ECONOMIC

LIBERALIZATION

IN INDIA

ABHINAV TYAGI Roll number-001

WHAT IS LIBERALIZATION?

Liberalization refers to laws or rules being liberalized, or relaxed, by a government. 

ECONOMIC LIBERALIZATION

Economic liberalization is generally defined as the loosening of government regulations in a country to allow for private sector companies to operate business transactions with fewer restrictions. In relation to developing countries, this term refers to opening of their economic borders to multinationals and foreign investment.

ECONOMIC LIBERALIZATION

IN INDIA

REASONS FOR LIBRALIZATION

• A Balance of Payments (BOP) crisis in 1991 which pushed the country to near bankruptcy

• The Rupee devalued and economic reforms were forced upon India

• India central bank had refused new credit and foreign exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports

• No FDI & FII Investments

Liberalization : A beginning

Reforms taken during

Liberalization

Financial Sector

Industrial Sector

Trade Sector

Fiscal

Sector

Financial Sector ReformFinancial Sector Reforms refers to the deregulation of domestic financial markets and the liberalization of the capital account

Financial Sector Reforms are:-

– Reform in Banking Sector– Reform in Stock Market– Reform in Insurance

Industrial Sector Reform 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

Industrial Sector Reforms are:-

• Abolition of industrial licensing

• Restriction were removed on expansion

• Reduction in the reservation of public sector

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

1993-94 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Year

to ye

ar g

rowt

h

Year

Government Companies

Non-GovernmentCompanies

Annual growth in number of companies

Trade Sector Reform

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

Trade Sector Reform :-• Elimination of Import Licensing• Rationalization of Tariff Structure• Adoption of Flexible Exchange rate

EFFECT OF TRADE SECTOR REFORMS

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

18.5

18.3

18.9

22.7

26.9

32.3

34.1

35.7

34.3

37.5

45.5

44.7

53.8 66

.3 85.2 10

5.2

128.

9 166.

2

189.

0

182.

2

250.

5

27.9

21.1

24.3

26.7

35.9

43.7

48.9

51.2

47.5

55.4

57.9

56.3

64.5 80

.0

118.

9 157.

1 190.

7

257.

6

308.

5

300.

6

380.

9

Merchandise Exports Merchandise Imports

(US

$ B

illio

n)

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 growing economies in the world. India is also advancing towards the economical growth and improvement in literacy.

FISCAL SECTOR REFORM

SENSEX DURING LIBRALZIATION

0.0

3,000.0

6,000.0

9,000.0

12,000.0

15,000.0

18,000.0

21,000.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Trends in Capital Market - SENSEX ans BSE 100

SENSEX BSE 100

• Annual growth in GDP

• A rate of growth that will double average income in a decade

• Rapid Growth in all sectors

• Exports of information technology enabled services particularly strong

IMPACT OF THESE REFORMS

GDP GROWTH5.3

%

1.4

%

5.4

%

5.7

% 6.4

% 7.3

%

8.0

%

4.3

%

6.7

%

6.4

%

4.4

%

5.8

%

3.8

%

8.5

%

7.5

%

9.5

%

9.6

%

9.3

%

6.8

% 8.0

%

8.5

%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Y-O

-Y G

row

th (%

)

(Rs. 000' C

rore

)

GDP GDP Growth Rate

-0.5

%

3.4

%

3.8

%

3.8

% 5.1

% 5.9

%

2.4

%

4.7

%

4.5

%

2.5

% 4.1

%

2.1

%

6.8

%

7.1

%

7.8

%

8.0

%

7.8

%

5.3

% 6.5

%

7.1

%

-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

- 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Y-O

-Y G

row

th (%

)

(Rs.

)

Per Capita Income Growth in Per Capita Income

PER CAPITA INCOME

• Political Reforms for Good Governance• Re-engineering the Role of the government• Administrative and Legal Reforms• Strategic Management of the Economy with a focus on

knowledge based HRD Activities• Fiscal Prudence

CHALLENGES AHEAD

• Agricultural Sector Reforms• Industrial Restructuring• Labour Sector Reforms• Foreign Trade and Outward Investment Policies• Financial Sector Reforms

AND NOW…..

Among the Top-15 Countries in terms of GDP at constant prices

Robust Economic Platform

Surging Exports

• Attractive Investment Destination

• Vibrant Capital Market

AND……

• Pacing Ahead to Emerge as a Major Economy in the World

Major M&A Deals Undertaken Abroad by India Inc.

USD 12.1 billion

USD 12.1 billion

Tata Steel buys Corus PlcTata Steel buys Corus Plc

USD 6 billion USD 6 billion Hindalco acquired Novelis Inc.Hindalco acquired Novelis Inc.

USD 11 billion USD 11 billion Vodafone buys HutchVodafone buys Hutch

USD 0.905 billion

USD 0.905 billion

Renault, Nissan and Mahindra & Mahindra has initiated a Greenfield automobile plant project in Chennai.

Renault, Nissan and Mahindra & Mahindra has initiated a Greenfield automobile plant project in Chennai.

Arguments in the favor of Liberalization

Increase in rate of economic growth

Increase in competitiveness of industrial 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 of Liberalization

• Pressure by IMF and World Bank

• More depending on Foreign Debt

• Dependence on Foreign technology

• Undue importance to Privatization

• Problem of Unemployment