Project Report On

IMPACT OF LIBERALISATION
ON INDIA

SUBMITTED BY:
SOURABH VERDIA(523)

Contents:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Acknowledgment
Introduction
Pre-liberalisation
Liberalisation
Economic liberalisation & its policies in
India
Types of liberalisation
Foreign Direct Investment
Reforms in agriculture & infrastructure
Privatization
Globalization
Conclusion

ACKNOWLEDGEMENT
We would like to express our gratitude to all those who
gave us the possibility to complete this report on Effects
of Liberalisation on India . We want to thank Dr Ashok
Panigrahi for giving us the opportunity to explore our
knowledge in the field of business economics under his
guidance.

Introduction:
The objective of liberalisation is to induct competitive-forces into the economy. More
specifically, liberalised industrial policies are targeted to increase competition and to
obtain efficient outcomes in industry. In a world without market imperfections and
externalities, liberalised markets would lead to a first-best Pareto optimal situation. But in
a second-best world of imperfections, it becomes important to trace the implications
of these liberalisation policies. Liberal industrial policies can have competitive outcomes
only in the absence of entry barriers. Liberalisation policies remove artificial barriers to
entry by new firms, and allow capacity expansion of incumbent firms.
However,the existence of natural barriers indicates imperfect competition as reflected in
the industry. Economic liberalization of India means the process of opening up of the
Indian ecomony to trade and investment with the rest of the world. Till 1991 India had a
import protection policy wherein trade with the rest of the world was limited to exports.
Foriegn invetment was very difficult to come into India due to a bureaucratic framework.
After the start of the economic liberalization, India started getting huge capital inflows
and it has emerged as the 2nd fastest growing country in the world. The economic
liberalisation in India refers to ongoing economic reforms in India that started on 24 July
1991. After Independence in 1947, India adhered to socialist policies. Attempts were
made to liberalize economy in 1966 and 1985. The first attempt was reversed in 1967.
Thereafter, a stronger version of socialism was adopted. Second major attempt was in
1985 by the then Prime Minister Mr. Rajiv Gandhi/Rajeev Gandhi.
The process came to a halt in 1987, though 1966 style reversal did not take place. In 1991,
after India faced a balance of payments crisis, it had to pledge 20 tons of gold to Union
Bank of Switzerland and 47 tons to Bank of England as part of a bailout deal with
the International Monetary Fund (IMF). In addition, IMF required India to undertake a
series of structural economic reforms. As a result of this requirement, the government
of P. V. Narasimha Rao and his finance minister Manmohan Singh (currently the Prime
Minister of India) started breakthrough reforms, although they did not implement many
of the reforms IMF wanted.
The new neo-liberal policies included opening for international trade and
investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling
measures. The overall direction of liberalisation has since remained the same, irrespective
of the ruling party, although no party has yet 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.Thus, unlike the reforms of 1966 and 1985 that were
carried out by the majority Congress governments, the reforms of 1991 carried out by a
minority government proved sustainable world.

The fruits of liberalisation reached their peak in 2007, when India recorded its highest GDP
growth rate of 9%. With this, India became the second fastest growing major economy in
the world, next only to China. The growth rate has slowed significantly in the first half of
2012 . An Organisation for Economic Co-operation and Development (OECD) report states
that the average growth rate 7.5% will double the average income in a decade, and more
reforms would speed up the pace.
Indian government coalitions have been advised to continue liberalisation. India grows at
slower pace than China, which has been liberalising its economy since 1978. The McKinsey
Quarterlystates that removing main obstacles "would free Indias economy to grow as fast
as Chinas, at 10 percent a year".
There has been significant debate, however, around liberalization as an inclusive
economic growth strategy. Since 1992, income inequality has deepened in India with
consumption among the poorest staying stable while the wealthiest generate
consumption growth .
For 2010, India was ranked 124th among 179 countries in Index of Economic
Freedom World Rankings, which is an improvement from the preceding year.

The Pre-liberalization Era Prior to 1991

The Post Liberalization Era -- The Present Era

Pre-liberalization :
India has been following a highly protective industrial and foreign trade regime since
1951. The protective regime controlled not only entry into industry and capacity
expansion but also technology, output mix and import content. Due to high tariffs before
the liberalization period, most Indians firms enjoyed protection of some kind or the other.
Free imports were not forthcoming.
Before the process of reform began in 1991, the government attempted to
close the Indian economy to the outside world. The Indian currency, the rupee, was
inconvertible and high tariffs and import licensing prevented foreign goods reaching the
market. Manufacturers had a field day as this situation continued for a long time, leading
to the creation of artificial scarcity even for basic items.
The liberalisation of Indian economy started gradually in the 1980's and
major economic liberalisations (structural adjustment programs) began from 1991.
Due to the policies of Indian government:

India had A Balance of Payments crisis in 1991 which pushed the country to near
bankruptcy. With Indias foreign exchange reserves at $1.2 billion in January 1991
and depleted by half by June, barely enough to last for roughly 3 weeks of
essential imports, India was only weeks way from defaulting on its external
balance of payment obligations. The caretaker government in India headed
by Prime Minister Chandra Sekhars, immediate response was to secure an
emergency loan of $2.2 billion from the International Monetary Fund by pledging
67 tons of India's gold reserves as collateral.The Reserve Bank of India had to airlift
47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of
Switzerland to raise $600 million

The Rupee devalued and economic reforms were forced upon India.

India central bank had refused new credit and foreign exchange reserves had
reduced to the point that India could barely finance three weeks worth of imports .
No FDI & FII Investments.

What did government do?

Dr Manmohan Singh(the current PM) suggested that if India had to progress, its
economic policies must be reformed as per changing times and decided to introduce the
concept liberalisation india .

Liberalisation:
In general, liberalisation refers to a relaxation of previous government restrictions, usually
in areas of social or economic policy.It refers to loosening or removal of controls so that
economic development gets encouragement.
It includes abolition of those economic policies,rules, regulations, administrative controls
and procedures which impede economic development.In other words economic
liberalisation is a new economy policy of promoting market determine determined
economic decisions rather than bureaucratic arbitrary economic decisions.

Economic liberalisation in india

The economic liberalisation in India refers to ongoing economic reforms
in India that started on 24 July 1991 and are still being followed.
Attempts were made to liberalize economy in 1966 and 1985. And finally in 1991,
after India faced a balance of payments crisis ,new economic policies were
introduced leading to economic liberalisation of india.

The Policies of Liberalization Included the Following:

Opening the Gate for International Trade and Investment.
Deregulation (The removal of government controls from an industry or sector,
to allow for a free and efficient marketplace).
Freedom for expansion and production.
Increase in the investment limit of the small industries.
Tax Reforms.
Initiation of Privatization.
Inflation Controlling Measure
Freedom to import capital goods and technology.
Government liberalisation policies have been structured toRevitalize Indian industry
by infusing it with a greater degree of competition. As opposed to earlier policies
which directed investment in industry to what were understood to be 'nationally
desirous' in a protected environment, liberalisation allows a manufacturer greater
liberty in selecting investment levels and output patterns according to the dictates of
the market. Liberalisation, by systematically deregulating industry and cutting down
restrictions on trade (especially imports), aims at infusing greater competition into the
industrial sector and thereby increasing growth and efficiency. Liberalisation policies
in India had a modest beginning in the late 1960s to remedy the foreign exchange and
fiscal problems faced by the economy. The relative merit of the market as opposed to
state directed development began gaining support onaccount of three problems facing
the economy from the late 1960s.The first was the prolonged stagnation in the
industrial sector .

Liberalisation of industrial and trade policies will improve

industrial efficiency by:
(a) providing greater access to imported intermediate inputs , capital goods and
technology:
(b) exposing domestic producers to competition, external and internal, and thereby
force them to reduce costs, and
(c) lifting the growth and size of firms so as to exploit scale economies.
Improvement in efficiency and the resultant reduction in costs will stimulate domestic
demand and enable India's industrial products to compete abroad, thereby relaxing
demand-side constraints on industrial growth." C Goldar 1990:603^ Until 1991 there was
no one official policy statement setting out explicitly what the new economic policy was
and what it intended to achieve. The novelty of the policy was perceived only when

changes in policy and procedures relating to industrial licensing, exchange rate policy,
import policy along with some observations about the need for rationalising and
simplifying the
systems of fiscal and administrative procedures were pieced together, (policies that are
directed at the industrial sector can be classified into two categories:
(a)domestic,.Iiberaiisation and
(b) trade liberalisation. This distinction is made because in the Indian context these two
have not been implemented in tandem.Domestic liberalisation not only pre-dates trade
liberalization but has been more systematic.

Domestic Liberalisation
Domestic; liberalisation policies sought to redefine the contours o-f the state and market
in -favour of the market in the domestic sphere of economic activity. These policies were
aimed at deregulation and privatisation. To translate these objectives into policy terms,
the government formulated the following measures to facilitate capacity and output
expansion and to remove procedural impediments to investment and growth of firms.
Delicensing: A number of industries (apart from the small-scale sector) were progressively
delicensed by the time the New Licensing Industrial Policy CNILP3 was enunciated in 1991.
NILP delicensed all industries irrespective of size of
investment or the ownership of the undertaking except 18industries which still required
licensing. The number of industries was later reduced to 15.Broadband!ng: Diversification
in specified industries was permitted without obtaining an industrial license, initially
subject to the condition that the firm did not come "under the purview of Monopolies and
Restrictive Trade Practices CMRTP3 Act & Foreign Exchange Regulations Act EFERA3. This
policy was designed to introduce some flexibility into the licensing mechanism and to
enable manufacturers to utilize their capacities more efficiently and fine tune their
product mix in response to market demand. This scheme commenced with the machine
tools industry in 1983, and the list grew steadily. In August 1988, the government
announced that the broadband mg facility would be available for companies that came
under the purview of the MRTP and FERA in Appendix A. and would be subject to export
obligations in respect of non Appendix A companies. This policy measure lost its
relevance due to the liberalised licensing policy in the NILP C19913.Re-endctrsement al'
Capacity: Licensed capacity in selected industries was increased by an additional 257. over
and above the highest production level achieved during the previous five years. Also,
automatic growth was allowed. This policy became redundant after the NILP C19913 when
licensing was limited to a small list of industries. Minimum Economic Scale: Minimum
capacities of operation were prescribed in select industries in order to exploit economies
of scale. This was with a view to increase efficiency in units that could not exploit scale,
economies because of the stringent licensing laws. As on February1990, 106 products in
14 broad industrial groups had a prescribed minimum economic scale of operation.
Opening up the Public Sector: Areas that were earlier under the exclusive purview
of the public sector were gradually opened up to the private sector. The policies of
broadbanding, re-endorsement of capacity and the prescription of MES were part
of the earlier liberalization packages before the large-scale delicensing in the NILP
C19911made them redundant. Amongst these policies, the stipulation of MES was
aimed at increasing the efficiency of industries where size was pivotal to efficiency.

If firms had been constrained by small size in the pre-1iberalisation period, they
could expand to MES and beyond to obtain efficiency gains. But for the new
firms,since entry had to be large-scale?, the cost of entry increased creating an
entry barrier. This policy thereby threw up two problematic outcomes when
dealing with the question of MES and the anti-competitive outcomes of such a
policy in terms of concentration and firm size. Industrial organization lias shown
that the relationship between size of entry and the anticompetitive effect of
large sire is not so simple.

Impact of Liberalization on Indian Economy:

Total foreign investment rising from

US$ .132 billion in 199192 to
US$ 5.3 billion in 199596.

Annual growth in GDP(shown in graph below)

As we can see in the above graph the GDP increasing continuously after 1991 and
rising upto 7 times in 2010.
Arrival of New Technology or Development of Technology.

Development of Infrastructure.
Identity at World Level
Increase Consumption and Adaptation of New Lifestyle
By the mid-90s, the private capital had surpassed the public capital. The
management system had shifted from the traditional family based system to a
system of qualified and the liberalization era has been the emergence of a strong,
affluent and buoyant middle class with significant purchasing powers and this has
been the engine that has driven the economy since.
Increase in Employment
Increase Our Currency Value (INR)
On agriculture
On education
On export and import
On money market
On human resources
On life styles
The low annual growth rate of the economy of India before 1980, which stagnated
around 3.5% from 1950s to 1980s, while per capita 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 licences would be given for steel, electrical power and
communications. License owners built up huge powerful empires.
A huge public sector emerged. State-owned enterprises made large losses.
Income Tax Department and Customs Department manned by IAS officers became
efficient in checking tax evasion.
Infrastructure investment was poor because of the public sector monopoly.
Licence Raj established the "irresponsible, self-perpetuating bureaucracy that still
exists throughout much of the country" and corruption flourished under this
system.

Liberalisation can be divided as following:-

Components of

liberalisation

Industrial
liberalisation
in

Fiscal
liberalisation

Financial
liberalisation

Trade
liberalisation

Industrial Liberalization:

Industrial Sector was among the first sectors to be

liberalized in India in a series of measures. Industrial licensing has been abolished
except in a small number of sectors where it has been retained on strategic
considerations.
Reduction in the reservation of public sector:
The list of industries reserved solely for the public sector -which used to cover 18 industries, including iron and steel, heavy plant and
machinery, telecommunications and telecom equipment, minerals, oil, mining, air
transport services and electricity generation and distribution --has been drastically

reduced to three: defense aircrafts and warships, atomic energy generation, and
railway transport.

Abolition of industrial licensing:

Industrial licensing by the central government has been almost abolished except
for a few hazardous and environmentally sensitive industries.
Facilitated easy access to foreign technology
Restriction were removed on expansion
Opening the economy to FDI.

Foreign Direct Investment in India

Liberalizing foreign direct investment was another important part of Indias reforms,
driven by the belief that this would increase the total volume of investment in the
economy, improve production technology, and increase access to world markets. The
policy now allows 100 percent foreign ownership in a large number of industries and
majority ownership in all except banks, insurance companies, telecommunications and
airlines. Procedures for obtaining permission were greatly simplified by listing industries
that are eligible for automatic approval up to specified levels of foreign equity (100
percent, 74 percent and 51 percent). Potential foreign investors investing within these
limits only need to register with the Reserve Bank of India. For investments in other
industries, or for a higher share of equity than is automatically permitted in listed
industries, applications are considered by a Foreign Investment Promotion Board that has
established a track record of speedy decisions. In 1993, foreign institutional investors
were allowed to purchase shares of listed Indian companies in the stock market, opening
a window for portfolio investment in existing companies.

Foreign investment is more than 24% in the equity capital of units

manufacturing items reserved for the small scale industries.
After reforms in 1992, huge amounts of foreign direct investment came into India.
Foreign Investment Promotion Board (FIPB) is a competent body to consider and
recommend foreign direct investment.
In 1993, foreign institutional investors were allowed to purchase shares of listed
Indian companies in the stock market.
The below graph shown the significant increase in foreign direct investment(FDI)
after the economic reforms and liberalization.

The Important Reform Measures (Step Towards liberalization privatization and Globalization):

Indian economy was in deep crisis in July 1991, when foreign currency reserves had
plummeted to almost $1 billion; Inflation had roared to an annual rate of 17
percent; fiscal deficit was very high and had become unsustainable; foreign
investors and NRIs had lost confidence in Indian Economy. Capital was flying out of
the country and we were close to defaulting on loans. Along with these
bottlenecks at home, many unforeseeable changes swept the economies of
nations in Western and Eastern Europe, South East Asia, Latin America and
elsewhere, around the same time. These were the economic compulsions at home
and abroad that called for a complete overhauling of our economic policies and
programs. Major measures initiated as a part of the liberalization and globalization
strategy in the early nineties included the following:
Devaluation: The first step towards globalization was taken with the
announcement of the devaluation of Indian currency by 18-19 percent against
major currencies in the international foreign exchange market. In fact, this
measure was taken in order to resolve the BOP crisis.
Disinvestment-In order to make the process of globalization smooth, privatization
and liberalization policies are moving along as well. Under the privatization
scheme, most of the public sector undertakings have been/ are being sold to
private sector

Trade Liberalization:
Trade liberalisation' is the term for the process whereby a country opens up
its markets to international trade i.e. reduces the taxes (known as tariffs) and other limits
(such as quotas) on goods coming in and out. It also often comes alongside increased
rights for investors, pressures to privatize as well as imposed regulatory changes to
comply with international standards.
Trade liberalisation can be a good thing in the right circumstances if it's phased in
correctly at the right time in a country's development. However forcing countries to
'liberalise' their economies prematurely (for example through aid conditionality or trade
agreements) has led to disastrous economic and social consequences.
Import licensing was abolished relatively early for capital goods and intermediates which
became freely importable in 1993, simultaneously with the switch to a flexible exchange
rate regime. Import licensing had been traditionally defended on the grounds that it was
necessary to manage the balance of payments, but the shift to a flexible exchange rate
enabled the government to argue that any balance of payments impact would be
effectively dealt with through exchange rate flexibility.

Although Indias tariff levels are significantly lower than in 1991, they remain among the
highest in the developing world because most other developing countries have also
reduced tariffs in this period. The weighted average import duty in China and southeast
Asia is currently about half the Indian level. The government has announced that average
tariffs will be reduced to around 15 percent by 2004, but even if this is implemented,
tariffs in India will be much higher than in China which has committed to reduce weighted
average duties to about 9 percent by 2005 as a condition for admission to the World Trade
Organization.

Trade sector
reforms

Elimination of
import licensing

Rationalisation of
tariff structure

Adaptation of
flexible exchange
rate

Financial liberalisation:
Financial liberalization (FL) refers to the deregulation of domestic financial markets
and the liberalization of the capital account.
In one view, it strengthens financial development and contributes to higher long-run
growth. In another view, it induces excessive risk-taking, increases macroeconomic
volatility and leads to more frequent crises.
Financial Sector Reforms refers to the deregulation of domestic financial markets and the
liberalization of the capital account

Industrial de licensing and simplification and rationalization of tax structure to

promote investment and expansion.
Liberal FDI regime to supplement domestic resources.
Current account convertibility to have a liberal trade regime.
Public sector disinvestment to ensure government does what it does best.
WTO compatibility to plug into the global economy.

Fiscal Sector Liberalization:

India's fiscal sector reforms help to raise the rate of savings and investment in India.
This further helps to enhance the productivity of public expenditures. India has
established itself as one of the fastest growing economies in the world.
India has established itself as one of the fastest growing economies in the world.
India is also advancing towards the economical growth and improvement in
literacy.

During 1999-2000, India's domestic savings and investment was estimated to grow
by 23% and Indian economy was expected to grow by 6.4% although the average
growth rate declined to 6.0% in comparison to earlier year.
In the first five year plan, India had attained an average annual growth rate by 3.5%.
Indian economy showed an average growth rate of 6.4%, which was 5.9% in the
80's. At the end of the 8th Five Year Plan, the annual growth rate of India reached
6.9 percent.
During the period from 1991-92 the Indian economy passed through a tough time.
The overall economic growth in this period declined to 1.1% and the total fiscal
deficit became 8% of the GDP.

Reforms in Agriculture
A common criticism of Indias economic reforms is that they have been excessively
focused on industrial and trade policy, neglecting agriculture which provides the
livelihood of 60 percent of the population. Critics point to the deceleration in agricultural
growth in the second half of the 1990s (shown in Table 2) as proof of this neglect.i
However, the notion that trade policy changes have not helped agriculture is clearly a
misconception. The reduction of protection to industry, and the accompanying
depreciation in the exchange rate, has tilted relative prices in favor of agriculture and
helped agricultural exports. The index of agricultural prices relative to manufactured
products has increased by almost 30 percent in the past ten years (Ministry of Finance,
2002, Chapter 5). The share of Indias agricultural exports in world exports of the same
commodities increased from 1.1 percent in 1990 to 1.9 percent in 1999, whereas it had
declined in the ten years before the reforms.
But while agriculture has benefited from trade policy changes, it has suffered in other
respects, most notably from the decline in public investment in areas critical for
agricultural growth, such as irrigation and drainage, soil conservation and water
management systems, and rural roads. As pointed out by Gulati and Bathla (2001), this
decline began much before the reforms, and was actually sharper in the 1980s than in the
1990s. They also point out that while public investment declined, this was more than
offset by a rise in private investment in agriculture which accelerated after the reforms.
However, there is no doubt that investment in agriculture-related infrastructure is critical
for achieving higher productivity and this investment is only likely to come from the public
sector. Indeed, the rising trend in private investment could easily be dampened if public
investment in these critical areas is not increased.

Infrastructure Development
Rapid growth in a globalized environment requires a well-functioning infrastructure
including especially electric power, road and rail connectivity, telecommunications, air
transport, and efficient ports. India lags behind east and southeast Asia in these areas.
These services were traditionally provided by public sector monopolies but since the
investment needed to expand capacity and improve quality could not be mobilized by the
public sector, these sectors were opened to private investment, including foreign
investment. However, the difficulty in creating an environment which would make it
possible for private investors to enter on terms that would appear reasonable to
consumers, while providing an adequate risk- return profile to investors, was greatly
underestimated. Many false starts and disappointments have resulted.
The greatest disappointment has been in the electric power sector, which was the first
area opened for private investment. Private investors were expected to produce
electricity for sale to the State Electricity Boards, which would control of transmission and
distribution. However, the State Electricity Boards were financially very weak, partly
because electricity tariffs for many categories of consumers were too low and also
because very large amounts of power were lost in transmission and distribution. This loss,
which should be between 10 to 15 percent on technical grounds (depending on the extent
of the rural network), varies from 35 to 50 percent. The difference reflects theft of
electricity, usually with the connivance of the distribution staff. Private investors, fearing
nonpayment by the State Electricity Boards insisted on arrangements which guaranteed
purchase of electricity by state governments backed by additional guarantees from the
central government. These arrangements attracted criticism because of controversies
about the reasonableness of the tariffs demanded by private sector power producers.
Although a large number of proposals for private sector projects amounting to about 80
percent of existing generation capacity were initiated, very few reached financial closure
and some of those which were implemented ran into trouble subsequently.ii
Because of these difficulties, the expansion of generation capacity by the utilities in the
1990s has been only about half of what was targeted and the quality of power remained
poor with large voltage fluctuations and frequent interruptions.

Arguments in the favour of Liberalization:

Increase in rate of economic growth

Increase in competitiveness of industrial sector
Reduction in poverty and inequality
Fall in fiscal deficit
Control on prices
Decline in deficit of BOP
Increase in Efficiency
Development of economy without capital investment.
Increase the foreign investment.
Increase the foreign exchange reserve.
Increase in consumption and Control over price.
Reduction in dependence on external commercial borrowings

Arguments Against of Liberalization:

Less importance to agriculture.

Pressure by IMF and World Bank.
More depending on Foreign Debt.
Dependence on Foreign technology.
Undue importance to Privatization.
Problem of Unemployment.

Privatization:

Privatization means transfer of ownership and/or management of an enterprise

from the public sector to the private sector .
Privatization is opening up of an industry that has been reserved for public sector
to the private sector.
Privatization means replacing government monopolies with the competitive
pressures of the marketplace to encourage efficiency, quality and innovation in the
delivery of goods and services.

Globalization:

It Means that opening up of the economy for foreign direct investment by

liberalizing the rules and regulations and by creating favorable socio-economic and
political climate for global business.
Opening and planning to expand business throughout the world.
Buying and selling goods and services from/to any countries in the world.

CONCLUSION:
In 1991 our foreign exchange reserve was only 1 billion dollar of Import ,GDP growth was
standstill ,economy was in sambles ,No private entrepreneurs were allowed to enter in
GOV controlled Industries .India needed desperately developments in all sectors .License
raj was controlling our all growth .Capacity enhansements in all core sectors were
stopped. Our Gold was put to security to foreign countries for money to save India.
No jobs ,no telephone, no housing ,virtually no development .Our present PM Dr
Manmohan Singh was FM in 1991 and amids lot of criticism with in party and opposition
,Dr Singh with great support of late PM P.V.Narsimha Rao even against the wishes of
Sonia Gandhi ,Chidambaram presented a great budget of economic liberisation .This
liberalization was duly supported by the then opposition leader ,another great man Atal
Behari Bajpai of BJP .Within 4 years of liberalisation Indian foreign exchange reserve rose
to 140 billion dollar ,Private entrepreneurship started coming up in a big way in Steel, IT ,
Roads , infrastructures ,housing ,telephone and so many sectors and created a base for
further developments .Now after 17 years of liberalisation ,you can see the developments
in all the sectors where every 5 men in India 3 have mobile phone ,300 dollar foreign
exchange reserve ,GDP growth is 9 % per annum .Despite world recession ,Indian
economy stood resolutely against any odd .Only regret is India could not be free from ugly
corruption in everywhere.

Difference between pre and post liberalization:

PRE-LIBERALISATION
POST-LIBERALISATION
1.Quantitative licensing on trade and industry 1. Abolition of industrial and trade licensing
2. State regulated monopolies of utilities and

2. Removal of state monopolies, privatization

Trade

& divestment

3. Government control on finance and capital

Markets

3. Liberalization of financial and capital

markets

4. Restrictions on foreign investment and

Technology

4. Liberal regime for FDI, portfolio

In

5.Import substitution and export of primary

Goods

5. Export promotion and export

diversification, no import bias

6. High duties & taxes with multiple rates

and large dispersion

6. Reduction and rationalization of taxes and

duties

7. Sector-specific monetary, fiscal and tariff

policies

7. Sector-neutral monetary, fiscal and tariff

policies

8. End-use and sector-specific multiple and

controlled interest rates

8. Flexible interest rates without any end-use

or sector specifications vestment, foreign
tech
9. Abolition of exchange control, full
convertibility on current A/C

9. Foreign exchange control, no

convertibility of rupee
10. Multiple and fixed exchange rates

12. Tax concessions on exports and savings

10. United and market determined exchange

.rates
11. Abolition of all administered prices
except
for few drugs
12. Rationalized and being phased out

13. Explicit subsidies on food, fertilizers, and

some essential items

13. No change, budget subsidies on LPG and

kerosene introduced

14. Hidden subsidies on power, urban

transport, public goods, POL

14. No change, but user charges are being

rationalized, and subsidies targeted

15. General lack of consumers protection and

other rights

15. Acts governing consumer rights, IPR,

independent regulatory authority

16. Central planning, discretionary process,

high degree of bureaucracy

16. Decentralization, sound institutional

framework, reforming civil services

17. Outdated Companies Act

17. No change

18. No exit policy for land and labour

18. No change in labor policy, slow progress

of reforms in land markets
19. No change

11. Administered prices for minerals,

utilities, essential goods

19. Outdated legal system

Indias reforms are often unfavorably compared with the very different sequencing adopted in China, which
began with reforms in agriculture in 1978, extending them to industry only in 1984. The comparison is not
entirely fair since Chinese agriculture faced an extremely distorted incentive structure, with virtually no role for
markets, which provided an obvious area for high priority action with potentially large benefits. Since Indian
agriculture operated to a much greater extent under market conditions, the situation was very different.
ii

The best known of these was the Dabhol project of the Enron cooperation which became mired in controversy
because of the high cost of power from the project especially as a consequence of a pricing arrangement which
meant that most of the tariff was U.S. dollar denominated and that the risk of rupee depreciation against the
dollar was borne by the buyer.