1. TRENDS IN LIBERALIZATION
The liberalization in India refers to the economic liberalization, initiated in 1991, of the country's economic policies, with the goal of making the economy more market and service-oriented and expanding the role of private and foreign investment. Specific
changes include a reduction in import tariffs, deregulation of markets, reduction of taxes, and greater foreign investment. Liberalisation has been credited by its proponents for the high economic growth recorded by the country in the 1990s and 2000s. Its opponents have blamed it for increased poverty, inequality and economic degradation. The overall direction of liberalization has since remained the same, irrespective of the ruling party, although no party has yet solved a variety of politically difficult issues, such liberalizing labor laws and reducing agricultural subsidies. There exists a lively debate in India as to what made the economic reforms sustainable. Indian government coalitions have been advised to continue liberalization. Before 2015 India grew at slower pace than China which has been liberalizing its economy since 1978. But in the year 2015 India outpaced China in terms of GDP growth rate. The McKinsey Quarterly states that removing main obstacles "would free India's economy to grow as fast as China's, at 10% a year". There has been a significant debate, however, around liberalization as an inclusive economic growth strategy. Since 1992, income inequality has deepened in India with consumption among the poorest staying stable while the wealthiest generate consumption growth. As India's gross domestic product(GDP) growth rate became lowest in 2012–13 over a decade, growing merely at 5.1%, more criticism of India's economic reforms surfaced, as it apparently failed to address employment growth, nutritional values in terms of food intake in calories, and also exports growth – and thereby leading to a worsening level of current account deficit compared to the prior to the reform period. But then in FY 2013–14 the growth rebounded to 6.9% and then in 2014–15 it rose to 7.3% as a the result of the reforms put by the New Government which led to the economy becoming healthy again and the current account deficit coming in control. Growth reached 7.5% in the Jan–Mar quarter of 2015 before slowing to 7.0% in Apr-Jun quarter
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 Licence Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since then, the overall thrust of liberalization has remained the same, although no government has tried to take on powerful lobbies such as trade unions and farmers, on contentious issues such as reforming labor laws and reducing agricultural subsidies. By the turn of the 21st century, India had progressed towards a free market economy, with a substantial reduction in state control of the economy and increased financial liberalization. This has been accompanied by increases in life expectancy, literacy rates, and food security, although urban residents have benefited more than rural residents.
REFORMS IN LIBERALIZATION LAWS
The Bharatiya Janata Party(BJP)–Atal Bihari Vajpayee administration surprised many by continuing reforms when it was at the helm of affairs of India for six years, from 1998–99 and from 1999–2004. = The BJP-led National Democratic AllianceCoalition began privatizing under-performing government-owned business including hotels, VSNL, Maruti Suzuki, and airports, and began the reduction of taxes, an overall fiscal policy aimed at
reducing deficits and debts and increased initiatives for public works.
The United Front government attempted a progressive budget that encouraged reforms, but 1997 Asian financial crisis and political instability created economic stagnation. Towards the end of 2011, the Congress-led UPA-2 Coalition Government initiated the introduction of 51%Foreign Direct Investment in the retail sector. But due to pressure from fellow coalition parties and the opposition, the decision was rolled back. However, it was approved in December 2012.In the early months of 2015, the second BJP-led NDA Government under Narendra Modi further opened up the insurance sector by allowing up to 49% FDI. This came seven years after the previous government attempted and failed to push through the same reforms and 16 years after the sector was first opened to foreign investors up to 26% under the first BJP-led NDA Government under Atal Bihari Vajpayee's administration. The second BJP-led NDA Government also opened up the coal industry through the passing of the Coal Mines (Special Provisions) Bill of 2015. It effectively ended the Indian central government's monopoly over the mining of coal, which existed since nationalization in 1973 through socialist controls. It has opened up the path for private, foreign investments in the sector, since Indian arms of foreign companies are entitled to bid for coal blocks and licenses, as well as for commercial mining of coal. This could result in billions of dollars investments by domestic and foreign miners. The move is also beneficial to the state-owned Coal India Limited, which may now get the elbow room to bring in some much-needed technology and best practices, while opening up prospects of a better future for millions of mine workers. In the 2016 budget session of Parliament, the Narendra Modi led BJP Government pushed through the Insolvency and Bankruptcy Code. The Code creates time-bound processes for insolvency resolution of companies and individuals. These processes will be completed within 180 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors. This law drastically eases the process of doing business, according to experts and is considered by many to be the second most important reform in India since 1991 next to the proposed GST. On July 1st, 2017, the BJP-led NDA Government under Narendra Modi launched the Goods and Services Tax (India). This came years after the previous government attempted and failed to push through the same reform and 17 years after the legislation was proposed under the first BJP-led NDA Government under Atal Bihari Vajpayee's administration in 2000. Touted to be India's biggest tax reform in 70 years of independence and the most important overall reform in terms of ease of doing business since 1991. GST replaces a slew of indirect taxes with a unified tax structure and is therefore set to dramatically reshape the country's 2 trillion dollar economy.
reducing deficits and debts and increased initiatives for public works.
The United Front government attempted a progressive budget that encouraged reforms, but 1997 Asian financial crisis and political instability created economic stagnation. Towards the end of 2011, the Congress-led UPA-2 Coalition Government initiated the introduction of 51%Foreign Direct Investment in the retail sector. But due to pressure from fellow coalition parties and the opposition, the decision was rolled back. However, it was approved in December 2012.In the early months of 2015, the second BJP-led NDA Government under Narendra Modi further opened up the insurance sector by allowing up to 49% FDI. This came seven years after the previous government attempted and failed to push through the same reforms and 16 years after the sector was first opened to foreign investors up to 26% under the first BJP-led NDA Government under Atal Bihari Vajpayee's administration. The second BJP-led NDA Government also opened up the coal industry through the passing of the Coal Mines (Special Provisions) Bill of 2015. It effectively ended the Indian central government's monopoly over the mining of coal, which existed since nationalization in 1973 through socialist controls. It has opened up the path for private, foreign investments in the sector, since Indian arms of foreign companies are entitled to bid for coal blocks and licenses, as well as for commercial mining of coal. This could result in billions of dollars investments by domestic and foreign miners. The move is also beneficial to the state-owned Coal India Limited, which may now get the elbow room to bring in some much-needed technology and best practices, while opening up prospects of a better future for millions of mine workers. In the 2016 budget session of Parliament, the Narendra Modi led BJP Government pushed through the Insolvency and Bankruptcy Code. The Code creates time-bound processes for insolvency resolution of companies and individuals. These processes will be completed within 180 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors. This law drastically eases the process of doing business, according to experts and is considered by many to be the second most important reform in India since 1991 next to the proposed GST. On July 1st, 2017, the BJP-led NDA Government under Narendra Modi launched the Goods and Services Tax (India). This came years after the previous government attempted and failed to push through the same reform and 17 years after the legislation was proposed under the first BJP-led NDA Government under Atal Bihari Vajpayee's administration in 2000. Touted to be India's biggest tax reform in 70 years of independence and the most important overall reform in terms of ease of doing business since 1991. GST replaces a slew of indirect taxes with a unified tax structure and is therefore set to dramatically reshape the country's 2 trillion dollar economy.
2. TREND OF GLOBALISATION IN INDIA
India had the distinction of being the world's largest economy at the beginning of the Christian era, as it accounted for about 32.9%
the share of world GDP ( Gross domestic product) and about 17% of the world population. The goods produced in India had long been exported to far off destinations across the world; the concept of globalization is hardly new to India. India currently accounts for 2.7% of world trade (as of 2015), up from 1.2% in 2006 according to the World Trade Organization
(WTO) Until the liberalization of 1991, India was largely and intentionally isolated from the world markets, to protect its fledgling economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while the foreign direct investment was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI(A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control.) in the industrial sector. The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing, and deposits of resident Indians.
the share of world GDP ( Gross domestic product) and about 17% of the world population. The goods produced in India had long been exported to far off destinations across the world; the concept of globalization is hardly new to India. India currently accounts for 2.7% of world trade (as of 2015), up from 1.2% in 2006 according to the World Trade Organization
(WTO) Until the liberalization of 1991, India was largely and intentionally isolated from the world markets, to protect its fledgling economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while the foreign direct investment was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI(A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control.) in the industrial sector. The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing, and deposits of resident Indians.
India's exports were stagnant for the first 15 years after independence, due to the predominance of tea, jute and cotton manufacture, demand for which was generally inelastic. Imports in the same period consisted predominantly of machinery, equipment and raw materials, due to nascent industrialization. Since liberalization, the value of India's international trade has become more broad-based and has risen to 63,0801 billion in 2003–04 from 12.50 billion in 1950–51. India's trading partners are China, the US, the UAE,
the UK, Japan and the EU. The exports during April 2007 were $12.31 billion up by 16% and import was $17.68 billion with an the increase of 18.06% over the previous year.
India is a founding member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the World Trade Organisation. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labor and environment issues and other non-tariff barriers into the WTO policies. Despite reducing import restrictions several times in the 2000s. India was evaluated by the World Trade Organisation in 2008 as more restrictive than similar developing economies, such as Brazil, China, and Russia. The WTO also identified electricity shortages and inadequate transportation infrastructure as significant constraints on trade. Its restrictiveness has been cited as a factor which isolated it from the global financial crisis of 2008–2009 more than other countries, even though it experienced reduced ongoing economic growth.
Foreign direct investment (FDI) in India has reached 2% of GDP, compared with 0.1% in 1990, and Indian investment in other countries rose sharply in 2006. As the third-largest economy in the world in PPP terms (Purchasing power parity (PPP) is an economic theory that states that the exchange rate between two countries is equal to the ratio of the currencies' respective purchasing power.) India is a preferred destination for FDI India has strengths in information technology and other significant areas such as auto components,
chemicals, apparels, pharmaceuticals, and jewelry. Despite a surge in foreign investments, rigid FDI policies resulted in a significanthindrance. However, due to some positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing AsiaPacific region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 50 million and represents a growing consumer market.
India's liberalized FDI policy as of 2005 allowed up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a
booming economy and liberalized FDI regime. In March 2005, the the government amended the rules to allow 100 per cent FDI in the construction business. This automatic route has been permitted in townships, housing, built-up infrastructure and construction
development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.
chemicals, apparels, pharmaceuticals, and jewelry. Despite a surge in foreign investments, rigid FDI policies resulted in a significanthindrance. However, due to some positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing AsiaPacific region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 50 million and represents a growing consumer market.
India's liberalized FDI policy as of 2005 allowed up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a
booming economy and liberalized FDI regime. In March 2005, the the government amended the rules to allow 100 per cent FDI in the construction business. This automatic route has been permitted in townships, housing, built-up infrastructure and construction
development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.
Referene : Wikipedia
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