Economic Liberalization And Reforms

AginUpasanaAnuRakshita

Reasons for implementing Liberalization and reforms• Large and growing fiscal

imbalances.(Gross fiscal deficit rose to 12.1% of GDP in 1991)

• Growing inefficiency in the use of resources.

• Low foreign exchange reserves.($1.2 billion in January 1991)

• High inflation rate.(13.87% in year 1990-91)

• The low annual growth rate of Indian economy stagnated around 3.5% from 1950s to 1980s, while per capita income averaged 1.3%.

Economic Liberalization

• Liberalization refers to relaxation of government restrictions in areas of economic policies.

• when government liberalizes trade it means it has removed the tariff, subsidies and other restrictions on the flow of goods and service between countries

• In relation to developing countries, this term refers to opening of their economic borders to multinationals and foreign investment.

• Liberalization mainly affected the following sectors:

Financial sector

Industrial Sector

Trade sector

Fiscal sector

Privatisation• refers to the transfer of assets

or service functions from public to private ownership or control and the opening of the closed areas to private sector entry.

Advantages

Help in reviving sick units which have

become a liability on the govt.

Helps the profit making public sector units to modernize and diversify their

business.

reduces political influence on

decisionmaking of managers.

Disadvantages

Encourages monopoly, power in

the hands of big business houses and

thus greater disparities in income

and wealth

May result in lop-sided development of

industries in the country.

Limited resources in private hands might not meet the needs

may not uphold the principles of social justice and public

welfare.

• Privatisation can be achieved in many ways franchising, leasing, contracting, etc.

• Capital markets should be sufficiently developed to be able to absorb the disinvested public sector shares .

Globalisation• Increasing economic

interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology and capital.

• a process which draws countries out of their insulation and makes them join rest of the world in its march towards a new world economic order.

F D IA direct investment into production or business in a country by an individual or company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

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

-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

5.3%

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

' Cro

re)

GDP GDP Growth Rate