Indian Economic Reforms

Economic reforms in India should be viewed in terms of a number of distinct eras. Under normal conditions, economic reform in India describes the post-1991 consequences of various economic practices.

The Pre-British Era
The most significant event of this era is the fact that an appreciable amount of land areas were brought under the control of a single entity, such as the Suris, the Lodhis or the Mughals. The G.T. Road (Grand Trunk Road) and structures like the Taj Mahal and Fatehpur Sikri were built during this era. Urbanization started growing from this era.

The British Period
The British government in India formulated some economic policies to enhance the trading activities with foreign countries. This led to large scale trading with other countries and subsequently developed industries like steel and textiles. An oil refinery in Assam was also set up in this period. The development of industry started on an extensive scale in notable places, including Calcutta (presently Kolkata), Bombay (presently Mumbai) and Madras (presently Chennai).

Indian Economic Reforms in 2010
The reforms announced by the UPA government in 2009 have set the agenda to grow India beyond the anticipated levels after a brief hiccup caused by the global slowdown triggered by the financial meltdown in mid-2008. Pushed to a low of 6.7 % in 2008-09 by the aftershocks of the worldwide slowdown, after averaging over 9 % in the preceding three years, the Indian economy is projected to clock 8% in the current fiscal as

WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty (WPPT).38 billion from $19.79 billion in the corresponding period in the last fiscal year.74 billion in November 2009.indicated by the 7.National Thermal Power Corporation (NTPC). which have set the international standards in these spheres. Amendments to the Copyright Act would bring it in conformity with the World Intellectual Property Organization (WIPO) Internet Treaties . achieving 9%-10% growth is very much within reach in the medium term. According to the Finance Minister. despite a poor showing by the agriculture sector due to drought in some areas and floods in others. .9 % growth recorded in Q3 2009. However. The government has already identified 61 state-owned companies for disinvestment and the process is likely to be completed by the end of FY 2009-2010 for four PSUs . up 60% from November 2008 when FDI inflows stood at $1.08 billion. Rural Electrification Corporation (REC). Sutlej Jal Vidyut Nigam and National Mineral Development Corporation (NMDC). the cumulative FDI during April-November 2009 declined to $19. FDI inflows topped $1.

These changes were pertinent to the following: y y y y y Dominance of the public sector in the industrial activity Discretionary controls on industrial investment and capacity expansion Trade and exchange controls Limited access to foreign investment Public ownership and regulation of the financial sector The reforms have unlocked India's enormous growth potential and unleashed powerful entrepreneurial forces. and that in part because of a ruling by a World Trade Organization dispute panel on a complaint brought by the United States. It was only in 1991 that the Government signaled a systemic shift to a more open economy with greater reliance upon market forces. The list of industries reserved solely for the public sector -which used to cover 18 industries. mining. Industrial licensing by the central government was almost abolished except for a few hazardous and environmentally sensitive industries. including iron and steel. delays were endemic and corruption unavoidable. For capital goods. minerals. Import licensing was abolished relatively early for capital goods and intermediates which became freely importable in 1993. Further. atomic energy generation. The reforms of the last decade and a half have gone a long way in freeing the domestic economy from the control regime. This approach was adopted since the reforms were introduced in June 1991 in the wake a balance of payments crisis that was certainly severe. However. across political parties. The economic reforms initiated in 1991 introduced far-reaching measures. However. which changed the working and machinery of the economy. Reforms in Industrial Policy Industrial policy was restructured to a great extent and most of the central government industrial controls were dismantled. simultaneously with the switch to a flexible exchange rate regime. almost exactly ten years after the reforms began. heavy plant and machinery. imports were only possible with import licenses. Reforms in Trade Policy It was realized that the import substituting inward looking development policy was no longer suitable in the modern globalising world. 2001. it was not a prolonged crisis with a long period of non-performance. The process of economic liberalization in India can be traced back to the late 1970s. telecommunications and telecom equipment. raw materials and intermediates. Before the reforms. restrictions that existed on the import of foreign technology were withdrawn. Imports of manufactured consumer goods were completely banned. a larger role for the private sector including foreign investment. successive governments. Since 1991. air transport services and electricity generation and distribution was drastically reduced to three: defense aircrafts and warships. and railway transport. oil. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were finally removed on April 1.INDIA'S ECONOMIC REFORMS The reform process in India was initiated with the aim of accelerating the pace of economic growth and eradication of poverty. and a restructuring of the role of Government. have successfully carried forward the country's economic reform agenda. Financial sector reforms . Massive deregulation of the industrial sector was done in order to bring in the element of competition and increase efficiency. The criteria for issue of licenses were non-transparent. trade policy was characterized by high tariffs and pervasive import restrictions. certain lists of goods were freely importable. The economic reforms sought to phase out import licensing and also to reduce import duties. An important feature of India's reform programme is that it has emphasized gradualism and evolutionary transition rather than rapid restructuring or "shock therapy". the reform process began in earnest only in July 1991. but for most items where domestic substitutes were being produced.

transparency and supervision to mitigate the prospects of systemic risks. Today India is one of the most exciting emerging markets in the world. 15. the Indian financial system has been incrementally deregulated and exposed to international financial markets along with the introduction of new instruments and products. 12. India¶s time tested institutions offer foreign investors a transparent environment that guarantees the security of their long term investments. 16. functionally diverse. provide India with a distinct cutting edge in global competition. 9. A series of ambitious economic reforms aimed at deregulating the economy and stimulating foreign investment has moved India firmly into the front runners of the rapidly growing Asia Pacific Region and unleashed the latent strength of a complex and rapidly changing nation. 13. At the same time. 17. These include a free and vibrant press. the government has emphasized on stronger regulation aimed at strengthening prudential norms. 2. About India Reforms in Industrial Sectors in India Industrial Policy Foreign Direct Investment Policy Foreign Investment Promotion Board (FIPB) Entry Strategies and setting up a company Approvals/Clearances required for new projects Foreign Exchange Management Act (FEMA) Taxation in India Repatriation of Earnings Ready Reckoner for NRI Investment Labour Rules/Regulations Intellectual Property Incentives Offered by States to Foreign Investors Foreign Investment Implementation Authority (FIIA) Related Websites Frequently Asked Questions (FAQ) 1. a sophisticated legal and accounting system and a user friendly intellectual infrastructure. 8. 6. The reforms have been driven by a thrust towards liberalization and several initiatives such as liberalization in the interest rate and reserve requirements have been taken on this front. a well established judiciary. Skilled managerial and technical manpower that matches the best available in the world and a middle class whose size exceeds the population of the USA or the European Union. 3. During the last fifteen years. 14. India has recognized that these reforms are imperative for increasing the efficiency of resource mobilization and allocation in the real economy and for the overall macroeconomic stability. 5. 4. . 10. 7. India¶s dynamic and highly competitive private sector has long been the backbone of its economic activity and offers considerable scope for foreign direct investment. It is also the 4th largest economy in the world in terms of PPP. About India India is the 7th largest and 2nd most populous country in the world. efficient and globally competitive. Investing in India 1.Financial sector reforms have long been regarded as an integral part of the overall policy reforms in India. Today the Indian financial structure is inherently strong. 11. joint ventures and collaborations.

of India and other top officials of financial institutions. under the new Industrial Policy Resolution. banks and professional experts of industry and commerce. Department of Industrial Policy & Promotion Secretary. removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment. as and when necessary . Reforms in Industrial Sectors in India Industrial Sector was among the first sectors to be liberalized in India in a series of measures. 4. With the shifting of the FIPB to the Department of Economic Affairs. Industrial licensing has been abolished except in a small number of sectors where it has been retained on strategic considerations. and yProposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the Foreign Investment Promotion Board and not to avail of the automatic route. the FIPB has been reconstituted as under: Secretary. 5. Foreign Direct Investment Policy: Foreign Direct Investment in India is allowed on automatic route in almost all sectors except yProposals that require an industrial licence and cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries. Ministry of Finance. which do not come under the automatic route. yProposals in which the foreign collaborator has a previous venture/tie-up in India. Foreign Investment Promotion Board (FIPB) is a competent body to consider and recommend foreign direct investment (FDI). yProposals relating to acquisition of shares in an existing Indian company in favour of a Foreign/Non-Resident Indian (NRI)/Overseas Corporate Body (OCB) investor. Industrial Policy: The Government¶s liberalization and economic reforms programme was initiated in July 1991.2. Department of Commerce Secretary. The industrial policy reforms have substantially reduced the industrial licensing requirements. Department of Economic Affairs Secretary. 3. Ministry of External Affairs Chairman Member Member Member The Board would be able to co-opt Secretaries to the Govt. (Economic Relation).

draws heavily from the United Kingdom¶s Companies Acts and although similar. both working under the Department of Company Affairs. The Act. Business visas may be issued for upto 5 years. Foreign nationals who wish to work in India must obtain a Residential Permit from the Foreigners Regional Registration Office (FRRO) that are located in all major cities. visa other than employment. or. holding a visa (other than a tourist visa) valid for a period exceeding 180 days. entry. ensure compliance with the Act. with multiple entry provision. A bank guarantee has to be provided for this purpose.6. To avail of this scheme. it can be renewed/extended within India if the applicant so desires. is more comprehensive. The goods brought into India under the transfer of residence scheme have to be owned by the importer or his family for at least one year. business and employment in India re issued to foreign nationals by Indian Embassies and Consulates abroad. (ii). which is returnable after the individual has stayed in India for a year. The transfer of residence scheme applies to foreign nationals visiting India for long durations. Change of purpose or type of visa is a not permitted. Setting up of a company The principal forms of business organisation in India are:    Companies ± both public and private Partnerships Sole proprietorships Companies incorporated in India and branches of foreign corporations are regulated by the Companies Act. The Registrar of Companies (ROC) and the Company Law Board (CLB). foreign nationals can import certain personal effects without paying customs duty. Under this scheme. While a business visa is issued by an Indian Embassy abroad. (a) Types of Companies . which has been enacted to oversee the functioning of companies in India. transit. Further. from the principal police station. the goods have to be shipped within two months before the entry into India or one month after entry into India. 1956 (the Act). student and entry are normally not considered for extension. in the case of smaller cities. is required to be registered with the FRRO within 15 days of arrival in India. Visas for the purpose of tourism. Entry Strategies and setting up a Company (i) Entry Into India Foreign nationals (except citizens of Nepal and Bhutan) entering into India are required to carry a valid passport/travel documents and a valid visa. conferences. A foreign national.

A company can be limited by shares or by guarantee. Companies limited by guarantee and unlimited companies are relatively uncommon. No offer can be made to the public to subscribe to its shares and debentures. (iii) Foreign Companies Foreign investors can enter into the business in India either as a foreign company in the form of a liaison office/representative office. the personal liability is limited by a pre-decided nominated amount. a flow chart presents the summary of the steps involved in formation of a company with Registrar of Companies. The maximum number of its shareholders is limited to 50 (excluding employees). Apart from statutory government owned concerns. the liability of its members is unlimited. New Delhi within 30 days of setting up a place of business in India or as an Indian company in the form of a Joint Venture and wholly owned subsidiary. For a company with unlimited liability. The private company accepts or renews deposits from the public. For opening of the foreign company specific approval of Reserve Bank of India is also required. Private companies are relatively less regulated than public companies as they deal with the relatively smaller amounts of public money. A private company is deemed to be a public company in the following situations: When 25 percent or more of the private company¶s paid-up capital is held by one or more public company. the most prevalent form of large business enterprises is a company incorporated with limited liability. In the former.A company can be a public or a private company and could have limited or unlimited liability. 250 million during a period of 3 consecutive financial years. . The private company¶s average annual turnover exceeds Rs. (i) Private Companies A private company incorporated under the Act has the following characteristics: y y y y y y y y The right to transfer shares is restricted. In other words. (ii) Public Companies A public company is defined as one which is not a private company. a public company is one on which the above restrictions do not apply. a project office and a branch office by registering themselves with Registrar of Companies (ROC). the personal liability of members is limited to the amount unpaid on their shares while in the latter. Regarding the necessary procedures to be followed for registering the company. The private company holds 25 percent or more of the paid-up share capital of a public company.

7. 8. offices and agencies outside India owned or controlled by a person resident in India. Approvals/clearances required for new projects For starting a new project. Remuneration includes salaries and wages. If employment is for a short duration. Chief Inspector of Factories. profits in lieu of or in addition to salary. such approvals are not necessary. This Act extends to the whole of India and will also apply to all branches. 1999 to replace the Foreign Exchange Regulation Act. The object of the Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. Income received from sources outside India is not taxable unless it is received in India. 10. a number of approvals/clearances are required from different authorities such as Pollution Control Board. Taxation in India Since the onset of liberalization in the country. This Act came into force on the 1st day of June 2000. A foreign national is allowed to repatriate 75 percent of his net after-tax earnings after his employment is approved by the government and the exchange control authorities. The Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Repatriation of Earnings A foreign national may open bank accounts in India and receive funds from abroad. It will also be applicable to any contravention committed outside India by any person to whom this Act is applicable. Municipal Corporations. 1973. provided the amount of remittance is within approved limits. Remuneration for work done in India is taxable irrespective of the place of receipt. pensions. Foreign Exchange Management Act (FEMA) The Parliament has enacted the Foreign Exchange Management Act. . Electricity Board. Further. foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence. commissions. Taxable payments include all allowances and tax equalisation payments unless specifically excluded. 9. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options. advance salary and perquisites. tax structure of the country is also being rationalized keeping in view the national priorities and practices followed in other countries. etc. fees. Foreign nationals working in India are generally taxed only on their Indian income.

12. This Agreement. Labour Rules/Regulations Under the Constitution of India. Intellectual Property India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and establishing the World Trade Organisation (WTO). 1972 | Minimum Wages Act | Payment of Bonus Act 1965 Contract Labour [Ragulation & Abolition] Act 1970 | Payment of Wages Act.1999. As regards the status of various Intellectual Property laws in India and standards in respect of various areas of intellectual property. a law on Trade Marks has been passed by Parliament and notified in the gazette on 30. the Geographical Indications of Goods (Registration and the Protection) Act.1999. at a glance. Health & Welfare) Act. 1948 Dock Workers (Safety. 12. Labour is a subject in the Concurrent List where both the Central & State Governments are competent to enact legislation subject to certain matters being reserved for the Centre.12. 1936 | 13. 1948 Workmen¶s Compensation Act. 1999 has also been passed by the Parliament and notified on 30. 2000. about investment opportunities available to Non Resident Indians (NRIs)/Persons of Indian Origin (PIO)/Overseas Corporate Bodies (OCBs). 1961 | Payment of Gratuity Act. which are required to promote effective and adequate protection of Intellectual Property Rights with a view to reducing distortions and impediments to international trade. which came into force from 1st January 1995. A new law for the protection of Geographical Indications. This law repeals and replaces the earlier Trade & Merchandise Act. A Bill on Patents to amend the Patents Act. 1911 has also been passed by Parliament in its Budget Session.05.05. 1970 was introduced in Rajya Sabha on 20. 1923 | Maternity Benefit Act. A law called the Designs Act. .11. The obligations under the TRIPS Agreement relate to provision of minimum standards of protection within the member country's legal systems and practices. It lays down minimum standards for protection and enforcement of Intellectual Property Rights in member countries. Some of the important Labour Acts. 1952 | Employees¶ State Insurance Act. which are applicable for carrying out business in India are: Employees¶ Provident Fund and Miscellaneous Provisions Act. inter-alia. 1958.2002..2001. The Act has been brought into force from 11.12.2000 relating to Industrial Designs which repeals and replaces the earliar Designs Act.1999 and the Bill was passed by Parliament on 14. contains an Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Ready Reckoner for NRI Investment The Ready Reckoner for Non-Resident Indians (NRIs) Investment provides information. viz. 1972 | Factories Act. 1986 | Mines Act.

14. The specific website addresses containing the incentive packages offered by various states/UTs are given in the List. 15. Senior officers of the Department have been designated Nodal Officers for specific states for follow up of FDI cases and to bring to notice of FIIA any difficulties in implementation. many of them are offering incentive packages in the form of various tax concessions. capital and interest subsidies. . Moreover. States are also partners in the economic reforms being undertaken in the country. Single Window System is now in existence in most of the States for granting approval for setting up industrial units. with a view to attract foreign investors in their states. reduced power tariff. Incentives offered by States India is a federal country consisting of States and Union Territories. nodal officers can be contacted. Foreign Investment Implementation Authority (FIIA) Government of India has set up Foreign Investment Implementation Authority (FIIA) to facilitate quick translation of Foreign Direct Investment (FDI) approvals into implementation by providing a pro-active one stop after care service to foreign investors. In case of any difficulties. FIIA is assisted by Fast Track Committee (FTC). Most of the States are making serious efforts for simplifying the rules and procedures for setting up and operating the industrial units. etc. which have been established in 30 Ministries/Departments of Government of India for monitoring and resolution of difficulties for sector specific projects. help them obtain necessary approvals and by sorting their operational problems.

Sign up to vote on this title
UsefulNot useful