The Liberalization Initiatives Of Rajiv Gandhis Government Economics Essay

Rajiv Gandhi ‘s authorities initiated the policy of liberalisation since mid-80s. The liberalisation enterprises have been undertaken in India with a position to increase a production, better quality and acquire entree to market for merchandises and service abroad. Extremist liberalisation or globalisation steps have been brought in since July 1991 to do the Indian economic system increasingly market oriented and incorporate it with the emerging planetary economic system construction. These steps include decrease and rationalisation of excise responsibility and imposts responsibilities, delicensing of several drug and pharmaceutical merchandises, ready entree to import of natural stuff and capital goods and so on.

It has created an environment conducive to an endeavor, investing and invention. Indian industries have started to pull foreign portfolio investing and equity engagement in new ventures. The authorities is committed to do foreign participants pess at easiness to put straight and convey with it new engineering and selling accomplishments.

There has been impressive growing in FDI influxs to India with the debut of policy reforms. As compared to a close entire concentration in fabrication boulder clay 1991, the majority of new influx has come in the energy and service sector.


The New Industrial Policy, 1991

A figure of important economic alterations introduced by many a figure of states all the universe over, the encouraging consequences of the liberalisation steps introduced in 1980s by the Government of India, and the unstable economic state of affairs that prevailed during the ulterior portion 80s have encouraged and forced the so Congress authorities, which came back to power at the centre, under the leading of Shri. P. V. Narasimha Rao-a non – Nehru household member, to take some bold steps to rejuvenate the economic system and to speed up the gait of development. In this background, the Government of India announced its New Industrial Policy ( NIP or IP ) on July 24, 1991. The of import aims are: ( a ) to rectify the deformations that may hold crept in, and consolidate the strengths built on the additions already made, ( B ) to keep sustained growing in the productiveness and paid employment, and ( degree Celsius ) to achieve international fight. Therefore, the basic doctrine of the New IP, 1991 has been the continuity with alteration. Because, the new policy represents a renewed inaugural towards consolidating the additions of national Reconstruction at this important phase. But what is more of import is the alteration ( in continuity with alteration ) -change in the attitude of the province towards the industrial society, alteration from centrally planned economic system to market led economic system, alteration from inordinate authorities intercession to minimal intercession, alteration from nationalisation to denationalization, alteration from subsidisation and cross-subsidization to gradual backdown of subsidy, etc. But these alterations, which the authorities has introduced, stand for a crisp going from the earlier industrial policies. These alterations pertain loosely to five countries viz. , ( a ) Industrial licensing,

( B ) Public sector policy, ( degree Celsius ) MRTP Act, 1969, ( vitamin D ) Foreign investing, and ( vitamin E ) Foreign engineering understandings.

Industrial Licensing

This is one of the countries in which significant alteration has been made by the authorities. With a position to give consequence to these alterations, the authorities issued a presentment [ viz. , Notification No. 477 ( E ) ] on July 25, 1991 and this presentment has exempted the industrial projects from the operation of the undermentioned Sections of Industries Development and Regulations Act, 1951 topic to the fulfilment of certain conditions.

Section 10 ( which deals with enrollment of bing industrial projects ) ;

Section 11 ( which is concerned with the licensing for new industrial projects ) ; and

Section 13 ( which is concerned with the licensing demands for significant enlargement ) .

Further, the 2nd agenda appended to the presentment cited above [ viz. , No. 477 ( E ) ] lists the industries which are capable to compulsory industrial licensing. Harmonizing to this presentment, merely 18 industries were capable to mandatory industrial licensing. Further, five more industries have been excluded from the list of industries which are capable to mandatory industrial licensing later. That means, merely 13 industries are now capable to mandatory industrial licensing.

Public Sector Policy

A big figure of Public Sector Enterprises have failed to accomplish at least a sensible rate of success. Some of the factors which have contributed to this state of affairs are over staffing and over managing, monetary value and distributions controls, etc. Hence, the authorities, in its Industrial Policy, 1991, introduced the figure of important alterations refering to the PSEs. Some of the of import alterations envisaged by the New Policy are summarized below.

Prior to the proclamation of New Industrial Policy, 1991, 17 industries were reserved entirely for the province for their hereafter development. Further, with regard to another 12 industries, the province was to play an of import function by taking inaugural to set up new projects. Besides, the province had power to come in into any other country reserved for the private sector. However, the failure on the portion of bulk of PSEs has forced the authorities to reexamine its earlier determination. Consequently, the authorities in its New Industrial Policy, 1991 has pruned the list of the industries reserved for the populace sector to merely 8. Further, the authorities has dereserved 2 more industries. As a consequence, merely six industries are now reserved for the public sector. They are: ( a ) Weaponries and ammo and allied points of defense mechanism equipment, aircraft and war vessels, ( B ) Atomic energy, ( degree Celsius ) Coal and lignite, ( vitamin D ) Mineral oils, ( vitamin E ) Minerals specified in the agenda to the Atomic Energy Order, 1953, and ( degree Fahrenheit ) Railway conveyance. Hence, the focal point of the populace sector will be merely on strategic and high tech industries and on basic infrastructural undertakings. However the aim of the New Industrial Policy has been to retreat the populace sector investing from the activities which can successfully be taken up by the private sector endeavors. The accent of PSEs in hereafter will be on: ( a ) Basic and indispensable infrastructural installations, ( B ) Mineral resources, ( degree Celsius ) Crucial countries in the involvement of the economic system in the long tally and where the private sector investing is unequal, and ( vitamin D ) Defence equipment.

With a position to mobilise the resources and to hold a wider public engagement, apart of authoritiess portion retentions in its endeavors will be offered to the common financess, fiscal establishments, employs of PSEs, and the general populace. The New Industrial Policy besides proposes selective denationalization of PSEs. Further, the policy besides proposes to shut down the PSEs which have become ill and which can non be rehabilitated. The ill PSEs which can be revived will be refered to Board for Industrial and Financial Reconstruction for the preparation of resurgence bundles. The New Industrial Policy besides aims at supplying greater operational and managerial liberty to the direction of PSEs and doing the directions accountable for the public presentation through a system called Memorandum of Understanding.

MRTP Act, 1969

The New Industrial Policy, 1991 proposes to amend appropriately the Monopolies and Restrictive Trade Practices Act, 1969. To take the threshold bounds of assets in regard of MRTP companies and the dominant industrial projects. The of import aims of this were two in figure. They are:

Prevention of concentration of economic power in the custodies of few which will be damaging to the common involvement ; and

Regulation of monopolistic, restrictive and unjust trade patterns which are pursued by the concern community and which are damaging to the public involvement.

The New Policy proposes to regenerate the threshold bounds of assets and hence, to revoke the Commissariats of MRTP Act, 1969 pertaining to the first aim. Hence, the MRTP Act now concerned merely with the prohibition of monopolistic, restrictive and unjust trade patterns followed by the industrial projects and the trading communities.

Foreign Investment

Equally far as the direct foreign investing is concerned, the New Policy proposes to give automatic blessing up to 51 % of equity in the instance of high precedence industries and it has besides identified 34 such industry groups. Further, the policy proposes to let bulk foreign equity retentions up to 51 % of equity for the trading companies which are engaged in export activities. This is to enable the domestic companies an easy entree to international markets. With a position to negociate with the big international fiscal establishments and to O.K. the direct foreign investings proposals in selected countries, the New Policy proposes to represent a particular commission.

Foreign Technology Agreements

The New Industrial Policy proposes to give automatic permission for foreign engineering understandings in identified high precedence industries. Further, it besides proposes to let other industries to import foreign engineering topic to the fulfilment of certain conditions.


The New Industrial Policy, 1991 surely differs significantly from the earlier doctrines, attacks, etc. of the authorities. For case, prior to 1991, range of public sector was expanded by reserving more figure of industries for the public sector. But now, its range has been reduced drastically by cut downing the figure of industries reserved for the public sector. Like this, a big figure of alterations can be noticed in the new policy. This procedure has been go oning even in station liberalisation epoch. Adding to this, the authorities has taken a figure of stairss to give consequence to its policy determinations included in the New Industrial Policy, 1991. Though the economic system has been benefited significantly from these steps, the economic system has non been able to harvest the full benefits of the Economic Reform Package owing to the political instability, etc.


Denationalization of PSUs

Majority of the industrial endeavors in the populace sector have failed to accomplish the coveted consequence. Of class, a figure of factors-internal and external, governable and non- controllable are responsible for his unstable public presentation. A expression at the history of public sector projects ( PSUs ) in the state reveals the uninterrupted enlargement in the function of PSUs. Consequently, a figure of endeavors have been established and immense sum of borrowed capital has been employed by the province even in the non-core, non-strategic and non so indispensable country. Hence, the province has made a figure of alterations in its New Industrial Policy announced on July 24, 1991.


In the 1960ss and 1970ss, the public sector policy has been mostly guided by Industrial Policy Resolution, 1956 which gave the populace sector a strategic function in the economic system. During the last four decennaries, monolithic investings have been made to construct a populace sector which has a dominating function in the economic system. Today, many cardinal sector of the economic system are dominated by the mature public sector endeavors that have successfully expanded the production.

In the early post-Independence old ages, there was practical consensus about the demand for the authorities intercession in economic activities. Pandit Jawaharlal Nehru described the public sector as Temples of Modern India. At that clip, virtually neither questioned the scheme nor raised any uncertainties about its execution. The figure of cardinal public sector endeavors increased from 5 in the twelvemonth 1951 to 240 by the terminal of 1995 and investings in public sector projects ( PSUs ) increased from Rs29 crore in 1951 to Rs. 1,72,438 crore by the terminal of 1995. They contributed about one tierce of our exports. They made important part to import permutation. Government undertakings history for more that 70 % of the work force employed in the organized sector. They have greatly reduced the imbalanced of regional development and have laid strong base for the rapid development of the state. Some of the PSUs have earned a repute par excellence at the international degree. Some elephantine public sector units ( e.g. , Indian Oil Corporation, Steel Authority of India, Oil and Natural Gas Commission, Hindustan Petroleum Corporation Ltd. , Coal India Ltd and Bharat Petroleum Corporation Ltd ) figure in Fortune International ‘s big companies. Further, the populace sector histories for one-quarter of the state ‘s GDP.

There are two million employees in authorities projects and the mean emoluments per annum sum to more than Rs.50, 000 each. Besides paying higher wages, public endeavors assure occupation security, good working status, attractive inducement strategy, participative direction, higher grade of safety, equal installations, etc.

Meaning of Denationalization

The revolution of denationalization started in 1980 and spread to many parts of the universe. Several states are privatising their public sector endeavors. India is no exclusion to it. Privatization was meant to better the public presentation of public endeavors. Denationalization techniques have been tried in states like Great Britain, China, US, Turkey, Brazil, Mexico, Japan, etc. Denationalization, in the narrow sense, means transportation of ownership, or sale of public endeavors. However, denationalization has been used in different ways as elaborate below:

Liberalization Approach: Denationalization may be used in the sense of liberalisation holding fewer controls and ordinance by the province in economic activities. This besides means decelerating of new controls and ordinances and besides dismantlement of the bing controls and ordinances.

Relative Share Enlargement Approach: Denationalization may associate to enlargement of the portion of private endeavors in the production of goods and services in the economic system. This means that faster economic enlargement of goods and services produced by private sector and decelerating down of production of goods and services in the populace sector.

Association of Private Sector Management Approach: This attack suggests using the services of managerial forces or executives of private sector endeavors for the behavior and direction of PSUs.

Transportation of Minority Equity Ownership Approach: Denationalization may be defined as the transportation of minority equity ownership of public endeavors to private persons and establishments so that the ultimate control continues to stay with the province.

Transportation of Complete Ownership Approach: Denationalization is besides used in the sense of sale of all the portions to the private parties so that the public endeavors are converted into private endeavors.

In India, denationalization is taking topographic point by following two common methods viz. ,

( a ) Having fewer controls and ordinances by the province in economic activities, and

( B ) Transfering ownership of province equity in PSUs to private persons and establishments.

Benefits of Denationalization

It is expected that denationalization will guarantee the undermentioned benefits:

Increasing overall efficiency:

Improvement in the quality of direction and determination devising:

No authorities fiscal backup, and hence, capital market will oblige these endeavors to be more efficient ;

Significant decrease in authorities ‘s budgetary support ensuing in decrease in budgetary shortage ;

Recovery of authorities fund which could more fruitfully be used in development activities ;

Decrease in political and bureaucratic interventions ;

Better industrial dealingss direction ; etc.


Though the PSUs have contributed to a great extent to develop the industrial base of the state, they continue, even today, to endure from a figure of defects which are identified below really briefly.

A ample figure of PSUs have been incurring and describing losingss on a continual footing. Consequently, a big figure of PSUs have already been referred of BIFR ;

Multiplicity of governments to whom the PSUs are accountable ;

Delay in execution of undertakings taking to be escalation and other effects ;

Ineffective and widespread inefficiency on direction ;

Many PSUs are runing without the leader ( i.e. , main executive or president ) ;

With a position to supply chances for more and more unemployed young persons, more figure of people, than required, were recruited and hence, many PSUs are over-staffed ensuing in lower labor productiveness, bad industrial dealingss, etc. ;

un-remunerative pricing policy ; and

A figure of ill companies ( 40 companies ) which were in the private sector was taken over by public sector chiefly to protect the employees. These ill units are doing a large drain on the resources of the province ; etc.

Methods of Denationalization

There are four of import manners of denationalization. They are:

Franchising, ( B ) Catching, ( degree Celsius ) Leasing, and ( vitamin D ) Disinvestment.

In India, disinvestment of authorities portion of equity in PSUs is prevailing. It started in 1992 instantly after the New Economic Policy in a phased mode. The chief unfavorable judgment of disinvestment of portions of PSUs in India is that it has been partial and halfhearted. There seems to be no programs to divest wholly. The authorities still would wish to maintain a dominant control. 39 companies have been proposed for disinvestment boulder clay 1995-96. All the companies proposed for disinvestment are cardinal PSUs. No province degree PSU has been proposed for disinvestment. It could merely divest 1 % to 35 % portions of PSUs on an norm. It is besides observed that the portions of efficient and profit-making companies are disinvested more than the companies which are potentially ill or ill companies. The disinvestment per centum is besides non much in loss-making and inefficient units, thereby get the better ofing the intent.

The Finance Ministry has besides explained that the authorities is consciously non off-loading larger balls of its retention. The Rangarajan Committee has suggested that authorities keeping in public sector project must be less than 50 % . But partial disinvestment will be of no help to alter the civilization in the populace sector project.

Future Plans of Government

The followers are the future programs of authorities:

Strengthening strategic units,

Privatizing non-strategic units by ( 1 ) Gradual disinvestment, and ( 2 ) Strategic sale, and

Inventing suited rehabilitation bundle for weak units.


The denationalization procedure launched with all earnestness after the proclamation of New Industrial Policy, 1991 was a failure. The province must accept this and take necessary stairss either to privatise or to better the efficiency and public presentation of PSUs.



The enlargement of economic activities across political boundaries of state provinces. More of import, possibly, it refers to a procedure of increasing economic integrated and turning economic mutuality between states in the universe economic system. It is associated non merely with an increasing cross- boundary line motion of goods, services, capital engineering information and people but besides with an organisation of economic activities which straddles national boundaries. This procedure is driven by the enticement of net income and menace of competition in the market.

The term Globalization as such denotes accommodation of national economic system with that of the universe economic system. It is transition of a national market into international mobility of factors of production. In others words, it may be described as the integrating of national economic system with that of planetary economic system.

An of import property of Globalization is the increasing grade of openness, which has three dimensions, i.e. ; international trade, international investing and international finance. Harmonizing to World Development Report, Globalization reflects the progressive integrating of universe ‘s economic systems.

The manifestation of production includes spacial reorganisation of production the interpenetration of industries across boundary lines, the spread of fiscal markets, and the diffusion of indistinguishable consumer goods to distant states and monolithic transportation of population across national frontiers.

Globalization is a procedure of reassertion of religion in the markets, retaining the character of independency of a state. Here, the state follows a matter-of-fact policy with a displacement in determination devising from authorities to concern. The market forces and the Torahs of economic sciences will hold greater importance than the political political orientation. To do a state a successful spouse in Globalization, the authorities must play a complimentary function.

Factors lending to Globalization:

The of import factors that contribute to Globalization are:

( a ) Technological Progresss In communicating:

Technological progresss in communicating have made it possible to cognize in an instant what is go oning in different parts of the universe. The flow of information and thoughts, boosted greatly by the Internet, can enable developing states to larn more quickly from each other and from industrial states.

( B ) Improvements In Transportation And Technology:

Improvements in transit webs and engineering are cut downing the costs of transporting goods by H2O, land and air. This can ease the motions of goods. Technological betterments can enable developing states to jump phases in the development procedure that rely on inefficient utilizations of national resources.

( degree Celsius ) Other Factors:

Rising educational degrees, technological inventions that allow thoughts to go around, and the economic failures of most centrally planned economic systems have besides contributed to Globalization.

Tendencies in Globalization:

The of import tendencies in Globalization are the undermentioned:

International Trade:

Trade in goods and services has grown twice every bit fast as planetary GDP in the 1990 ‘s and the portion attributable to developing states has risen from 23 to 29 per centum. There is a compositional displacement in trade, which has created a new form in the international exchange of goods, services, and thoughts. Trade in constituents is one portion of that new form. Progresss in information engineering helps to associate houses from developing states into planetary production webs. The enormous growing of trade in services and, more late, of electronic commercialism is besides a portion of the new trade form.

( B ) International Financial Flows:

There has been increase in international capital flows of developing states. However, the fiscal crisis of 1977-99 have put the turning mutualities among states in the limelight and led to intense examination. Such flows are started to lift once more. The fiscal public presentation of emerging markets in the 1990s made capital history liberalisation an attractive option for developing states. Many developing states have began to loosen controls on influxs and escapes of capital.

The East Asian meltdown has enhanced the attraction of long-run capital investing. States have started to acknowledge that foreign direct investing brings with it non merely capital but besides engineering market entree and organisational accomplishments. An analysis of the period 1996-97 shows that foreign direct investing was less volatile than the commercial bank loans and foreign portfolio flows.

( degree Celsius ) International Migration:

Along with goods, services, and investing, people are traversing boundary lines in big Numberss. Harmonizing to World Development Report 1999-2000, each tear between 2 million and 3 million people emigrate, with bulk of them traveling to merely 4 states: the United States, Germany, Canada and Australia. The market for extremely skilled workers will go even more globally integrated in the coming decennaries.

At the terminal of the twentieth century Globalization has already demonstrated that economic determinations, wherever they are made in the universe, must take international factors into history. There is acceleration of goods, services, thoughts and capital across state boundary lines.

Advantages of Globalization:

( a ) Promise of Increase Productivity And Higher Living Standards:

Globalization brings in new chances such as entree to markets and engineering transportation. These chances hold out the promise of increased productiveness and higher life criterions.

( B ) Increase In Trade In Goods And Services:

There is enormous growing in trade in goods and services. “ Trade in goods and services has grown twice every bit fast as planetary GDP in the 1990s and the portion attributable to developing states has climbed from 230to 29 per centum ” . Increased international competition in services will take to decrease in monetary values and betterments in quality. This will increase the fight of downstream industries. Both industrial and development economic sciences will derive by opening their markets.

( degree Celsius ) Provide New Opportunities For Growth:

For developing states, trade is the primary vehicle for recognizing the benefits of Globalization. Imports bring extra competition and assortment to domestic markets, which benefit consumers. Exports, on the other manus, enlarge foreign markets and benefit concern. Further trade exposes domestic houses to the best patterns of foreign houses and encourages greater efficiency. Trade gives signifiers entree to improved capital inputs such as machine tools, which boosts productiveness. Trade encourages the redistribution of labor and capital excessively comparatively to more productive sectors. It has contributed to the on-going displacement of some fabrication and services activities from industrial to developing states, supplying new chances for growing.

( vitamin D ) Globalization of Fiscal Markets:

Globalization of finance markets affects development because finance dramas an of import function in economic growing and industrialisation. Fiscal Globalization affects growing in two ways. First, it increases the planetary supply of capital. Second, it promotes domestic fiscal development and hence, improves allocative efficiency, creates new fiscal instruments, and raises the quality of baking services.

( vitamin E ) Increased Flow Of foreign Market Capital:

Globalization leads to increased flows of capital across states. Flows of foreign capital offer significant economic additions to all parties. Foreign investors diversify their hazards outside their place market and derive entree to profitable chances through out the universe. Economies having influxs raise the degree of investing. When there is foreign investing it is by and large accompanied by direction expertness, developing plans and of import linkages to providers and international markets.

( degree Fahrenheit ) Impact on Poverty:

The fast growing and overall development ensuing from liberalisation, increased flow of trade ad capital could hold a major impact on poorness. It is likely to cut down the figure of people populating in absolute poorness.

( g ) Increase The Level Of Interdependence And Competitiveness:

Globalization is supposed to speed up and increase the degree of mutuality and fight among state. It is a alteration from program to market. As a effect, markets for ware trade are spread outing, more and more service are being traded internationally, and capital is fluxing in quicker and progressively diverse ways across states and parts. There is increasing integrating of states into World markets for goods, services and capital. In short, Globalization widens and intensifies international linkages in trade and finance.

( H ) Induce Domestic Firms To Improve Technology:

The better engineering brought in by the MNCs may bring on or arouse the domestic houses to absorb similar engineering. This may better their fight and enlargement.

Disadvantages of Globalization:

The cosmopolitan credence of the market economic system and the Globalization led by private endeavors tend to hold some harmful effects on the economic system of developing states. They are discussed below:

Coup d’etat of National Firms:

There are a big Numberss of instances of coup d’etat of national houses by foreign houses. In some instances, the domestic houses had to handover the bulk of equity to foreign spouses of joint ventures due to their inability to convey in extra capital.

Ruin of Traditional Crafts And Industries:

Globalization has lead to replacing of traditional and autochthonal merchandises by modern merchandises. This has resulted in the ruin of traditional trades and industries and the support of the people depended on these sectors.

Brings Instability:

Globalization sometimes brings instability and unwelcome alteration in the economic system. It exposes workers to competition from imports, which can endanger their occupations. The influx of foreign capital into the state through Globalization may sabotage Bankss.

( vitamin D ) Widens The Disparity:

Globalization will widen the disparity between one who are associated with market and one who are non. With the enlargement of trade and foreign investing, the spreads among the developing states will has brought in increased income inequality in many industrial is argued that the developing states and the hapless people are non in a place of accomplishing benefits from Globalization. The lone donees of it are the developed states and the MNCs.

Growth rate of India ‘s existent GDP per capita

Per Capita GDP of South Asiatic Economies.

Estimates of the Per Capita Income of India.


Economic liberalisation has increased the duty and function of the private sector. At the same clip, it has reduced the control of the authorities on economic system personal businesss. It is expected that the reforms would liberalise the Indian economic system adequate to make a contributing environment for rapid economic development. The Ninth Five Year Plan, hence, justly observed, “ The conditions that exist today, demand a decisive interruption from the yesteryear. The authorities has taken on itself excessively many duties with the consequence that it non merely encouraged a dependence syndrome among our people, but besides imposed terrible strains on fiscal and administrative capablenesss of the authorities.

Private enterprise whether single, corporate or community-based signifiers the kernel of the development scheme articulated in the program.

The procedure of reforms harmonizing to many economic experts and societal scientists is non fast plenty to accomplish the ends. Jeffrey Sachs, manager of Harvard University ‘s centre for international development and a celebrated economic expert, pointed out that the reform procedure in India had a long manner to travel. He feels that without a focal point on the “ duplicate pillars ” of societal and economic schemes, the hereafter would be black for India, particularly in the context of competition all around.

Liberalization procedure is on the slow path. Government is expected to cut down and eventually give up its engagement in economic affairs and play a major function in supplying the needed socio-economic substructure. The authorities, nevertheless, is loath to give up its function of having and commanding economic activities. At the same clip its inability to pass for supplying minimal wellness and instruction services. It is eager to pass on higher instruction without passing plenty on primary and secondary instruction. It has failed in supplying a corruptness free disposal, an indispensable stipulation for increasing fight.

Success of the economic reforms depends upon the committedness of all concerned – people, political parties, bureaucratism, and authorities – to the socio economic advancement of the state.