Liberalization, privatization, and globalization are all important components of India's economic change. Dr Manmohan Singh, one of India's best economists, was instrumental in bringing Indian Economic Reform into being. In 1991, India experienced an economic crisis related to its external debt. The government was unable to repay its foreign debt. As a result, a foreign exchange reserve, which is normally maintained to import petroleum and other essential items, plummeted to levels that were insufficient for even a fortnight's worth of imports. As a result of all of this, the government implemented a new set of policy measures that shifted the focus of development strategies.
Liberalization:
Rules intended to regulate economic activities turned into major roadblocks to growth and development. To abolish these restrictions and open diverse sectors of the economy, liberalization was implemented. Though a few liberalization measures were implemented in the 1980s in the fields of industrial licensing, export-import policy, technology upgrade, fiscal policy, and foreign investment, the 1991 reforms were more comprehensive. Let us look at some key areas that gained more attention in and after 1991, such as the industrial sector, financial sector, tax reforms, foreign currency markets, and trade and investment sectors.
*Deregulation of the Industrial Sector: In India, regulatory mechanisms were implemented in a variety of ways, including: i) industrial licensing, which required every entrepreneur to obtain permission from government officials in order to open a business, close a business, or determine the number of goods that could be produced; (ii) private sector participation was not permitted in many industries; (iii) some goods could only be produced in small-scale industries; and (iv) price fixing and distribution controls on selected industries.
Financial sector reforms include commercial banks, investment banks, stock exchange activities, and foreign currency markets. The Reserve Bank of India regulates the Indian financial industry (RBI). The RBI establishes the maximum amount of money that banks can keep on hand, as well as interest rates and the nature of lending to specific industries. One of the key goals of financial sector reform was to shift the RBI's function from that of a regulator to that of a facilitator. This implies that the financial sector may be allowed to make judgments without contacting the RBI on a variety of issues.
*Tax Reforms: Tax reforms are changes to the government's taxation and public spending policies, which are referred to together as fiscal policy. Direct and indirect taxes are the two types of taxes. Individual income taxes and corporate earnings are both subject to direct taxes.
Foreign Exchange Market Reforms: The foreign exchange market was the first major external sector reform. The rupee was depreciated against foreign currencies in 1991 as a short-term solution to the balance-of-payments crisis. Foreign exchange inflows increased as a result of this. It also set the tone for removing government control over rupee value determination in the foreign exchange market. Exchange rates are now frequently set by markets based on foreign exchange demand and supply. It also sets the tone for removing government control over rupee value determination in the foreign exchange market. Exchange rates are now frequently set by markets based on foreign exchange demand and supply.
*Trade and Investment Policy Reforms: Trade and investment policy reforms were implemented to improve industrial production's international competitiveness, as well as foreign investment and technology into the economy. The goal was also to encourage local industry efficiency and the adoption of current technologies.
Privatization:
It entails a government-owned business losing its ownership or management. The government can turn public sector enterprises into private companies in two ways: i) by withdrawing from ownership and control of public sector companies, and (ii) by selling them outright. Disinvestment is the sale of a portion of a public sector enterprise's shares to the general public. The sale was primarily intended to promote financial discipline and facilitate modernization, according to the administration. It was also thought that private cash and administrative skills could be put to good use to help PSUs operate better.
The administration expected privatization to boost FDI inflows significantly. The government also attempted to increase the efficiency of PSUs by granting them managerial autonomy. Some PSUs, for example, have been given special status as ‘maharatnas’, ‘navratnas’, or ‘miniratnas’. The government identifies PSEs and proclaims them maharatnas, navratnas, and miniratnas to increase efficiency, instill professionalism and enable them to compete more effectively in the liberalized global marketplace.
Globalization:
Globalization is a complex phenomenon that is commonly understood to signify the integration of a country's economy with the global economy. It's the result of a slew of policies aimed at converting the globe into one of increased dependency and integration. It entails the development of networks and activities that cut beyond economic, social, and geographic borders. Globalization aims to create connections such that events in India can be influenced by events taking place thousands of kilometres away. It entails bringing the entire world together or establishing a world without borders.
Here are some two important aspects of globalization:
*Outsourcing: One of the most important effects of the globalization process is outsourcing. Outsourcing is when a company hires a regular service from outside sources, usually from other countries, that was previously provided internally or from within the country (for example, legal advice, computer service, advertising, and security — all of which were previously provided by different departments of the company). Outsourcing has grown in popularity as a form of economic activity in recent years as a result of the rapid development of quick ways of communication, notably information technology (IT). Companies in industrialized countries outsource many services to India, including voice-based commercial procedures (often known as call centres), record keeping, accountancy, banking services, music recording, film editing, book transcribing, clinical consultation, and even teaching. Text, speech, and visual data related to these services are digitized and transmitted in real-time across continents and national borders via modern telecommunication systems, including the Internet. Most international firms, as well as small businesses, are outsourcing their services to India, where they may be obtained at a lower cost while still maintaining an acceptable level of competence and accuracy. India has become a global outsourcing destination due to its low wage rates and availability of trained labor.
*World Trade Organization (WTO): The World Trade Organization (WTO) was established in 1995 as the successor of the General Agreement on Tariffs and Trade (GATT). (GATT) was founded in 1948 with a Global Footprint of 23 countries. Many Indian businesses have spread their wings to other countries as a result of globalization. For example, ONGC Videsh, an oil and gas exploration and production company of the Indian government, has projects across 16 nations. Tata Steel, a private corporation founded in 1907, is one of the top 10 global steel firms, with operations in 26 countries and 50 nations selling its products. In other nations, it employs over 50,000 people. HCL Technologies, one of India's top five IT firms, maintains branches in 31 countries and employs over 15,000 people abroad. Dr Reddy's Laboratories, which began as a tiny business delivering pharmaceuticals to large Indian corporations, now has manufacturing and research facilities all over the world. The goal of the global trade organisation is to administer all multilateral trade agreements by giving all countries in the worldwide market equal trading possibilities. The World Trade Organization (WTO) is anticipated to build a rule-based trading system in which governments cannot impose arbitrary tariffs.
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