ECONOMIC REFORMS 1991

Economic reforms started in India 24th July 1991 by Prime minister P. V. Narasimha Rao and Finance Minister
Dr. Manmohan Singh.
 Components of Economic Reforms (New Economic Policy)

Liberalisation Privatization Globalisation

 REASONS FOR ECONOMIC REFORMS

Rise in prices

Deficit in Balance of
Rise in fiscal deficit Payment

Fall in foreign exchange

Poor performance of public
reserve
sector
 The New economic policy can be broadly classified into two kinds of measures
1) Stabilisation Measures: These are the Short-term measures which helps to correct weaknesses of the
Balance of Payments by maintaining sufficient Foreign exchange reserves and controlling Inflation by
Keeping the rising prices under control
2) Structural Reform Measures: They Refer to long term measures which helps to Improving the efficiency
of the economy and increasing international competitiveness by removing rigidities in various
segments of the Indian economy
 1. Liberalisation
It means end of license and restrictions previously imposed by the government.
Liberalisation of the Indian industry has taken place with respect to:
❖ No requirement of license except five industries
❖ No restriction on expansion of business activities and scale of business.
❖ Freedom of fixing the price of goods and services.
❖ Reduction in Tax Rates and lifting of unnecessary controls over the economy.
❖ Simplifying procedures for imports and exports
 Impact of Liberalisation on Industrial Sector

01 Abolition of Industrial Licensing 04 Freedom to Import of Capital Goods

02 Decrease in role of public sector 05 Abolition of Restrictive Trade Practices

03 De-reservation under small-scale industries

(i) Abolition of Industrial Licensing: The new industrial policy abolishes the system of industrial licensing for
most of the industries. Under this policy no licenses are required for setting up new industrial units or for
expansion of existing units. To begin with, 18 industries were require licenses. Through later amendment to
the policy, this list was reduced to five. These were liquor, cigarette, defence equipment's, industrial explosives
and dangerous chemicals.

(ii) Decrease in role of public sector: The number of industries, exclusively reserved for the public sector,
reduced from 17 to following 3 industries;
(i) Defence equipment's; (ii) Atomic energy generation; and (iii) Railway transport.

(iii) De-reservation under small-scale industries: Under new economic policy many goods produced by small
scale industries have now been de-reserved. Increased investment limit for small scale industries to one crore.

(iv) Freedom to Import of Capital Goods: Due to liberalisaion industries are free to import capital goods for
upgrading their technology.

(v) Abolition of Restrictive Trade Practices: According to monopolies and restrictive trade practices (MRTP) Act
1969, all those companies having assets worth ` 100 crore or more were called MRTP firms and were
subjected to several restrictions. Now these firm’s have not to obtain prior approval of the government for
taking investment decision. Now MRTP Act is replaced by the Competition Act 2002
 Impact of Liberalisation on Financial Sector Reforms

01 Change in Role of RBI

02 Increase in Private Sector Banks

03 Increase in limit of foreign investment

 Foreign exchange reforms

Devaluation of Domestic currency (18%- 19%)

Market determination of Exchange rate.
 Tax Reforms

Direct And Indirect Taxes

Tax Reforms are
• Rationalisation of Direct Taxes
• Reforms in Indirect Taxes
• Simplification of Tax Process
 Impact of Liberalisation on Trade & Investment Policy

Removal of
Relaxation in
Quantitative Removal of Reduction in import
Restrictions on Export duties Import Duties licensing
Exports & Imports
system
 2. Privatisation
Privatisation means giving greater role to the private sector and reducing the role of public sector.

Privatisation can be done in two ways:

(i) Transfer of ownership, Property and management
of public sector companies from the government to
private sector.

(ii) Privatisation of the public sector undertaking

(PSU) by selling off part of the equity of PSUs to the
public. This process is called Disinvestment
 Central Public sector enterprises in India
The companies in which the share of the central government of india is 51% or more is known as the
CPSEs
Categorise of CPSEs
1. Maharatna (11) incuded power finance corporation, IOCL, SAIL,BHEL, GAIL, ONGC, BPCL,
HPCL,NTPC,CIL & Power grid corporation ltd.
2. Navratna (13) excluded power finance corporation
3. Miniratna (73)
 3. Globalisation
Globalisation means integrating our
economy with world economy. Before
1991 government of India had followed a
strict policy to reduce the volume of
imports these are in form of import
licensing, tariff and taxes, quantitative
restrictions etc. in Globalisation all these
barriers were removed to promote
international trade.
 Policy Strategies Promoting Globalisation

Increase in limit of foreign Long Term Trade Reduction in Withdrawal of Quantitative

investment Policy Tariffs Restriction
(i) Increase in limit of foreign investment: Foreign Direct investment share raised to 100% in few sectors
without any restrictions introduction of foreign exchange management act (FEMA). Foreign capital
investment has been raised from 40 to 51%. In few sectors it reached to 100%.
(ii) Long Term Trade Policy: To promote long term trade policy all the restrictions and controls on foreign
trade have been removed. Open competition is encouraged. Except some specific goods, most goods are
traded free of restrictions.
(iii) Reduction in Tariffs: Tariff barriers have been withdrawn on most goods traded between India and rest of
the world. It leads to increase in competition.
(iv) Withdrawal of Quantitative Restriction: Earlier quantitative restrictions are imposed but it was withdrawn.
This is conformity with India’s commitment to the WTO (World Trade Organisation)
Outsourcing: Outsourcing is a business Practice in
which a company hires another company or an
individual to perform tasks or handle operations.
This service include: Call centers, clinical advice,
teaching or coaching, Accountancy, film editing etc.
Outsourcing is one of the important outcomes of
the Globalisation process. India has become a
favorable destination of outsourcing for most
of the MNC’s because of availability of cheap Labour
even low wage rate for the skilled workers and a
revolutionary growth of IT industry in India. BPO
(Business process Outsourcing is quite popular in
India. It is also called Call centers.)
 WORLD TRADE ORGANISATION (WTO)

The World Trade Organisation is an intergovernmental

organisation that is concerned with the regulation
of international trade between nations. The WTO
officially commenced on 1st January 1995 replacing
the General Agreement on Tariffs and Trade (GATT),
which commenced in 1948. It is the largest international
economic organisation in the world. Its headquarter is in
Geneva, Switzerland and Presently there are 164 members
countries of WTO and all the members are required to abide by laws and policies framed under WTO rules.
The WTO agreements cover trade in goods as well as services, to facilitate international trade.
 Functions performed by WTO are

(i) It helps in international trade through removal of tariff as well as nontariff barriers.
(ii) To implement rules and provisions related to Trade Policy.
(iii) To ensure optimum utilisation of world resources.
(iv) To protect the environment.
(v) To provide a framework for dispute settlement
(vi) To Carry out periodic reviews of the trade policies of its member
Countries
 Bilateral Trade : Multilateral Trade :
Trade between Two Countries Trade between More than two countries
 (MERITS) OF LPG POLICIES (DEMERITS) OF LPG POLICIES

1. Increase in rate of economic growth 1. Neglect of Agriculture

2. Increased in industrial production 2. Neglect rural area in growth process
3. Increase in Foreign Investment 3. Ineffective Tax Policy
4. Rise in Foreign Exchange Reserves 4. Spread consumerism
5. Rise in Exports 5. Unbalanced growth
6. A check on Inflation
7. A check on fiscal deficit
8. Employment opportunities provide by
private sectors
 Demonetisation
It is a Situation where the central bank of a country withdraws the old currency notes of certain
denomination as an Official Mode of Payment.
On 8 November 2016, The Government of India announced the Demonetisation of all ₹500 and ₹1000
banknotes of the Mahatma Gandhi series. It was also announced the issuance of New ₹500 and ₹2,000
Banknotes in exchange for.
More than 105 People had died in the past demonetization. It also hits small business
It caused loss of 15 lakh jobs
₹500 and ₹1000 Notes were 86% of the total currency in circulation
It was not a good decision because 99.30% of demonetized money back in the system as per RBI report.
 Aim of Demonetization Impact of Demonetisation

• To curb corruption and penalize for illegal Activities. a) Bank Deposits increased
• To stop circulation of Black money in the Market. b) Decline in Cash transaction
• To prevent terror funding. c) Digitisation
• To prevent Tax evasion. d) Real estate prices decreased
e) Rise in income tax Collection
• To promote cash less economy.
f) Raise Tax Collection
 Goods and Services Tax (GST)
It is an Indirect Tax Levied on the supply of goods and services.
Passed in Parliament on 29 march 2017
Came into effect 1 July 2017
Before the implementation of GST, Various central, state and local area taxes were levied in India.
These indirect taxes now subsumed under GST
Which is based on the Principle of “One nation one tax”
Different Common rates of GST
5%
12%
18%
28%
GST structure in India
 Features of GST
• Comprehensive Tax
• Multi stage Tax
• Value added Tax
• Destination Based Tax
 Advantages of GST

• Simplification of tax procedure

• Transparency
• Ease of doing business
• Technology Driven
• Attracting Foreign investment
• Contributes to economic growth
 ALL IMPORTANT DATES, DATA AND EVENTS
Establishment of RBI 1 April 1935
Establishment of General Agreement on Tariff and Trade (GATT) with 23 countries 1948
14 Major banks were Nationalised 19 July 1969
New Economic Policy or Economic Reforms (Dr. man Mohan Singh Finance minister & 24th July 1991
P.V. Narasimha Rao prime minister)
WTO (World Trade Organisation) 1 January,1995
Members countries in WTO (Headquarter in Geneva, Switzerland) 164
Launch of Make in India initiative September, 2014
Demonetisation of currency by Indian Government (500 and 1000 denomination 8th
notes) November,2016
GST act passed in the Parliament 29th March, 2017
GST act came into Effect 1st July, 2017
Indian Oil Corporation limited, Steel Authority of India ltd. Bharat Petroleum, Maharantas
Hindustan Petroleum Corporation, BHEL, Oil and Natural Gas Corporation Ltd.
Bharat Electronics limited, Container Corporation of India limited, Power finance Navaratnas
Corporation Limited, Mahanagar Telephone Nigam Limited.
Airports Authority of India, Antrix Corporation, IRCTC, BSNL, etc. Mini Ratna
COVID 19 IN INDIA (CORONA VIRUS DISEASE - NAME GIVEN BY WHO) 2020
Inflation Price rise 6.7% to 16.7%
Interest liabilities 36.4% of total
Expenditure
Fiscal deficit 8.4% of GDP
Make in India & Jhan dhan yojna 2014
Under the new economic policy 1991, how many industries are reserved for public 8
sector?
Nationalisation of RBI 1st january1949
RBI Act 1934
Central Public sector enterprises CPSE

MRTP act passed (it is replaced by Competition act 2002) 1969

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