Indian Economic Policy post

Independence
Advertising in Contemporary Society
TYBAMMC, Semester VI
 Indian economy
 After independence India had the classic profile of an underdeveloped country.

Export of
primary
products

Agri
High poverty
dominated
levels
economy
Challeng
es

High
Poor
mortality
nutrition
rates
The Policy Prescription
‘Socialism from within’ which tried to raise living
standards and development without western aid.
Policies – protection of local industry with tariffs on
imported goods.
Establishment of import substitution industries.
Mixed economy – a mix of private enterprise and
government planning.
Priority – heavy industrial goods as against consumer
goods.
Meanwhile the World Bank was giving loans to India
in an attempt to change India’s policy from import
substitution and government intervention in the
economy.
India’s major markets – Eastern Bloc countries esp. the
Soviet Union.
Growth rates remained low
Key Features of Economic Policy
Emphasis on
Import
Industrializatio
substitution
n
State
intervention in Central
labour and Planning (5
financial year plans)
markets
The decade of the 70s
India continued this policy of economic protectionism
for more than two decades since independence.
International trade was avoided and the entry of
foreign companies wasn’t encouraged.
In 1973, the government placed restrictions on foreign
investment.
In 1976 – The Foreign Exchange Regulation Act
reduced participation of foreign enterprises in Indian
subsidiaries to 40%.
India in the 70s
 Janata Party came to power after Emergency in the 1977
general elections.
 Seeking to promote economic self-reliance and indigenous
industries, the government required multi-national
corporations to go into partnership with Indian
corporations.
 Inflation, fuel shortages, unemployment and poverty.
 Legalisation of strikes affected business efficiency and
economic production.
India in the 70s
Taxes were raised on luxury goods.
Some multinationals like Coca Cola (1950-1978) and
IBM (1951-1979) left India because of policies that
restricted their activities.
India suffered balance of payments problems due to oil
price increases after the late 1970s.
Forced to borrow from the IMF and other sources such
as the World Bank and foreign governments.
License Raj
Elaborate licenses, regulations and the accompanying
red tape that were required to set up and run businesses
in India between 1947 and 1990.
Up to 80 government agencies had to be satisfied
before private companies could produce something
and, if granted, the government would regulate
production.
Only four or five licenses would be given for steel,
power and communications.
Encouraged Corruption.
Winds of Change
From the 1980s some measures towards liberalization
of the economy began to be taken.
The Rajiv Gandhi Govt. tried hard to reduce License
Raj and to promote Software and Telecommunication
industries.
There was growth in the economy, GDP reached an
average of 5.5 per cent in the 1980s.
Political instability in the later half of the 80s – no
reforms taken up. Prime Ministers changed within a
span of one year.
The challenge of the 90s
• Rising oil prices
Gulf War • Reduced workers’ remittances from
the Gulf

Collapse of the • Loss of markets for Indian goods and

Russian of subsidized imports.
economy
Other Eastern
Bloc markets • Gave a jolt to the Indian economy.
also contracted

While the import bill had shot up, exports slumped.

Balance of Payment Crisis

With India’s foreign exchange reserves at $1.2

billion in January 1991 which depleted by half by
June, barely enough to last for roughly 3 weeks of
essential imports, India was only weeks way from
defaulting on its external balance of payment
obligations.
Measures that followed
1990s – the liberalization measures continued with
greater vigor; some of these being externally imposed
by the IMF.
1991 – Balance of payment crisis and the IMF offered
a restructuring package with a host of terms and
conditions. These terms and conditions made it
mandatory to undertake economic reforms and pave
the way for foreign investment and private enterprise.
Opening of the economy to the market, reduced taxes,
easy availability of loans, encouraging foreign
investment among others.
Liberalization Measures
Liberalization
measures

Macroeconomic
New Industrial reforms &
and Trade policy structural
adjustments
New Industrial Policy (NIP)
The new Liberalization measures included delicensing,
decontrol and deregulation.
FERA liberalisation. The Foreign Exchange
Regulation Act was liberalised: foreign investments
and technology import.
Curtailment of public sector: Several industries
previously reserved for public sector opened up to the
private sector. Only eight core industries remain
reserved for the public sector.
New Trade Policy
Under this policy the reforms included:
lowering of import tariffs
the export-import regime was more open
the rupee was made convertible
exports were encouraged
India’s economy was to be integrated with global
economy
Macroeconomic Reforms
Banking Sector Reforms:
banks to operate as commercial institutions
operational freedom in lending rates
disinvestment in public sector banks
permission for new private sector banks
Structural Adjustment
Market driven price and dismantling of price controls.
Phasing out of subsidies such as:
Abolishing fertiliser, sugar, export and petro-product
subsidy.

Public sector restructuring and disinvestment.

No new public sector units or expansion with
government equity.
Disinvestment of government equity in PSUs.
The outcome
Expansion of the industrial sector.
Manufactured goods became cheaper.
Previously scarce consumer goods were more readily
available.
Growth rates increased over a period of time.
Advances were in the service sector more than in the
industrial sector of the economy.
The outcome
The protection enjoyed by existing companies
disappeared. Existing companies now had to compete
for their share.
The concept of minimum economic size was shaken.
Now ‘going big’ became the order of the day.
Many mergers, acquisitions took place.
The industry structure also changed with the entry of
multinationals (high investment capacity and
technology clout).
The new entrants altered the structure of the industry:
market size, market shares, differentiation, brand
positions and the nature of competition.