MEANING AND NEED OF ECONOMIC REFORMS SINCE 1991

• MEANING AND NEED OF ECONOMIC REFORMS SINCE 1991
  OR NEW ECONOMIC POLICY
  INDIAN ECONOMIC DEVELOPMENT
  BUSINESS ENVIRONMENT

• MEANING OF ECONOMIC REFORMS

1. ECONOMIC REFORMS REFERS TO SET OF ECONOMIC POLICIES DIRECTED TO ACCELERATE THE PACE OF GROWTH AND DEVELOPMENT
2. MICRO ECONOMIC REFORM OR ECONOMIC REFORM COMPRISE OF POLICIES DIRECTED TO ACHIEVE IMPROVEMENT IN ECONOMIC EFFICIENCY EITHER BY ELIMINATING OR REDUCING DISTORTIONS IN INDIVIDUAL SECTOR OF THE ECONOMY OR BY REFORMING ECONOMY WIDE POLICIES SUCH AS TAXATION POLICY WITH AN EMPHASIS ON ECONOMIC EFFICIENCY RATHER THAN OTHER GOALS SUCH AS EQUITY OR EMPLOYMENT GROWTH.
3. DEFINITION OF ECONOMIC REFORM

• ECONOMIC REFORMS NORMALLY INDICATES DEREGULATION OR AT TIMES TO DECREASE IN THE SIZE OF THE GOVERNMENT TO ELIMINATE DEFORMITIES CAUSED BY MANAGEMENT OR THE PRESENCE OF ADMINISTRATION RATHER THAN CURRENT OR RAISED REGULATIONS OR GOVERNMENT PLANS TO LESSEN PERVERSIONS CREATED BY MARKET FAILURE
• .
• ECONOMIC REFORMS IN INDIA

1. ECONOMIC REFORMS IN REFERS TO FUNDAMENTAL CHANGES THAT WERE LAUNCHED IN 1991 WITH THE PLAN OF LIBERALIZING THE ECONOMY AND TO QUICKEN ITS RATE OF ECONOMIC GROWTH
2. IN 1991,THE NARASIMHA RAO GOVERNMENT IN 1991 STARTED ECONOMIC REFORMS TO PULL THE ECONOMY OUT OF THE CRISES OF 90. THE EMPHASIS WAS TO REBUILD INTERNAL AND EXTERNAL FAITH IN THE INDIAN ECONOMY
3. THESE REFORMS CAME TO BE KNOWN AS NEW ECONOMIC POLICY
4. THREE BROAD COMPONENTS OF NEP ARE :-

1. THE POLICY OF LIBERALIZATION (L) IN PLACE OF LICENSING(L) OR THE INDUSTRIAL AND TRADE
2. THE POLICY OF PRIVATIZATION (P) IN PLACE OF QUOTA (Q) FOR THE INDUSTRIALIST
3. THE POLICY OF GLOBALIZATION ( G) IN PLACE OF PERMITS(P) FOR EXPORTS AND IMPORTS

• NEED

1. HIGH FISCAL DEFICIT
2. BOP CRISES
3. FALL IN FOREIGN EXCHANGE RESERVE
4. INFLATIONARY SPIRAL
5. POOR PERFORMANCE OF PUBLIC SECTOR UNDERTAKING
6. NEED FOR ECONOMIC REFORMS

• LPG WAS SET TO REPLACE LPQ IN 1991
• EXPLANATION OF NEED FOR ECONOMIC REFORM
• HIGH FISCAL DEFICIT :-FISCAL DEFICIT REFERS TO BORROWING BY THE GOVERNMENT ON ACCOUNT OF THE EXCESS OF ITS EXPENDITURE OVER REVENUE DURING A YEAR.

1. HIGH FISCAL DEFICIT IS BAD BECAUSE :
2. INDICATES POOR FINANCIAL HEALTH OF THE ECONOMY
3. TRIGGERS INFLATION WHICH IS OBSTACLE IN THE PATH OF GROWTH
4. IT LOWERS FAITH OF INTERNATIONAL INSTITUTION ( LIKE WORLD BANK) IN THE GOVERNMENT OF THE COIUNTRY WITH REGARD TO THE MANAGEMENT OF THE ECONOMY.

• BOP CRISES

1. RELATES TO THE BOP DEFICIT ( THE DIFFERENCE BETWEEN TOTAL RECEIPTS AND TOTAL PAYMENTS OF THE A COUNTRY ON ACCOUNT OF ECONOMIC TRANSACTIONS WITH THE REST OF THE WORLD.)
2. BY THE END OF 1990,OUR BOP POSITION WAS :
3. CURRENT ACCOUNT DEFICIT WAS MOUNTING. IN 1980-81 IT WAS HIGH AS 2214 CRORE AND IN 1990-91 UP TO 17367 CRORE
4. BORRWOING FROM REST OF THE WORLD WHICH WERE 12%  OF GDP IN 1980-81 SHOT UP TO 23 PERCENT OF GDP IN 1990-1991

• FALL IN FOREIGN EXCHANGE RESERVE

1. IN 1990-91 INDIA’S FOREIGN EXCHANGE RESERVE FELL TO SUCH A LOW LEVEL THAT THESE WERE NOT ENOUGH TO PAY FOR IMPORT BILL FOR 10 DAYS
2. FOREIGN EXCHANGE RESERVE THAT WERE 8151 CRORE IN 1986-87 DECLINED SHARPLY TO 6252 CRORE IN 1989-90
3. GOVERNMENT HAD TO MORTGAGE GOLD RESERVE WITH WORLD BANK TO DISCHARGE ITS DEBT OBLIGATIONS.

• INFLATIONARY SPIRAL ( RISE IN PRICES )

1. DESPITE OF GOOD MONSOON FOR THREE CONSECUTIVE YEARS PRIOR TO 1991,FACED INFLATIONARY SPIRAL
2. REASON WAS INCREASE IN THE MONEY SUPPLY ( DUE TO BORROWING BY THE GOVERNMENT TO MEET FISCAL DEFICIT)
3. ECONOMIC CRISIS TURNED FROM BAD TO WORSE

• POOR PERFORMANCE OF PSU
• LOTS OF MONEY WAS PUMPED IN THE GROWTH OF PUBLIC SECTOR UNDERTAKING,BUT MOST OF THESE TURNED OUT TO BE BREEDING CENTERS OF CORRUPTION. SUFFERED HUGE LOSSES