1. Pre and Post Reform Period in India: An Analysis
By:
Anuradha Rao

2. Contents Scenario: Pre and Post Reforms Major Reforms
Industrial Deregulation
Fiscal Policy
Financial Sector
Trade & Investment
Impact: Positives and Negatives
Conclusion

3. Scenario: Pre-1991 Interventionist economic policies
Low levels of growth
Excessive State control:
- Industrial production
- Price setting
- Foreign trade
“License Raj” system

4. Winds of change 1980s- Inefficient management of Indian economy
Revenue used to tackle social issues like poverty, unemployment, population explosion
Foreign exchange used for internal consumption
Crisis in loan from IMF and WB
Announcement of New Economic Policy (NEP)

5. Scenario: Post-1991 Opening up of economy
Rationalization of tax regime
Reduction in control from the Centre
Removal of barriers to industrialization

6. 1. Industrial Deregulation
Major Reforms
REFORMS
1. Industrial Deregulation
2. Financial Sector
3. Fiscal Policy
4. Trade and Investment

7. Industrial Deregulation
BEFORE 1991
AFTER 1991
Industrial licensing for all commodities
Licensing restricted to alcohol, drugs etc.
Private sector not allowed in many industries
Only defense, energy, railway for public sector- large scale privatization, disinvestment
Controls on price fixation and distribution
Market allowed to determine prices

8. Financial Sector BEFORE 1991 AFTER 1991
RBI: a regulator- Operations of banks and other institutions under strict scrutiny
RBI: a facilitator- Institutions allowed to make decisions without consultation at every step
Closed economy
Foreign Institutional Investors allowed to invest

9. Fiscal Policy BEFORE 1991 AFTER 1991 Direct tax rates high
High income tax- evasion of payment
High corporate tax
Direct tax rates lessened
Moderate income tax- saving encouraged
Corporate tax lowered
Disorganized indirect taxes
Introduction of VAT, service tax etc.
Complex tax procedures discouraging tax payment
Procedures simplified- compliance on the part of taxpayers

10. Trade and Investment BEFORE 1991 AFTER 1991
Quantitative restrictions on imports and exports, import licensing, export duties
Restrictions removed, lower tariff rates- free inflow and outflow of goods
Lack of investment- Inefficient local industries without global technological inputs
Investments allowed- increased international competitiveness

11. Impact: Positives
The growth rate of average incomes increased from 1.25% prior to 1980s to 7% by 2006.
For the 1st time since independence , in , the absolute no. of people living under the national poverty line declined.
Annual growth trend of GDP post 2000 is 6.3%: 3 times that in the 1st three decades after independence

12. Impact: Positives
Large improvements in service sector: communication, insurance, IT services
Increase in FDI and FII: India now 6th largest foreign exchange holder in the world
Inflation kept under control after reforms

13. Impact: Negatives
GDP growth has not brought about increase in employment
Agricultural sector adversely affected: lower government investment, international competition, export-oriented production
Industrial sector facing competition from imports, insufficient investment issues
Reduction in revenue generation through taxes and tariffs: lower developmental expenditure

14. Conclusion
Economy has responded favorably to reforms: India is the second fastest growing economy in the world after China!
However, potential to increase growth further by:
-improving policy settings on infrastructure
-easing manufacturing sector regulations
-addressing identified negatives in a more
comprehensive manner

15. Thank You