Economic Reforms: Nature and Objectives paring budget, setting interest rates, etc. The economic policy also influences the national ownership, labour market, and several other economic areas where government interventions is required.
There are a number of international factors like political benefits and policies of the parties, etc., that play pivotal roles in determining the economic policy of India. Besides these, like all other countries, Indian economic policy also gets influenced by various international institutions like the World Bank and the International Monetary Fund (IMF), etc. India embarked of economic reforms in 1991, in the wake of a balance of payments crisis. Issues concerning economic policy, impact of the reforms on poverty, sectoral issues relating to agriculture, industry, and infrastructure. To become a major player in world economy, a comprehensive approach was taken through Indian economic policy.
Nature of Economic Reforms
Economic reforms in India refer to the set of instruments and strategies adopted since 1991. Liberalization, privatisation and globalisation are the three constituents of economic reforms. Let us discuss all these three constituents one by one.
1. Liberalisation of the Economy: In the context of economic reforms, liberalization refers to shifting of license dominated regime to de-licensing, deregulation and de-bureaucratisation. It has taken following measures towards liberalising the economy.
- Removal of Industrial Licensing: Except 18 industries relating to security and strategic concerns, social reasons, hazardous chemicals and over-riding environmental, all industrial licensing was abolished.
- De-reservation of SSI Items: The items earlier reserved for SSi sector are gradually being de-reserved. Thus, the small scale industry has been forced to face both domestic and international competition.
- Withdrawing MRTP Restrictions: Withdrawing MRTP Restrictions: The provisions for MRTP companies for clearance of investment proposals have been withdrawn. This has freed big business houses to undertake expansion and establishment of new undertakings as well as to undertake mergers, amalgamations and takeovers.
2. Privatization of the economy: Privatisation refer to any process that reduces the involvement of state/public sector in economics activities of a nation. The following measures have been taken towards privatisation of the Indian economy.
- Entry of Private Players: Permitting the entry of the private corporate sector in such core sectors as steel, telecommunications, ports,airlines and power.
- No Budget Support: No fresh budgetary support for public Sector Enterprises. This will lead toA. Dilution of government equity in most of those PSEs which decide to go in for new projects and expansion:B. No new Central public Sector undertaking will be set up in the country:C. Issue of equity to the public by the identified PSUs andD. Outright sale of identified PSUs.
- Disinvestment: As part of the ongoing privatisation, the shares of public sector undertakings are being sold in the market with the objectives of obtaining revenue to reduce budget deficit.
3. Globalisation of the Economy: Globalisation of the Economy: globalisation means the economic integration of the country with the rest of the world. The following measures have been taken towards globalisation of the Indian economy:
- Automatic Approval for FDI: Automatic approval for direct foreign investment up to 5 1 percent foreign equity ownership in a wide range of industries. Earlier, all foreign investments were limited to 40 percent.
- Automatic Approval for Foreign Technology Agreements: Automatic permission for foreign technology agreements royalty payments up to 5 percent of domestic sales or 8 percent of export sales or lump sum payment of 10 million. Automatic approval for all other royalty payments will also be given ifthe projects can generate internally the foreign exchange.
- Allowance of foreign Equity Holding: with a view to provide access to international markets, majority foreign equity holding up to 51 percent equity would be allowed for trading companies primarily engaged in export activities.
- Reduced Tariff Rates: As a part of shift in policy orientation from import substitution to export promotion, tariff rates were reduced and quantitative controls over imports were removed. Quantitative restrictions were replaced by price-based system.
Objectives of Economic Reforms
- Liberalisation and opening-up of the economy.
- Improving the availability of resources.
- Proper redistribution of resources so as to minimize inequality across the different rungs of the society as well as across sectors.
- Balance between different sectors of the economy.
- Making the corporate and the public sector more effective.
- Minimizing poverty by reducing the rate of unemployment.
- Minimizing budget deficits by generating more revenue.
- To improve efficiency, productivity and international competitiveness of Indian industries and to impart dynamism to overall growth process.
- To decontrol the indian industrial economy from unnecessary bureaucratic controls.
- To introduce liberalization with a view to integrate the Indian economy with the world economy.
- To remove the restrictions on foreign direct investment.
- To remove the restrictions of MRTP Act.
- To shed the load of public sector enterprises sector enterprises which have shown a very low rate of return and incurring losses over the years.