Economic liberalisation in India

The economic liberalisation in India refers to ongoing economic reforms in India that started in
1991. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime
Minister Rajiv Gandhi initiated some reforms. In 1991, after India sold 67 tons of gold to the
International Monetary Fund (IMF), the government of P. V. Narasimha Rao and his finance
minister Manmohan Singh started breakthrough reforms. 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. The main objective of the government was to
transform the economic system from socialism to capitalism so as to achieve high economic
growth and industrialize the nation for the well-being of Indian citizens. Today India is mainly
characterized as a market economy.[5]

As of 2009, about 300 million people—equivalent to the entire population of the United States—
have escaped extreme poverty.[6] The fruits of liberalisation reached their peak in 2007, when
India recorded its highest GDP growth rate of 9%.[7] With this, India became the second fastest
growing major economy in the world, next only to China.[8] 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.[9]

Indian government coalitions have been advised to continue liberalisation. India grows at slower
pace than China, which has been liberalising its economy since 1978.[10] McKinsey states that
removing main obstacles "would free India’s economy to grow as fast as China’s, at 10 percent a
year".[11]

For 2010, India was ranked 124th among 179th countries in Index of Economic Freedom World
Rankings, which is an improvement from the preceding year.

Pre-liberalisation policies

Part of a series on the

History of Modern India
 Pre-Independence

British Raj (1858–1947)

Indian independence movement (1857–1947)

Partition of India (1947)

Post-Independence

Political integration of India (1947–49)

Indo-Pakistani War of 1947

States Reorganiation Act (1956)

Non-Aligned Movement (1956– )

Sino-Indian War (1962)

Indo-Pakistani War of 1965

Green Revolution (1970s)

 Indo-Pakistani War of 1971

Emergency (1975–77)

Siachen conflict (1984)

1990s in India

Economic liberalisation in India

Kargil War (1999)

2000s in India

See also

History of India

History of South Asia

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Further information: Economic history of India and License Raj

Indian economic policy after independence was influenced by the colonial experience (which
was seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian
socialism. 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, and central planning.[12] 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.[13]
Elaborate licences, regulations and the accompanying red tape, commonly referred to as Licence
Raj, were required to set up business in India between 1947 and 1990.[14]

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. India also operated a system
of central planning for the economy, in which firms required licenses to invest and develop. The
labyrinthine bureaucracy often led to absurd restrictions—up to 80 agencies had to be satisfied
before a firm could be granted a licence 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 laying off 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.

– BBC[15]

In the 80s, the government led by Rajiv Gandhi started light reforms. The government slightly
reduced License Raj and also promoted the growth of the telecommunications and software
industries.[citation needed]

The Vishwanath Pratap Singh government (1989–1990) and Chandra Shekhar Singh government
(1990–1991) did not add any significant reforms.

[edit] Impact

 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%.[16] At the same time, Pakistan
grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in Taiwan by 12%.[17]
 Only four or five licences would be given for steel, power and communications. License owners
built up huge powerful empires.[15]
 A huge public sector emerged. State-owned enterprises made large losses.[15]
 Infrastructure investment was poor because of the public sector monopoly.[15]
 License Raj established the "irresponsible, self-perpetuating bureaucracy that still exists
throughout much of the country"[18] and corruption flourished under this system.[8]

Impact of reforms
The HSBC Global Technology Center in Pune develops software for the entire HSBC group.[21]

The impact of these reforms may be gauged from the fact that total foreign investment (including
foreign direct investment, portfolio investment, and investment raised on international capital
markets) in India grew from a minuscule US$132 million in 1991–92 to $5.3 billion in 1995–
96.[22]

Cities like Gurgaon, Bangalore, Hyderabad, Pune and Ahmedabad have risen in prominence and
economic importance, became centres of rising industries and destination for foreign investment
and firms.

Annual growth in GDP per capita has accelerated from just 1¼ per cent in the three decades after
Independence to 7½ per cent currently, a rate of growth that will double average income in a
decade. [...] In service sectors where government regulation has been eased significantly or is
less burdensome—such as communications, insurance, asset management and information
technology—output has grown rapidly, with exports of information technology enabled services
particularly strong. In those infrastructure sectors which have been opened to competition, such
as telecoms and civil aviation, the private sector has proven to be extremely effective and growth
has been phenomenal.

– OECD[9]

[edit] Ongoing economic challenges

Main article: Economy of India

 Problems in the agricultural sector.

 Highly restrictive and complex labour laws.[9][23][24][25][26][27][28][29][30]
 Inadequate infrastructure, which is often government monopoly.
 Failing education.
 Inefficient public sector.
 Inflation in basic consumable goods.
 Corruption
 High fiscal deficit

This list is incomplete; you can help by expanding it.

OECD summarized the key reforms that are needed:

In labour markets, employment growth has been concentrated in firms that operate in sectors not
covered by India’s highly restrictive labour laws. In the formal sector, where these labour laws
apply, employment has been falling and firms are becoming more capital intensive despite
abundant low-cost labour. Labour market reform is essential to achieve a broader-based
development and provide sufficient and higher productivity jobs for the growing labour force. In
product markets, inefficient government procedures, particularly in some of the states, acts as a
barrier to entrepreneurship and need to be improved. Public companies are generally less
productive than private firms and the privatisation programme should be revitalised. A number
of barriers to competition in financial markets and some of the infrastructure sectors, which are
other constraints on growth, also need to be addressed. The indirect tax system needs to be
simplified to create a true national market, while for direct taxes, the taxable base should be
broadened and rates lowered. Public expenditure should be re-oriented towards infrastructure
investment by reducing subsidies. Furthermore, social policies should be improved to better
reach the poor and—given the importance of human capital—the education system also needs to
be made more efficient.

Economic liberalization
Economic liberalization is a very broad term that usually refers to fewer government
regulations and restrictions in the economy in exchange for greater participation of private
entities; the doctrine is associated with classical liberalism. The arguments for economic
liberalization include greater efficiency and effectiveness that would translate to a "bigger pie"
for everybody.

Most first world countries, in order to remain globally competitive, have pursued the path of
economic liberalization: partial or full privatisation of government institutions and assets, greater
labour-market flexibility, lower tax rates for businesses, less restriction on both domestic and
foreign capital, open markets, etc. British Prime Minister Tony Blair wrote that: "Success will go
to those companies and countries which are swift to adapt, slow to complain, open and willing to
change. The task of modern governments is to ensure that our countries can rise to this
challenge."[1]

In developing countries, economic liberalization refers more to liberalization or further "opening

up" of their respective economies to foreign capital and investments. Three of the fastest growing
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.
[2]

Many countries nowadays, particularly those in the third world, arguably have no choice but to
also "liberalize" their economies in order to remain competitive in attracting and retaining both
their domestic and foreign investments. In the Philippines for example, the contentious proposals
for Charter Change include amending the economically restrictive provisions of their 1987
constitution.[3]
The total opposite of a liberalized economy would be North Korea's economy with their closed
and "self sufficient" economic system. North Korea receives hundreds of millions of dollars
worth of aid from other countries in exchange for peace and restrictions in their nuclear
programme. Another example would be oil rich countries such as Saudi Arabia and United Arab
Emirates, which see no need to further open up their economies to foreign capital and
investments since their oil reserves already provide them with huge export earnings.

[edit] Liberalisation of services in the developing world

[edit] Potential benefits of trade liberalisation

The service sector is probably the most liberalised of the sectors. Liberalisation offers the
opportunity for the sector to compete internationally, contributing to GDP growth and generating
foreign exchange. As such, service exports are an important part of many developing countries'
growth strategies. India's IT services have become globally competitive as many companies have
outsourced certain administrative functions to countries where costs are lower. Furthermore, if
service providers in some developing economies are not competitive enough to succeed on world
markets, overseas companies will be attracted to invest, bringing with them international best
practices and better skills and technologies[4]. The entry of foreign service providers is not
necessarily a negative development and can lead to better services for domestic consumers,
improve the performance and competitiveness of domestic service providers, as well as simply
attract FDI/foreign capital into the country. In fact, some research suggest a 50% cut in service
trade barriers over a five- to 10-year period would create global gains in economic welfare of
around $250 billion per annum[4].

[edit] Potential risks of trade liberalisation

Yet, trade liberalisation also carries substantial risks that necessitate careful economic
management through appropriate regulation by governments. Some argue foreign providers
crowd out domestic providers and instead of leading to investment and the transfer of skills, it
allow foreign providers and shareholders to capture the profits for themselves, taking the money
out of the country[4]. Thus, it is often argued that protection is needed to allow domestic
companies the chance to develop before they are exposed to international competition. Other
potential risks resulting from liberalisation, include[4]:

 Risks of financial sector instability resulting from global contagion

 Risk of brain drain
 Risk of environmental degradation

However, researchers at thinks tanks such as the Overseas Development Institute argue the risks
are outweighed by the benefits and that what is needed is careful regulation[4]. For instance, there
is a risk that private providers will ‘skim off’ the most profitable clients and cease to serve
certain unprofitable groups of consumers or geographical areas. Yet such concerns could be
addressed through regulation and by a universal service obligations in contracts, or in the
licensing, to prevent such a situation from occurring. Of course, this bears the risk that this
barrier to entry will dissuade international competitors from entering the market (see
Deregulation). Examples of such an approach include South Africa's Financial Sector Charter or
Indian nurses who promoted the nursing profession within India itself, which has resulted in a
rapid growth in demand for nursing education and a related supply response[4].

Definitions of Economic liberalization on the Web:

 Economic liberalization is a very broad term that usually refers to fewer

government regulations and restrictions in the economy in exchange for
greater participation of private entities; the doctrine is associated with
neoliberalism. ...
en.wikipedia.org/wiki/Economic_liberalization
 Also liberalization. An economic policy that limits the role of government in
an effort to make a market economy function more efficiently. Liberalization
often includes privatization and deregulation of state-run industries, as well
the reduction or removal of tariffs and other trade barriers.
www.pbs.org/wgbh/rxforsurvival/glossary.html

We often hear the term Human Resource Management, Employee Relations and Personnel Management used in the
popular press as well as by Industry experts. Whenever we hear these terms, we conjure images of efficient
managers busily going about their work in glitzy offices. In this article, we look at the question “what is HRM ?” by
giving a broad overview of the topic and introducing the readers to the practice of HRM in contemporary
organizations. Though as with all popular perceptions, the above imagery has some validity, the fact remains that
there is much more to the field of HRM and despite popular depictions of the same, the “art and science” of HRM is
indeed complex. We have chosen the term “art and science” as HRM is both the art of managing people by recourse
to creative and innovative approaches; it is a science as well because of the precision and rigorous application of
theory that is required.

As outlined above, the process of defining HRM leads us to two different definitions. The first definition of HRM is
that it is the process of managing people in organizations in a structured and thorough manner. This covers
the fields of staffing (hiring people), retention of people, pay and perks setting and

management, performance management, change management and taking care of exits from the company to round
off the activities. This is the traditional definition of HRM which leads some experts to define it as a modern version
of the Personnel Management function that was used earlier.

The second definition of HRM encompasses the management of people in organizations from a macro
perspective i.e. managing people in the form of a collective relationship between management and employees. This
approach focuses on the objectives and outcomes of the HRM function. What this means is that the HR function in
contemporary organizations is concerned with the notions of people enabling, people development and a focus on
making the “employment relationship” fulfilling for both the management and employees.

Human resources may be defined as the total knowledge, skills, creative abilities, talents and
aptitudes of an organization's workforce, as well as the values, attitudes, approaches and beliefs
of the individuals involved in the affairs of the organization. It is the sum total or aggregate of
inherent abilities, acquired knowledge and skills represented by the talents and aptitudes of the
persons employed in the organization.

The human resources are multidimensional in nature. From the national point of view, human
resources may be defined as the knowledge, skills, creative abilities, talents and aptitudes
obtained in the population; whereas from the viewpoint of the individual enterprise, they
represent the total of the inherent abilities, acquired knowledge and skills as exemplified in the
talents and aptitudes of its employees.

Human Resource Management: Nature

Human Resource Management is a process of bringing people and organizations together so that
the goals of each are met. The various features of HRM include:
• It is pervasive in nature as it is present in all enterprises.
• Its focus is on results rather than on rules.
• It tries to help employees develop their potential fully.
• It encourages employees to give their best to the organization.
• It is all about people at work, both as individuals and groups.
• It tries to put people on assigned jobs in order to produce good results.
• It helps an organization meet its goals in the future by providing for competent and well-
motivated employees.
• It tries to build and maintain cordial relations between people working at various levels in the
organization.
• It is a multidisciplinary activity, utilizing knowledge and inputs drawn from psychology,
economics, etc.

Human Resource Management: Scope

The scope of HRM is very wide:
1. Personnel aspect-This is concerned with manpower planning, recruitment, selection,
placement, transfer, promotion, training and development, layoff and retrenchment,
remuneration, incentives, productivity etc.
2. Welfare aspect-It deals with working conditions and amenities such as canteens, creches, rest
and lunch rooms, housing, transport, medical assistance, education, health and safety,
recreation facilities, etc.
3. Industrial relations aspect-This covers union-management relations, joint consultation,
collective bargaining, grievance and disciplinary procedures, settlement of disputes, etc.

Human Resource Management: Beliefs

The Human Resource Management philosophy is based on the following beliefs:
• Human resource is the most important asset in the organization and can be developed and
increased to an unlimited extent.
• A healthy climate with values of openness, enthusiasm, trust, mutuality and collaboration is
essential for developing human resource.
• HRM can be planned and monitored in ways that are beneficial both to the individuals and the
organization.
• Employees feel committed to their work and the organization, if the organization perpetuates a
feeling of belongingness.
• Employees feel highly motivated if the organization provides for satisfaction of their basic and
higher level needs.
• Employee commitment is increased with the opportunity to dis¬cover and use one's capabilities
and potential in one's work.
• It is every manager's responsibility to ensure the development and utilisation of the capabilities
of subordinates.

Human Resource Management: Objectives

• To help the organization reach its goals.

• To ensure effective utilization and maximum development of human resources.
• To ensure respect for human beings. To identify and satisfy the needs of individuals.
• To ensure reconciliation of individual goals with those of the organization.
• To achieve and maintain high morale among employees.
• To provide the organization with well-trained and well-motivated employees.
• To increase to the fullest the employee's job satisfaction and self-actualization.
• To develop and maintain a quality of work life.
• To be ethically and socially responsive to the needs of society.
• To develop overall personality of each employee in its multidimensional aspect.
• To enhance employee's capabilities to perform the present job.
• To equip the employees with precision and clarity in trans¬action of business.
• To inculcate the sense of team spirit, team work and inter-team collaboration.

Human Resource Management: Functions

In order to achieve the above objectives, Human Resource Management undertakes the
following activities:
1. Human resource or manpower planning.
2. Recruitment, selection and placement of personnel.
3. Training and development of employees.
4. Appraisal of performance of employees.
5. Taking corrective steps such as transfer from one job to another.
6. Remuneration of employees.
7. Social security and welfare of employees.
8. Setting general and specific management policy for organizational relationship.
9. Collective bargaining, contract negotiation and grievance handling.
10. Staffing the organization.
11. Aiding in the self-development of employees at all levels.
12. Developing and maintaining motivation for workers by providing incentives.
13. Reviewing and auditing man¬power management in the organization
14. Potential Appraisal. Feedback Counseling.
15. Role Analysis for job occupants.
16. Job Rotation.
17. Quality Circle, Organization development and Quality of Working Life.