

http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:20195738~menuPK:295591~pagePK:141137~piPK:141127~theSitePK:295584,00.html.

34.^ Gurcharan Das (July/August 2006). "The India Model". The Foreign Affairs.http://www.foreignaffairs.org/20060701faessay85401-p0/gurcharan-das/the-india-model.html.

[edit] External links

For a short educational video of the"economic history of India". Nick Gillespie (2009). "What Slumdog Millionaire can teach Americans about economic

stimulus". Reason. http://www.reason.com/blog/show/131810.html. "Economic survey of India 2007: Policy Brief". OECD. 2007.

http://www.oecd.org/dataoecd/17/52/39452196.pdf. Gurcharan Das (2006). "The India Model". The Foreign Affairs.

http://www.foreignaffairs.org/20060701faessay85401-p0/gurcharan-das/the-india-model.html.

Aditya Gupta (2006). "How wrong has the Indian Left been about economic reforms?".Centre for Civil Society. http://www.ccsindia.org/interns2006/How%20Wrong%20is%20left%20about%20ecoonimic%20reforms%20in%20India%20-%20Aditya.pdf.

"The India Report". Astaire Research. 2007.http://www.ukibc.com/ukindia2/files/India60.pdf.
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s%20in%20India%20-%20Aditya.pdfhttp://www.ukibc.com/ukindia2/files/India60.pdfhttp://www.ukibc.com/ukindia2/files/India60.pdfhttp://www.ukibc.com/ukindia2/files/India60.pdfhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-Asiaweek_21-0http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-Asiaweek_21-1http://www.asiaweek.com/asiaweek/96/0412/nat1.htmlhttp://en.wikipedia.org/wiki/Asiaweekhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-22http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN024036.pdfhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-23http://iic.nic.in/iic3_i.htmhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-24http://www.j-bradford-delong.net/Econ_Articles/India/India_Rodrik_DeLong.PDFhttp://www.j-bradford-delong.net/Econ_Articles/India/India_Rodrik_DeLong.PDFhttp://www.j-bradford-delong.net/Econ_Articles/India/India_Rodrik_DeLong.PDFhttp://www.j-bradford-delong.net/Econ_Articles/India/India_Rodrik_DeLong.PDFhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-25http://www.hsbcglt.com/http://www.hsbcglt.com/http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-26http://news.indiainfo.com/2006/04/20/2004imf-labour-laws.htmlhttp://news.indiainfo.com/2006/04/20/2004imf-labour-laws.htmlhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-27http://www.worldbank.org/html/prdph/downsize/docs/india.pdfhttp://www.worldbank.org/html/prdph/downsize/docs/india.pdfhttp://www.worldbank.org/html/prdph/downsize/docs/india.pdfhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-28http://atlmri.googlepages.com/RCD_MILI.pdfhttp://atlmri.googlepages.com/RCD_MILI.pdfhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-gupta_29-0http://www.ccsindia.org/interns2006/How%20Wrong%20is%20left%20about%20ecoonimic%20reforms%20in%20India%20-%20Aditya.pdfhttp://www.ccsindia.org/interns2006/How%20Wrong%20is%20left%20about%20ecoonimic%20reforms%20in%20India%20-%20Aditya.pdfhttp://www.ccsindia.org/interns2006/How%20Wrong%20is%20left%20about%20ecoonimic%20reforms%20in%20India%20-%20Aditya.pdfhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-indialabourlawbbc_30-0http://news.bbc.co.uk/2/hi/south_asia/4103554.stmhttp://news.bbc.co.uk/2/hi/south_asia/4103554.stmhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-indiaelephant_31-0http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-indiaelephant_31-1http://www.economist.com/specialreports/displayStory.cfm?story_id=12749735http://www.economist.com/specialreports/displayStory.cfm?story_id=12749735http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-wbindiaoverview2008_32-0http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:20195738~menuPK:295591~pagePK:141137~piPK:141127~theSitePK:295584,00.htmlhttp://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:20195738~menuPK:295591~pagePK:141137~piPK:141127~theSitePK:295584,00.htmlhttp://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:20195738~menuPK:295591~pagePK:141137~piPK:141127~theSitePK:295584,00.htmlhttp://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:20195738~menuPK:295591~pagePK:141137~piPK:141127~theSitePK:295584,00.htmlhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_ref-indiamodel_33-0http://www.foreignaffairs.org/20060701faessay85401-p0/gurcharan-das/the-india-model.htmlhttp://www.foreignaffairs.org/20060701faessay85401-p0/gurcharan-das/the-india-model.htmlhttp://www.foreignaffairs.org/20060701faessay85401-p0/gurcharan-das/the-india-model.htmlhttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit&section=14http://one.revver.com/watch/339183/flv/affiliate/94378http://www.reason.com/blog/show/131810.htmlhttp://www.reason.com/blog/show/131810.htmlhttp://www.reason.com/blog/show/131810.htmlhttp://www.oecd.org/dataoecd/17/52/39452196.pdfhttp://www.oecd.org/dataoecd/17/52/39452196.pdfhttp://www.foreignaffairs.org/20060701faessay85401-p0/gurcharan-das/the-india-model.htmlhttp://www.foreignaffairs.org/20060701faessay85401-p0/gurcharan-das/the-india-model.htmlhttp://www.foreignaffairs.org/20060701faessay85401-p0/gurcharan-das/the-india-model.htmlhttp://www.ccsindia.org/interns2006/How%20Wrong%20is%20left%20about%20ecoonimic%20reforms%20in%20India%20-%20Aditya.pdfhttp://www.ccsindia.org/interns2006/How%20Wrong%20is%20left%20about%20ecoonimic%20reforms%20in%20India%20-%20Aditya.pdfhttp://www.ccsindia.org/interns2006/How%20Wrong%20is%20left%20about%20ecoonimic%20reforms%20in%20India%20-%20Aditya.pdfhttp://www.ukibc.com/ukindia2/files/India60.pdfhttp://www.ukibc.com/ukindia2/files/India60.pdf


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"Indias Rising Growth Potential". Goldman Sachs. 2007.http://www.usindiafriendship.net/viewpoints1/Indias_Rising_Growth_Potential.pdf.

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Economic liberalisation in India

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The economic liberalization in India refers to ongoing reforms in India. After Independence in1947, India adhered to socialistpolicies. The extensive regulation was sarcastically dubbed asthe "Licence Raj"; the slow growth rate was named the "Hindu rate of growth". In the 1980s, thePrime MinisterRajiv Gandhi initiated some reforms. His government was blocked by politics. In

1991, after the International Monetary Fund(IMF) had bailed out the bankrupt state, thegovernment ofP. V. Narasimha Rao and his finance ministerManmohan Singh startedbreakthrough reforms. The new policies included opening for international trade and investment,deregulation, initiation ofprivatization, tax reforms, and inflation-controlling measures. Theoverall direction of liberalization has since remained the same, irrespective of the ruling party,although no party has yet tried to take on powerful lobbies such as the trade unionsand farmers,or contentious issues such as reforming labor laws and reducing agricultural subsidies.[1]

As of 2009, about 300 million people equivalent to the entire population of the entire UnitedStates has escaped extreme poverty.[2] The fruits of liberalization reached their peak in 2007,with India recording its highest GDP growth rate of 9%.[3] With this, India became the second

fastest growing major economy in the world, next only to China.

[4]

AnOrganisation forEconomic Co-operation and Development (OECD) report states that the average growth rate7.5% will double the average income in a decade, and more reforms would speed up the pace.[5]

Indian government coalitions have been advised to continue liberalization. India grows at slowerpace than China.[6]McKinsey states that removing main obstacles "would free Indias economyto grow as fast as Chinas, at 10 percent a year".[7]
http://www.usindiafriendship.net/viewpoints1/Indias_Rising_Growth_Potential.pdfhttp://www.usindiafriendship.net/viewpoints1/Indias_Rising_Growth_Potential.pdfhttp://wikimediafoundation.org/wiki/Donate/Now/en?utm_source=enwiki_05&utm_medium=anon_donation_banner&utm_campaign=spontaneous_donationhttp://volunteer.wikimedia.org/http://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://strategy.wikimedia.org/wiki/Strategic_Planning:Translationhttp://strategy.wikimedia.org/wiki/Strategic_Planning:Translationhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#column-onehttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#searchInputhttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Socialisthttp://en.wikipedia.org/wiki/Socialisthttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Labor_laws_in_Indiahttp://en.wikipedia.org/wiki/Labor_laws_in_Indiahttp://en.wikipedia.org/wiki/Subsidies_in_Indiahttp://en.wikipedia.org/wiki/Subsidies_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-Gandhi-1-0http://en.wikipedia.org/wiki/Poverty_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-1http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-2http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-3http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-3http://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-oecdindia2007-4http://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-holdingback-5http://en.wikipedia.org/wiki/McKinseyhttp://en.wikipedia.org/wiki/McKinseyhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-6http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-6http://strategy.wikimedia.org/http://www.usindiafriendship.net/viewpoints1/Indias_Rising_Growth_Potential.pdfhttp://www.usindiafriendship.net/viewpoints1/Indias_Rising_Growth_Potential.pdfhttp://wikimediafoundation.org/wiki/Donate/Now/en?utm_source=enwiki_05&utm_medium=anon_donation_banner&utm_campaign=spontaneous_donationhttp://volunteer.wikimedia.org/http://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://strategy.wikimedia.org/wiki/Strategic_Planning:Translationhttp://strategy.wikimedia.org/wiki/Strategic_Planning:Translationhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#column-onehttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#searchInputhttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Socialisthttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Labor_laws_in_Indiahttp://en.wikipedia.org/wiki/Subsidies_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-Gandhi-1-0http://en.wikipedia.org/wiki/Poverty_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-1http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-2http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-3http://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-oecdindia2007-4http://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-holdingback-5http://en.wikipedia.org/wiki/McKinseyhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-6


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Contents

[hide]

1 Pre-liberalisation policieso 1.1 Impact

2 Rajiv Gandhi government (1984-1989) 3 Narasimha Rao government (1991-

1996)o 3.1 Crisiso 3.2 Reforms

3.2.1 Other 4 Later reforms 5 Impact of reforms 6 Ongoing economic challenges

o 6.1 Reforms at the state level 7 See also 8 References

9 External links

[edit] Pre-liberalisation policies

Further information: Economic history of India and License Raj

Indian economic policyafterindependencewas influenced by the colonial experience (whichwas seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian

socialism. Policy tended towardsprotectionism, with a strong emphasis on import substitution,industrialization, state intervention in labor and financial markets, a large public sector, businessregulation, and central planning.[8]Five-Year Plans of India resembled central planning in theSoviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electricalplants, among other industries, were effectively nationalized in the mid-1950s.[9]Elaboratelicences, regulations and the accompanying red tape, commonly referred to as Licence Raj, wererequired to set up business in Indiabetween 1947 and 1990.[10]

Before the process of reform began in 1991, the government attempted to close the Indianeconomy to the outside world. The Indian currency, the rupee, was inconvertible and high tariffsand import licensing prevented foreign goods reaching the market. India also operated a system

of central planning for the economy, in which firms required licenses to invest and develop. Thelabyrinthine bureaucracy often led to absurd restrictions up to 80 agencies had to be satisfiedbefore a firm could be granted a licence to produce and the state would decide what wasproduced, how much, at what price and what sources of capital were used. The government alsoprevented firms from laying off workers or closing factories. The central pillar of the policy wasimport substitution, the belief that India needed to rely on internal markets for development, notinternational trade a belief generated by a mixture of socialism and the experience of colonial
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Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-9


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exploitation. Planning and the state, rather than markets, would determine how much investmentwas needed in which sectors.

BBC[11]

[edit] Impact

The low annual growth rate of the economy of India before 1980, whichstagnated around 3.5% from 1950s to 1980s, while per capita incomeaveraged 1.3%.[12] At the same time, Pakistan grew by 5%, Indonesia by 9%,

Thailand by 9%, South Korea by 10% and inTaiwan by 12%.[13]

Only four or five licences would be given for steel, power andcommunications. License owners built up huge powerful empires.[11]

A huge public sector emerged. State-owned enterprises made large losses.[11]

Infrastructure investment was poor because of the public sector monopoly.[11]

License Raj established the "irresponsible, self-perpetruating bureaucracythat still exists throughout much of the country"[14] and corruption flourished

under this system[4].

[edit] Rajiv Gandhi government (1984-1989)

In the 80s, the government led by Rajiv Gandhistarted light reforms. The government slightlyreduced License Raj and also promoted the growth of the telecommunications and softwareindustries.

The Vishwanath Pratap Singh government (1989-1990) and Chandra Shekhar government(1990-1991) did not add any significant reforms.

[edit] Narasimha Rao government (1991-1996)

[edit] Crisis

Main article: 1991 India economic crisis

The assassination of prime ministerIndira Gandhi in 1984, and later of her sonRajiv Gandhi in1991, crushed international investor confidence on the economy that was eventually pushed tothe brink by the early 1990s.

As of 1991, India still had a fixed exchange rate system, where the rupee was pegged to the valueof a basket of currencies of major trading partners. India started havingbalance of paymentsproblems since 1985, and by the end of 1990, it was in a serious economic crisis. Thegovernment was close to default[15], its central bank had refused new credit and foreign exchangereserves had reduced to the point that India could barely finance three weeks worth of imports.

A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for anIMF bailout, gold was transferred to London as collateral, the Rupee devalued and economic
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reforms were forced upon India. That low point was the catalyst required to transform theeconomy through badly needed reforms to unshackle the economy. Controls started to bedismantled, tariffs, duties and taxes progressively lowered, state monopolies broken, theeconomy was opened to trade and investment, private sector enterprise and competition wereencouraged and globalisation was slowly embraced. The reforms process continues today and is

accepted by all political parties, but the speed is often held hostage by coalition politics andvested interests.

India Report, Astaire Research[4]

[edit] Reforms

The Government of Indiaheaded byNarasimha Rao decided to usher in several reforms that arecollectively termed as liberalisation in the Indianmedia.Narasimha RaoappointedManmohanSingh as a special economical advisor to implement liberalisation.

The reforms progressed furthest in the areas of opening up to foreign investment, reformingcapital markets, deregulating domestic business, and reforming the trade regime. Liberalizationhas done away with the Licence Raj(investment, industrial and import licensing) and endedmany public monopolies, allowing automatic approval offoreign direct

he economic liberalization in india refers to ongoing reforms in india

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