Project On Liberalization

By: Ajit Thakur Jyoti Bisht Pankaj Manjrekar Shanky Jain Ashish Agarwal Sumedh Gaikwad Ramesh Mudaliar Vidhi Yagnik

Context

Introduction About Liberalization Pre- Liberalization

India System before Liberalization Impact India Trade Status before Liberalization Impact

Post Liberalization

Indian system Post -Liberalization. Impact

SWOT
Pre- Liberalization Post - liberalization

Conclusion Suggestions

Introduction:
This Project explains us about the Globalization of the economy by implementing new policies and improving the fiscal conditions of the country This helps us to study about the Economic condition of the country before and after Independence and how did it overcome to be stable with the smooth and flow less running of the country with more and more opportunities and become a fast developing country by Liberalizing the industries and the opportunities for growth to develop the economic system of the country. The aim to highlight Liberalization is to educate people and make them understand the strategies for implementing taxes and why government has imposed so many policies.

About Liberalization:
Liberalization means to free economy from direct or physical controls imposed by the government.

The term Liberalization stands for the act of making less strict. Liberalization in Economy stands for The process of making policies less constraining of economic activity. Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities; the doctrine is associated with modern-liberalism. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "Bigger pie" for everybody. In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today; Brazil, China and India, have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital.

Pre - Liberalization:
Early Indian Economy
Indian economy in the early period was a self sufficient economy comprising of several villages. Indian villages produced and met their requirement according to division of labour and their economic activity was restricted to village economy. Barter system prevailed as an exchange mechanism. Basically, the primary activity was agriculture. Other services like carpentry, weaving, hair dressing, etc. were offered by labourers who extended their services based on hereditary. They received their wages as food products. In short, Indian villages functioned as an independent republics and the only interference was from the King for whom they paid taxes in kind. Thus, India had happy villages. Prior to the British rule, religion, system of the society and kings law influenced the economy to a great extent. There prevailed caste system which decided the division of labour for the benefit of the societys economy. Further, the prevalence of joint-family system helped them to pool their resources for their individual family benefit and also for the benefit of the society. Another advantage of the joint-family system was that the cultivable lands were not fragmented, yielding to better economic gains. Another influencer of early Indian economy was the Hindu religion. The religious canters also functioned as Indian trade centres. For example, major pilgrimage spots like Nasik, Allahabad, Varanasi, etc. also functioned as centres of commerce and trade. Many trade and commerce activities were linked to the religious festivals and functions.

In short, the Hindu religion acted as an indirect catalyst for the Indian economy. One of the major industries in early India was textile. Handicrafts were also part of the Indian industrial activity. Indian textile products like shawls, dhotis, dupattas, woolen products, cotton goods, etc. and handicraft products were exported to overseas markets, such as Egypt, South East Asia, Greece, etc. It is worth noting that when Europe (birth place of modern industrialism) was inhabited by uncivilized people, India was very popular for its craftsmanship and rich economy.

PRE-LIBERALIZATION POLICIES:
Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labour and financial markets, a large public sector, business regulation, and central planning. Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s. Elaborate licenses, regulations and the accompanying red tape, commonly referred to as License Raj, were required to set up business in India between 1947 and 1990. Before the process of reform began in 1991, the government attempted to close the Indian economy to the outside world. The Indian currency, the rupee, was inconvertible and high tariffs and import licensing prevented foreign goods reaching the market. India also operated a system of central planning for 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 license 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 was import substitution, the belief that India needed to rely on internal markets for development, not international trade a 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.

INDIAN TRADE BEFORE LIBERLIZATION:

1980s suggests that the root cause of the crisis was the large and growing fiscal imbalance. Large fiscal deficits emerged as a result of mounting government expenditures, particularly during the second half of the 80s. These fiscal deficits led to high levels of borrowing by the government from the Reserve Bank of India (RBI), IMF, World Bank. Over the 1980s, government expenditure in India grew at a phenomenal rate, faster than what government earns as a revenues. The subsidies grew at a rate faster than government expenditures. Expenditure on subsidies rose from Rs.19.1 billion in 1980-81 to Rs. 107.2 billion in 1990-91.

The Indian economy was indeed in deep trouble. Lack of foreign reserves. Gold reserve was empty. Before 1991, India was a closed economy.

IMPACTS:
The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% from 1950s to 1980s, while per capita income averaged 1.3%. At the same time, Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in Taiwan by 12%. Only four or five licenses would be given for steel, power and communications. License owners built up huge powerful empires. A huge public sector emerged. State-owned enterprises made large losses. Infrastructure investment was poor because of the public sector monopoly. License Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country" and corruption flourished under this system.

INDEPENDENCE TO 1991:
Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labour and financial markets, a large public sector, business regulation, and central

planning. Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s. Elaborate licenses, regulations and the accompanying red tape, commonly referred to as License Raj, were required to set up business in India between 1947 and 1990. Jawaharlal Nehru, the first prime minister, along with the statistician Prasanta Chandra Mahalanobis, carried on by Indira Gandhi formulated and oversaw economic policy. Indian GDP becomes three times negative before reforms period. To set up a strong economic system Indian government has taken a steps to reform all its economic policies under the Narsimham committee.

CRISIS:
The assassination of Prime minister Indira Gandhi in 1984, and later of her son Rajiv Gandhi in 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 fixed exchange rate system, where the rupee was pegged to the value of a basket of currencies of major trading partners. India started having balance of payments problems since 1985, and by the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had reduced to the point that India could barely finance three weeks worth of imports. 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 enterprise and competition were encouraged and globalization was 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.

POST LIBERALISATION REFORMS:

The Government of India headed by Narasimha Rao decided to usher in several reforms that are collectively termed as liberalization in the Indian media. Narasimha Rao appointed Manmohan Singh as a special economical advisor to implement liberalization. The reforms progressed furthest in the areas of opening up to foreign investment, reforming capital markets, deregulating domestic business, and reforming the trade regime. Liberalization has done away with the License Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Rao's government's goals were reducing the fiscal deficit, privatization of the public sector, and increasing investment in infrastructure. Trade reforms and changes in the regulation of foreign direct investment were introduced to open India to foreign trade while stabilizing external loans. Rao's finance minister, Manmohan Singh, an acclaimed economist, played a central role in implementing these reforms. New research suggests that the scope and pattern of these reforms in India's foreign investment and external trade sectors followed the Chinese experience with external economic reforms.

In the industrial sector, industrial licensing was cut, leaving only 18 industries subject to licensing. Industrial regulation was rationalized. Marginal tax rates were reduced. Privatization of large, inefficient and loss-inducing government corporations was initiated.

IMPACTS POST LIBERALISATION:

Major improvements in educational standards across India have helped its economic rise. Shown here is the Indian School of Business at Hyderabad, ranked number 15 in global MBA rankings by the financial Times of London in 2009. In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. While this increased the rate of growth, it also led to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis for India, which found it facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from IMF, which in return demanded reforms. In response, Prime Minister Narasimha Rao along with his finance minister Manmohan Singh initiated the economic liberalization of 1991. The reforms did away with the License Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since then, the overall direction of liberalization has remained the same, irrespective of the ruling party, although no party has tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies. Since 1990 India has emerged as one of the fastest-growing economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security. While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices will

overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China. In 2009 India purchased 200 Tons of Gold for $6.7 Billion from IMF as a total role reversal from 1991.

AGRICULTURE:
Agriculture is the back bone of Indian economy for several centuries. The importance of agriculture in Indian economy is prominently evident. Nearly 70 per cent of the population depends on agriculture either directly or indirectly for their living.

INDUSTRY:
Industrialization is vital for a countrys economic development. Indian industrial sector is characterized by under-utilization of resources, low capital formation, low level of technology, and lack of skilled man power and social attitudes of the population. Indian industrial development is also highly influenced by the political climate of India, the political philosophy of the ruling party, the attitude and culture of the political administrators and Indian Industrial Policies. Indian industry also depends highly on the attitudes and aspirations of the Indian man power and Indian society. Due to several factors, such as, low returns, long time lag, defence requirements, public utilities, large resource requirement, development of backward regions, development of infrastructure, etc. the Government had to invest in certain capitalintensive segments to share the burden of industrialization and to generate employment opportunities. India achieved a GDP growth rate of 7 per cent in 1995-96 for the first time since 1950, despite a low agricultural growth rate of 2.4 per cent. The major factor which contributed for this growth rate was achievement by the industrial sector which registered a growth rate of 12.1 per cent till 1995-96.

SERVICE AND INFRASTRUCTURE SECTOR:

For any developing nation development of service and infrastructure segment is very important to reach its economic goals. India is successful in improving its service and infrastructure areas.

BANKING:
Performance of the banking sector is considered as a proxy for the economy as a whole, due to banks' wide spectrum of exposure across industries. Unfortunately for India, the banking sector has historically remained under the impact of non-competitiveness, poor technology integration, high NPAs and grossly under productive manpower. Banking sector in India has a wide mix, comprising of joint sector (scheduled and non-scheduled banks), nationalized sector (Reserve Bank of India, State Bank of India and all other nationalized commercial banks and post office savings bank), specialized corporate financial institutions (specific industrial finance corporations and state finance corporations), co-operative sector (co-operative banks and land development banks) and foreign sector (foreign commercial banks and exchange banks).

INSURANCE:
Insurance sector in India has been enjoying a state-monopoly status in India for decades. Under Indian conditions there are only two broad classifications of insurance companies: life and non-life insurance. The life insurance activities are solely managed by Life Insurance Corporation of India and the rest is handled by General Insurance Corporation of India.

TRANSPORT:
A well developed transport system will support an economy in several ways : supports the industry by increasing the efficiency of production, rises the demand through movement of products, facilitates the location of an industry, helps the development of urbanization, movement of man power, better standard of living, better education, etc. Contribution of transport to Indian economy is very significant. Indian transport sector comprises of all forms of transports: railways, roadways, water and air transport.

TELECOM:
Telecom sector was opened up for private sector participation into basic services and value added services with the policy announcement in May 1994. In order to meet the rising demand in the telecom sector, Indian Government decided to invite private players to supplant the government supported agencies in rendering basic as well as value added telecom services. Though opened up, barring a few areas like pagers and mobile phones, Indian telecommunication sector is dominated by Department of Telecom (DOT) and two government companies - VSNL and MTNL.

POWER:
Power is a vital input for the growth of industrial development of any nation - higher the power, higher the industrial growth and higher the employment. Since independence most of the projects in this sector has been financed and managed by government agencies - Centre or State (nearly 90 per cent or more investment required for the power sector came from the public sector through Five Year/Annual Plans). However, since liberalization, the role of private sector, inclusive of foreign players was recognized in the power projects.

POWER FINANCE:
During post-independence era, power - one of the major core sector - has been funded by the government or government agencies, when private participation was almost nil in power sector, thanks to government policies. However, with liberalization, this core sector was opened to private sector and consequently to the foreign players.

CHANGING ENVIRONMENT AFTER 1991:

Opening up of the Indian Economy

Before 1991 there was closed economy and import of certain goods was restricted. After 1991 competition increased tremendously after the liberalisation. Competitors from all over the world enter the Indian market

Competition from Low Wage Countries

Low range products are floating into the market Low price, low quality

POST REFORM PERIOD:

After the liberalization period the Indian economy shows a positive. Prime Minister Narasimha Rao along with his finance minister Manmohan Singh initiated the economic liberalization of

1991. The reforms did away with the License Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since then, the overall direction of liberalization has remained the same, irrespective of the ruling party, although no party has tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies. Since 1990 India has emerged as one of the fastest-growing economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security.

SWOT ANALYSIS:
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieve that objective.

SWOT stands for S = Strength W = Weakness O = Opportunities T = Threads

Pre- Liberalization:
Strengths:
As seen before Liberalization India was self- sufficient and was able to earn their living i:e there was no dependency on any of the industries or any external resources. The main asset was the culture and religion which help to strengthen the Indian economy and run smoothly. Also tradition played important role in emphasising the business and textile industries to grow as due to tradition was the only medium to do the marketing and interact with the people and do trades. As India have many caste and vast diversity in the culture and tradition and all different caste people were good at their respective fields this encouraged in believing that India is self-sufficient.

Weaknesses:
India was rich with the oil, gold and many more metals and spices and agricultural but as people being illiterate they were unable to utilize the available resources, and thus this could have encouraged the foreign countries to enter the Indian market and As there was barter system carried out every where so there was no transactions on monetary bases this resulted in lack of investment in the infrastructure and industries and thus this effected the Growth of the country and resulted in low GDP of the country, and also there was no planning and strategies to implement business and so the resources were used unnecessarily when not required.

Opportunities:
To start trades opportunities to utilize the available resources properly and import them to gain the economy. Utilize resources in right manner to give good output we having good leaders and politicians which could have helped us guiding to utilize the resources in proper manner and to utilize them. Utilize the asset i: e Religion, culture and tradition: Religion, culture and tradition which are still followed in India could have been used as a major resource to have good productivity and utilize the traditions in correct manner. Even though people were illiterate they had a thorough knowledge of their traditions, religion and culture which could have helped in utilizing them at the best. Provision to educate other divisions about the business: As people were divided into different categories of labours, kings according to their specialty, they could have helped other division people to get educated of the work they do.

Threats:
Illiteracy resulted in misguiding people from being self sufficient. People were not guided in right direction to run the business or have proper reforms. No policies imposed by government which can result in instable economy. No policies were implemented for agriculture and other small scale industries only few limited industries were permitted for license Raj. Illiteracy resulted in misuse of the resources may lead other countries to enter Indian market easily. Other countries were very well got an

idea about our rich and ample amount of resources available in India, so there was a possibility of others countries to come and utilize our resources easily.

Post- Liberalization:
Strengths:
Resources were used when necessary. Division was not playing an important role in any business. People were educated and guided in right direction to run the business GDP was showing positive result Leader and politicians were implementing reforms to stabilize the economy. Foreign trade were started in India and was the fast developing country due to imposing of reforms. Human assets are abundantly available in India.

Weaknesses:
Dependency of Industries on Man power. Government has to take the burden of the both private and public sector. India had Mixed Economy (Public and private sector). Ad-Hoc Implementation of the reforms without and reference of data.

Opportunities:
People from India were able to work in other countries. People were able to understand the utilization of resources in proper manner. More and more trades were done to grow the economy

Threats:
Competitors from all over the world enter the Indian market. Private sectors were given more importance. Threaten domestic businesses. Small-scale industries and fight against liberalizing. Opportunities for corruption and inefficiencies.

Conclusion
We have argued that it is inherently difficult to evaluate the effects of economic liberalization for a number of reasons, suggesting at the same time how best one may use insights from economic theory and appropriate econometric techniques to make some progress in this direction. A strong message that this paper aims to convey is that sound data analysis can get us much further than alternating speculations literature on this subject. The experience of economic liberalization in India appears to have been better than in many other countries. Early reforms were initiated in the 1980s and these have been consolidated and pushed further since 1991. Both growth and productivity have accelerated in the economy as a whole and also in organized manufacturing. Capital stocks have been upgraded and investment in manufacturing has increased. Real earnings in this sector have been rising at a fairly rapid pace. Organized sector employment suffered a severe collapse in the early years of the adjustment process but has since recovered to a pace similar to that in the pre-reform era. The share of the public sector in organized manufacturing employment has been shrinking at a fairly remarkable rate. In the economy as a whole, the worker-population ratio fell in the mid-90s after having increased for the previous two decades. The shift in workforce composition from self-employment to casual wage employment that has been in progress since the 1970s continued through the 1990s. The unemployment rate increased at this

time but it is unclear whether this signifies a lengthening of unemployment spells and a worsening of job opportunities or whether it simply denotes a greater degree of transitional or frictional unemployment as labour is reallocated towards the more productive sectors. Average daily earnings per person per annum in the economy increased at a significant pace in rural and urban areas and for men and women. Poverty incidence declined. The paper has pointed to directions for further research, which remains very relevant as there forms are continuing. Analyses of labour market outcomes which attempt to uncover structural relations, which investigate the dynamics of change, and which use micro-data could make a very strong contribution to current debates on the costs and benefits of economic liberalization.

Suggestions
Monitoring the market situation. Right Implementation of reform. Specific measures to boost the REAL ECONOMY (Agriculture, fuel, power). Quality Leadership should be provided for stable politics and strong civilization, government and System of Justice. Indian government should start entrepreneurship to give people a platform to portrait their innovation. Expand Budget for Education system. Emphasis more on tradition business instead of International business. Government should concentrate on public sectors and monitor the private sectors.