Economic Reforms

in India
Prepared by :- Mansi Karandikar
Abhishek Agrawal
Contents
Why economic reforms??
Factors & objectives - Reforms
Foreign Investment – Policy Reforms
Foreign Trade & Exchange Policy Reforms
Industrial reforms
Public sector reforms
Financial & Fiscal reforms
Social reforms
 Agricultural reform
 Poverty
 Health & Education
conclusion

Why Economy reforms??
** Background of Economic reforms**


First introduced under Rajiv Gandhi regime

End of 1991- unprecedented crisis
Reserve of foreign exchange- 2 weeks Import
No New Loans available
BOP- critical
Faith of International community shaken
Factors – Economic
Reforms
(A)International Factors
2 International scenario
3 International pressure & condition


(B) Domestic Factors



1 Increase in fiscal deficit

2 Deficit in current account & increase in foreign debt
3 BOP crises
4 Monitoring inflationary pressure
5 Unsatisfactory performance of public sector
6
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 Policy
Objectives of Industrial Policy-1991
1 Self Reliance
2 Sound policy Framework
3 Development of Small sector
4 Foreign Investment & Technology collaboration
5 Abolishment of Monopoly
6 Rightful Role to Public sector
7 Protection of Interest of Labourers

Features of Industrial Policy-
1991
Industrial licensing
Foreign Investment
Foreign Technology
Policy regarding public sector
MRTP limit

Foreign Investment – Policy
Reforms
Need foreign capital in India
1.Exploitation of natural resources
2.Technological Gap
3.BOP support
4.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
Reforms in Foreign Trade &
Exchange Policy Reforms
 Cash Compensatory Scheme (CCS) suspended
 Replenishment 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 drugs
 All additional licenses granted to Export house stand
abolished
 Unlisted OGL stand abolished & allowed to import thru Rep
route
 Advance licensing for imports for exports remain open
 All Import licensing for capital goods & raw materials have
been removed gradually
 Financial Institutions have also been allowed to trade Exim
scrips
 The rupee was expected to fully convertible on Trade account
in 3 to 5 years
Fiscal reforms
Simplification 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 Reforms
Deregulation of interest rate
Deregulation of credit
Banking sector
Co-operative banks
Development finance institutions
Non- banking financial institutions
Insurance sector
Money market
Capital market

Deregulation of interest
rates
Began 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 credit
Began in mid 1980s intensified in 1990s
To expand the pool of lendable resources,
rationalization of priority sector requirements
and relaxation of balance sheet restrictions to
improve the credit delivery system.

Banking sector
Reduction 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 banks
No 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
institutions
Policy 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
institutions
Prudential 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
institutions
Prudential 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 sector
Opening up of insurance business to private
participation
IRDA act, 1999
To deepen insurance penetration by enlarging
consumer choices through product
innovation.
FDI up to 26% allowed

Money market reforms
Ceiling of 10% on call money rates imposed by
IBA withdrawn in 1989
The 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 market
Co.swere given freedom to price their issues
under capital issues control act 1947
Electronic trading system
ADRs and GDRs and ECBs
FIIs in capital market

Public sector reforms
Objectives of public sector
1.Ensure rapid economic growth &
industrialization of the country
2.Earn return on investment
3.promote redistribution of income and wealth
4.to create employment opportunities
5.balanced regional development
6.dev. Of small scale and ancillary industries
7.save and earn foreign exchange for economy
Policy initiatives(public
sector)
Restructuring
Increase in autonomy and performance
accountability
Changes in management in specific enterprise
Technological up gradation
Disinvestment and privatization
Policy initiatives(public
sector)
Restructuring
Increase in autonomy and performance
accountability
Changes in management in specific enterprise
Technological up gradation
Disinvestment and privatization
Social sector
 Agriculture
Partial decontrol of fertilizer prices
Removal of bottlenecks in agricultural marketing
Relaxation of restrictions under the essential
commodities act, 1955
Introduction of forward trading in important
commercial crops
Replacement of the revamped public distribution
system with targeted public distribution system
Establishment of rural infrastructure development
fund
Replacement of quantitative control tariff

Poverty
National food for work programme
Rural employment generation programme
Jai prakash rozgar guarantee yojana
Jawahar gram samridhi yojna
Swarna jayanti gram swarojgar yojana
National social assistance programme
Employment assurance scheme
Pradhan mantri gramodaya yojana


Unemployment
National rural employment programme
Rural landless employment guarantee programme
Scheme of training rural youth for self-employment
Jawahar rojgar yojna
A faster and geographically diversified growth of
agriculture
Development of infrastructure and marketing
Arrangements for agro-based activities
Greater attention to the needs of the small mfg
sector as a major source of industrial growth
Revamping of training systems to introduce greater
flexibility to labour market trends
conclusion
Ascended a higher growth path so far
Indians 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.
References
New Indian Economy & Reforms-K.L. Gupta,
Harvinder Kaur
Indian Financial Sector- Niti Bhasin
India’s Economic Reforms – Vijay Joshi, I.M.D.
Little
Impact of Reform process on Indian Economy-
Dr. Babita Agrawal
Indian Economy- Datt Sundaram
Reserve bank of India Bulletine-2006