Impact of Economic
Reforms on
Agribusiness
AEE 313
Lecture 8
What is the meaning of Reform?
• Make changes in (something,
especially an institution or
practice) in order to improve it.
Economic Reform
• Definition: • Examples:
• lower tariffs
• Economic reforms refer to the
fundamental changes that were • de-regulation
launched in 1991 with the plan • tax cuts
of liberalising the economy and • tax reform
quickening its rate of economic • corporatisation and
growth privatisation
• labour market reform
• contracting out of
government services.
Process of Economic Reforms:
•L
•P
•G
Process of Economic Reforms: LPG stands for
1.L-Liberalisation
2. P-Privatisation
3. G-Globalisation
Three process specify the characteristics of economic reforms
initiated in 1991.
Regarded as direction, path and ultimate goal of the reform.
Prior 1991, government had imposed
several types of controls on Indian
LIBERALIZATION economy e.g.
Removing the unnecessary controls
Removing the hectic process of
licensing
• industrial licensing system, In Indian case it is declining influence of
• price control or financial control on planned economy and that of
goods increasing for capital economy
• import license
• foreign exchange control
• restriction on investment by big
business houses, etc.
Quiz
• In Indian case it is declining influence of planned economy and that of
increasing for capital economy.
a. Liberalization
b. Globalization
In narrow sense it refers to
introduction of private ownership
PRIVATIZATION in publicly owned enterprise
expansion the role of private
sector and limiting the role of
public sector
The first major programme of
privatisation was adopted in U.K.
by the conservative government
of Margaret Thatcher during
1980s.
It covers 3 sets of measures:
1. Ownership: joint venture, liquidation, management buy-out,
complete handover
2. Organizational: leasing, holding a company structure, restructuring
3. Operational : autonomy in decision making, development of
investment criteria, freedom in rising fund from capital
Quiz
• it refers to introduction of private ownership in publicly owned
enterprise.
a. Privatization
b. Liberalization
Opening of Indian economy for
whole world.
GLOBALIZATION It is the process of integrating
various economies of the world
without creating any hinderances in
the free flow of goods, services,
technology, capital as well.
Closed Open
Economy
Economy
Quiz
• It is process of integrating various economies of the world without
creating any hinderances in the free flow of goods, services,
technology, capital as well.
a. Globalisation
b. Liberalisation
Reforms Measures
Industrial Policy Reforms:
Introduction of Industrial policy 1991 fostered competition by
a. abolishing monopoly restrictions,
b. Terminating the phased Manufacturing programmes
c. Freeing foreign direct investment and import of foreign technology
d. De-reservation of sectors hitherto reserved for the public sector.
• At present, only five industries are under licensing, mainly on account of
environmental, health, safety and strategic considerations. They are:
• Distillation and brewing of alcoholic drinks.
• Cigars and cigarettes made from tobacco
• and manufactured tobacco substitutes.
• Only three industries are reserved for the public sector, viz, atomic
energy, railway transport and defence equipment.
Trade Reforms
• Withdrawal of the quantitative restrictions on exports and imports-
• Quantitative restrictions on imports of manufactured consumer goods and
agricultural products were removed on April 1, 2001, almost exactly ten
years after the reforms began phasing out of the system of import licensing.
• Import licensing was abolished relatively early for capital goods and
intermediates which became freely importable in 1993, lowering the level
and dispersion of nominal tariffs
Fiscal sector Reforms
The financial sector is a section of the economy made up of firms and
institutions that provide financial services to commercial and retail customers.
This sector comprises a broad range of industries including banks, investment
companies, insurance companies, and real estate firms.
Tax reforms : such as lowering of tax rates, broadening the tax base and so on.
Introducing CENVAT,
VAT,
GST for collection of more revenue.
CGST
SGST
IGST.
• restructuring of public sector: reduce central government subsidies, increase
public saving
Monetary policy Reforms
• Monetary reform is any movement or theory that proposes a system of
supplying money and financing the economy that is different from the
current system
• Three tools of monetary policy
• reserve requirements,
• the discount rate,
• and open market operations.
• “maintaining price stability” and “ensuring availability of adequate
credit to productive sectors of the economy to support growth”
Finance sector Reforms:
• The development of financial markets has been regarded as a critical
prerequisite for improving the operational effectiveness of the transmission
of monetary policy
• measures for liberalization,
• like dismantling the complex system of interest rate controls
• eliminating prior approval of the Reserve Bank of India for large loans
reducing the statutory requirements to invest in government securities;
Quiz
• Introducing CENVAT,VAT,GST for collection of more revenue was under
which reform?
a. Fiscal sector reform
b. Monetary policy reform
Impact of economic reforms
Positive impact:
• Sharp correction in fiscal deficit-GDP ratio and reduced monetisation of
deficits .
• leading to more customer choice and increased efficiency
• New industrial policy fostered competition
• Exports and imports of goods and services have more than doubled from
23 per cent of GDP in the 1990s to 50 per cent in the recent period of
2009-11.
• the expansion of higher education
Negative impact:
• increasing disparities between the rich and the poor and between
infrastructurally backward and more developed states
• need to increase agricultural productivity.
• Failed to address labour market inflexibity and thereby increasing
concentration of labour force in agricultural sector hence high unemployment.
• It could not attract sufficient investment in Infrastructure.
• Credit market has still remain an important issue.
How reforms affect agriculture
sector?
• Agriculture employed 72 percent of the population in 1991 and
generated 29.02 percent of GDP.
• Agriculture's share of GDP has dropped dramatically to 18%. Farmers'
per capita income has decreased as a result, and rural indebtedness
has increased
Thank you
