Post on 23-Aug-2014
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INTERNATIONAL BUSINESS ENVIRONMENT
NEW ECONOMIC POLICY OF 1991
Present byChetan Panara(M00086)Submitted to Prof. Kaushal Mandalia
Why new Economic Policy 1991 ? 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 planing for the economy, in which firms required licenses to invest and develop.
• Restriction on Private Investment
• Socialism
• Mixed Economy
Internal debt liability increased to 53% of GDP.
Why new Economic Policy 1991
Features of the new policy Integration with world economy with.
dismantling of tariff wall. Protection of foreign direct
investment. upgrading the technology of
production. Financial stability. Outward looking policies. Deregulation of domestic market.
Features of the new policy
Correcting the disequilibrium in foreign exchange market through demand reduction.
Reform in trade policy Reduction in fiscal deficit Dismantling of barrier to free flow of
capital. Depreciation of exchange rate.
Components of New Economic policy
Exchange rate.
Trade and industrial policy.
Policies concerning the public sector.
financial sector.
Capital market.
Outcome of New Economic policy Liberalization
Privatization
Globalization
Liberalization
Amendment in MRTP act. Emphasis to be on controlling and
regulating monopolistic, restrictive and unfair trade practices
Except the six industries , all other kinds of industrial license have been abolished.
Liberalization
Thrust of policy to be on controlling unfair or restrictive business practices
Need for achieving economies of scale for ensuring higher productivity and competitive advantage in the international market, the interference of the government through the MRTP Act has to be restricted
Privatization
• Disinvestment
• selling of govt. equity, partially or wholly, to private parties.
• Mergers
• acquisition
Globalization
• Outsourcing
• Reduction in trade barriers.
• Free flow of technology
• Free movement of labor capital among different countries.
Effect of new economic policy (positive) Increase in GDP growth rate Increase in foreign direct investment Increase in foreign exchange Fulfilled a long-felt demand of the
corporate sector for declaring in very clear terms that licensing was abolished for all industries except 18 industries which included coal, petroleum, sugar, motor cars, cigarettes, hazardous, chemicals, pharmaceuticals and some luxury items
Effect of new economic policy (positive) Increase in per capita income
Increase in foreign trade.(Import,Export,FDI,FII,Merger )
Increase mobility of factor of production
Outsourcing
Effect of new economic policy (negative) Growing unemployment
Neglect of agriculture
Growing personal disparities
Infrastructural inadequacies
Wide spread poverty.
Effect of new economic policy (negative) Demonstration effect (luxury goods)
Indian small scale industries badly affected
Failure of MRTP to break the monopolistic or Oligopolistic character of the Indian market
Share Of Services Sector In GDP
28.0 23.8 20.527.2
40.6 43.948.9 52.4
32.2 28.1 27.2 27.1
0102030405060
1990-91 1995-96 2000-01 2004-05
Agriculture Industry Services
Economic Scenario : Post Policy
India - One of the fastest growing economies in the world• Average GDP growth (1995 -2005) : 6.2 % per annum• Average annual growth (1995 - 2005)
Agriculture & Allied :+ 2.1 % per annumIndustry :+ 6.6 % per annum
Services : + 7.8 % per annum• Average Per Capita Income growth (1995 - 2005): 3.8 % per annum• Inflation down to a single digit level continuously for the last ten years• Foreign exchange reserves increased from US $ 2 b (March 1991) to US $ 145 b (September 2005)
• Merchandise Exports : +20 % average rate of growth in last three years
• Booming Services Exports from US $ 4.6 b in 1990-91 to US $ 51.3 b in 2004-05
Economic Scenario : Post Policy
• Balance of Payments surplus (US $ 26 b in 2004 - 05)
• External Debt Service Ratio down from 26.2 % in 1995 to 6.2 % in 2005
• Foreign Direct Investment (FDI) : Average +US $ 5 b pa in the last five years.
• Foreign Portfolio Investment : US $ 11.4 b in 2003-04 and US $ 8.9 b in 2004-05
• Reforms continuing and have unleashed dynamic forces – putting the economy on a trajectory of unparalleled economic growth in the future
Agriculture
India• the world’s most irrigated land mass• world’s 2nd largest exporter of rice & 5th largest
exporter of wheat
Food production: India’s Ranking in the World
1st Tea, Milk 2nd Rice, wheat, sugar
THANK YOU!