TNPSC

11 Economy Learn from the Experienced

Chapter-9

Development experiences in India

Introduction

1. At the time of independence India was typically a backward economy

2. Poor technological and scientific capabilities
3. Industrialisation was a limited and lopsided
4. Agriculture sector exhibited feudal and semi feudal institutions leads to low
productivity
5. Means of transport and communications were underdeveloped
6. Educational and health facilities were inadequate
7. Social security measures were virtually non-existent
8. Country suffered from poverty and unemployment which leads low standard of living
9. The year 1991 is a landmark economic history of post independent India
10. During that time our Country suffered from serious balance of payment problem
11. Indian economy responded to the crisis by introducing structural reforms
12. These policies were aimed at correcting the weakness and rigidities in various
sectors of economy such as industry, trade, fiscal and Agriculture

Meaning of liberalisation, privatisation and globalisation (LPG)

The triple pillars of new economic policy are Liberalisation, Privatisation and
Globalisation

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Liberalisation;
1. It refers to removal of relaxation of government restriction in all stages in industry
2. Delicensing, decontrol, deregulation, subsidies.
3. Greater role for financial institution is the various facets of liberalization

Privatisation;
1. It means transfer of ownership and management of enterprises from public sector to
private sector
2. Denationalisation, disinvestment and opening exclusive public sector enterprises to
private sector are the Gateway to privatization

Globalisation;
1. It refers to the integration of the domestic economy with the rest of the world
2. Import liberalisation through reduction of tariff and non-tariff barriers
3. Opening the doors to foreign direct investment and the foreign portfolio investment
are some of the measures towards globalisation

Arguments in favour of LPG

Liberalization was necessitated because various licensing policies were hindering the
growth of the economy
Privatization was necessitated because of the belief that the private sector was not
given enough opportunities to earn more money
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1. Globalisation was necessitated because today a developed country can grow without
the help of the underdeveloped countries
2. Human resources and natural resources of the developing countries are exploited by
the developed countries
3. The developing countries are used as a market for the finished goods of the
developed countries
4. Surplus capital of the developed countries are invested in backward economies
5. Absolute and outdated Technologies of the developed countries can easily sold to
poor underdeveloped countries
6. Ultimately the rich countries can grow further at the cost of developing economies

Arguments against LPG

1. Liberalisation, favour an unrestricted entry of foreign companies in the domestic

economy
2. Such an entry prevents the growth of the local manufacturers
3. Privatization favours the continuance of the Monopoly power
4. Only the powerful people can sustain in business markets
5. Social Justice cannot be easily established and maintained
6. Hence the disparity tends to wide among people and among regions
7. Globalisation tend to integrate all economics of the world and bring them under
one umbrella
8. They pave the way for redistribution of economic power at the world level
9. The well-developed countries are favoured in this process and the welfare of the
less developed countries will be neglected

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10. The economic crisis of the developed countries are easily spread to the developing
economies through trade

The major changes after 1991 are as follows

1. Foreign Exchange Reserves started rising
2. There was a rapid industrialisation
3. The pattern of consumption started improving (deteriorating)
4. Infrastructure facilities such as Express Highway, a metro rail, flyovers and airports
started expanding (local people were thrown away)
5. Despite all these initiatives still a large section of the people of India continue to
face basic economic problems
6. Such as poverty, unemployment, discrimination, social exclusion, deprivation, poor
healthcare, rising inflation, agricultural stagnation, food insecurity and labour
migration
7. for these problems, government policies alone cannot be blamed
8. As new institutional economist suggests the values, believes, norms etc of the
individuals also matter

Disinvestment
It means selling of government securities of public sector undertakings to other
PSU's or private sector or banks, this process has not been fully implemented

Relative position of on Indian economy

According to International Monetary Fund, world economic Outlook in 2016 at
current prices was 2.251 billion US dollars
India contributed 2.99% total world's GDP in exchange rate basis

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India shared 17.5% of the total world population and 2.4% of the world surface
area
India was now seventh largest economy of the world in 2016
India was at third position after China and Japan among Asian countries
India shared 8.50% total Asia's GDP in 2016

Industrial sector reforms

The new industrial policy was announced on July 24 1991
Then you policy radically liberalized the industrial policy itself and regulated the
industrial sector substantially
Primary objectives of the industrial policy were
To promote major Industries from the clutches of bureaucrats
To abolish restrictions on foreign direct investment
To liberate the indigenous enterprises from the restrictions of MRTP act
To maintain sustainable growth in productivity and employment
To achieve International competitiveness

Important initiatives by the government towards industrial policy

Industrial Delicensing
Dereservation of the industrial sector
Public sector policy (dereservation and Reform of PSE)
Abolition of MRTP act
Foreign investment policy and foreign Technology policy

Industrial delicensing policy

The most important objectives of the new industrial policy of 1991
To end the industrial licensing or R ed Tapism

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Dereservation of the industrial sector

Previously the public sector was given reservation especially in the capital goods
and key industries
Under industrial deregulation most of the industrial sectors were opened to the
private sector as well
Only three sectors- atomic energy, mining and Railways will continue as reserved
for public sector
All other sectors opened for private sector participation

Reforms related to the public sector enterprises

Reforms were aimed at enhancing efficiency and competitiveness of the sector
The government identify the strategic and priority areas for the public sector to
concentrate
Loss making public sector units were sold to the private sector

Abolition of MRTP act

The new industrial policy of 1991 abolished the Monopoly and Restrictive Trade
Practices Act(MRTP) 1969
In 2010 the competition Commission has emerged as a Watchdog in monitoring
competitive practices in the economy
This policy made big changes including emergence of a strong and competitive
private sector and a sizable number of foreign companies in India

Foreign investment policy

Another major feature of the economic reform was foreign investment and foreign
Technology
Foreign investment including foreign direct investment and foreign portfolio
investment were allowed
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Initially the FDI up to 51% was allowed, this limit was raised to 74 percentage and
subsequently to 100 percentage for many of these industries
Foreign investment promotion board has been set up to negotiate with international
firms and approve foreign direct investment in selected areas

Impact on LPG on agricultural sector reforms

The remarkable growth rate was seen in industry and service sector but the growth
of service sector bypassed the agriculture sector
The agricultural sector showed Sharp decline in growth rate from 3.6% in 1985-96
to 1.97% in 1996-05
The sector has recorded wide variations in yield and productivity and there was a
shift towards cash crop cultivation
Agricultural indebtedness pushed farmers households into power and some resorted
to extreme measures like suicide

Crop Insurance
Agriculture in India highly prone to droughts and floods
It is necessary to protect the farmer from natural calamities and ensure credit
eligibility for the next season
Government of India introduce remaining agricultural schemes throughout the country
Pradhanmantri fasal Bima Yojana (prime Minister's crop Insurance Scheme launched
on 18th February 2016)

Cold storage
India is the largest producer of fruits and second largest producer of vegetables in
the world
The per capita availability of fruits and vegetables is quite low because of post
harvest losses which account for about 25% to 30% of production
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Perishability is responsible for high marketing costs, market gluts, price fluctuations
and other similar problems
To overcome this problem the Government of India and the Ministry of Agriculture
promulgated an order known as cold storage order 1964 under section 3 of the
essential commodities act 1955
The cold storage facility is still very poor and highly inadequate

Post harvest measures

Annual value of harvest and post harvest losses of major agricultural produce at
National level was rupees 92,651 crores
To reduce wastage of agriculture produce and minimise post harvest losses, history
of food processing industries has implemented various schemes namely
Mega Food Park, integrated cold chain, value addition and preservation infrastructure,
modernization of Slaughterhouse
Themes for Quality Assurance; Codex standards, Research and development and
other promotional activities

Kisan credit card scheme

It is a credit delivery mechanism that aims at enabling farmers you have quick and
timely access to affordable credit
It was launched in 1998 by the Reserve Bank of India and NABARD
The scheme aims to reduce farmer dependence on the informal banking sector for
credit
The card is offered by cooperative banks, regional rural banks and public sector
banks

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Agricultural produce Market Committee

1. Agriculture produce Market Committee is a statutory body constituted by State
Government in order to trade in agricultural or horticultural or livestock products

Functions of Agricultural produce Market Committee

1. To promote public private partnership in the ambit of Agricultural markets
2. To provide market led extension services to farmers
3. To bring transparency in pricing system and transactions taking place in market in a
transparent manner
4. To ensure payment to the farmers for the sale of Agricultural produce on the same
day
5. To promote agricultural activities
6. To display data on arrivals and rates of Agricultural produce from time to time into
the market

Agrarian crisis after reforms

1. High input costs

2. The biggest input for farmers is seed
3. Before liberalization, farmers across the country had access to seeds from the state
government institution
4. Institutions were responsible for their quality and price of the seed
5. With liberalisation India’s seed market was opened up to global agribusiness
6. Due to deregulation, many state government institutions close down in 2003
7. The farmers were hit hardly, seed prices shot up, fake seeds made an appearance
in a big way

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8. Cutback in agricultural subsidies

9. Farmers were encouraged to shift from growing traditional crops to export oriented
cash crops like chilli, cotton and tobacco
10. Liberalisation policies reduce the subsidies on pesticides, fertilizers and electricity
11. As a result, prices have been increased 300%
12. The prices of Agricultural goods have not increased to that extent

Reduction of import duties

1. With a view to open India's market, liberalisation reforms withdrew tariffs and
duties on imports
2. By 2001 India completely removed restriction on imports for almost 1500 items
including food
3. As a result, cheap imports flooded the market, pushing prices of crops like cotton
and pepper down

Paucity of credit facilities

1. After 1991 the lending pattern of commercial banks including Nationalised banks
change drastically
2. Loan was not easily adequate
3. This forced the farmers to rely on money lenders who charge exorbitant rate of
interest

Trade reforms
1. Trade policy reforms has evolved over the years since 1991

Free imports and Exports

1. Before 1991 Indian imports were regulated
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2. From 1992 imports were regulated by limited negative list

3. The trade policy of 1st April 1992 freed imports of almost all intermediate and
capital goods
4. 71 items remind restricted
5. This would affect the domestic industries

Rationalisation of tariff structure and removal of quantitative restrictions

1. The Chelliah Committee's report had suggested drastic reduction in import duties
2. It has suggested a peak rate of 50%
3. The 1991-92 budget add reduce the import duty from more than 300 % to 150%
4. The process of lowering the custom tariffs was carried further in successive budgets
5. This also affected the domestic industry

Export and import policy

1. The Government of India, ministry of Commerce and industry announced a new
foreign trade policy on 1st April 2015 for the period of 2015-20

Salient features of EXIM policy (2015-20)

1. The new policy focused on increasing in exports scenario, boosting production and
supporting the concepts like make in India and digital India

2. Reduced export obligation by 25% and give boost to domestic manufacturing

supporting the make in India concept
3. The digital India concept, online procedure to upload digitally signed document by
CA/CS/ cost accountant are developed and further mobile app for filing tax, stamp
duty has been developed
4. Repeated submission of physical copies of documents is not required
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5. Export obligation period export items related to Defence, military store, aerospace
and nuclear energy to be 24 months
6. Export Import policy is expected to double the share of India in World Trade from
present level of 3% but this was too ambitious

Special economic zones

1. With a view to overcome the shortcomings experienced on account of the
multiplicity of controls and clearances, absence of world-class infrastructure and an
unstable fiscal regime
2. In view to attract larger foreign investment in India
3. The special economic zone Policy was announced in April 2000
4. The system of taking over land by the government for commercial and industrial
purposes was introduced in the country
5. As per the special economic zone act of 2005 the government has so for notified
400 such zones in the country
6. Special Economic Zone deprives the farmers of their land and livelihood, it is
harmful agriculture

1. India was one of the first in Asia to recognise the effectiveness of the Export
processing zone (EPZ) to promote Exports
2. Asia's first EPZ was set up in Kandla in 1965
3. The special economic zone covers free trade zone, export processing zone, industrial
Parks, economic and technology development zone, hi tech zone, science and
innovation Park, free ports, enterprise zone and others

Major objectives of special economic zone

1. To attract foreign direct investment and thereby increasing GDP
2. To increase the share in global export
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3. To generate additional economic activity

4. To create employment opportunities
5. To develop infrastructure facilities
6. To exchange technology in the Global market

Main characteristics of special economic zone

1. Geographically demarked area with physical security

2. Administered by single body/ authority
3. Streamlined procedures
4. Having separate custom area
5. Governed by more liberal economic laws
6. Greater freedom to the firms located in special economic zones

7. They need not respect the government's rules and regulations

8. The social and environmental impacts were disastrous

Fiscal reforms
1. The important element in stabilization effort was to restore fiscal discipline
2. The budget aimed at containing government expenditure and augmenting revenues
3. Reduction in fertilizer subsidy, abolition of subsidy on Sugar and disinvestment of a
part of the governments equity holding in select public sector undertakings
4. Expenditures on welfare measures were reduced
5. Takes on poor people were increased
6. Takes on corporate sectors were reduced

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Goods and service tax

1. It is a comprehensive indirect tax levied on manufacture, sale and consumption of
goods and services
2. It replaces all indirect taxes levied on goods and services
3. GST would eliminate the cascading effect of taxes on the production and
distribution of goods and services
4. It is also called as one-point tax
5. The goods and Service Tax Act was passed in the Parliament on 29th March 2017
6. The act came into effect on 1st July 2017
7. The motto is one Nation, one market and one tax

Advantages of GST
1. Removing cascading tax effect
2. Single point tax
3. Higher threshold for registration
4. Composition scheme for all small business
5. Online simple procedure under GST
6. Defined treatment for E-commerce
7. Increased efficiency in Logistics
8. Regulating the unorganised sector

Monetary and financial sector reforms

1. Monetary reforms aimed at doing away with interest rate distortions and
rationalizing the structure of lending rate

Reserve requirements
1. Reduction in Statutory liquidity ratio and cash reserve ratio recommended by the
Narasimham Committee report 1991
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2. It proposed to cut down statutory liquid ratio from 38.5 percentage to 25% within
a span of three years
3. It proposed that the cash reserve ratio to be brought down to 3 from 5 % over
period of 4 years

Interest rate liberalisation

RBI controlled
1. Interest rate payable on deposits
2. Interest rates which could be changed for bank loan

1. Greater competition among public sector, private sector and foreign banks and
administrative constraints
2. Liberalisation bank branch licensing policy in order to rationalize the existing branch
network
3. Banks were given freedom to relocate branches and open specialised branches
4. Guidelines for opening new private sector banks
5. New accounting norms regarding classification of assets and provisions of bad debt
where introduced in tune with the Narasimham Committee report

GOOD LUCK

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