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Economic liberalisation in IndiaFrom Wikipedia, the free encyclopedia
This article needs additionalcitationsforverification. Please helpimprove this articleby adding
citations toreliable sources. Unsourced material may bechallengedandremoved.(April 2011)
The economic liberalization in India refers to ongoingeconomic reformsinIndiathat started on 24 July
1991. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime MinisterP. V.
Narasimha Raoinitiated some reforms. In 1991, after India faced a balance of paymentscrisis, it had to
pledge 67 tons of gold toUnion Bank of SwitzerlandandBank of Englandas part of a bailout deal with
theInternational Monetary Fund(IMF). In addition, IMF required India to undertake a series of structural
economic reforms[1]. As a result of this requirement, the government ofP. V. Narasimha Raoand his
finance ministerManmohan Singh(the presentPrime Minister of India) started breakthrough reforms,
although they did not implement many of the reforms IMF wanted.[2][3]
The newneo-liberalpolicies included
opening for international trade and investment,deregulation, initiation ofprivatization, tax reforms, and
inflation-controlling measures. The overall direction of liberalisation has since remained the same,
irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade
unionsand farmers, or contentious issues such as reforming labour laws and reducingagricultural
subsidies.[4]The main objective of the government was to transform theeconomic systemfromsocialismto
capitalism so as to achieve high economic growth andindustrializethe nation for the well-being of Indian
citizens.[5][6]
Today India is mainly characterized as amarket economy.[7]
As of 2009, about 300 million peopleequivalent to the entire population of the United States
haveescaped extreme poverty.[8]
The fruits of liberalisation reached their peak in 2007, when India
recorded its highest GDP growth rate of 9%.[9]With this, India became the second fastest growing major
economy in the world, next only to China.[10]
AnOrganisation for Economic Co-operation and
Development(OECD) report states that the average growth rate 7.5% will double the average income in a
decade, and more reforms would speed up the pace.[11]
Indian government coalitions have been advised to continue liberalisation. India grows at slower pace
thanChina, which has beenliberalising its economysince 1978.[12]
McKinsey states that removing main
obstacles "would free Indias economy to grow as fast as Chinas, at 10 percent a year" .[13]
For 2010, India was ranked 124th among 179 countries inIndex of Economic FreedomWorld Rankings,
which is an improvement from the preceding year.
Contents
[hide]
1 Pre-liberalisation policies
o 1.1 Impact
2 Narasimha Rao government (19911996)
http://en.wikipedia.org/wiki/Wikipedia:Citing_sources#Inline_citationshttp://en.wikipedia.org/wiki/Wikipedia:Citing_sources#Inline_citationshttp://en.wikipedia.org/wiki/Wikipedia:Citing_sources#Inline_citationshttp://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edithttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edithttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edithttp://en.wikipedia.org/wiki/Wikipedia:Identifying_reliable_sourceshttp://en.wikipedia.org/wiki/Wikipedia:Identifying_reliable_sourceshttp://en.wikipedia.org/wiki/Wikipedia:Identifying_reliable_sourceshttp://en.wikipedia.org/wiki/Template:Citation_neededhttp://en.wikipedia.org/wiki/Template:Citation_neededhttp://en.wikipedia.org/wiki/Template:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Microeconomic_reformhttp://en.wikipedia.org/wiki/Microeconomic_reformhttp://en.wikipedia.org/wiki/Microeconomic_reformhttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Union_Bank_of_Switzerlandhttp://en.wikipedia.org/wiki/Union_Bank_of_Switzerlandhttp://en.wikipedia.org/wiki/Union_Bank_of_Switzerlandhttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-reform-0http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-reform-0http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-reform-0http://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/P._V._Narasimha_Raohttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-1http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-1http://en.wikipedia.org/wiki/Neoliberalismhttp://en.wikipedia.org/wiki/Neoliberalismhttp://en.wikipedia.org/wiki/Neoliberalismhttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Labor_laws_in_Indiahttp://en.wikipedia.org/wiki/Labor_laws_in_Indiahttp://en.wikipedia.org/wiki/Labor_laws_in_Indiahttp://en.wikipedia.org/wiki/Labor_laws_in_Indiahttp://en.wikipedia.org/wiki/Subsidies_in_Indiahttp://en.wikipedia.org/wiki/Subsidies_in_Indiahttp://en.wikipedia.org/wiki/Subsidies_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-Gandhi-1-3http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-Gandhi-1-3http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-Gandhi-1-3http://en.wikipedia.org/wiki/Economic_systemhttp://en.wikipedia.org/wiki/Economic_systemhttp://en.wikipedia.org/wiki/Economic_systemhttp://en.wikipedia.org/wiki/Socialist_economicshttp://en.wikipedia.org/wiki/Socialist_economicshttp://en.wikipedia.org/wiki/Socialist_economicshttp://en.wikipedia.org/wiki/Industrializehttp://en.wikipedia.org/wiki/Industrializehttp://en.wikipedia.org/wiki/Industrializehttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-economist.com-4http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-economist.com-4http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-economist.com-4http://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-kkm-6http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-kkm-6http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-kkm-6http://en.wikipedia.org/wiki/Poverty_in_Indiahttp://en.wikipedia.org/wiki/Poverty_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-7http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-7http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-7http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-8http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-8http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-8http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-9http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-9http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-9http://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-oecdindia2007-10http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-oecdindia2007-10http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-oecdindia2007-10http://en.wikipedia.org/wiki/People%27s_Republic_of_Chinahttp://en.wikipedia.org/wiki/People%27s_Republic_of_Chinahttp://en.wikipedia.org/wiki/People%27s_Republic_of_Chinahttp://en.wikipedia.org/wiki/Chinese_economic_reformhttp://en.wikipedia.org/wiki/Chinese_economic_reformhttp://en.wikipedia.org/wiki/Chinese_economic_reformhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-holdingback-11http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-holdingback-11http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-holdingback-11http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-12http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-12http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-12http://en.wikipedia.org/wiki/Index_of_Economic_Freedomhttp://en.wikipedia.org/wiki/Index_of_Economic_Freedomhttp://en.wikipedia.org/wiki/Index_of_Economic_Freedomhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Pre-liberalisation_policieshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Pre-liberalisation_policieshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impacthttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impacthttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impacthttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Pre-liberalisation_policieshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Index_of_Economic_Freedomhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-12http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-holdingback-11http://en.wikipedia.org/wiki/Chinese_economic_reformhttp://en.wikipedia.org/wiki/People%27s_Republic_of_Chinahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-oecdindia2007-10http://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Developmenthttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-9http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-8http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-7http://en.wikipedia.org/wiki/Poverty_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-kkm-6http://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-economist.com-4http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-economist.com-4http://en.wikipedia.org/wiki/Industrializehttp://en.wikipedia.org/wiki/Socialist_economicshttp://en.wikipedia.org/wiki/Economic_systemhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-Gandhi-1-3http://en.wiki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o 2.1 Crisis
3 Sustainability of Economic Liberalization
4 Later reforms
5 Impact of reforms
6 Ongoing economic challenges
o 6.1 Reforms at the state level
7 See also
8 References
9 External links
[edit]Pre-liberalisation policies
Part of a series on the
History of Modern India
Pre-Independence
British Raj(18581947)
Indian independence movement(18571947)
Partition of India(1947)
Post-Independence
Political integration of India(194749)
States Reorganisation Act(1956)
Non-Aligned Movement(1956)
Green Revolution(1970s)
Indo-Pakistani War of 1971
Emergency(197577)
1990s in India
Economic liberalisation in India
2000s in India
See also
History of India
http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Narasimha_Rao_government_.281991.E2.80.931996.29http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Crisishttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Crisishttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Sustainability_of_Economic_Liberalizationhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Sustainability_of_Economic_Liberalizationhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Later_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Later_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impact_of_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impact_of_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Ongoing_economic_challengeshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Ongoing_economic_challengeshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Reforms_at_the_state_levelhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Reforms_at_the_state_levelhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#See_alsohttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#See_alsohttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Referenceshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Referenceshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#External_linkshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#External_linkshttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit§ion=1http://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit§ion=1http://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit§ion=1http://en.wikipedia.org/wiki/History_of_the_Republic_of_Indiahttp://en.wikipedia.org/wiki/History_of_the_Republic_of_Indiahttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Political_integration_of_Indiahttp://en.wikipedia.org/wiki/Political_integration_of_Indiahttp://en.wikipedia.org/wiki/States_Reorganisation_Acthttp://en.wikipedia.org/wiki/States_Reorganisation_Acthttp://en.wikipedia.org/wiki/India_and_the_Non-Aligned_Movementhttp://en.wikipedia.org/wiki/India_and_the_Non-Aligned_Movementhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/The_Emergency_(India)http://en.wikipedia.org/wiki/The_Emergency_(India)http://en.wikipedia.org/wiki/1990s_in_Indiahttp://en.wikipedia.org/wiki/2000s_in_Indiahttp://en.wikipedia.org/wiki/History_of_Indiahttp://en.wikipedia.org/wiki/History_of_Indiahttp://en.wikipedia.org/wiki/File:Flag_of_India.svghttp://en.wikipedia.org/wiki/File:British_Raj_Red_Ensign.svghttp://en.wikipedia.org/wiki/File:Emblem_of_India.svghttp://en.wikipedia.org/wiki/File:Flag_of_India.svghttp://en.wikipedia.org/wiki/File:British_Raj_Red_Ensign.svghttp://en.wikipedia.org/wiki/File:Emblem_of_India.svghttp://en.wikipedia.org/wiki/File:Flag_of_India.svghttp://en.wikipedia.org/wiki/File:British_Raj_Red_Ensign.svghttp://en.wikipedia.org/wiki/File:Emblem_of_India.svghttp://en.wikipedia.org/wiki/History_of_Indiahttp://en.wikipedia.org/wiki/2000s_in_Indiahttp://en.wikipedia.org/wiki/1990s_in_Indiahttp://en.wikipedia.org/wiki/The_Emergency_(India)http://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/India_and_the_Non-Aligned_Movementhttp://en.wikipedia.org/wiki/States_Reorganisation_Acthttp://en.wikipedia.org/wiki/Political_integration_of_Indiahttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/History_of_the_Republic_of_Indiahttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit§ion=1http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#External_linkshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Referenceshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#See_alsohttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Reforms_at_the_state_levelhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Ongoing_economic_challengeshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Impact_of_reformshttp://en.wikipedia.org/wiki/Economic_liberalisation_in_India#Later_reformshttp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History of South Asia
This box:view talkedit
Further information:Economic history of IndiaandLicence Raj
Indianeconomic policyafterindependencewas influenced by the colonial experience (which was seen by
Indian leaders as exploitative in nature) and by those leaders' exposure toFabian socialism. Policy tended
towardsprotectionism, with a strong emphasis onimport substitution,industrializationunder state
monitoring,state interventionat the micro level in all businesses especially in labour and financial markets,
a large public sector, business regulation, andcentral planning.[14]Five-Year Plans of Indiaresembled
central planning in theSoviet Union. Steel, mining, machine tools, water, telecommunications, insurance,
and electrical plants, among other industries, were effectively nationalized in the mid-1950s.[15]
Elaborate
licences, regulations and the accompanyingred tape, commonly referred to asLicence Raj, were required
to set up business inIndiabetween 1947 and 1990.
[16]
Before the process of reform began in 1991, the government attempted to close the Indian economy to the
outside world. The Indian currency, therupee, was inconvertible and high tariffs and import licensing prevented
foreign goods reaching the market. India also operated a system ofcentral planningfor the economy, in which
firms required licenses to invest and develop. The labyrinthine bureaucracy often led to absurd restrictions up to
80 agencies had to be satisfied before a firm could be granted a licence to produce and the state would decide
what was produced, how much, at what price and what sources of capital were used. The government also
prevented firms from laying off workers or closing factories. The central pillar of the policy wasimport substitution,
the belief that India needed to rely on internal markets for development, not international tradea beliefgenerated by a mixture of socialism and the experience of colonial exploitation. Planning and the state, rather
than markets, would determine how much investment was needed in which sectors.
BBC[17]
In the 80s, the government led byP. V. Narasimha Raostarted light reforms. The government slightly
reduced Licence Raj and also promoted the growth of the telecommunications and software
industries.[citation needed]
TheVishwanath Pratap Singh(19891990) andChandra Shekhar Singhgovernment (19901991) did not
add any significant reforms.
[edit]Impact
The low annual growth rate of theeconomy of Indiabefore 1980, which stagnated around 3.5% from
1950s to 1980s, while per capita income averaged 1.3%.[18]
At the same time,Pakistangrew by
5%,Indonesiaby 9%,Thailandby 9%,South Koreaby 10% and inTaiwanby 12%.[19]
Only four or five licences would be given for steel, electrical power and communications. License
owners built up huge powerful empires.[17]
A hugepublic sectoremerged. State-owned enterprises made large losses.[17]
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Infrastructure investment was poor because of the public sector monopoly. [17]
Licence Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout
much of the country"[20]
and corruption flourished under this system.[10]
[edit]Narasimha Rao government (19911996)
Present Prime MinisterManmohan Singhwas then Finance Minister in Cabinet of Prime MinisterP V Narasimha Rao
[edit]Crisis
Main article:1991 India economic crisis
The assassination of prime ministerIndira Gandhiin 1984, and later of her sonRajiv Gandhiin 1991,
crushed international investor confidence on the economy that was eventually pushed to the brink by the
early 1990s.
As of 1991, India still had a fixedexchange ratesystem, where the rupee was pegged to the value of a
basket of currencies of major trading partners. India started havingbalance of paymentsproblems since1985, and by the end of 1990, it was in a serious economic crisis. The government was close to
default,[21]
[22]
its central bank had refused new credit andforeign exchange reserveshad reduced to the
point that India could barely finance three weeks worth of imports . Most of the economic reforms were
forced upon India as a part of the IMF bailout. [1]
A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for an IMF bailout, gold
was transferred to London as collateral, the rupee devalued and economic reforms were forced upon India. That
low point was the catalyst required to transform the economy through badly needed reforms to unshackle the
economy. Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies
broken, the economy was opened to trade and investment,private sector enterpriseand competition were
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encouraged andglobalisationwas slowly embraced. The reforms process continues today and is accepted by all
political parties, but the speed is often held hostage by coalition politics and vested interests.
India Report, Astaire Research[10]
[edit]Sustainability of Economic Liberalization
Go to :Economic_liberalization
[edit]Later reforms
TheBharatiya Janata Party(BJP)-Atal Bihari Vajpayeeadministration surprised many by continuing
reforms, when it was at the helm of affairs of India for five years.[23]
The BJP-ledNational Democratic AllianceCoalition began privatizing under-performing government
owned business including hotels,VSNL,Maruti Suzuki, Airports and began reduction of taxes, asoundfiscal policyaimed at reducing deficits and debts and increased initiatives for public works.
TheUnited Frontgovernment attempted a progressive budget that encouraged reforms, but the
1997Asian financial crisisandpolitical instabilitycreatedeconomic stagnation.
Economic and technology-related sanctions have repeatedly not proved to be very effective in
compelling nations to change their sovereign decisions made in enlightened self-interest. India faced
severe sanctions after Pokhran-I (five nuclear tests on 11 and 13 May 1998 at the Pokhran range in
Rajasthan Desert), and sanctions that were more comprehensive were imposed following Pokhran-II.
There were dire predictions of the collapse of the economy, double-digit inflation etc.
After five years, most of the sanctions have been lifted and the Indian economy is continuing to grow at
an acceptably satisfactory rate. The growth rate for 200304 was 6.0%. Though Indias Gross National
Income is only $477.4 billion by conventional calculations, it translates into $2,913 billion purchasing
power parity (PPP), according to the latest world development indicators. In PPP terms, it is the world's
fourth largest economy, behind only the US, China and Japan.
This list isincomplete;you can help byexpanding it.
[edit]Impact of reforms
TheHSBCGlobal Technology Center inPunedevelops software for the entire HSBC group.[24]
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iberalisation_in_India&action=edit§ion=6http://en.wikipedia.org/wiki/Economic_liberalizationhttp://en.wikipedia.org/w/index.php?title=Economic_liberalisation_in_India&action=edit§ion=5http://en.wikipedia.org/wiki/Economic_liberalisation_in_India#cite_note-astaire-9http://en.wikipedia.org/wiki/Globalisation 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The impact of these reforms may be gauged from the fact that total foreign
investment(includingforeign direct investment,portfolio investment, and investment raised
oninternational capital markets) in India grew from a minuscule US$132 million in 199192 to
$5.3 billion in 199596.[25]
Cities
likeNOIDA,Gurgaon,Gaziabad,Bangalore,Hyderabad,Pune,Chennai,Jaipur,IndoreandAhmedab
adhave risen in prominence and economic importance, become centres of rising industries and
destination forforeign investmentand firms.
Annual growth inGDP per capitahas accelerated from just 1 per cent in the three decades after
Independence to 7 per cent currently, a rate of growth that will double average income in a decade. [...]
In service sectors where government regulation has been eased significantly or is less burdensome
such as communications, insurance, asset management and information technologyoutput has grown
rapidly, with exports ofinformation technology enabled servicesparticularly strong. In those
infrastructure sectors which have been opened to competition, such astelecomsand Economicliberalisation in IndiaFrom Wikipedia, the free encyclopedia
This article needs additionalcitationsforverification. Please helpimprove this articleby adding
citations toreliable sources. Unsourced material may bechallengedandremoved.(April 2011)
The economic liberalization in India refers to ongoingeconomic reformsinIndiathat started on 24 July
1991. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime MinisterP. V.
Narasimha Raoinitiated some reforms. In 1991, after India faced a balance of paymentscrisis, it had to
pledge 67 tons of gold toUnion Bank of SwitzerlandandBank of Englandas part of a bailout deal with
theInternational Monetary Fund(IMF). In addition, IMF required India to undertake a series of structural
economic reforms[1]. As a result of this requirement, the government ofP. V. Narasimha Raoand his
finance ministerManmohan Singh(the presentPrime Minister of India) started breakthrough reforms,
although they did not implement many of the reforms IMF wanted.[2][3]The newneo-liberalpolicies included
opening for international trade and investment,deregulation, initiation ofprivatization, tax reforms, and
inflation-controlling measures. The overall direction of liberalisation has since remained the same,
irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade
unionsand farmers, or contentious issues such as reforming labour laws and reducingagricultural
subsidies.[4]
The main objective of the government was to transform theeconomic systemfromsocialismto
capitalism so as to achieve high economic growth andindustrializethe nation for the well-being of Indian
citizens.[5][6]
Today India is mainly characterized as amarket economy.[7]
As of 2009, about 300 million peopleequivalent to the entire population of the United States
haveescaped extreme poverty.[8]The fruits of liberalisation reached their peak in 2007, when India
recorded its highest GDP growth rate of 9%.[9]With this, India became the second fastest growing major
economy in the world, next only to China.[10]
AnOrganisation for Economic Co-operation and
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Development(OECD) report states that the average growth rate 7.5% will double the average income in a
decade, and more reforms would speed up the pace.[11]
Indian government coalitions have been advised to continue liberalisation. India grows at slower pace
thanChina, which has beenliberalising its economysince 1978.
[12]
McKinsey states that removing mainobstacles "would free Indias economy to grow as fast as Chinas, at 10 percent a year".
[13]
For 2010, India was ranked 124th among 179 countries inIndex of Economic FreedomWorld Rankings,
which is an improvement from the preceding year.
Contents
[hide]
1 Pre-liberalisation policies
o 1.1 Impact
2 Narasimha Rao government (19911996)
o 2.1 Crisis
3 Sustainability of Economic Liberalization
4 Later reforms
5 Impact of reforms
6 Ongoing economic challenges
o 6.1 Reforms at the state level
7 See also
8 References
9 External links
[edit]Pre-liberalisation policies
Part of a series on the
History of Modern India
Pre-Independence
British Raj(1858
1947)
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Indian independence movement(18571947)
Partition of India(1947)
Post-Independence
Political integration of India(194749)
States Reorganisation Act(1956)
Non-Aligned Movement(1956)
Green Revolution(1970s)
Indo-Pakistani War of 1971
Emergency(197577)
1990s in India
Economic liberalisation in India
2000s in India
See also
History of India
History of South Asia
This box:view talkedit
Further information:Economic history of IndiaandLicence Raj
Indianeconomic policyafterindependencewas influenced by the colonial experience (which was seen by
Indian leaders as exploitative in nature) and by those leaders' exposure toFabian socialism. Policy tended
towardsprotectionism, with a strong emphasis onimport substitution,industrializationunder state
monitoring,state interventionat the micro level in all businesses especially in labour and financial markets,
a large public sector, business regulation, andcentral planning.[14]Five-Year Plans of Indiaresembled
central planning in theSoviet Union. Steel, mining, machine tools, water, telecommunications, insurance,
and electrical plants, among other industries, were effectively nationalized in the mid-1950s.[15]
Elaborate
licences, regulations and the accompanyingred tape, commonly referred to asLicence Raj, were required
to set up business inIndiabetween 1947 and 1990.[16]
Before the process of reform began in 1991, the government attempted to close the Indian economy to the
outside world. The Indian currency, therupee, was inconvertible and high tariffs and import licensing prevented
foreign goods reaching the market. India also operated a system ofcentral planningfor the economy, in which
firms required licenses to invest and develop. The labyrinthine bureaucracy often led to absurd restrictions up to
80 agencies had to be satisfied before a firm could be granted a licence to produce and the state would decide
what was produced, how much, at what price and what sources of capital were used. The government also
prevented firms from laying off workers or closing factories. The central pillar of the policy wasimport substitution,
the belief that India needed to rely on internal markets for development, not international tradea belief
generated by a mixture of socialism and the experience of colonial exploitation. Planning and the state, rather
than markets, would determine how much investment was needed in which sectors.
BBC[17]
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In the 80s, the government led byP. V. Narasimha Raostarted light reforms. The government slightly
reduced Licence Raj and also promoted the growth of the telecommunications and software
industries.[citation needed]
TheVishwanath Pratap Singh(19891990) andChandra Shekhar Singhgovernment (19901991) did notadd any significant reforms.
[edit]Impact
The low annual growth rate of theeconomy of Indiabefore 1980, which stagnated around 3.5% from
1950s to 1980s, while per capita income averaged 1.3%.[18]At the same time,Pakistangrew by
5%,Indonesiaby 9%,Thailandby 9%,South Koreaby 10% and inTaiwanby 12%.[19]
Only four or five licences would be given for steel, electrical power and communications. License
owners built up huge powerful empires.[17]
A hugepublic sectoremerged. State-owned enterprises made large losses.[17]
Infrastructure investment was poor because of the public sector monopoly.[17]
Licence Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout
much of the country"[20]
and corruption flourished under this system.[10]
[edit]Narasimha Rao government (19911996)
Present Prime MinisterManmohan Singhwas then Finance Minister in Cabinet of Prime MinisterP V Narasimha Rao
[edit]Crisis
Main article:1991 India economic crisis
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The assassination of prime ministerIndira Gandhiin 1984, and later of her sonRajiv Gandhiin 1991,
crushed international investor confidence on the economy that was eventually pushed to the brink by the
early 1990s.
As of 1991, India still had a fixedexchange ratesystem, where the rupee was pegged to the value of abasket of currencies of major trading partners. India started havingbalance of paymentsproblems since
1985, and by the end of 1990, it was in a serious economic crisis. The government was close to
default,[21][22]its central bank had refused new credit andforeign exchange reserveshad reduced to the
point that India could barely finance three weeks worth of imports . Most of the economic reforms were
forced upon India as a part of the IMF bailout. [1]
A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for an IMF bailout, gold
was transferred to London as collateral, the rupee devalued and economic reforms were forced upon India. That
low point was the catalyst required to transform the economy through badly needed reforms to unshackle the
economy. Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies
broken, the economy was opened to trade and investment,private sector enterpriseand competition were
encouraged andglobalisationwas slowly embraced. The reforms process continues today and is accepted by all
political parties, but the speed is often held hostage by coalition politics and vested interests.
India Report, Astaire Research[10]
[edit]Sustainability of Economic Liberalization
Go to :Economic_liberalization
[edit]Later reforms
TheBharatiya Janata Party(BJP)-Atal Bihari Vajpayeeadministration surprised many by continuing
reforms, when it was at the helm of affairs of India for five years.[23]
The BJP-ledNational Democratic AllianceCoalition began privatizing under-performing government
owned business including hotels,VSNL,Maruti Suzuki, Airports and began reduction of taxes, a
soundfiscal policyaimed at reducing deficits and debts and increased initiatives for public works.
TheUnited Frontgovernment attempted a progressive budget that encouraged reforms, but the
1997Asian financial crisisandpolitical instabilitycreatedeconomic stagnation.
Economic and technology-related sanctions