Indian

Economy
Assingnment
Impact Of Economic Reforms

Divya Mangla
Roll No 193460
Course:Bsc.Botany hons
Instructer: Jyoti Mavi
 Discuss The Impact Of Economic Reforms In Terms Of

i) Poverty reduction
ii) Employment generation
iii) Economic growth

Why economic reforms ?

 There were poor performance of public sector.
 The scope for private sector was limited.
 There were sudden fall in Foreign Exchange Reserves(FER).
 There were more expenditure than incoming.
 International investors were not encouraged by government.
 Tax notes were very high so people

INTRODUCTION
The economy of India had undergone significant policy shifts in the beginning of
the 1990s. This new model of economic reforms is commonly known as the LPG or
Liberalisation, Privatisation and Globalisation model. The primary objective of this
model was to make the economy of India the fastest developing economy in the
globe with capabilities that help it match up with the biggest economies of the
world.
The chain of reforms that took place with regards to business, manufacturing, and
financial services industries targeted at lifting the economy of the country to a
more proficient level. These economic reforms had influenced the overall
economic growth of the country in a significant manner.
Through reform, India overcame its worst economic crisis in the remarkably short
period of two years. Thanks to prudent macroeconomic stabilization policies
including devaluation of rupee and other structural reforms, the BoP crisis was
over by the end of March 1994 and foreign exchange reserves rose to USD 15.7
billion. Inows of both FDI and FII into India have increased massively.

Liberalisation
Liberalisation refers to the slackening of government regulations. The economic
liberalisation in India denotes the continuing financial reform which began since
July 24, 1991. Economic reforms underLiberalization:

There were four reforms under liberalization:

Industrial Financial Fiscal External

reforms reforms reforms reforms
Privatisation and Globalisation
Privatisation refers to the participation of private entities in businesses and services and
transfer of ownership from the public sector (or government) to the private sector as well.
Globalisation stands for the consolidation of the various economies of the world.
This was necessary under a recovery pact with the IMF or International Monetary Fund.
Furthermore, the International Monetary Fund necessitated India to assume a sequence of
systematic economic reorganisations. Consequently, the then Prime Minister of the
country, P. V. Narasimha Rao initiated groundbreaking economic reforms. However, the
Committee formed by Narasimha Rao did not put into operation a number of reforms
which the International Monetary Fund looked for.
 Liberalization

Privatization

Globalization

Salient features of LPG Policy

 Abolition of Industrial licensing/ Permit Raj
 Public sector role diluted
 MRTP limit goes
 Beginning of privatisation
 Free entry to foreign investment and technology
 Industrial location policy liberalized
 Abolition of phased manufacturing programmes for new projects
 Removal of mandatory convertibility cause
 Reduction in import tariffs
 Deregulation of markets
 Reduction of taxes
Highlights of the LPG Policy
Foreign Technology Agreements

Foreign Investment

MRTP (Monopolies and

Restrictive Trade Practices) Act,
1969
(Amended)
Industrial Licensing abolished

Deregulation

Beginning of privatisation
 Opportunities for overseas trade

Steps to regulate inflation

Tax reforms

The whole process of

economic reforms in India
could be divided into two
phases.
•India received large amount of SDRs
conditioned on implementing
"adjustment programme"
first phase
•Under the immense pressure from the
(IMF) and the World Bank

•By GOI macroeconomic stabilization

• Structural reforms. based on the
The second phase World Bank's Structural adjustment
Programme (SAP) designed to
restructure the economy.
 Effect on Economic Growth
Initially, growth declined sharply in response to the contractionary fiscal and monetary policies
adopted to address the crisis. The reforms and good monsoons helped growth rebound to 5 % in
1992-94. For three consecutive years, 1994-97, real GDP grew by more than 7 %, placing India
among the world’s best performing countries. Growth fell to 5 % in 1997-98, but it picked up to 6.8
% 1998-99, due to fluctuations in agricultural production. For the current year 1999-2000, the
economy is expected to grow by about 6 %. The industrial sector played an important role, both in
accelerating and decelerating economic growth. The easing of constraints in the early 1990s led to
a steady increase in industrial growth. However, it has sharply decelerated from 12 % in 1995-96
to 6 % or less in the last three years. There are now
encouraging signs that industrial production is picking
up again. Growth of GDP from manufacturing will
almost double to 7 % in 1999-2000 from 3.6 % in 1998-
99. The growth in GDP from the construction sector is
likely to accelerate to 9 % in 1999-2000 from 5.7 % in
1998-99. Despite this encouraging sign, low overall
productivity of investment, excessive fragmentation of
markets, shortage of investible funds, and the poor infrastructure may pose significant problems
to sustained higher industrial growth.
For decades, industrialisation was seen in India as the driving force of modernisation and
prosperity.
The service economy was seen as a mere adjunct to manufacturing, not as a driving force in its
own right. This is partly because the miracle economies of East Asia had a very high share of
industry in GDP in their peak growth periods, higher in some cases than the share of services.
Impact on growth The immediate impact on growth was
clearly positive, with the rate of growth of GDP averaging
6.5% in the 8 years 1992–1993 to 1999–2000.
Effect on Employment Generation
Economic reforms have accelerated growth but failed to generate adequate employment. For
example, the rural Unemployment rate, after declining to 5.61 percent in 1993-94, rose to 7.21
percent in 1999-2000 as did the All-India (urban plus rural) rate of unemployment.

EMPLOYMENT SITUATION

The employment situation in India has worsened in the era of globalization. The rate ofgrowth
of employment which was of the order of 2.04 percent per year in 1983-84 declined to a low
level of 0.98 percent during the period 1994-2000. This was largely a consequence of a
negativegrowth rate of employment in agriculture which absorbed about 65 percent of total
employed workersas also a sharp decline in community, social and personal services to 0.55
percent during 1994-2000as against 2.90 percent during 1983-84.

The reforms probably generated increased uncertainty and competition amongst firms while at
the same time reducing the bargaining power of workers, and these changes can be argued to
have induced pressure to de-hoard surplus labour amongst firms, and discipline amongst workers
(e.g. less time lost in strikes). Infrastructural investnent also increased in this period (Ahluwalia
1991, Nagaraj 1990). This can explain recuperation of time losses on account of power shortages
and materials shortfalls.

Estimates of the production technology in Indian manufachring suggest that the output
elasticity of time worked per worker is unity (see Bhalotra 1998b). This means that increases in
labour utilization imply increases in capital utilization and vice versa. Discussions of increases in
labour utilization often neglect to recognize this. It arises because labour and capital are
complementary in production. If, for example, there are fewer strikes or there is more
overtime worlg then the machines in a factory will run more often.

Both growth and productivity have accelerated

in the economy as a whole and also in organized
manufacturing. Capital stocks have been
upgraded and investment in manufacturing has
increased. Real earnings in this sector have bean
rising at a fairly rapid pace. Organized sector
employment suffered a severe collapse in the
early years of the adjustment process but has
since recovered to a pace similar to that in the
pre-reform era. The share of the public sector
in organized manufacturing employment has been
shrinking at a fairly remarkable rate. In the economy as a whole, the worker-population ratio
fell in the mid-90s after having increased for the previous two decades. The shift in workforce
composition from self-employment to casual wage employment that has been in progress since
the 1970s continued through the 1990s

The unemployment rate increased at this time but it is unclear whether this signifies a
lengthening of unemployment spells and a worsening of job opportunities or whether it simply
denotes a greater degree of transitional or frictional unemployment as labour is reallocated

towards the more productive sectors. Average daily earnings per person per amum in the
economy increased at a significant pace in rural and urban areas and for men and women.
Poverty incidence declined.

 In 1991, agriculture provided employment to 72 percent of the population and contributed

29.02 percent of the GDP. Now the share of agriculture in the GDP has gone down
drastically to 18 percent. This has resulted in a lowering the per capita income of the
farmers and increasing the rural indebtedness.
 Due to opening up of the Indian economy to foreign competition, more MNCs are competing
local businesses and companies which are facing problems due to financial constraints, lack
of advanced technology and production inefficiencies.
 Effect On Poverty Reduction
Poverty reduced from 36 percent in 1993-94 to 26.1 percent in 1999-00. The poverty ratio in rural areas and in
urban areas declined.

Intially Rapid Poverty Reduction

The evidence shows that inequality increased in this period. The Gini coefficient measured in terms of
consumption for rural India increased marginally from 0.29 in 1993-94 to 0.31 in 2011-12. There was a significant
rise in the Gini coefficient for urban areas from 0.34 to 0.39 during the same period. However, consumption-
based Gini underestimates inequality.

Inequality
If we use income data from the National Council of Applied Economic Research’s India Human Development Survey,
the Gini coefficient in income (rural+urban) was 0.52 in 2004-05 and increased to 0.55 in 2011-12. In other words,
inequality is much higher in India if we use income rather than consumption. If we consider non-income indicators
like health and education, inequalities between the poor and rich are much higher.

Reforms effects
There has been much hope that India’s economic reforms starting in the early 1990s would bring more rapid
poverty reduction. There has certainly been an acceleration of growth, with GDP per capita growing at 4-5% since
1991. However, we also know from past research that the sectoral pattern of India’s growth matters to its impact
on poverty. The green revolution appears to have stimulated pro-poor rural growth. In past work, we found that
both the urban
and rural poor gained from growth within the rural sector, but that urban growth had adverse distributional effects
within urban areas and no discernable impact on rural poverty
Rural Poverty
The disappointing outcomes for the poor from non-farm growth have also been
traced back to India’s antecedent socio-economic inequalities in access schooling. However, while past research
pointed to the importance of rural economic growth to poverty reduction in India, the post-reform process of
economic growth has not favored the rural sector.
A number of observers have pointed to both geographic and sectoral divergence in India’s post-reform growth
process.We have argued elsewhere that this has meant that much of the non-farm economic growth bypassed the
sectors and states where it would have had the most impact on poverty
 Examining success on reforms
However, there are also reasons to question whether the new policy environment would succeed in putting India on
a new path of rapid poverty reduction. The greater openness to external trade came with sufficient productivity
growth to assure a higher growth rate of national output. But it appears that new inequality-increasing forces also
emerged, and a number of observers have reported evidence of rising consumption inequality since the early 1990s.
This may well reflect the antecedent inequalities in other “non-income” dimensions, particularly in human capital,
which can mean that the poorest are largely left behind; these inequalities were far greater in India around 1990
than China around 1980.

Effect of Post reform growth

Some observers have also questioned whether the post-reform growth process has fulfilled the expectations of reform
advocates that it would increase aggregate demand for unskilled labor and (hence) help reduce poverty. The fastest
growing sectors of India’s economy have tended to be more intensive in capital and skilled labor, notably the
booming business-services sector. And the share of employment in agriculture has fallen much less than (say)
China.This pattern of growth is hardly what the “comparative-advantage” arguments of reform advocates in the
1980s predicted as the outcome of India becoming a far more open economy
However, it is also important to note that the non-farm sectors that are relatively intensive in unskilled labor—
trade, construction and the informal manufacturing sector—fared better in the post-1991 period
 BIBLIOGRAPHY

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http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.599.4357&rep=rep1&type=pdf

https://www.researchgate.net/publication/262120383_Social_Impact_of_Economic_Reforms_in_India_A_Critical_Appraisal

Articles And Journal

Datt, G and M Ravallion (2002), “Has India’s Post-Reform Economic Growth Left the Poor Behind,” Journal of
Economic Perspectives 16(3): 89-108.

www.yourarticlelibrary.com/speech/liberalization-privatisation...globalisation/40740.