Q. 44.5( 4 Votes )
Prepare a report of 1000-1500 words indicating the progress of Indian economy since economic reforms.
India needed a push to come out of inertia of under-development and slow economic growth of India prior to 1991, and the “LPG” policy adopted by the government in 1991 did just that.
● The huge deficit in the trade balance
● the performance of the public sector was dissatisfactory
● Falling reserves of foreign exchange
● High inflation
● The high budget deficit was because of these following reasons there was a need for economic reforms:
Where “LPG” stands for:
a. Liberalization is the removal of unnecessary restriction, regulations, and policies, to encourage the private sector into core industries with the public sector, it is a movement towards the free market economy. (Lassies-Faire)
b. Privatization refers to setting up the private sector in public sector utilities (telecommunication). It refers to transforming economic activities from public sector to private sector.
c. Globalization refers to the linkage of markets of various nations to undertake economic activities. It means that the goods and services produced in an economy can be purchased or sold in any other economy. It is a movement of the different economy towards each other to increase trade and commerce activities.
The progress of Indian economy since economic reforms:
1. Industrial Licensing was abolished.
2. Monopolistic and Restrictive Trade Practices were abolished.
3. The government started focusing on Disinvestment.
4. Public-Private Partnership was initiated to develop various infrastructure in India.
5. Public sector units were given more autonomy and professional management was set up.
6. Private industries were welcomed in areas which were earlier reserved for public sector enterprise only.
7. The rupee was devalued to reduce the gap between the real and nominal rate to control inflation in the country. The rupee was devalued by around 20%.
8. FDI in many industries has been granted up to 51% as to encourage foreign businesses to setup in India.
9. Export focus policies, incentives, and subsidies were created to boost exports and earn foreign exchange.
10. The Government also permitted the setting up of trading houses with 51 percent foreign equity for the purpose of promoting exports.
11. Quantitative restrictions and unnecessary tariffs were removed from both imports and exports.
12. Liberalization of bank branch licensing policy in order to rationalize the existing branch network
13. Banks were given permission to open new branches wherever they desired.
14. Greater competition among public sector, the private sector and foreign banks and elimination of administrative constraints.
15. Interest Rate Liberalisation.
16. SEBI was given Statutory recognition to develop and monitor the growth of the equity market and trading in India.
17. New guidelines were setup to encourage the development and upbringing of private sector banks.
18. One of the most prominent developments during the last two decades is the spectacular growth of foreign direct investment in the global economic scenario.
19. Earlier only the agricultural products were exported but post LPG, export of coffee, cocoa, bauxite, gypsum etc. has also increased and also, non-traditional products like bakery products, dairy products; alcoholic, non-alcoholic beverages, limestone, furniture, and mineral fuels also constitute a major part of exports from India.
20. Dependence on foreign imports has gone down significantly and we now only depend on petroleum and its related products from other countries. Other imports include capital goods, raw materials, intermediates, and chemicals to meet growing industrial demand.
21. The rate of savings and capital formation increased with the inflow of foreign direct investment in the Indian economy.
22. FDI helped in to fill the gap between domestic savings and capital requirement for development
23. Apart from capital, foreign investments also introduce technical expertise, machinery, capital goods which are scarce but essential for the economic growth of developing economies.
24. The overall wage rate has increased with an increase in the investment in the industries and their expansion.
25. the overall imports and exports have both grown post liberalization, thus improving international trade, the economic development, and capital formation in India.
26. For 1991, India’s GDP has quadrupled, its foreign capital reserves have grown from $5.8 billion to $279 billion, and exports from $18 billion to $178 billion.
27. The number of people below poverty line has not decreased but in contrast, has been increasing and hence it can be said that the benefit of reforms have not completely reached to the poorest in India and there is still a disparity in income and wealth amongst poor and rich.
28. The overall employment has increased with an increase in a number of industries and the development of the service sector, these have resulted in the growth of earnings and savings of people and hence create a consumption economy. These, however, have been a slow growth, and now the industrial growth is one with no significant growth in the employment rate. I.e. the rate of employment is not increasing.
29. Economic reforms so far had an adverse effect on labor welfare, because there is no social security welfare system in place to monitor the challenges of laborers.
30. The agricultural sector was somewhat neglected in the reform with no significant development in the sector, the output has remained stagnant causing high prices of food grains.
31. There is an inadequate investment in the development of the agricultural sector, leading to low growth in the sector which provides employment to the 2/3 citizens of India.
32. Public sector enterprise has seen a growth in the last 10 years.
These major reforms have created a stable economic environment for the future. Various policies and programs have helped to build competition amongst various players. This in return would be beneficial for the customers, as India is slowly started to become a consumption economy, healthy completion amongst the produces will result in better quality of goods and products. The role of government has shifted from a regulatory body to a watch dog where they must ensure a smooth functioning of the economic variables. There is still a long way to go for India as we are still considered to be a developing country, this is mainly due to lack of inclusive growth, red tape, corruption, and bureaucratic structure. The government must upheld the law and ensure that such variables do not hinder the overall economic growth of the country which would ultimately result in socio-economic development.
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