Economic Reforms

'Current Account Deficit'

Occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world.

Cont.
Current account deficit is not necessarily a bad thing for certain countries. Developing counties may run a current account deficit in the short term to increase local productivity and exports in the future.

'Balance Of Payments - BOP'

A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports.

Cont.
A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.

Pre and Post Reform Periods

IMF Debt on Government Gold Deposits by Govt. New industrial policy was announced by Narsimha Rao in 1991.

License & Permit Raj

Low Investment

Concentration of Wealth

Sub-standard of product

Unemployment

Low Exports

Poverty

Population Adverse Balance of Payments

Illiteracy

Reasons for reforms

Steep fall in Foreign exchange reserve to about 1 billion $. A sharp downgrading of Indias credit rating. Inflation was 12% and high. Public and CAD was around 10% and 3% of GDP. Heavy burden of foreign debt. Oil prices were increased following the Iraq invasion of Kuwait. Heavy borrowing from IMF and other commercial sources.

Steps Taken by the Govt.

Sale of Gold Exchange rate of rupee was adjusted. Liberalisation Privatisation and Globaisation Tax reforms (1994) Delicensing

License Required For Following Industries 1. Alcoholic drinks 2. Tobacco Products 3. Defense and Aerospace 4. Explosives for industries 5. Chemicals 6. Drugs & Pharmaceuticals

Tax Reforms (Fiscal Policy)

Reduction of rates of all major taxes, viz., customs, income tax and central tax. Drastic simplification of the laws and procedures. Removal of concessions and exemptions.

Phasing Out of Subsidies

The Cash Compensatory Support (CCS), which was the bulk of export subsidy was abolished. The Subsidies on Fertilisers and petro products were reduced to the extent possible.

Objectives of New Industrial Policy

To overcome reservation of industries To overcome entry and growth reservation To overcome restriction on foreign & Tech.

Aim
Introducing liberalisation Protect the Indian economy from unnecessary Bureaucratic control. Removing restriction on direct foreign investment as also to free the domestic entrepreneur from the restriction of MRTP Act. Shedding the load of public enterprises.

Cont.
Reduced the list of industries reserved for the public sector to 4 from 17. Currently only two sectors are under public monopoly: Railways and Atomic energy. Disinvestments of government equity in PSUs.

Foreign Investment
The Reserve Bank of India was empowered to approve equity investment up to 51% in 34 industries through automatic approval route. 100% foreign equity is welcome in export oriented units, power sector, electronics and software technology parks, Accommodation sector. Foreign Promotion Council was formed.

Cont.
RBI allowed automatic approval to foreign technology agreements within prescribed monetary limit. Use of Foreign Brand names/ trademarks for sale of goods in India is permitted. Foreign equity is permitted even in small scale enterprises up to 24%.