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INDIA BEFORE AND AFTER LIBERALIZATION By BARATH KUMAR S

India Before and After Liberalization

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Page 1: India Before and After Liberalization

INDIA BEFORE AND AFTER LIBERALIZATION

By BARATH KUMAR S

Page 2: India Before and After Liberalization

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

Page 3: India Before and After Liberalization

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

Page 4: India Before and After Liberalization

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 .

Page 5: India Before and After Liberalization

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

Page 6: India Before and After Liberalization

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