chapter-vii economic reforms in india

7/28/2019 Chapter-VII Economic Reforms in India.

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General Economics 7.2 Economic Reforms in India.

e. Entrepreneurs will henceforth be required to file an information memorandum on newprojects and subsequent expansions.

f. In cities with a population of more than 1 million, industries other than those of non-polluting nature will be located outside 25 kilometres of periphery.

g. Banks and financial institutions which gave loans to industrial units normally included

a convertibility clause in their lending operations for new projects. The mandatoryConvertibility clause will no longer be applicable for term loans from financialInstitutions for new projects.

2. Public Sector(a) The number of industries reduced for public sector is three . They are (a) Atomic

Energy, (b) Substance in pacified in the schedule of the notification of India in thedepartment of atomic energy and (c) Rail Transport. These industries relate to: (i)essential infrastructural goods and services, (ii) exploration and exploitation of oil andmineral resources, (iii) technology development and building of manufacturing

capabilities in areas which are crucial in the long-term development of economy andwhere investment by private sector is inadequate (iv) manufacture of products wherestrategic considerations pre-dominate such as defence equipments.

(b) Chronically sick public units will be referred to the Board for industrial and FinancialReconstruction (BIFR).

(c) A part of the Government’s shareholding in the public sector would be offered togeneral public, workers, financial institutions and mutual funds. This will help inraising resources for the public sector and ensuring public participation.

(d) Board of public sector companies will be made professional and given greater power.(e) There will be greater emphasis on improvement of the performance of public sector

units. The management of these units will be provided greater autonomy throughMemorandum of Understanding.

3. Foreign Investment and Foreign Technology Agreements:The policy enables free flow of foreign investment and technology. The main provisionsare:

(a) Foreign equity holding upto 51 per cent by international trading companies is allowed.(b) It provides for automatic approval to foreign technology agreements in the case of

priority industries (34 industries) within certain guidelines.(c) In high technology and high investment priority industries (34 industries) where

imported capital goods are required, automatic clearance (upto 51 per cent) will begiven.(d) The guidelines on Euro issues and External Commercial Borrowing have been

liberalised to ease the access of Indian Companies to international capital markets.

4. MRPT ActThe MRPT (Monopolies and Restrictive Trade Practices) Act has been amendedaccordingly. The amended Act gives more emphasis to the prevention and control ofrestrictive and unfair trade practices as to protect the interest of consumers.

5. Financial SectorBanking Sector reforms included.1. CRR was lowered to 5% in 2004.




2. SLR was lowered to 25% in recent years.3. Prime lending rates (PLR) of banks for commercial credits are to be decided by the

banks. Also, PLR has been converted into a benchmark rate for banks (rather thantreating it as the minimum rate)

4. Bank rate was lowered to 6% from 2003.

5. Rate of interest in saving deposits of commercial banks has been reduced to 3.5% inrecent years.

6. Non-resident Indians can participate in the primary equity of a new bank to themaximum extent of 40%.

7. Derivative products such as Forward Ratio Agreement (FRA) and interest rate swapshave been introduced.

8. RBI has cleared a roadmap for entry of foreign banks consistent with WTO.9. RBI will monitor the progress of implementation of the Basel II framework.10. In 2005, principles governing the dividend payments were further liberalized.

6. External Sector:Measures taken to reform the external sector of the country were:1. RBI devalued its rupees by about 20% in two instalments in 1991.2. In 1993, transactions in trade account were freed from foreign exchange control.3. With EXIM policy in 1992, liberalisation was in focus. Free trade of all items except a

negative list of imports and exports was allowed.4. Except defence goods, environmentally hazardous goods and some other sensitive

goods, domestic markets have been opened to all kinds of goods.5. Indian import tariff has been reduced to 15% in 2006-07.6. Export Promotion Capital Goods (EPCG) scheme was liberalised in 1992 to encourage

imports of capital goods.7. FERA (Foreign Exchange Management Act of 1973) discouraged external trade. Now,

FEMA (Foreign Exchange Management Act) has been passed which has the objective offacilitating external trade and payment.

8. ‘Vishesh Krishi Upaj Yojana’ has been started to promote agricultural exports.

7. Impact Of Economic Reforms:The NIP 1991 seeks to raise efficiency and accelerate industrial production in thefollowing ways.

a. Due to changes in industrial licensing policy and MRPT Act, prior clearance by the

government is not needed. This reduces the cost of project and the project time, thus,enhancing their efficiency.b. As a result of changes with respect to foreign investment and technology, there will

flow of foreign capital, technology and managerial expertise from abroad. This willimprove the supply of scare resources in our country.

c. The new policy encouraged mergers, acquisition, amalgamations and takeovers.d. Opening up of a number of areas to the private sector will promote economic efficiency

and growth. Also privatization will enhance efficiency.e. There has been a noticeable improvement in the work culture. The workers have

become quality and cost conscious.




Critics of the New Industrial policy point out that:a. Memorandum of Understanding does not ensure efficiency of public sector enterprises.b. Due to liberalization, there may bee misallocation and wastage of scarce resources.c. The liberalisation of MRPT Act has resulted in concentration of economic power in few

hands.

d. Privatization has lead to retrenchment of labour and labour unrest.e. Some important sectors like chemicals have witnessed retarded growth.f. Many small-scale units have closed down due to excessive competition.

Indian Economy Today.Economic reforms have come a long way from the crisis year of 1991:a) Growth in real GDP in 2009-10 was ___ per cent as estimated by the Central Statistical

Organisation. Economy is likely to grow at ___% during 2009-10. This is despiteshortfall in south-west monsoon, hardening of international prices of oil and steel andTsunami disaster.

b) Industrial sector has grown at ___% in 2009-10 against ___ % in the previous year.Service sector has grown at ___% against previous record of ___%.

c) Overall agricultural output reduced from 181.0, million tonnes in 2003-04 to ____ million tonnes in 2009-10.

d) Inflation as measured by wholesale price index was ___% in Feb., 2010 on year-to-yearbasis.

e) The gross fiscal deficit as a proportion of GDP was at ____% in 2009-10.

f) Gross domestic savings are expected to improve marginally from 26.5% of GDP in 2002-03 to ____% GDP in 2009-10 as a result of better performance by household saving andprivate corporate savings.

g) Top 50 stock (Nifty) generated returns of 11% in 2004 are followed by 36% in 2005 and ____ in 2009.

h) Strong BOP position. Foreign exchange reserves crossed the US $ __________ million2009-10.

i) Adequate liquidity in banking system continues and interest rates have softened. Grossbank credit conversion increased to 19.9% compared to 9.3% in previous year.

j) Recovery management of bank has improved due to various steps taken includingenactment of Securitisation Act.

Liberalisation, Privatisation and Disinvestment.Liberalisation:Liberalisation means relaxation of previous governments’ restrictions usually in areas ofsocial and economic policies of the country. Liberalisation in trade means removals oftariff, and other restrictions on the flow of goods and services between countries.




The Background of PrivatisationThe extensive studies done on the performance of SOEs (State Owned Enterprises) arevirtually unanimous in concluding that the performance of SOEs is far from satisfactory.All the three essential elements of performance measurement referred to us the ‘three Es’Efficiency Effectiveness and Economy-show poor performance of PEs. The first few years

of 1980s were difficult for practically all countries. Economic growth slowed markedly.Hard experience tended of fade the pristine attraction of state ownership as a vehicle foroccupying the commanding heights.As a result denationalization, a particular form of privatisation, is proceeding rapidly inboth developed and less developed nations. Margaret Thatcher in UK and Ronald Reaganin U.S.A. championed the cause of privatisation. The sweeping process of privatisation hasnow emerged as one of the major policy instrument globally in more eighty countriesDefinition of privatisation:Privatisation may be defined as the transfer of a function, activity or organisation from

the public to the private sector. The concept is not new, it can be found in the writings ofAdam Smith as early as 1762. The word ‘Privatize’ first appeared in a dictionary in 1983. Privatisation indicates the emergence of a new culture in the society in whichmarketisation, competition, efficiency become the guiding principle in economic decision-making. The range of activities covered under privatisation is: total denationalization,liquidation, creation of joint ventures, workers’ cooperatives contracting out to priv ateagencies, leasing and financial restructuring.The most common and important objectives of privatisation are as follows:(a) Improving the government financial position by- Raising funds from the sales of enterprises or their assets;- Making the enterprises raise internal resources and from capital markets, thereby

reducing budgetary support to them.(b) Improving the performance of an enterprise through- Increased efficiency;- Requiring enterprises to meet commercial performance objectives;- Greater responsiveness to consumers (whether in terms of quantity, quality diversity or

services);- Relief from public sector financial constraints;- More managerial autonomy.Besides the above two broad objectives, privatisation would help in reducing the burdenon public administration by reducing the size of the public sector, strengthening marketforces and competition within an economy and promoting wider share ownership amongpublic.

1. Arguments in Favour of Privatisation.1. Privatisation will introduce efficiency and profitability is PSUs.2. It will reduce budgetary deficits which result from expenditure on loss making PSUs.3. It will help in reviving sick units which are a burden on public sector.4. It will help in bringing about globalisation by opening out of an economy and

increasing its competitiveness in international market.5. It will use modern techniques of production.

6.

IT will introduce accountability and responsibility in PSUs.




2. Arguments against Privatisation.1. Privatisation encourages growth of monopoly power in the hands of big business

houses. This results in greater inequalities of income and wealth.2. Private enterprises may not show any interest in buying shares of sick PSUs.3. Private sector produces with profit motive and has no consideration for social welfare

motive.4. Private sector is not interested in those projects which take long to complete and have

low profitability. This includes water supply , salt production, education for poor, etc.,5. Private sector is not interested in taking up risky projects.

Disinvestment1. Meaning and methods of Disinvestment:Disinvestment is the sale of a part of equity holdings held by the government in any PSUsto private investor. Disinvestment has been a major strategy by which the government hasfinanced fiscal deficit. Besides financing fiscal deficit, the economic motivation behind it isto improve efficiency of PSUs. The government expects that even small percent of private ownership will disciplineinefficient managers and motivate them. This can be substantiated by the fact that during1982-93, the net profit to the capital employed in the PSUs was one-third (2.0%) as that ofthe private sector. In the literature on valuation of share for disinvestment decisions,reference is made to the following five distinct methods, viz,1. Net tangible Assets Method.2. Market Value Method.3. Earning Capacity Value Method,4. Fair Value Method and5. Face Value plus Interest Method.

The methods of disinvestment have been:1. Domestic public issues: It means equity was offered to retail investors through

domestic public issues.2. Global Depository Receipts (GDPs): GDPs were issued to tap overseas markets3. Cross-holding: In this method, the government simply sells part of its shares in one

PSU to other PSUs.4. Warehousing: In this method, the government’s own financial institutions buy the

governments’ stake in select PSUs and hold them until a third buyer comes up. 5. Golden share: In this method the government retains stake upto 26% in the PSU to

protect its interest.6. Strategic Sale: In this method, the government sell a major portion of its stake to a

strategic buyer and also gives out the management control.2. Pace and Effects of the Disinvestment Process.

The disinvestment process was first initiated in 1991-92.Year Disinvestment Target Disinvestment Achieved

1991-1992 2500 3,0831999-2000 10,000 18292000-2001 10,000 1,8692001-2002 12,000 5,6322002-2003 12,000 3,348




2003-2004 14,500 15,5472004-2005 4,000 2,7652005-2006 - 15672006-20072007-20082008-20092009-2010

A look at the figures in above Table on India’s disinvestment programme shows that India has tried on improve the pace of disinvestment targets progressively moving up from Rs.2,500 crores in 1991-92 to Rs. 14,500 crores in 2003-2004. But the achievement fell far shortof the target. Of the Rs. 66,000 crores of disinvestment planned between 1990-91 and 2001-2002 the actual sales were only Rs. 25260 crores. However in 2003-04, realisation fromdisinvestment exceeded the targeted amount. In 2004-05 disinvestment target was only Rs.4,000 crores and the realised disinvestment proceeds were of Rs. 2,765 crores. In 2008-09the disinvestment of Rs. ___________ was achieved by the government.The sale of part of PSU shares held by the Government of India does not imply outrightprivatization. Any process of disinvestment requires utmost transparency and consistencyof purpose and speed of implementation. At present, the Government is considering thepublic offer route to sell minority stake in 13 profit-making central PSUs to public sectorfinancial institutions and banks.Privatized PSUs are:1. Modern Food Ltd.2. Lagan Jute Machinery Co.,3. BALCO4. CMC5. Hindustan Teleprinters Ltd.6. Videsh Sanchar Nigam Limited (VSNL)7. JBP Company (IBP)8. Paradeep phosphates Ltd., (PPL)9. Jessop &Co. Ltd. (JCL)10. Hindustan Zinc Ltd. (HZL)11. Indian Petrochemical Corp. (IPCL)12. Maruti Udyog Limited (MUL)13. Hotel Corporation of India Limited (HCL)Although, effects of the process of disinvestment on the working of the enterprise are notimmediately clear, yet certain indicators have come in view which point toward Positiveimpact of the disinvestment process.

GLOBALISATION:Meaning and Parameters of Globalisation:Globalisation is a multidimensional process, encompassing economic, political, culturaland social dimensions. Globalisation refers to opening up of economies and societiesthrough movement of goods, services, people and information across national boundaries.The nature and speed of this process has been accelerated by ne developments ininformation and communication technologies. International financial markets and trans-border production networks have been driving the global integration of economies.




Globalisation means integrating the economy of a country with the world economy. InIndia, the process of globalisation picked up with the policy reforms of 1991. It waspushed forward by the coming up of the WTO. Globalisation refers to growing economicinterdependence among countries in the world with regard to technology, capital,information, goods, services, etc.

The term Globalisation has four parameters:1. Reduction of trade barriers to permit free flow of goods and services across national

frontiers.2. Creation of an environment in which free flow of capital can take place. Transfer of

wealth across national boundaries, particularly financial transfers, is, made possible bylarge organisational network and new electronic technologies.

3. Creation of an environment in which free movement of labour can take place indifferent countries of the world.

The advocates of globalisation, more especially from developed countries, limit thedefinition of globalisation to only three parameters, namely, unhindered trade flows,

capital flows and technology flows. They insist upon developing countries to accept theirdefinition of globalisation. However, several economists in the developing world believethat this definition is incomplete and in case the globaliser’s u ltimate aim is to look uponthe world as a global village, then unrestricted movement of labour cannot be left out. Butthe entire issue, whether debated at the World Trade Organisation (WTO) or at otherforums, avoids and ignores labour flow as an essential parameter of globalisation.However, the process of globalisation has started and it is irreversible since borders cannotbe closed, flows cannot be stopped and ideas cannot be prevented from motivating people.

Case for Globalisation:Global economic integration is one of the most pronounced developments of the latetwentieth century. Advocates of globalisation justify it on the following grounds:1. Adoption of new, flexible production methods: Globalisation will raise allocation

efficiency, specially in underdeveloped and developing countries by:(a) Reducing capital output ratio;(b) Enhancing labour productivity(c) Developing export culture;(d) Raising capital flow;(e) Modernising technology; and(f) Increasing the competitive edge of firms

2. Restructure production and trade patterns: Globalisation will help in restructuringproduction and trade practices in accordance with the factor intensity of a country.

3. Raise foreign capital: Globalisation will attract foreign capital which will lead totechnological upgradation.

4. Quality improvement: In order to withstand competition offered by other firms, qualityenhancement will take place.

5. Rise in employment: It is expected that integration between different sectors will leadto more production in the home country. This will raise employment opportunities.

6. Rise in banking and foreign sector efficiency: Banking and foreign sector of the homecountry will raise their competitive skill and efficiency in order to have a competitive

edge over foreign banks.




7. Creation of new world order: The pursuit of new world order and widespreadadoption of structural adjustment programmes will lead to a new enabling policyframework for a global free trade regime.

8. Accelerate human development: Education and skill training are the most importantcomponents of globalisation. Knowledge and technology rules the global market. To

face the competition offered by global market, the quantity and quality of educationwill improve.

9. Reduce poverty: With globalisation, many micro-credit programmes are beingimplemented to prioritise the needs of the poor.

10. Enhance integration: Continued export growth is essential to benefit from globalisationthis requires diversification into goods and services for which demand is elastic. Toenhance integration, there should be rise in the level of trade and capital flows and fallin risk inherent in greater economic openness.

Case against Globalisation:Much of the criticism of globalisation has been its failure to address inequities and adverseeffects suffered by the poor nations and poor people. Adversaries of globalisation,particularly belonging to Latin America, parts of Asia and Africa, maintain thatglobalisation has more demerits than merits.Major points against globalisation are:1. Devastation of local producers: Globalisation has devastated local producers since they

are unable to compete with cheap imports.2. Mounting strikes: Globalisation has led to mounting workers unrest. Workers have

protested against low wages, despotic working conditions, autocratic management rule,long work days and declining social benefits.

3. Public employees are worse off: Globalisation has made public employees worse off.Public employees are adversely affected by budget cuts, privatisation and massive lossof purchasing price.

4. Small businesses are adversely affected: Small business class is adversely affected bycutbacks of public subsidies, de-industrialisation and floods of cheap imports.

5. Decline in income: During the globalisation phase, about half a billion people in SouthAsia have experienced a decline in their income. The record so far shows that it is thepoor who have suffered most.

6. Weal social safety net provisions: Since the government’s ability to help the victims ofglobalisation has been eroded, the provisions of social safety net have been weakened

Measures towards Globalisation:As Mahub-ul- Haq puts it, ‘’Globalisation is n o longer an option, it is a fact. DevelopingCountries have either to learn to mange it more skilfully or simply drawn is global crosscurrents.’ ‘’Positive effects of globalisation on economic growth and human developmentdepends on how the process is managed nationally and internationally.At the national level, countries need to make sustained efforts in four policy area:accelerate human development, (especially education), reduce poverty, improve economicmanagement and enhance regional and global integration.1. Countries, like India, must prepare is labour force to face global competition. Central to

this is the strategy to provide quality primary education to all school-age children,provide them the appropriate skill-training as well as higher levels of education in new




technological fields. While government should allocate sufficient resources for primaryand secondary education, private sector should be mobilised to set up technicalinstitutions for imparting training for higher levels.

2. Poverty reduction strategies must be built micro and macro policies Globalisationpolicies should focus on cash crops instead of food crops, and capital-intensive

industries rather than labour-intensive industries.3. Economic management in all countries needs to be improved. Reforms must continue

but with a human face. The focus should be on improving management of resources,reducing corruption, taxing the rich, cutting non-merit subsidies and establishinginstitutions to implement and monitor reforms. All globalisation policies and strategiesmust be judged by one yardstick: how are they impacting on people, on povertyreduction, on job creation, on children and on women.

4. Integration with the global economic system should be enhanced. Developingcountries should not only continue in more traditional labour-intensive low-technologyexports, but also diversify into high technology goods and services. India’s success in

establishing a niche for itself in the fast growing global software and informationtechnology market demonstrates that such diversification can be achieved.

5. Another important measure that has been taken up is making the currency fullyconvertible. It means allowing the currency to determine its own exchange rate in theinternational market without any official intervention. India achieved fullconvertibility of capital account in India will still take more years.

6. Import liberalisation has been taking place. India has reduced import duties on widerange of capital goods. Also, as a part of Agreement on TRIPs the Patents(Amendments) Act was passed in 1999 to provide for Exclusive Marketing Rights(EMRs).

7. Foreign Direct Investment up to 26%, 49% 51% 74% and even up to 100% has beenallowed in different industries. A number of measures have been taken to open theeconomy to foreign capital.

Effects of Globalisation on Indian EconomyThe effects of globalisation on various sectors of the Indian economy are:1. India’ foreign currency reserves were ___________ billion dollars in 2009 from 1 billion

in 1991.2. India’s share in world trade rose to _______ in 2009 from 0.53 in 1991.3. Average growth rate of exports has been 10% per annum during 1992-2004.4. Current account surplus was between 0.7 and 1.08 percent of GDP in 2001-03. (It was

minus 3 percent of GDP in 1991).5. External debt is growing by less than $ 3 billion per year as compared to the earlier

figure of $ 8 billion per year.6. FDI was around _______ million dollars in 2009-10 (from 155 million dollars in 1991).7. Larger variety, improved quality and lower prices of consumer goods are available

after globalisation.8. Indian companies have opened branch offices in other countries.9. Corporate sectors are conducting programmes on quality management and Research

and Development




10. Three-quarter of AIDS cases in India were in three states- Maharshtra, Tamil Nadu andManipur. Despite alarming statistics, the government response has not been adequateto the changes faced by the country.

11. Poverty alleviation programme: In the globalisation era, anti –poverty programmeshave been strengthened to generate additional employment, create productive assets,

import technical and entrepreneurial skills and raise income level of the poor.12. Social protection programme: In the globalisation era, job and income insecurities are

increasing, especially for women and other vulnerable groups who are dependent oninformal and casual work, without any provision for social protection. In India, onlyabout 10 per cent of the population is covered by social security system.

Main Organisations for Facilitating GlobalisationAmong the most powerful of the multilateral economic institutions are the Bretton WoodsInstitutions (BWI), i.e., the IMF, the World Bank and the WTO.1. International Monetary Fund (IMF)The decision to establish the International Monetary Fund (IMF) was made at a conferenceheld in Bretton Woods in July 1944. The IMF came into official existence on December 27,1945 with the signing of its Articles of Agreement. It commenced financial operations onMarch 1, 1947.1. Current Membership: 185 Countries (There were 31 members at the time of inception)2. Governing Bodies: Board of Governors, International Monetary and Financial

Committee, and Executive Board.3. Rodrigo Rato , from Spain is Managing Director since May 5 th 2004.4. Staff: Approximately 2,650 from 140 countries.5. Accounting Unit: Special Drawing Rights (SDR).6. Total Quotas: SDR 212.7 billion (US$ 280 billion).

ObjectivesArticle I of the Articles of Agreement states that the objectives of the IMF are as follows:1. IMF is responsible for promoting international monetary cooperation.2. Facilitating the expansion and balanced growth international trade;3. Promoting exchange stability;4. Expanding international liquidity (Convertibility to cash);5. To expand capital investment in underdeveloped countries.6. To remove the disequilibrium in the balance of payments.7. To establish multilateral trade and payments.8. To generate higher employment and income.More generally, and in accordance with its other purposes, IMF is responsible for ensuringthe stability of the international financial system.

FunctionsThe work of IMF is of three main types:1. Surveillance involves monitoring of economic and financial developments, provision of

policy advice, aimed especially at crisis-prevention.2. Lends to countries with balance of payment difficulties, provides temporary financing

and support policies aimed at correcting the underling problems and gives loan to low-income countries. In addition to regular facilities (standby Arrangements; the Extended




Fund Facility the Supplemental Reserve Facility; Contingent Credits Lines and theCompensatory Financing Facility), it provides concessional assistance under its povertyReduction and Growth Facility (PRGF) and debt relief under the Heavily IndebtedPoor Countries (HIPC) Initiative.

3. Provides technical assistance and training in its areas of expertise.

4. In recent years, as part of its efforts to strengthen the international financial system andto enhance its effectiveness at preventing and resolving crisis, the IMF has applied bothits surveillance and technical assistance work to the development of standards andcodes of good practice in its areas of responsibility and to the strengthening of financialsectors.

2. The World Bank or International Bank for Reconstruction andDevelopment (IBRD)

World Bank is organisation affiliated with United Nations and designed to financeproductive projects that further the economic development of member nations. Resultingfrom negotiations that culminated in the United Nations Monetary and FinancialConference at Bretton Woods, in July 1994, the bank officially began operations in June1946. Although, its first loans were made for post-World War II reconstruction, by 1949 theemphasis had shifted to loans for the purpose of economic development. World Bankheadquarters are in Washington, D.C.1. Current membership: 185 member countries.2. Shareholders: The five largest shareholders of the Bank are USA, Japan, Germany,

Great Britain and France. India is the sixth largest contributor.3. Total Capital: $ 171 billion.4. World Bank Group: It consists of International Development Association (IDA),

International Finance Corporation (IFC), Multi-lateral investment Guarantee Agency(MIGA) and International Centre for Settlement of Investment Disputes (ICSID).

Objectives1. Protecting the environment.2. Investing in basic health and educational programmes.3. Promoting social development4. Assistance and encouragement to private business.5. Promoting reforms which will create stable microeconomic environment.6. Strengthening the ability of the government to deliver quality services.7. Establishing peace time economy.8. Maintaining equilibrium in the balance of payments.

Functions:1. To promote foreign investment and credit by providing guarantee of repayment to the

private investors.2. To assist its member counties by facilitating the investment of capital for productive

purposes.3. To promote the long-term balanced growth of international trade and equilibrium in

balance of payment situation.4. To settle disputes by ICSID office (International Centre for settlement of Investment

Disputes)




World Bank and IndiaIndia is one of the founder members of the World Bank. It has been allotted a permanentseat on the board of Executive Director of the Bank. India has the privilege of presiding theannual general meeting of the Board.

India is the largest borrower of the World Bank. The loan from the world has helped Indiain the development of coal industry, road constructions, irrigation projects, water supplyand sanitation, off-shore petrol projects and refineries, power projects of Domadar ValleyCorporation, etc,.

3. World Trade Organisation (WTO)The General Agreement on Tariffs and Trade (GATT) was established in Geneva topursue the objective of free trade in order to help in the growth and development of allmember countries. In 1947, 23 countries signed GATT. India was one of the foundermembers of GATT. In 1994, 118 countries were members of GATT. The main purpose ofGATT was to ensure competition in commodity trade by removal of trade barriers. Thefirst seven rounds of negotiations conducted under GATT aimed at stimulatinginternational trade by reducing tariff barriers and non-tariff restrictions on importsimposed by member countries. A preparatory committee was set-up GATT which in turnset-up the world trade Organisation (WTO) in 1995. The WTO acts as a permanentwatchdog of international trade.GATT was converted from a provisional agreement into a formal internationalorganisation called World Trade Organisation (WTO) with effects from January 1, 1995.It isdirected by the ministerial conference that meets at least once every years and its regular

business is seen by the General Council. WTO is a more powerful body with greaterfunctions as compared to GATT and it plays a major role in the world economic affairs.

Features:The main features of the WTO are:1. The WTO is global in its membership. At present there are 151 member countries.2. It is the main organ of implementing the Multilateral Trade Agreements.3. It has a much wider scope than its predecessor GATT.4. The representatives of the members and all officials of the WTO enjoy international

privileges.5. Each member of WTO has a single voting right.6. It is a full fledged international organisation in its own right.7. The WTO administers a unified package of agreements to which all members are

committed.8. It is the forum for negotiations among its members, whereby member- nations discuss

issues related to MTAs and associated legal instruments.

Functions:The WTO has the following functions:1. It provides the forum for negotiations among its members concerning their multilateral

trade relations.2. It facilitates the implementation, administration and operation of the objectives of the

Multilateral Trade Agreements.

chapter-vii economic reforms in india

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