IMPACT ON INDIAN INDUSTRY POST ECONOMIC REFORMS

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IMPACT ON INDIAN INDUSTRY POST ECONOMIC REFORMS:

IMPACT ON INDIAN INDUSTRY POST ECONOMIC REFORMS By:- Prachi Gupta Priya Mahajan JEET YADAV M.D.TASIN NEERAJ

Pre colonial era:

Pre colonial era

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Independent,self-reliant & prosperous economy. Primarily an agrarian economy Well known for handicraft industries. -cotton -silk textiles -metal -precious stone works -gold & silver jewellery,etc Fine quality & high standards of craftsmanship.

British rule:

British rule

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Mid-18 th century economy started to decline. British government persued economic policies for the protection & promotion of economic interests of britain rather than development of India. Transformed India into a supplier of raw materials and consumers of finished products of British industries.

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No meaningful economic progress took place. Barring a few,most of the people were living in abject poverty. Agricultural sector continued to experience stagnation and deterioration. Zamindari system Commercialization of agriculture Food crisis

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Best indicator of the economic condition of a nation National income Per capita income

INDUSTRIAL SECTOR during british rule :

INDUSTRIAL SECTOR during british rule Indian handicrafts industry was detroyed and no modern industry was allowed to come up. Primary motive: to get raw materials from India at cheap rate and thus to reduce india to a mere exporter of raw materials to the british industries. to sell british manufactured goods in Indian market at higher prices. .

Impact due to Decline of handicrafts industry:

Impact due to Decline of handicrafts industry Large scale-unemployment Increase burden of population on villages and agriculture Import of manufactured goods from Britain .

DURING THE SECONF HALF OF 19TH CENTURY:

DURING THE SECONF HALF OF 19 TH CENTURY Modern industries started to come up Mainly the pvt sector initiative Establishment of industires mainly confined to cotton textiles and jute mills. COTTON TEXTILES :mainly dominated by the Indians and were located in the western parts of India namely Maharashtra and Gujarat. JUTE MILLS:located in Bengal estd by mainly the British capitalists.

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The credit for the beginning of the iron and steel industry during British rule goes to JAMSHEDJI TATA.THE IRON AND STEEL COMPANY(TISCO) was incorporated in August 1907 and its estd its first plant at Jamshedpur . Besides these some other industries had their modest beginning in the later part of British rule namely:SUGAR,CEMENT,CHEMICAL,PAPER INDUSTRIES. No attention was given to the promotion of capital goods industry in India.

Drawbacks:

Drawbacks The growth rate of industrial sector and its contribution t GDP was very small. Public sector in those days remaines confined only to the railways,power generation,communication,ports and some other departmental undertakings.

Post Independence era:

Post Independence era

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Leading role to public sector:considering the demand of the situation ,public sector was assigned a greater role in the industrial development of our economy. Reasons: Development of heavy industries require heavy investments is essential for creating a heavy industrial base in the country. Public sector could also help in redistribution of income and prevention of concentration of economic power and exploitation.

Economic Reforms:

Economic Reforms policies directed to achieve improvements in economic efficiency by eliminating or reducing distortions such as tax policy and competition policy refers to deregulation

Need to introduce reforms?:

Need to introduce reforms? Indian economic crisis which emerged in 1990-91 can be summarized as follows: A continuing and increasing fiscal deficit High rate of inflation A falling exchange rate economy A high and potentially increasing trade deficit and BOP crisis A high level and high growth rate in external debt leading to debt trap

Roots of crisis:

Roots of crisis Controls and subsidies : controls on production ,licensing restrictions along with high protective walls had fostered monopolistic trends in our industries.liecnse permit raj was bad and so was raj of preferences reservations and subsidies. Inward- looking policy:inward looking focus on industrialisation,the excessive protection to industries through licensing and import tariffs discouraged the competition and effeciency in the economy.

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Burden of foreign debts :accumulation of a huge foreign debts. Financial excesses :large increase in defense expenditures,unbrilled growth of subsidies and a quantum jump in public salaries.

NEP/ ECONOMIC REFORMS SINCE 1991:

NEP/ ECONOMIC REFORMS SINCE 1991 DEF: a set of stabilisation and structural measures started since July 1991 in response to the merging crisis is termes as NEW ECONOMIC POLICY(NEP). OBJECTIVES: To reduce the domestic inflation rate To improve the bop situation To improve effeciency and productivity of the economy To put the economy back on the path of sustainable growth with social justice .

Features of Government’s Economic Policy in Pre-Reform ERA:

Features of Government’s Economic Policy in Pre-Reform ERA Establishment of a mixed Economy. Expanded Role for Public Sector. Strict Regulation of Private Sector. Cautious Policy towards Foreign Capital. Trade Policy Restrictions.

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6. State Trading. 7. Import Substitution. 8. Foreign Exchange Regulation .

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After introduction of NEP

Broad directions:

Broad directions Reducing the extent of govt controls over various aspects of the domestic economy Increasing the role of pvt sector Redirecting scarce public sector resources to areas where the pvt sector is unlikely to enter. Opening up of the economy to trade and foreign investments and thus integrating it with the global economy.

Components of New Economic Policy:

Components of New Economic Policy Economic Reforms include:- Macroeconomic Stabilization Policies. Structural Adjustment Policies.

NEED:

NEED Because of the following reasons: Slow and Unsatisfactory Economic Growth. Experience of other Countries. Inefficiency in Public Enterprises. Continued Inflationary Pressures.

Major Economic Reforms:

Major Economic Reforms software and IT constitute only a small part of the Indian economy more than 50% of India’s output comes from its manufacturing and 70% of its labor force is employed in agricultural.

FISCAL AND ADMINISTRATIVE REFORM :

FISCAL AND ADMINISTRATIVE REFORM India’s fiscal reforms focused on generating revenue through rationalizing the tax structure and increasing compliance. Specifically, the reforms: Lowered taxes Broadened the tax base; Removed exemptions and concessions to reduce distortions; Simplified laws and procedures and increase compliance, including using technology to better track tax payments.

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To improve its tax system, India should : Increase taxes on services and implement a tax on e-commerce; Modernize tax administration through better utilizing technology; Restructure tax collection and allocation system to increase revenues at local and state levels;

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VAT System Use technology to better enforce property and agricultural income taxes; Remove distortionary tax exemptions; Reduce the mean and variance of import tariffs; Repeal the corporate tax.

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On the expenditure side Reduce subsidies (which are generally poorly targeted); Downsize overstaffed public institutions, particularly at state and local levels; Separate policy and implementation functions through administrative reforms; Reduce bureaucratic controls and set performance targets; Institute mechanisms like greater public transparency to increase accountability.

FINANCIAL SECTOR REFORMS :

FINANCIAL SECTOR REFORMS India has implemented reforms that have led to relatively well-functioning capital markets. • Liberalized interest rates; • Abolished cumbersome approval requirements for financial transactions; • Liberalized capital markets through the abolition of the Controller of Capital Issues; • Allowed companies to more easily sell stock.

THE WAY FORWARD:

THE WAY FORWARD Design strategies to increase venture capital; Allow investment in securities as an alternative to domestic saving in order to reduce reliance on foreign inflows in capital markets; Allow pension funds to invest in stocks; Improve and deepen debt markets for larger corporations; Increase competition from commercial and foreign banks in the financial sector .

INTERNATIONAL TRADE AND INVESTMENT REFORMS :

INTERNATIONAL TRADE AND INVESTMENT REFORMS Recent reforms: Eliminated import licenses and reduced import duties from rates that had been the world’s highest; Reduced tariffs; Liberalized trade in service and technology industries; Improved recognition of international intellectual property rights; Allowed 100% ownership in firms in a large majority of industries (excluding banks, insurance, telecommunications, and airlines);

INDUSTRIAL SECTOR REFORMS :

INDUSTRIAL SECTOR REFORMS Industrial sector reforms: Opened up the economy broadly to competition; and Reduced reservations for some small-scale industries.

NEED OF INDUSTRAIL SECTOR IN INDIA’S DEVELOPMENT:

NEED OF INDUSTRAIL SECTOR IN INDIA’S DEVELOPMENT Balanced occupational structure: Self reliant economy Expansion of employment opportunities Increase in the rate of economic growth

Performance of public sector:

Performance of public sector Made large investmentsin basic and capital goods industries:iron & steel,machine tools,electrical,engineering etc. Contributed in the direction of import substitution,export earnings and social sphere. Public sector was perceived originally as holding the commanding heights of economy and leading technological advances. But its contribution in terms of generating internal resources fro further expansion has fallen short of expectations,inability to do so a amjor constraint on economic growth

INDUSTRIAL POLICY RESOLUTION, 1956:

INDUSTRIAL POLICY RESOLUTION, 1956 First industrial policy was adopted in 1948. First five year plan was completed and parliament had accepted the “socialistic pattern of society”as the basic aim of social and economic policy. These important developments necessitated a fresh industrial policy resolution.Hence,IPR was introduced

IPR DIVIDED INDUSTRIES INTO THREE CATEGORIES:

IPR DIVIDED INDUSTRIES INTO THREE CATEGORIES

Objectives of IPR::

Objectives of IPR: To accelerate the rate of growth and speed up industrialisation To develop heavy and machine making industries To expand public sector To reduce disparities in income and wealth and to prevent monopolies and concentration of wealth and income.

Effects of policies on industrial development:

Effects of policies on industrial development The share of industrial sector in GDP rose from 11.8% in 1950-51 to 24.6% in 1990-91.implies development People having less capital could start off with the business because of the policy of the government to promote small scale sector in the economy.It also created employment opportunities.

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The policy of protection made it possible for indigenous industries ( automobiles,electronics especially ) to prosper. Public sector entered in those fields olso where it wasn’t required.it olso monopolised in the production of certain goods and services which proved disadvantageous to the economy like as in case of telecommunications earlier it was monopolised by govt due to absentism of competition,one had to wait for long to get a connection.when this sector got opened up for pvt sector,services became cheap and easy .

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There are areas where public sector id very much required like as in : defence and free medical treatment to poor. There were instances where big industrialists misused the licensing policy .Industrialists were spending more time to obtain the license or to get favour from the ministers or bureacrats,in this process they could not give proper attention to production and management which adversely affected the industrial effeciency.

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Because of absence of competition,there was no incentive for domestic producers to improve the quality and reduce the costs.they turned into ineffecient firms.the consumers had to suffer. Indian industries were diversified in many fields during the period.it was achieved largely due to public sector

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GDP GROWTH GDP has surged from 5.7% during 1991-00 to 7.7% during 2001-11

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Per Capita Income has more than doubled from Rs. 15,826 in 1991 to Rs. 41,129 in 2011; has been increasing at an average annual rate of about 7% since 2004 Per capita income

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Structural Change in GDP Composition

THANK YOU:

THANK YOU

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