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INDIA BEFORE AND AFTER LIBERALIZATION
By BARATH KUMAR S
INDIA BEFORE LIBERALIZATIONBrief historyGovernment restrictions (command economy)Emphasis on self relianceConstraints on flexibility of budgetsSlow growth rate of 3.5% Average Per captia income to 1.3%India’s share of world trade was less than
0.5% in 1980
FACTORS THAT FORCED INDIA TO LIBERALIZEWorld wide Oil shocks 1974-1979 (Gulf War)World wide recession 1980-1982War with neighbors (indo sino war 1962, indo
pak war 1965, indo pak war 1971)Adjustment to economic difficulties and
resumption of growthUnstable political situation 1989-1991Failure of macroeconomic policy 1991Pegged currency and currency overvaluation
THE 1991 CRSISAssassination of Rajiv Gandhi (1989) crushed
international investor confidence.Balance of payments (from 1980) pushed the
country to bankruptcy. Fiscal deficit rose from 9% of GDP in 1981 to
53% of GDP in 1991 67 tons of Gold was transferred to London as
collateral in return for a $2.2 billion loan from IMF .
LIBERALIZATION Deregulation - abolition of “license raj”, no
restrictions in production Transition to free economyPrivatization - transfer of business from
public sector to private sectorTax reformsInflation control measuresNo change in labour laws
INDIA AFTER LIBERALIZATIONDevaluation of the Rupee from 17.4 in 1991 to 46 per
dollar in 1992 increased foreign investor confidenceEradication of poverty – As of 2009 300 million people
have escaped poverty Indian forex reserves are at $278.7 billion as of feb
2010Production and service sectors have grown enormously
providing employment for 34% of the population and contributing 62% to GDP
Agriculture and related industries have shown slow but steady growth employing 52% of the population contributing 20% to GDP