liberalisation, privatisation and globalisation Flashcards
What were the reasons for the economic crisis of 1991?
INEFFICIENT MANAGEMENT BY THE GOVERNMENT
- 1980’S
- unable to receive revenue from internal sources like taxation or the running if PSU’s
- could not decrease expenditure - had to spend on developmental policies - unemployment, poverty and population explosion
- thus expenditure way higher than revenue
- so high that it became unsustainable
RISE IN PRICES
- inflation
- shortage of essential commodities
DEFICIT IN BALANCE OF PAYMENTS
- even with heavy tariffs and quotas imports began to rise - exports did not meet the rise in imports due to low quality and high price of indian goods
DECREASE IN FOREIGN EXCHANGE
- not even enough foreign exchange to sustain imports for two weeks
- or to pay interests on loans
- thus no country or international organisation was willing to lend to india
INEFFICIENT PUBLIC SECTOR
- performance - not adequate
- incurred huge losses
From where did India take a loan from to help its economic crisis? How much was the loan? Were their any conditions attached to it? What were its consequences?
International Bank for Reconstruction and Development/World Bank and International Monetary Fund
7 Billion USD
CONDITIONS
liberalise and open economy through
- reducing role of public sector
- reducing barriers to growth of private sector
- reducing international trade restrictions
Thus - NEW ECONOMIC POLICY
- increase international competitiveness
- reduce the barriers to growth and entry of firms
Stabilisation reforms
- correct weakness in balance of Payments
- control inflation
- short-term
Structural
- bring about change in framework
- liberalising and privatising
- improving efficiency
What were the liberalisation measures?
INDUSTRY DEREGULATION
- before price and distribution control of certain industrial products - market forces allowed to determine price
- dereservation of various small-scale industry products
- abolishment of licenses except in cases of electronics, aerospace, drugs and pharmaceuticals, industrial explosives, hazardous chemicals
- only industries reserved for public sector - railway transport, atomic energy, defence equipment
FOREIGN EXCHANGE
- devaluation of rupee - exports - cheap - increase in foreign exchange
Market determination of exchange rate - rupee free from government control in hands of market forces of supply and demand
TRADE INVESTMENT
- improve international competition
- to improve the efficiency of domestic industries and promote adoption of modern technology
- to increase the amounts of foreign investment and technology
Removal of quantitative restrictions on imports and exports
completely removed for imports 2001
abolished export duties to encourage exports
Reduction in tariff rates
Abolishment of import licensing system except for hazardous and environmentally sensitive goods
FINANCIAL SECTOR
- financial institutions - commercial banks, investment banks, foreign exchange market, stock exchange market
- change in role of rbi
- before regulator - amount of money interest rates nature of lending
- now facilitator
institutions could make decisions on various issues without the approval of RBI
- ease in expansion
- allowed to set up new branches and rationalise existing branches without the approval of RBI given that they meet certain standards
- establishment of many private sector banks both domestic and foreign
- increase in foreign investment limit in banks to 74%
- foreign institutional investors like merchant bankers, pensions funds, mutual funds allowed to invest in india
- however certain managerial aspects were still kept with the RBI to protect and safeguard the interests of the account holders and nations
TAX
- reduction in income and corporation tax
- moderate taxes - reduce tax evasions, voluntary disclosure of income, promote savings
Simplified tax - gst 2017 unified indirect taxes - reduce tax evasion - extra revenue
Reforms in indirect - create a common national market for goods and commodities
What were the privatisation reforms
Privatisation refers to the transfer of ownership, management and control of public companies to private
- facilitate modernisation and financial discipline + private capital + managerial qualities - greater efficiency
- transfer and ownership of public sector companies
- privatisation of psu’s by selling off part of their equity
- disinvestment
- identification of psu’s as maharatnas , navaratnas and miniratnas
based on net turnover, profits and worth
- granting more managerial and operational autonomy
- induce professionalism, efficiency and competition in global liberalised market
- originally established psu’s - 1960s - infrastructure employment goods at nominal services, company accountable to all shareholders
maharatna - Steel authority of India limited
Indian Oil Cooperation Limited
navaratna - Hindustan Aeronautics Limited
miniratna - Airport Authority of India Bharat Sanchar Nigam Limited
- strong inflow of fdi
