Liberalization Hard Copy

8/12/2019 Liberalization Hard Copy

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Project On Liberalization

By:

Ajit Thakur Ashish Agarwal

Jyoti Bisht Sumedh Gaikwad

Pankaj Manjrekar Ramesh Mudaliar

Shanky Jain Vidhi Yagnik


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Context

Introduction About Liberalization Pre- Liberalization

India System before Liberalization Impact India Trade Status before Liberalization Impact

Post Liberalization Indian system Post -Liberalization. Impact

SWOTPre- LiberalizationPost - liberalization

Conclusion Suggestions


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Introduction:

This Project explains us about the Globalization of theeconomy by implementing new policies and improving the fiscal

conditions of the country

This helps us to study about the Economic condition of the

country before and after Independence and how did it

overcome to be stable with the smooth and flow less running of

the country with more and more opportunities and become a

fast developing country by Liberalizing the industries and the

opportunities for growth to develop the economic system of the

country.

The aim to highlight Liberalization is to educate people and

make them understand the strategies for implementing taxes

and why government has imposedso many policies.


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About Liberalization:

Liberalization means to free economy from direct or physical

controls imposed by the government.

The term Liberalization stands for the act of making less strict. Liberalization in Economy stands for The process of making

policies less constraining of economic activity.

Economic liberalization is a very broad term that usually refers tofewer government regulations and restrictions in the economy in

exchange for greater participation of private entities; the doctrine

is associated with modern-liberalism. The arguments for economic

liberalization include greater efficiency and effectiveness that

would translate to a "Bigger pie" for everybody.

In developing countries, economic liberalization refers more toliberalization or further "opening up" of their respective

economies to foreign capital and investments. Three of the fastestgrowing developing economies today; Brazil, China and India,

have achieved rapid economic growth in the past several years or

decades after they have "liberalized" their economies to foreign

capital.


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Pre - Liberalization:

Early Indian Economy

Indian economy in the early period was a self sufficient economycomprising of several villages. Indian villages produced and met their

requirement according to division of labour and their economic activity

was restricted to village economy. Barter system prevailed as an

exchange mechanism. Basically, the primary activity was agriculture.

Other services like carpentry, weaving, hair dressing, etc. were offered

by labourers who extended their services based on hereditary. They

received their wages as food products. In short, Indian villages

functioned as an independent republics and the only interference was

from the King for whom they paid taxes in kind. Thus, India had happy

villages.

Prior to the British rule, religion, system of the society and kings

law influenced the economy to a great extent. There prevailed caste

system which decided the division of labour for the benefit of thesocietys economy. Further, the prevalence of joint-family system helped

them to pool their resources for their individual family benefit and also

for the benefit of the society. Another advantage of the joint-family

system was that the cultivable lands were not fragmented, yielding to

better economic gains.

Another influencer of early Indian economy was the Hindu religion.

The religious canters also functioned as Indian trade centres. For

example, major pilgrimage spots like Nasik, Allahabad, Varanasi, etc.

also functioned as centres of commerce and trade. Many trade and

commerce activities were linked to the religious festivals and functions.


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In short, the Hindu religion acted as an indirect catalyst for the Indian

economy.

One of the major industries in early India was textile. Handicrafts

were also part of the Indian industrial activity. Indian textile products

like shawls, dhotis, dupattas, woolen products, cotton goods, etc. and

handicraft products were exported to overseas markets, such as Egypt,

South East Asia, Greece, etc. It is worth noting that when Europe (birth

place of modern industrialism) was inhabited by uncivilized people,

India was very popular for its craftsmanship and rich economy.

PRE-LIBERALIZATION POLICIES:

Policy tended towards protectionism, with a strong emphasis on

import substitution, industrialization, state intervention in labour and

financial markets, a large public sector, business regulation, andcentral

planning. Five-Year Plans of India resembled central planning in the

Soviet Union.Steel, mining, machine tools, water, telecommunications,

insurance, and electrical plants, among other industries, were

effectively nationalized in the mid-1950s. Elaborate licenses, regulations

and the accompanying red tape,commonly referred to as License Raj,

were required to set up business inIndia between 1947 and 1990.

Before the process of reform began in 1991, the government

attempted to close the Indian economy to the outside world. The Indiancurrency, the rupee, was inconvertible and high tariffs and 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. The labyrinthine bureaucracy
http://en.wikipedia.org/wiki/Protectionisthttp://en.wikipedia.org/wiki/Import_substitutionhttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/State_interventionhttp://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Red_tapehttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Red_tapehttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/State_interventionhttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/Import_substitutionhttp://en.wikipedia.org/wiki/Protectionist


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often led to absurd restrictions up to 80 agencies had to be satisfied

before a firm could be granted a license to produce and the state would

decide what was produced, how much, at what price and what sources

of capital were used. The government also prevented firms from layingoff workers or closing factories. The central pillar of the policy was

import substitution, the belief that India needed to rely on internal

markets for development, not international trade a belief generated

by a mixture of socialism and the experience of colonial exploitation.

Planning and the state, rather than markets, would determine how

much investment was needed in which sectors.

INDIAN TRADE BEFORE LIBERLIZATION:

1980s suggests that the root cause of the crisis was the large andgrowing fiscal imbalance.

Large fiscal deficits emerged as a result of mounting governmentexpenditures, particularly during the second half of the 80s.

These fiscal deficits led to high levels of borrowing by thegovernment from the Reserve Bank of India (RBI), IMF, World

Bank.

Over the 1980s, government expenditure in India grew at aphenomenal rate, faster than what government earns as a

revenues.

The subsidies grew at a rate faster than government expenditures. Expenditure on subsidies rose from Rs.19.1 billion in 1980-81 to Rs.

107.2 billion in 1990-91.


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The Indian economy was indeed in deep trouble. Lack of foreign reserves.

Gold reserve was empty.

Before 1991, India was a closed economy.

IMPACTS:

The low annual growth rate of the economy of India before 1980,which stagnated around 3.5% from 1950s to 1980s, while percapita income averaged 1.3%. At the same time, Pakistan grew by

5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in

Taiwan by 12%.

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

A huge public sector emerged. State-owned enterprises made largelosses.

Infrastructure investment was poor because of the public sectormonopoly.

License Raj established the "irresponsible, self-perpetuatingbureaucracy that still exists throughout much of the country" and

corruption flourished under this system.

INDEPENDENCE TO 1991:

Policy tended towards protectionism, with a strong emphasis on

import substitution, industrialization, state intervention in labour and

financial markets, a large public sector, business regulation, andcentral
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planning. Five-Year Plans of India resembled central planning in the

Soviet Union.Steel, mining, machine tools, water, telecommunications,

insurance, and electrical plants, among other industries, were

effectively nationalized in the mid-1950s. Elaborate licenses, regulations

and the accompanying red tape,commonly referred to as License Raj,

were required to set up business inIndiabetween 1947 and 1990.

Jawaharlal Nehru, the first prime minister, along with thestatistician Prasanta Chandra Mahalanobis, carried on by Indira

Gandhiformulated and oversaw economic policy.

Indian GDP becomes three times negative before reforms period. To set up a strong economic system Indian government has taken

a steps to reform all its economic policies under the Narsimhamcommittee.

CRISIS:

The assassination of Prime minister Indira Gandhi in 1984, and

later of her son Rajiv Gandhi in 1991 crushed international investor

confidence on the economy that was eventually pushed to the brink by

the early 1990s.

As of 1991, India still had a fixed exchange rate system, where the

rupee was pegged to the value of a basket of currencies of major

trading partners. India started having balance of payments problems

since 1985, and by the end of 1990, it was in a serious economic crisis.

The government was close to default, its central bank had refused new

credit and foreign exchange reserves had reduced to the point that Indiacould barely finance three weeks worth of imports.

A Balance of Payments crisis in 1991 pushed the country to near

bankruptcy. In return for an IMF bailout, gold was transferred to London
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as collateral, the Rupee devalued and economic reforms were forced

upon India. That low point was the catalyst required to transform the

economy through badly needed reforms to unshackle the economy.

Controls started to be dismantled, tariffs, duties and taxes progressivelylowered, state monopolies broken, the economy was opened to trade

and investment, private sector enterprise and competition were

encouraged and globalization 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 and vested interests.


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POST LIBERALISATION REFORMS:

The Government of India headed by Narasimha Rao decided to

usher in several reforms that are collectively termed as liberalization inthe Indian media. Narasimha Rao appointed Manmohan Singh as a

special economical advisor to implement liberalization.

The reforms progressed furthest in the areas of opening up to

foreign investment, reforming capital markets, deregulating domestic

business, and reforming the trade regime. Liberalization has done away

with the License Raj (investment, industrial and import licensing) and

ended many public monopolies, allowing automatic approval of foreign

direct investment in many sectors. Rao's government's goals were

reducing the fiscal deficit, privatization of the public sector, and

increasing investment in infrastructure. Trade reforms and changes in

the regulation of foreign direct investment were introduced to open

India to foreign trade while stabilizing external loans. Rao's finance

minister, Manmohan Singh, an acclaimed economist, played a central

role in implementing these reforms. New research suggests that the

scope and pattern of these reforms in India's foreign investment and

external trade sectors followed the Chinese experience with external

economic reforms.

In the industrial sector, industrial licensing was cut, leaving only 18industries subject to licensing. Industrial regulation was rationalized.

Marginal tax rates were reduced. Privatization of large, inefficient and loss-inducing government

corporations was initiated.
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IMPACTS POST LIBERALISATION:Major improvements in educational standards across India have

helped its economic rise. Shown here is theIndian School of Businessat

Hyderabad,ranked number 15 in global MBA rankings by the financialTimesof London in 2009.

In the late 80s, the government led by Rajiv Gandhi eased

restrictions on capacity expansion for incumbents, removed price

controls and reduced corporate taxes. While this increased the rate of

growth, it also led to high fiscal deficits and a worsening current

account. The collapse of the Soviet Union, which was India's major

trading partner, and thefirst Gulf War,which caused a spike in oil prices,caused a major balance-of-payments crisis for India, which found it

facing the prospect of defaulting on its loans. India asked for a $1.8

billion bailout loan fromIMF,which in return demanded reforms.

In response, Prime MinisterNarasimha Rao along with his finance

ministerManmohan Singh initiated theeconomic liberalization of 1991.

The reforms did away with the License Raj (investment, industrial and

import licensing) and ended many public monopolies, allowing

automatic approval of foreign direct investment in many sectors.Sincethen, the overall direction of liberalization has remained the same,

irrespective of the ruling party, although no party has tried to take on

powerful lobbies such as the trade unions and farmers, or contentious

issues such as reforming labour laws and reducing agricultural subsidies.

Since 1990 India has emerged as one of the fastest-growing economies

in the developing world; during this period, the economy has grown

constantly, but with a few major setbacks. This has been accompanied

by increases in life expectancy, literacy rates and food security.

While the credit rating of India was hit by its nuclear tests in 1998,

it has been raised to investment level in 2007 by S&P and Moody's. In

2003, Goldman Sachs predicted that India's GDP in current prices will
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overtake France and Italy by 2020, Germany, UK and Russia by 2025

and Japan by 2035. By 2035, it was projected to be the third largest

economy of the world, behind US and China. In 2009 India purchased

200 Tons of Gold for $6.7 Billion from IMF as a total role reversal from

1991.

AGRICULTURE:Agriculture is the back bone of Indian economy for several

centuries. The importance of agriculture in Indian economy is

prominently evident. Nearly 70 per cent of the population depends on

agriculture either directly or indirectly for their living.

INDUSTRY:

Industrialization is vital for a countrys economic development.

Indian industrial sector is characterized by under-utilization of resources,

low capital formation, low level of technology, and lack of skilled man

power and social attitudes of the population. Indian industrial

development is also highly influenced by the political climate of India,

the political philosophy of the ruling party, the attitude and culture ofthe political administrators and Indian Industrial Policies. Indian

industry also depends highly on the attitudes and aspirations of the

Indian man power and Indian society.Due to several factors, such as,

low returns, long time lag, defence requirements, public utilities, large

resource requirement, development of backward regions, development

of infrastructure, etc. the Government had to invest in certain capital-

intensive segments to share the burden of industrialization and to

generate employment opportunities.India achieved a GDP growth rate

of 7 per cent in 1995-96 for the first time since 1950, despite a low

agricultural growth rate of 2.4 per cent. The major factor which

contributed for this growth rate was achievement by the industrial

sector which registered a growth rate of 12.1 per cent till 1995-96.


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SERVICE AND INFRASTRUCTURE SECTOR:For any developing nation development of service and

infrastructure segment is very important to reach its economic goals.India is successful in improving its service and infrastructure areas.

BANKING:Performance of the banking sector is considered as a proxy for the

economy as a whole, due to banks' wide spectrum of exposure across

industries. Unfortunately for India, the banking sector has historically

remained under the impact of non-competitiveness, poor technology

integration, high NPAs and grossly under productive manpower.

Banking sector in India has a wide mix, comprising of joint sector

(scheduled and non-scheduled banks),nationalized sector (Reserve Bank

of India, State Bank of India and all other nationalized commercial

banks and post office savings bank), specialized corporate financial

institutions (specific industrial finance corporations and state finance

corporations), co-operative sector (co-operative banks and land

development banks) and foreign sector (foreign commercial banks and

exchange banks).

INSURANCE:Insurance sector in India has been enjoying a state-monopoly

status in India for decades. Under Indian conditions there are only two

broad classifications of insurance companies: life and non-life insurance.

The life insurance activities are solely managed by Life Insurance

Corporation of India and the rest is handled by General InsuranceCorporation of India.


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TRANSPORT:

A well developed transport system will support an economy in

several ways : supports the industry by increasing the efficiency of

production, rises the demand through movement of products, facilitates

the location of an industry, helps the development of urbanization,

movement of man power, better standard of living, better education,

etc. Contribution of transport to Indian economy is very significant.

Indian transport sector comprises of all forms of transports: railways,

roadways, water and air transport.

TELECOM:Telecom sector was opened up for private sector participation into

basic services and value added services with the policy announcement in

May 1994. In order to meet the rising demand inthe telecom sector,

Indian Government decided to invite private players to supplant the

government supported agencies in rendering basic as well as value

added telecom services. Though opened up, barring a few areas like

pagers and mobile phones, Indian telecommunication sector is

dominated by Department of Telecom (DOT) and two governmentcompanies - VSNL and MTNL.

POWER:Power is a vital input for the growth of industrial development of

any nation - higher the power, higher the industrial growth and higher

the employment. Since independence most of the projects in

this sector has been financed and managedby government agencies - Centre or State (nearly 90 per cent or

more investment required for the power sector came from the public

sector through Five Year/Annual Plans). However, since liberalization,

the role of private sector, inclusive of foreign players was recognized in

the power projects.


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POWER FINANCE:During post-independence era, power - one of the major

core sector - has been funded by the government or government

agencies, when private participation was almost nil in power sector,thanks to government policies. However, with liberalization, this core

sector was opened to private sector and consequently to the foreign

players.

CHANGING ENVIRONMENT AFTER 1991:

Opening up of the Indian Economy Before 1991 there was closed economy and import of certain

goods was restricted.

After 1991 competition increased tremendously after theliberalisation.

Competitors from all over the world enter the Indian market

Competition from Low Wage Countries Low range products are floating into the market Low price, low quality

POST REFORM PERIOD:After the liberalization period the Indian economy shows a

positive. Prime Minister Narasimha Rao along with his finance

minister Manmohan Singh initiated theeconomic liberalization of
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1991. The reforms did away with the License Raj (investment,

industrial and import licensing) and ended many public

monopolies, allowing automatic approval of foreign direct

investment in many sectors. Since then, the overall direction of

liberalization has remained the same, irrespective of the ruling

party, although no party has tried to take on powerful lobbies

such as the trade unions and farmers, or contentious issues such

as reforming labour laws and reducing agricultural subsidies.Since

1990 India has emerged as one of the fastest-growing economies

in the developing world; during this period, the economy has

grown constantly, but with a few major setbacks. This has been

accompanied by increases in life expectancy, literacy rates and

food security.
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SWOT ANALYSIS:

SWOT analysis is astrategic planning method used to evaluate

the Strengths, Weaknesses/Limitations, Opportunities, and Threatsinvolved in aproject or in abusiness venture. It involves specifying the

objective of the business venture or project and identifying the internal

and external factors that are favourable and unfavourable to achieve

that objective.

SWOT stands for

S = Strength

W = Weakness

O = Opportunities

T = Threads
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Pre- Liberalization:

Strengths:

As seen before Liberalization India was self- sufficient and was

able to earn their living i:e there was no dependency on any of the

industries or any external resources. The main asset was the culture and

religion which help to strengthen the Indian economy and run smoothly.

Also tradition played important role in emphasising the business and

textile industries to grow as due to tradition was the only medium to do

the marketing and interact with the people and do trades. As India havemany caste and vast diversity in the culture and tradition and all

different caste people were good at their respective fields this

encouraged in believing that India is self-sufficient.

Weaknesses:

India was rich with the oil, gold and many more metals and spices

and agricultural but as people being illiterate they were unable to utilize

the available resources, and thus this could have encouraged the

foreign countries to enter the Indian market and As there was barter

system carried out every where so there was no transactions on

monetary bases this resulted in lack of investment in the infrastructure

and industries and thus this effected the Growth of the country andresulted in low GDP of the country, and also there was no planning and

strategies to implement business and so the resources were used

unnecessarily when not required.


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Opportunities:

To start trades opportunities to utilize the available

resources properly and import them to gain the economy. Utilizeresources in right manner to give good output we having good

leaders and politicians which could have helped us guiding to

utilize the resources in proper manner and to utilize them. Utilize

the asset i: e Religion, culture and tradition: Religion, culture and

tradition which are still followed in India could have been used as

a major resource to have good productivity and utilize the

traditions in correct manner. Even though people were illiteratethey had a thorough knowledge of their traditions, religion and

culture which could have helped in utilizing them at the best.

Provision to educate other divisions about the business: As people

were divided into different categories of labours, kings according

to their specialty, they could have helped other division people to

get educated of the work they do.

Threats:

Illiteracy resulted in misguiding people from being self

sufficient. People were not guided in right direction to run the

business or have proper reforms. No policies imposed by

government which can result in instable economy. No policieswere implemented for agriculture and other small scale industries

only few limited industries were permitted for license Raj. Illiteracy

resulted in misuse of the resources may lead other countries to

enter Indian market easily. Other countries were very well got an


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idea about our rich and ample amount of resources available in

India, so there was a possibility of others countries to come and

utilize our resources easily.


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Post- Liberalization:

Strengths:

Resources were used when necessary. Division was not

playing an important role in any business. People were educated

and guided in right direction to run the business GDP was showing

positive result Leader and politicians were implementing reforms

to stabilize the economy. Foreign trade were started in India and

was the fast developing country due to imposing of reforms.

Human assets are abundantly available in India.

Weaknesses:

Dependency of Industries on Man power. Government has

to take the burden of the both private and public sector. India had

Mixed Economy (Public and private sector). Ad-HocImplementation of the reforms without and reference of data.

Opportunities:

People from India were able to work in other countries.

People were able to understand the utilization of resources in

proper manner. More and more trades were done to grow the

economy


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Threats:

Competitors from all over the world enter the Indian market.

Private sectors were given more importance. Threaten domesticbusinesses. Small-scale industries and fight against liberalizing.

Opportunities for corruption and inefficiencies.


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time but it is unclear whether this signifies a lengthening of

unemployment spells and a worsening of job opportunities or whether it

simply denotes a greater degree of transitional or frictional

unemployment as labour is reallocated towards the more productivesectors. Average daily earnings per person per annum in the economy

increased at a significant pace in rural and urban areas and for men and

women.

Poverty incidence declined. The paper has pointed to directions for

further research, which remains very relevant as there forms are

continuing. Analyses of labour market outcomes which attempt touncover structural relations, which investigate the dynamics of change,

and which use micro-data could make a very strong contribution to

current debates on the costs and benefits of economic liberalization.


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Suggestions

Monitoring the market situation. Right Implementation of reform.

Specific measures to boost the REAL ECONOMY (Agriculture, fuel,

power). Quality Leadership should be provided for stable politics and

strong civilization, government and System of Justice. Indian

government should start entrepreneurship to give people a platform to

portrait their innovation. Expand Budget for Education system.

Emphasis more on tradition business instead of International business.

Government should concentrate on public sectors and monitor theprivate sectors.

Documents

Liberalization Hard Copy