Introduction of Economic Reforms Need for the Economic Reforms Expectations of International Lenders New Economic Policy, 1991 Elements of New Economic Policies: Liberalization Elements of New Economic Policies: Privatization Elements of New Economic Policies: Globalization Arguments in the favour of Indian Economic Reforms Arguments against the Indian Economic Reforms This PPT can be used by teachers as a teaching tool, by students for quick revision.

1. INDIAN ECONOMY
CLASS XII
CBSE
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2. Synopsis
1. Introduction of Economic Reforms
2. Need for the Economic Reforms
3. Expectations of International Lenders
4. New Economic Policy, 1991
5. Elements of New Economic Policies: Liberalization
6. Elements of New Economic Policies: Privatization
7. Elements of New Economic Policies: Globalization
8. Arguments in the favour of Indian Economic Reforms
9. Arguments against the Indian Economic Reforms
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3. Introduction of Economic Reforms
• In 1991, India faced crisis in their Balance
of Payment which led to the introduction
of economic reforms in the country.
• Economic crisis comprised of India’s
external debt where Indian Government
was not able to make repayments on its
borrowings from abroad.
• Essential goods prices rose sharply.
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4. Need for the Economic Reforms
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• Fiscal Deficit: Due to rise in Government
expenditures over Government receipts.
Indian Government was borrowing from
international financial institutions to pay for
the imported goods like petroleum, in terms
of dollars.
• Continuous Increase In Government Spending:
Indian government was fighting with problems
problems like unemployment, poverty and
India was not able to generate additional
revenue from tax.

5. Need for the Economic Reforms
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• Low Income Of Public Sector Undertakings:
In the late 1980s, government expenditure
began to exceed its revenue and it became
unsustainable.
• Price Rise: Many essential commodities
became expensive. India’s import grew
larger than its exports.

6. Need for the Economic Reforms
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• Insufficient Foreign Exchange
Reserves: India was not able to make
payments to international lenders as
no country was willing to lend to
India.
All of these reason made India to
approach the World Bank and the IMF,
to take a loan of $7billion to manage its
crisis. Image by Quora.com

7. Expectations of International Lenders
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• The international agencies, the World
Bank and the IMF had the following
expectations from India:
1. India should liberalise.
2. India should open up its economy by
removing restrictions on the private
sector.
3. Government role should be reduced.
4. Removal of trade restrictions
between India and other countries.

8. New Economic Policy, 1991
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• New Economic Policy consisted of economic reforms
where main aim was to create a more competitive
environment in the economy with removal of entry
barriers and growth of the firms.
• New economic policy’s measures can be classified as:
1. Stabilisation measures: These are the short term
measures to correct Balance of payment and bring
inflation under control.
2. Structural Reforms measures: These are long term
measures aimed at improving the efficiency of the
economy by increasing international competitiveness
and removing restrictions.

9. Elements of New Economic Policies: Liberalization
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• Liberalisation was introduced to put an end to various
restrictions and open up various sectors of the
economy. Liberalisation includes the following
measures:
1. Deregulation of Industrial Sector: It includes removal
licensing system, Small scale industries goods were
de-reserved, allowing market determination of prices.
2. Financial Sector Reforms: Role of RBI changed from
regulator to facilitator, FIIs allowed to invest in Indian
market, establishment of private sector banks, etc.
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10. Elements of New Economic Policies: Liberalization
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1. Tax Reforms: Reduction in direct and
indirect taxes, simplification of tax paying
method, introduction of GST.
2. Foreign Exchange Reforms: Devaluation of
Rupee to encourage exports and discourage
imports, flexible exchange rate system was
introduced.
3. Trade and Investment Policy Reforms:
Removal of quota restrictions on imports
and exports, reduction in tariff rates,
removal of licensing system for imports,
removal of export duties.

11. Elements of New Economic Policies: Privatization
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• Privatization means reducing the ownership or
management of a government owned enterprise. It
also implies removal of strict control over the
private sector and giving them freedom to take
necessary decisions. With new economic policy the
following changes took place in the private sector:
1. Government companies got converted into
private companies by change of ownership or by
sale of public sector companies.

12. Elements of New Economic Policies: Privatization
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1. Disinvestment; which means privatisation of PSU’s
by selling off part of the equity of PSUs to the
public. This helped in improving the financial
discipline and led to modernisation.
2. Private capital and managerial capabilities were
used to improve PSUs performance.
3. Privatization helped in the inflow of FDI.
4. Greater autonomy was given to PSUs for taking
managerial decisions. For example, Navratnas and
Mini Ratnas.

13. Elements of New Economic Policies: Globalization
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• Globalization is the outcome of the policies
of liberalization and privatization, which are
aimed at transforming the world towards
greater interdependence and integration.
• Globalization is a complex phenomenon
which attempts to establish links in such a
way that the happenings in India can be
influenced by the events or the happenings
in other countries. It is turning whole world
into borderless.
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14. Elements of New Economic Policies: Globalization
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• Outsourcing is considered to be the most important
outcome of globalization process, under which a company
hires regular service from external sources like other
countries, rather than doing it in the home country.
• Most MNCs are outsourcing their services to India because
these can be availed at a cheaper cost. For example, services
like BPO, record keeping, teaching, etc.
• Outsourcing is possible due to modern telecommunication
links like internet, audio-visual data, etc.
• India is the most preferred destination for global outsourcing
because of low wages and availability of skilled manpower.
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15. Arguments in the favour of Indian Economic Reforms
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• The GDP increased from 5.6% in 1980-91 to 8.2% in 2007-12.
• The service sector grew to 10.6% in 2014-15.
• The FDI & FII have increased from about 100 million USD in
1990-91 to 73.5 billion USD in 2014-15.
• At present, India is the one of the largest foreign exchange
reserve holder in the world.
• Inflation level has reduced to 4.9% in 2015-16.
• The BOP deficit has reduced to 152 million USD in 2016-17.

16. Arguments against the Indian Economic Reforms
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• Insufficient employment opportunities besides the growth in GDP.
• Reduction in investment in the agricultural sector causing slow growth in this
sector.
• Removal of fertilizers subsidies adversely affected the cost of production and the
marginal farmers.
• Increased in international competition faced by Indian producers.
• Decrease in the demand of industrial products due to availability of cheaper
imports.
• India does not have access to developed countries markets because of high non-
tariff barriers.
• Loss to the government sector due to low sale value under disinvestment.
• Due to Globalization there has been widened economic disparities among
nations.

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