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INTRODUCTION

Liberalization of the economy means to free it from

direct or physical controls imposed by the

government.

Economic reforms were based on the assumption

that market forces could guide the economy in a

more effective manner than government control.

Examples of one of other undeveloped countries likeKorea, Thailand, Singapore, etc. that had achieved

rapid economic development as a result of

liberalization were kept in consideration.



What made India to liberalize

A Balance of Payments crisis in 1991 whichpushed the country to near bankruptcy.

the Rupee devalued and economic reformswere forced upon India.

India central bank had refused new credit and

foreign exchange reserves had reduced to thepoint that India could barely finance threeweeks’ worth of imports



Reforms taken during

liberalization

Abolition of industrial licensing andregistrationLiberalizing the MRTP actFreedom for expansion and production

Increase in the investment limit of the smallindustriesFreedom to import capital goodsFreedom to import technology

Free determination of interest rates



Impact of these reforms

Annual growth in GDP

A rate of growth that will doubleaverage income in a decade

Rapid Growth in all sectors.

Exports of information technologyenabled services particularly strong.



COMPONENTS

OF

LIBERALIZATION

Industrial

Liberalization

Trade

Liberalization

Financial

Liberalization

Fiscal Sector

Reforms



1. Industrial Liberalization

Industrial Sector was among the first sectors to be

liberalized in India in a series of measures. Industrial

licensing has been abolished except in a small number of

sectors where it has been retained on strategic

considerations.

Abolition of industrial licensing

Reduction in d reservation of public sectorFacilitated easy access to foreign technology

Restriction were removed on expansion and,

Opening the economy to FDI.



Foreign Direct Investment in India

Foreign investment is more than 24% in theequity capital of units manufacturing itemsreserved for the small scale industries.

Foreign Investment Promotion Board(FIPB) is a competent body to consider andrecommend foreign direct investment.



Trade policy allowing domestic providers (of goods and/orservices) to compete more freely in world markets and

foreign providers to compete more freely in domestic

markets.

2. Trade Liberalization

TRADE SECTORREFORMS

ELIMINATIONOF IMPORTLICENSING RATIONALISATION

OF TARIFFSTRUCTURE

ADOPTIONOF FLEXIBLEEXCHANGE

RATE



Financial liberalization (FL) refers to the deregulation ofdomestic financial markets and the liberalization of thecapital account.

In one view, it strengthens financial development andcontributes to higher long-run growth. In another view, itinduces excessive risk-taking, increasesmacroeconomic volatility and leads to more frequent

crises.

3. Financial Liberalization



Financial Liberalization reforms

REFORMS INBANKING SECTOR

REFORMS INCAPITAL MARKET

REFORMS ININSURANCE



4. Fiscal Sector Reforms

India's fiscal sector reforms help to raise the rate of savings

and investment in India. This further helps to enhance the

productivity of public expenditures

India has established itself as one of the fastest growingeconomies in the world. India is also advancing towards the

economical growth and improvement in literacy.

During 1999-2000, India's domestic savings and investmentwas estimated to grow by 23% and Indian economy was

expected to grow by 6.4% although the average growth rate

declined to 6.0% in comparison to earlier year.



In the first five year plan, India had attainedan average annual growth rate by 3.5%.

Indian economy showed an averagegrowth rate of 6.4%, which was 5.9% in the80's. At the end of the 8th Five Year Plan,

the annual growth rate of India reached 6.9percent.

During the period from 1991-92 the Indianeconomy passed through a tough time.The overall economic growth in this perioddeclined to 1.1% and the total fiscal deficitbecame 8% of the GDP.



Indian Foreign Exchange Reserves: a steady rise

after liberalization

Foreign exchange reserves (US$ billion)

2.2 17.0

54.1

75.4

118.3

0

50

100

150

1990-91 1995-96 2001-02 2002-03 2003-04



Foreign Investments after liberalization

103

5,138 5,3856,789

8,152

5,639

15,872

0

2000

4000

6000

8000

10000

1200014000

16000

18000

1990-91 1994-95 1997-98 2000-01 2001-02 2002-03 2003-04

Total Foreign Investment (US$ million)US$ million



Import duty Reductions after liberalization

Reduction in Peak Customs Duties on Manufactured items

150

110

5038.5 30 25 20

42

0

20

40

60

80

100

120

140

160

1991 Mar-92 Mar-95 Mar-97 Mar-00 Mar-02 Mar-03 w.e.f March

2004

i n

p e r c e n t



Challenges Ahead

1. Governance

Need for elimination of large number of Rules &Regulations in the books

Sharply reducing the number of implementing agencies

Moving towards single window clearance

2. Infrastructure: A Challenge and an opportunity

Investments required upto 2012 – US$ 334 billion

Power Generation - US$ 143 billion

Power Transmission & Distribution – US$ 116 billion

Roads – US$ 40 billion

Ports – US$ 20 billion

Railways – US$ 15 billion



CONCLUSION



Arguments in the favour ofLiberalization

Increase in rate of economic growth

Increase in competitiveness ofindustrial sector

Reduction in poverty and inequality

Fall in fiscal deficit

Control on prices

Decline in deficit of BOP

Increase in Efficiency



Arguments in the Against ofLiberalization

Less importance to agriculture.

Pressure by IMF and World Bank.

More depending on Foreign Debt.Dependence on Foreign technology.

Undue importance to Privatization.

Problem of Unemployment.



THANK YOU

liberalization 100216050452 phpapp02

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