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The term economic reform broadly indicates necessary structural adjustments to external events. It include the function of country’s spending to the level parallel to its income and thereby reducing fiscal deficits. This requires gradual reduction in import and increase in export. These adjustments also requires market change in order to make economy flexible.

. The crisis compelled the government to adopt a new path-breaking economic policy under which a series of economic reform measures were initiated with the objective to deal with the crisis and to take the economy on a high-growth path. which climaxed in 1991.The present process of economic reforms was born out of the crisis in the economy.

 Increase in Fiscal Deficit  Increase in adverse balance of Payment  Gulf Crisis  Fall in foreign Exchange Reserve  Rise in Prices  Poor Performance of Public Sector .

industrial decontrol and balance of payments. The crisis management measures focussed largely on fiscal correction.The top and immediate priority of the government was to stabilize the economy. . bring the growth of the economy to its normal track and to win back confidence of masses in the country and the international financial community.


restriction on investment by big business houses.g.It means to free the economy from direct or physical controls imposed by the government. These controls leads to fall in economy growth. . etc. import license. foreign exchange control. Prior 1991. Economic reforms were based on the assumption that market forces could guide the economy in a more effective manner than government control. government had imposed several types of controls on Indian economy e. industrial licensing system. price control or financial control on goods.

 Concession from MRTP Act  Freedom from Expansion and Production to Industries  Increase in the Investment Limit of the Small Industries: It has been raised to Rs 1crore & Investment limit has been raised to Rs 25 lakh. industrial licensing has been removed. with the exception of 6 sectors. . Abolition of industrial licensing and Registration : According to new industrial policy .

. Freedom to import capital goods  Freedom to import technology  Action plan for information Technology and software development.

This can have four forms: i) Total Nationalisation ii) Joint Venture . It can take in three in forms: a. Change in ownership: Degree of privatisation judged by the extent of ownership transferred from public to private sector.Privatisation means allowing the private sector to set up more and more of industries that were previously reserved for public sector.

. Operational Measures: Autonomy to the operators of the enterprise. Organizational Measures: It includes variety of measures to limit state control. i) A holding Company Structure ii) Leasing c.iii) Liquidation IV) Workers Co-operative b.

.  To make optimum use of resources  To achieve rapid industrial development of the country. To increase efficiency & competitive power of the enterprises  To strengthen industrial management.  To earn more & more Foreign currency.

 Reduction in economic burden  Increase in efficiency  Reduction in sense of irresponsibility  Scientific Management  Reduction in Political Interference  Encouragement of new Inventions .

 Lack of social welfare  Class struggle  Increase in inequality  Increase in unemployment  Exploitation of weaker section .

 Contraction of Public sector  Disinvestment  Sale of shares of public enterprises  Increase in private sector  Conversion of loans into shares is not necessary  Sick industries  Memorandum of understanding .

Public sector in India includes all activities or institutions funded out of the government’s budget whether at centre or states. & Govt. Public sector includes the following:  Govt. post & telegraphs  Banking. financial and other services . Companies  Irrigation & power projects  Railways. Dept. insurance.

 Conflict between the financial and social objectives  Problem of losses or low rate of return on investment  Lack of professionalism in management  Time & cost overruns in new projects  Underutilization of capacity  Operational inefficiency .

 PSU Refocussing  Memorandum-of-Understanding (MOU) System of PSE  Financial & operational autonomy  Restructuring of sick units  Privatisation through disinvestment  Protection of PSU workers’ Interest .

initial public offering and rights offer. . It involves sale of minority stake in a few PSU.The disinvestment programme towards greater privatization of the economy was launched in the year 1991-1992 with the announcement of the new industrial policy in August 1991 and is an ongoing process even today. in all 48 companies underwent the disinvestment process. Between August 1991 and March 2003. strategic sales.

 Valuation of public sector unit  Method of disinvestment  The extent of disinvestment  Issues concerning labour .

growing economic independence and Deeping economic integration in the world economy.It is defined as a process associated with increasing openness.  Reduction of trade barriers  Free flow of capital  Free flow of technology  Free movement of technology .

Stage III: The domestic company becomes an international company by establishing production and marketing operations in various key foreign countries. . Stage IV: The company replicates a foreign company in the foreign country by having all the facilities including R&D.     Stage I: Domestic company exports to foreign countries through the dealers or distributors of home country Stage II: The domestic company exports to foreign countries directly on its own. Stage V: The company becomes a true foreign company by serving the needs of foreign customers just like the host country’s company serves. full fledged human resources. etc.

Globalisation of markets Globalisation of Production Globalisation of Technology Globalisation of Investment .

 Reduction of import duties  Encouragement of foreign investment  Reducing custom duty  Devaluation of currency  Partial convertibility .