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Since independence, India followed the mixed economy.
The Economic liberalization in India refers to ongoing
Economic reforms in India that started in 1991
Growth in Real GDP Averaged at 6% per Year during 1980-2005.
In 1991, India met with economic crisis and govt. was not able
to make repayments on its borrowings from abroad and foreign
exchange reserves.
All this led the govt. to introduce a new set of policy measures
which changed the direction of our developmental strategies.
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The new neo-liberal policies included opening forinternational trade and investment, deregulation,initiation of privatization, tax reforms, and inflation-
controlling measures.
Break from the Hindu rate of grown of 3.75% peryear from 1950-80.
Macroeconomic crisis of 1991
Approach to IMF and the World Bank
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The origin of financial crisis can be traced from the inefficient
management of the Indian economy in 1980s
For implementing various policies, the govt. generates funds
such as taxation.
When expenditure is more than income, the government
borrows to finance the deficit from banks and from people within
the country and from international institution.
Indiaapproached International bankfor reconstructionanddevelopment (IBRD)
Indiaagreed to the conditions of world bankand announced
new economic policy.
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The low annual growth rate of the economy of Indiabefore 1980, which stagnated around 3.5% from 1950s to
1980s ,
while percapita income averaged 1.3%.Infrastructure investment was poor because of the
public sector monopoly.
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It was introduced in Industrial licensing,
Export import policy,
Fiscal policy,
Financial sector, Foreign exchange market etc.
to put an end to various restrictions and open up
various sectors of economy.
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These were concerned with the
reforms in Governments taxation
and public expenditures policies
known as fiscal policies.
There are two types of taxes:-
Direct-consist of taxes on incomes
of individuals as well as profits of
business enterprises.
Indirect-taxes levied on
commodities to facilitate commonnational market for goods and
commodities.
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It implies shedding of the ownership of a govt. owned
enterprise.
Govt. companies can be converted into private companies in
two ways :- By withdrawal of govt. from ownership and management of
public sector companies.
By outright sale of public sector companies.
Privatization of PSU by selling off part of the equity of
PSUS to the public is known as disinvestments.
Its main aim was to improve financial discipline and
facilitate modernization.
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In economics, growth of an economy is measured by
the gross domestic product(GDP).
GDP has increased from 5.6%during 1980-1991 to
6.4% during 1992-2001.
The opening up of the economy has led to the
increase in foreign direct investment and foreign
exchange reserves.
Foreign direct investment has increased from about
100million US$ to 150 billion US$.
India is seen as a successful exporter of auto parts,
IT software and textiles in reform period.
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Public investment in agriculture sector especially in
infrastructure, which includes irrigation, power, roads, etc has
been reduced in the reform period.
Removal of subsidy has led to increase in the cost of production,which has affected small & marginal farmers.
This sector has been experiencing a no. of policy changes such as
reduction in import duties on agricultural products, removal of
minimum support price, etc.
There has been a shift from production for domestic market
towards production for domestic market towards production for
the export market focusing on cash crops in lieu of production of
food grains.
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Decreased demand of industrialgoods due to cheap imports, inadequateinvestment, etc led to decrease in theindustrial growth.
Cheaper imports have replaced thedemand for domestic goods.
The infrastructure facilities, includingpower supply etc, has remainedinadequate due to lack of investment.
Moreover, a developing country likeIndia still does not have access todeveloped countries market because ofhigh non-tariff barriers.
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The PSEs made a significant contribution to industrial
production, 100 per cent in lignite, over 80 per cent
in coal, crude oil and zinc, almost 50 per cent in
aluminium and over 30 per cent in finished steel.
In terms of profitability, the PSEs showed diverse
patterns. In 2000-01, 122 enterprises made a profit
with the top 10 among them - giants such as the Oil
and Natural Gas Corporation (ONGC), the NationalThermal Power Corporation (NTPC), the Indian Oil
Corporation (IOC) and the Videsh Sanchar Nigam
Limited (VSNL) - accounting for close to 70 per cent of
the total net profit of Rs.19,604 crores.
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Globalization is an opportunity in terms ofgreater
access to global market, higher technology etc.
It has increased income and quality andconsumptions of only high income groups like real
estate, IT, rather than vital sector like agriculture.
Attract larger inflows of
FDI including inmanufacturing
Have to move away from protectionism