Economic Reforms in India commenced during the year 1985 after Rajiv Gandhi took over as Prime Minister. The Prime Minister in his first national broadcast said: The public sector has entered into too many areas where it should not be. We shall open the economy to the private sector in several areas hitherto restricted to it. Consequently, a number of measures were taken to remove controls, open areas to private sector players. This may be described as the first phase of liberalization. However, Rajiv Gandhi did not take a very strong and categorical position on the issue of privatization and globalization, though some liberalization of the economy did take place. It was only when P.V. Narasimha Rao took over as Prime Minister in 1991 that a new industrial policy was announced which marked a sharp departure from the earlier policy of 1956. An unprecedented Balance of payments crisis emerged in early 1991. The current account deficit doubled from an annual average of $2.3 billion or 1.3 percent of GDP during the first half of the 1990s, to an annual average of $5.5 billion or 2.2 percent of GDP during the second half of the 1990s. For the first time in modern history, India was faced with the prospect of defaulting on external commitments since the foreign currency reserves had fallen to a mere $1 billion by mid- 1991. The balance of payments came under severe strain from one liquidity crisis experienced in mid-January 1991 and another in late June 1991 which pushed for Economic reforms in India Three aims of Economic policy lpg 1   Goals of Liberalisation, globalization, and privatization lpg 2 LIBERALISATION: lpg 3

·         The main aim of the liberalization was to dismantle the excessive regulatory framework (“license–permit raj’) that curtailed the freedom of enterprise. ·         The new economic policy was to save the entrepreneurs from unnecessary harassment of seeking permission from Babudom (the bureaucracy of the country) to start an undertaking. ·         Free the large private corporate sector from bureaucratic controls. ·         It, therefore, started dismantling the regime of industrial licensing and controls. In pursuance of this policy, the industrial policy of 1991 abolished industrial licensing for all projects except            for a short set of 18 industries


GLOBALISATION: lpg 4 Globalization is primarily economic phenomenon, involving the increasing interaction, or integration, of national economic systems through the growth in international trade, investment, and capital flows. A rapid increase in cross-border social, cultural and technological exchange is part of the phenomenon of globalization. Globalization intends to integrate the Indian economy with the world economy. Is considered to be an important element in the reforms package. It has four parameters: Concerns: There is a deliberate effort to blackout ‘labour flows’ The advocates of globalization, especially from the developed countries, limit the definition of globalization to only three components viz., unhindered trade flows, capital flows, and technology flows. They insist that the developing countries accept their definition of globalization and conduct the debate on globalization within the boundaries set by them. But several economists and social thinkers in developing countries believe that this definition is incomplete. If the ultimate aim of the globalization movement is to integrate the world into one global village, then the fourth component of the unrestricted movement of labour cannot be left out. But whether the debate about globalization is carried out at the World Trade Organisation (WTO) or at any other international forum, there is a deliberate effort to blackout ‘labour flows’ as an essential component of globalization. Can you reason why? To pursue the objective of globalization, the following measures have been taken

  • Reduction of import duties
  • Encouragement of foreign investment
  • Encouragement to foreign technology agreement

PRIVATISATION: Privatisation deals with the transfer of businesses from the state to the private sector. This commonly involves complex contractual structures to be put in place, and the industries concerned are usually closely regulated.   Privatisation in a narrow sense indicates a transfer of ownership of a public sector undertaking to the private sector, either wholly or partially. But in another sense, it implies the opening up of the private sector to areas, which were hitherto reserved for the public sector. Such deliberate encouragement of investment to the private sector in the economy, will over a period of time increase the overall share of the private sector in the economy. The basic purpose is to limit the areas of the public sector and to extend the areas of private sector operation including heavy industries and infrastructure. Privatisation is, therefore, a process of involving the private sector in the ownership or operation of a state-owned or public sector undertaking. It can take three forms: (i) Ownership measures; (ii) Organisational measures; and (iii) Operational measures. Reasons for Privatising the economy lpg 5 Impact of LPG on Indian Economy Positive Impact of LPG on Indian Economy: Increase in GDP growth rate India’s GDP growth rate was only 1.1% during 1990-91 but after 1991 reforms India achieved 6-7% average GDP growth rate and now India is the world’s fastest-growing major economy. lpg 6  

Increase in Foreign Direct Investment (FDI) In 1991 FDI inflow was 408 Crores only but after India has made those reforms of Globalization and Privatization and free entry policy, as a result, FDI inflow in India was $44.4 billion in 2018-19 (4400 Crores)

Increase in per capita income 

Per capita income or average income measures the average income earned per person in a given area (city, region, country, etc.). It is calculated by dividing the area's total income by its total population.  

In 1991 India’s Per capita income was Rs. 11235 but in 2014-15 Per Capita Income is reached to Rs.1, 26,408 in FY-2019.  The new economy policy of globalization and privatization created many job opportunities which in turn resulted in increased Per Capita Income. Unemployment rate is reduced in 1991 unemployment rate was 4.3% but after India adopted new LPG policy more employment is generated because of globalization many new foreign companies came in India and due to liberalization many new entrepreneurs have started new companies because of an abolition of Industrial licensing / Permit Raj so, employment is generated, and due to which India’s unemployment rate is reduced from 4.3% in 1991 to 3.6% in 2014 and currently due to jobless growth unemployment rate has increased to 6.1% in 2018. lpg 7 Limitations Low Growth of Agriculture Sector Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role not only in providing food and nutrition to the people but also in the supply of raw material to industries and to export trade. In 1991, agriculture provided employment to 72 percent of the population and contributed 29.02per cent of the gross domestic product. However, in 2018 the share of agriculture in the GDP went down drastically to15%. This has resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness.  

  1. Threat from foreign competition Due to opening up of the Indian economy to foreign competition through Liberalization and FDI policy more MNC’s are attracted towards India after 1991 reforms and they are competing local businesses and companies. Since these MNC’s have a lot of financial capacity or those are big organizations with advanced foreign technology so, they have the large production capacity and huge money for promotion and other research activities they are easily defeating our Indian local companies. And they had acquired many Indian companies as well. Because of financial constraints, lack of advanced technology and production inefficiencies our Indian companies are facing problem in this globalization period.
  • Adverse Impact on Environment Globalization has also contributed to the destruction of the environment through pollution and clearing of vegetation cover. With the construction of companies, the emissions from manufacturing plants are causing environmental pollution which further affects the health of many peoples. The construction also destroys the vegetation cover which is important in the very survival of both humans and other animals.
  1. Increase in Income disparity Globalization leads to widening income gaps within the country. Globalization benefits only to those who have the skills and technology in the country. The higher growth rate achieved by an economy can be at the expense of declining incomes of people who may be rendered redundant. Globalization has widened the gap between the rich and poor, rises inequalities.

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