liberalization hard copy
TRANSCRIPT
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Project On Liberalization
By:
Ajit Thakur Ashish Agarwal
Jyoti Bisht Sumedh Gaikwad
Pankaj Manjrekar Ramesh Mudaliar
Shanky Jain Vidhi Yagnik
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Context
Introduction About Liberalization Pre- Liberalization
India System before Liberalization Impact India Trade Status before Liberalization Impact
Post Liberalization Indian system Post -Liberalization. Impact
SWOTPre- LiberalizationPost - liberalization
Conclusion Suggestions
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Introduction:
This Project explains us about the Globalization of theeconomy by implementing new policies and improving the fiscal
conditions of the country
This helps us to study about the Economic condition of the
country before and after Independence and how did it
overcome to be stable with the smooth and flow less running of
the country with more and more opportunities and become a
fast developing country by Liberalizing the industries and the
opportunities for growth to develop the economic system of the
country.
The aim to highlight Liberalization is to educate people and
make them understand the strategies for implementing taxes
and why government has imposedso many policies.
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About Liberalization:
Liberalization means to free economy from direct or physical
controls imposed by the government.
The term Liberalization stands for the act of making less strict. Liberalization in Economy stands for The process of making
policies less constraining of economic activity.
Economic liberalization is a very broad term that usually refers tofewer government regulations and restrictions in the economy in
exchange for greater participation of private entities; the doctrine
is associated with modern-liberalism. The arguments for economic
liberalization include greater efficiency and effectiveness that
would translate to a "Bigger pie" for everybody.
In developing countries, economic liberalization refers more toliberalization or further "opening up" of their respective
economies to foreign capital and investments. Three of the fastestgrowing developing economies today; Brazil, China and India,
have achieved rapid economic growth in the past several years or
decades after they have "liberalized" their economies to foreign
capital.
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Pre - Liberalization:
Early Indian Economy
Indian economy in the early period was a self sufficient economycomprising of several villages. Indian villages produced and met their
requirement according to division of labour and their economic activity
was restricted to village economy. Barter system prevailed as an
exchange mechanism. Basically, the primary activity was agriculture.
Other services like carpentry, weaving, hair dressing, etc. were offered
by labourers who extended their services based on hereditary. They
received their wages as food products. In short, Indian villages
functioned as an independent republics and the only interference was
from the King for whom they paid taxes in kind. Thus, India had happy
villages.
Prior to the British rule, religion, system of the society and kings
law influenced the economy to a great extent. There prevailed caste
system which decided the division of labour for the benefit of thesocietys economy. Further, the prevalence of joint-family system helped
them to pool their resources for their individual family benefit and also
for the benefit of the society. Another advantage of the joint-family
system was that the cultivable lands were not fragmented, yielding to
better economic gains.
Another influencer of early Indian economy was the Hindu religion.
The religious canters also functioned as Indian trade centres. For
example, major pilgrimage spots like Nasik, Allahabad, Varanasi, etc.
also functioned as centres of commerce and trade. Many trade and
commerce activities were linked to the religious festivals and functions.
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In short, the Hindu religion acted as an indirect catalyst for the Indian
economy.
One of the major industries in early India was textile. Handicrafts
were also part of the Indian industrial activity. Indian textile products
like shawls, dhotis, dupattas, woolen products, cotton goods, etc. and
handicraft products were exported to overseas markets, such as Egypt,
South East Asia, Greece, etc. It is worth noting that when Europe (birth
place of modern industrialism) was inhabited by uncivilized people,
India was very popular for its craftsmanship and rich economy.
PRE-LIBERALIZATION POLICIES:
Policy tended towards protectionism, with a strong emphasis on
import substitution, industrialization, state intervention in labour and
financial markets, a large public sector, business regulation, andcentral
planning. Five-Year Plans of India resembled central planning in the
Soviet Union.Steel, mining, machine tools, water, telecommunications,
insurance, and electrical plants, among other industries, were
effectively nationalized in the mid-1950s. Elaborate licenses, regulations
and the accompanying red tape,commonly referred to as License Raj,
were required to set up business inIndia between 1947 and 1990.
Before the process of reform began in 1991, the government
attempted to close the Indian economy to the outside world. The Indiancurrency, the rupee, was inconvertible and high tariffs and import
licensing prevented foreign goods reaching the market. India also
operated a system of central planning for the economy, in which firms
required licenses to invest and develop. The labyrinthine bureaucracy
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often led to absurd restrictions up to 80 agencies had to be satisfied
before a firm could be granted a license to produce and the state would
decide what was produced, how much, at what price and what sources
of capital were used. The government also prevented firms from layingoff workers or closing factories. The central pillar of the policy was
import substitution, the belief that India needed to rely on internal
markets for development, not international trade a belief generated
by a mixture of socialism and the experience of colonial exploitation.
Planning and the state, rather than markets, would determine how
much investment was needed in which sectors.
INDIAN TRADE BEFORE LIBERLIZATION:
1980s suggests that the root cause of the crisis was the large andgrowing fiscal imbalance.
Large fiscal deficits emerged as a result of mounting governmentexpenditures, particularly during the second half of the 80s.
These fiscal deficits led to high levels of borrowing by thegovernment from the Reserve Bank of India (RBI), IMF, World
Bank.
Over the 1980s, government expenditure in India grew at aphenomenal rate, faster than what government earns as a
revenues.
The subsidies grew at a rate faster than government expenditures. Expenditure on subsidies rose from Rs.19.1 billion in 1980-81 to Rs.
107.2 billion in 1990-91.
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The Indian economy was indeed in deep trouble. Lack of foreign reserves.
Gold reserve was empty.
Before 1991, India was a closed economy.
IMPACTS:
The low annual growth rate of the economy of India before 1980,which stagnated around 3.5% from 1950s to 1980s, while percapita income averaged 1.3%. At the same time, Pakistan grew by
5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in
Taiwan by 12%.
Only four or five licenses would be given for steel, power andcommunications. License owners built up huge powerful empires.
A huge public sector emerged. State-owned enterprises made largelosses.
Infrastructure investment was poor because of the public sectormonopoly.
License Raj established the "irresponsible, self-perpetuatingbureaucracy that still exists throughout much of the country" and
corruption flourished under this system.
INDEPENDENCE TO 1991:
Policy tended towards protectionism, with a strong emphasis on
import substitution, industrialization, state intervention in labour and
financial markets, a large public sector, business regulation, andcentral
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planning. Five-Year Plans of India resembled central planning in the
Soviet Union.Steel, mining, machine tools, water, telecommunications,
insurance, and electrical plants, among other industries, were
effectively nationalized in the mid-1950s. Elaborate licenses, regulations
and the accompanying red tape,commonly referred to as License Raj,
were required to set up business inIndiabetween 1947 and 1990.
Jawaharlal Nehru, the first prime minister, along with thestatistician Prasanta Chandra Mahalanobis, carried on by Indira
Gandhiformulated and oversaw economic policy.
Indian GDP becomes three times negative before reforms period. To set up a strong economic system Indian government has taken
a steps to reform all its economic policies under the Narsimhamcommittee.
CRISIS:
The assassination of Prime minister Indira Gandhi in 1984, and
later of her son Rajiv Gandhi in 1991 crushed international investor
confidence on the economy that was eventually pushed to the brink by
the early 1990s.
As of 1991, India still had a fixed exchange rate system, where the
rupee was pegged to the value of a basket of currencies of major
trading partners. India started having balance of payments problems
since 1985, and by the end of 1990, it was in a serious economic crisis.
The government was close to default, its central bank had refused new
credit and foreign exchange reserves had reduced to the point that Indiacould barely finance three weeks worth of imports.
A Balance of Payments crisis in 1991 pushed the country to near
bankruptcy. In return for an IMF bailout, gold was transferred to London
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as collateral, the Rupee devalued and economic reforms were forced
upon India. That low point was the catalyst required to transform the
economy through badly needed reforms to unshackle the economy.
Controls started to be dismantled, tariffs, duties and taxes progressivelylowered, state monopolies broken, the economy was opened to trade
and investment, private sector enterprise and competition were
encouraged and globalization was slowly embraced. The reforms
process continues today and is accepted by all political parties, but the
speed is often held hostage by coalition politics and vested interests.
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POST LIBERALISATION REFORMS:
The Government of India headed by Narasimha Rao decided to
usher in several reforms that are collectively termed as liberalization inthe Indian media. Narasimha Rao appointed Manmohan Singh as a
special economical advisor to implement liberalization.
The reforms progressed furthest in the areas of opening up to
foreign investment, reforming capital markets, deregulating domestic
business, and reforming the trade regime. Liberalization has done away
with the License Raj (investment, industrial and import licensing) and
ended many public monopolies, allowing automatic approval of foreign
direct investment in many sectors. Rao's government's goals were
reducing the fiscal deficit, privatization of the public sector, and
increasing investment in infrastructure. Trade reforms and changes in
the regulation of foreign direct investment were introduced to open
India to foreign trade while stabilizing external loans. Rao's finance
minister, Manmohan Singh, an acclaimed economist, played a central
role in implementing these reforms. New research suggests that the
scope and pattern of these reforms in India's foreign investment and
external trade sectors followed the Chinese experience with external
economic reforms.
In the industrial sector, industrial licensing was cut, leaving only 18industries subject to licensing. Industrial regulation was rationalized.
Marginal tax rates were reduced. Privatization of large, inefficient and loss-inducing government
corporations was initiated.
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IMPACTS POST LIBERALISATION:Major improvements in educational standards across India have
helped its economic rise. Shown here is theIndian School of Businessat
Hyderabad,ranked number 15 in global MBA rankings by the financialTimesof London in 2009.
In the late 80s, the government led by Rajiv Gandhi eased
restrictions on capacity expansion for incumbents, removed price
controls and reduced corporate taxes. While this increased the rate of
growth, it also led to high fiscal deficits and a worsening current
account. The collapse of the Soviet Union, which was India's major
trading partner, and thefirst Gulf War,which caused a spike in oil prices,caused a major balance-of-payments crisis for India, which found it
facing the prospect of defaulting on its loans. India asked for a $1.8
billion bailout loan fromIMF,which in return demanded reforms.
In response, Prime MinisterNarasimha Rao along with his finance
ministerManmohan Singh initiated theeconomic liberalization of 1991.
The reforms did away with the License Raj (investment, industrial and
import licensing) and ended many public monopolies, allowing
automatic approval of foreign direct investment in many sectors.Sincethen, the overall direction of liberalization has remained the same,
irrespective of the ruling party, although no party has tried to take on
powerful lobbies such as the trade unions and farmers, or contentious
issues such as reforming labour laws and reducing agricultural subsidies.
Since 1990 India has emerged as one of the fastest-growing economies
in the developing world; during this period, the economy has grown
constantly, but with a few major setbacks. This has been accompanied
by increases in life expectancy, literacy rates and food security.
While the credit rating of India was hit by its nuclear tests in 1998,
it has been raised to investment level in 2007 by S&P and Moody's. In
2003, Goldman Sachs predicted that India's GDP in current prices will
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overtake France and Italy by 2020, Germany, UK and Russia by 2025
and Japan by 2035. By 2035, it was projected to be the third largest
economy of the world, behind US and China. In 2009 India purchased
200 Tons of Gold for $6.7 Billion from IMF as a total role reversal from
1991.
AGRICULTURE:Agriculture is the back bone of Indian economy for several
centuries. The importance of agriculture in Indian economy is
prominently evident. Nearly 70 per cent of the population depends on
agriculture either directly or indirectly for their living.
INDUSTRY:
Industrialization is vital for a countrys economic development.
Indian industrial sector is characterized by under-utilization of resources,
low capital formation, low level of technology, and lack of skilled man
power and social attitudes of the population. Indian industrial
development is also highly influenced by the political climate of India,
the political philosophy of the ruling party, the attitude and culture ofthe political administrators and Indian Industrial Policies. Indian
industry also depends highly on the attitudes and aspirations of the
Indian man power and Indian society.Due to several factors, such as,
low returns, long time lag, defence requirements, public utilities, large
resource requirement, development of backward regions, development
of infrastructure, etc. the Government had to invest in certain capital-
intensive segments to share the burden of industrialization and to
generate employment opportunities.India achieved a GDP growth rate
of 7 per cent in 1995-96 for the first time since 1950, despite a low
agricultural growth rate of 2.4 per cent. The major factor which
contributed for this growth rate was achievement by the industrial
sector which registered a growth rate of 12.1 per cent till 1995-96.
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SERVICE AND INFRASTRUCTURE SECTOR:For any developing nation development of service and
infrastructure segment is very important to reach its economic goals.India is successful in improving its service and infrastructure areas.
BANKING:Performance of the banking sector is considered as a proxy for the
economy as a whole, due to banks' wide spectrum of exposure across
industries. Unfortunately for India, the banking sector has historically
remained under the impact of non-competitiveness, poor technology
integration, high NPAs and grossly under productive manpower.
Banking sector in India has a wide mix, comprising of joint sector
(scheduled and non-scheduled banks),nationalized sector (Reserve Bank
of India, State Bank of India and all other nationalized commercial
banks and post office savings bank), specialized corporate financial
institutions (specific industrial finance corporations and state finance
corporations), co-operative sector (co-operative banks and land
development banks) and foreign sector (foreign commercial banks and
exchange banks).
INSURANCE:Insurance sector in India has been enjoying a state-monopoly
status in India for decades. Under Indian conditions there are only two
broad classifications of insurance companies: life and non-life insurance.
The life insurance activities are solely managed by Life Insurance
Corporation of India and the rest is handled by General InsuranceCorporation of India.
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TRANSPORT:
A well developed transport system will support an economy in
several ways : supports the industry by increasing the efficiency of
production, rises the demand through movement of products, facilitates
the location of an industry, helps the development of urbanization,
movement of man power, better standard of living, better education,
etc. Contribution of transport to Indian economy is very significant.
Indian transport sector comprises of all forms of transports: railways,
roadways, water and air transport.
TELECOM:Telecom sector was opened up for private sector participation into
basic services and value added services with the policy announcement in
May 1994. In order to meet the rising demand inthe telecom sector,
Indian Government decided to invite private players to supplant the
government supported agencies in rendering basic as well as value
added telecom services. Though opened up, barring a few areas like
pagers and mobile phones, Indian telecommunication sector is
dominated by Department of Telecom (DOT) and two governmentcompanies - VSNL and MTNL.
POWER:Power is a vital input for the growth of industrial development of
any nation - higher the power, higher the industrial growth and higher
the employment. Since independence most of the projects in
this sector has been financed and managedby government agencies - Centre or State (nearly 90 per cent or
more investment required for the power sector came from the public
sector through Five Year/Annual Plans). However, since liberalization,
the role of private sector, inclusive of foreign players was recognized in
the power projects.
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POWER FINANCE:During post-independence era, power - one of the major
core sector - has been funded by the government or government
agencies, when private participation was almost nil in power sector,thanks to government policies. However, with liberalization, this core
sector was opened to private sector and consequently to the foreign
players.
CHANGING ENVIRONMENT AFTER 1991:
Opening up of the Indian Economy Before 1991 there was closed economy and import of certain
goods was restricted.
After 1991 competition increased tremendously after theliberalisation.
Competitors from all over the world enter the Indian market
Competition from Low Wage Countries Low range products are floating into the market Low price, low quality
POST REFORM PERIOD:After the liberalization period the Indian economy shows a
positive. Prime Minister Narasimha Rao along with his finance
minister Manmohan Singh initiated theeconomic liberalization of
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1991. The reforms did away with the License Raj (investment,
industrial and import licensing) and ended many public
monopolies, allowing automatic approval of foreign direct
investment in many sectors. Since then, the overall direction of
liberalization has remained the same, irrespective of the ruling
party, although no party has tried to take on powerful lobbies
such as the trade unions and farmers, or contentious issues such
as reforming labour laws and reducing agricultural subsidies.Since
1990 India has emerged as one of the fastest-growing economies
in the developing world; during this period, the economy has
grown constantly, but with a few major setbacks. This has been
accompanied by increases in life expectancy, literacy rates and
food security.
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SWOT ANALYSIS:
SWOT analysis is astrategic planning method used to evaluate
the Strengths, Weaknesses/Limitations, Opportunities, and Threatsinvolved in aproject or in abusiness venture. It involves specifying the
objective of the business venture or project and identifying the internal
and external factors that are favourable and unfavourable to achieve
that objective.
SWOT stands for
S = Strength
W = Weakness
O = Opportunities
T = Threads
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Pre- Liberalization:
Strengths:
As seen before Liberalization India was self- sufficient and was
able to earn their living i:e there was no dependency on any of the
industries or any external resources. The main asset was the culture and
religion which help to strengthen the Indian economy and run smoothly.
Also tradition played important role in emphasising the business and
textile industries to grow as due to tradition was the only medium to do
the marketing and interact with the people and do trades. As India havemany caste and vast diversity in the culture and tradition and all
different caste people were good at their respective fields this
encouraged in believing that India is self-sufficient.
Weaknesses:
India was rich with the oil, gold and many more metals and spices
and agricultural but as people being illiterate they were unable to utilize
the available resources, and thus this could have encouraged the
foreign countries to enter the Indian market and As there was barter
system carried out every where so there was no transactions on
monetary bases this resulted in lack of investment in the infrastructure
and industries and thus this effected the Growth of the country andresulted in low GDP of the country, and also there was no planning and
strategies to implement business and so the resources were used
unnecessarily when not required.
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Opportunities:
To start trades opportunities to utilize the available
resources properly and import them to gain the economy. Utilizeresources in right manner to give good output we having good
leaders and politicians which could have helped us guiding to
utilize the resources in proper manner and to utilize them. Utilize
the asset i: e Religion, culture and tradition: Religion, culture and
tradition which are still followed in India could have been used as
a major resource to have good productivity and utilize the
traditions in correct manner. Even though people were illiteratethey had a thorough knowledge of their traditions, religion and
culture which could have helped in utilizing them at the best.
Provision to educate other divisions about the business: As people
were divided into different categories of labours, kings according
to their specialty, they could have helped other division people to
get educated of the work they do.
Threats:
Illiteracy resulted in misguiding people from being self
sufficient. People were not guided in right direction to run the
business or have proper reforms. No policies imposed by
government which can result in instable economy. No policieswere implemented for agriculture and other small scale industries
only few limited industries were permitted for license Raj. Illiteracy
resulted in misuse of the resources may lead other countries to
enter Indian market easily. Other countries were very well got an
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idea about our rich and ample amount of resources available in
India, so there was a possibility of others countries to come and
utilize our resources easily.
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Post- Liberalization:
Strengths:
Resources were used when necessary. Division was not
playing an important role in any business. People were educated
and guided in right direction to run the business GDP was showing
positive result Leader and politicians were implementing reforms
to stabilize the economy. Foreign trade were started in India and
was the fast developing country due to imposing of reforms.
Human assets are abundantly available in India.
Weaknesses:
Dependency of Industries on Man power. Government has
to take the burden of the both private and public sector. India had
Mixed Economy (Public and private sector). Ad-HocImplementation of the reforms without and reference of data.
Opportunities:
People from India were able to work in other countries.
People were able to understand the utilization of resources in
proper manner. More and more trades were done to grow the
economy
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Threats:
Competitors from all over the world enter the Indian market.
Private sectors were given more importance. Threaten domesticbusinesses. Small-scale industries and fight against liberalizing.
Opportunities for corruption and inefficiencies.
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time but it is unclear whether this signifies a lengthening of
unemployment spells and a worsening of job opportunities or whether it
simply denotes a greater degree of transitional or frictional
unemployment as labour is reallocated towards the more productivesectors. Average daily earnings per person per annum in the economy
increased at a significant pace in rural and urban areas and for men and
women.
Poverty incidence declined. The paper has pointed to directions for
further research, which remains very relevant as there forms are
continuing. Analyses of labour market outcomes which attempt touncover structural relations, which investigate the dynamics of change,
and which use micro-data could make a very strong contribution to
current debates on the costs and benefits of economic liberalization.
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Suggestions
Monitoring the market situation. Right Implementation of reform.
Specific measures to boost the REAL ECONOMY (Agriculture, fuel,
power). Quality Leadership should be provided for stable politics and
strong civilization, government and System of Justice. Indian
government should start entrepreneurship to give people a platform to
portrait their innovation. Expand Budget for Education system.
Emphasis more on tradition business instead of International business.
Government should concentrate on public sectors and monitor theprivate sectors.