Economic liberalisation in India

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Economic liberalisation in IndiaThe economic liberalisation in India refers to ongoing economic reforms in India that started in1991. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime

Minister Rajiv Gandhi initiated some reforms. In 1991, after India sold 67 tons of gold to theInternational Monetary Fund (IMF), the government of P. V. Narasimha Rao and his financeminister Manmohan Singh started breakthrough reforms. The new neo-liberal policies includedopening for international trade and investment, deregulation , initiation of privatization , taxreforms, and inflation-controlling measures. The overall direction of liberalisation has sinceremained the same, irrespective of the ruling party, although no party has yet tried to take onpowerful lobbies such as the trade unions and farmers, or contentious issues such as reforminglabour laws and reducing agricultural subsidies . The main objective of the government was totransform the economic system from socialism to capitalism so as to achieve high economicgrowth and industrialize the nation for the well-being of Indian citizens. Today India is mainlycharacterized as a market economy .[5]

As of 2009, about 300 million people²equivalent to the entire population of the United States² have escaped extreme poverty .[6] The fruits of liberalisation reached their peak in 2007, whenIndia recorded its highest GDP growth rate of 9%. [7] With this, India became the second fastestgrowing major economy in the world, next only to China. [8] An Organisation for Economic Co-operation and Development (OECD) report states that the average growth rate 7.5% will doublethe average income in a decade, and more reforms would speed up the pace. [9]

Indian government coalitions have been advised to continue liberalisation. India grows at slower pace than China , which has been liberalising its economy since 1978. [10] McKinsey states thatremoving main obstacles "would free India¶s economy to grow as fast as China¶s, at 10 percent a

year".[11]

For 2010, India was ranked 124 th among 179 th countries in Index of Economic Freedom WorldRankings, which is an improvement from the preceding year.

Pre-liberalisation policies

Part of a series on the

History of Modern India



Pre-Independence

British Raj (1858 1947)

Indian independence movement (1857 1947)

Partition of India (1947)

Post-Independence

Political integration of India (1947 49)

Indo-Pakistani War of 1947

States Reorganiation Act (1956)

Non-Aligned Movement (1956 )

Sino-Indian War (1962)


Green Revolution (1970s)




Emergency (1975 77)

Siachen conflict (1984)

1990s in India

E conomic liberalisation in India

Kargil War (1999)

2000s in India

See also

History of India

History of South Asia

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Further information: Economic history of India and License Raj

Indian economic policy after independence was influenced by the colonial experience (whichwas seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabiansocialism . 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 .[12] Five-Year Plans of India resembled central planning

in the Soviet Union . Steel, mining , machine tools , water , telecommunications , insurance , andelectrical plants, among other industries, were effectively nationalized in the mid-1950s. [13] Elaborate licences, regulations and the accompanying red tape , commonly referred to as LicenceRaj, were required to set up business in India between 1947 and 1990. [14]

Before the process of reform began in 1991, the government attempted to close the Indianeconomy to the outside world. The Indian currency, the rupee , was inconvertible and high tariffsand import licensing prevented foreign goods reaching the market. India also operated a system



The HSBC Global Technology Center in Pune develops software for the entire HSBC group. [21]

The impact of these reforms may be gauged from the fact that total foreign investment (includingforeign direct investment , portfolio investment , and investment raised on international capital

markets ) in India grew from a minuscule US$132 million in 1991±92 to $5.3 billion in 1995± 96. [22]

Cities like Gurgaon , Bangalore , Hyderabad , Pune and Ahmedabad have risen in prominence andeconomic importance, became centres of rising industries and destination for foreign investment and firms.

Annual growth in GDP per capita has accelerated from just 1¼ per cent in the three decades after Independence to 7½ per cent currently, a rate of growth that will double average income in adecade. [...] In service sectors where government regulation has been eased significantly or isless burdensome²such as communications , insurance , asset management and information

technology ²output has grown rapidly, with exports of information technology enabled services particularly strong. In those infrastructure sectors which have been opened to competition, suchas telecoms and civil aviation , the private sector has proven to be extremely effective and growthhas been phenomenal.

± OECD [9]

[edit ] Ongoing economic challenges

M ain article: Economy of India

y Problems in the agricultural sector .y Highly restrictive and complex labour laws .[9][23][24][25][26][27][28][29][30] y Inadequate infrastructure , which is often government monopoly .y Failing education .y Inefficient public sector .y Inflation in basic consumable goods .y Corruption y High fiscal deficit

Th is list is incomplete ; you can h elp by expanding it .

OECD summarized the key reforms that are needed:

In labour markets , employment growth has been concentrated in firms that operate in sectors notcovered by India¶s highly restrictive labour laws. In the formal sector, where these labour laws apply, employment has been falling and firms are becoming more capital intensive despiteabundant low-cost labour. Labour market reform is essential to achieve a broader-baseddevelopment and provide sufficient and higher productivity jobs for the growing labour force . In



product markets, inefficient government procedures, particularly in some of the states, acts as abarrier to entrepreneurship and need to be improved. Public companies are generally lessproductive than private firms and the privatisation programme should be revitalised. A number of barriers to competition in financial markets and some of the infrastructure sectors, which areother constraints on growth, also need to be addressed. The indirect tax system needs to be

simplified to create a true national market, while for direct taxes , the taxable base should bebroadened and rates lowered. Public expenditure should be re-oriented towards infrastructureinvestment by reducing subsidies . Furthermore, social policies should be improved to better reach the poor and²given the importance of human capital ²the education system also needs tobe made more efficient.

Economic liberalizationEconomic liberalization is a very broad term that usually refers to fewer governmentregulations and restrictions in the economy in exchange for greater participation of privateentities; the doctrine is associated with classical liberalism . The arguments for economicliberalization include greater efficiency and effectiveness that would translate to a "bigger pie"for everybody.

Most first world countries, in order to remain globally competitive, have pursued the path of economic liberalization: partial or full privatisation of government institutions and assets, greater labour-market flexibility, lower tax rates for businesses, less restriction on both domestic andforeign capital, open markets, etc. British Prime Minister Tony Blair wrote that: "Success will goto those companies and countries which are swift to adapt, slow to complain, open and willing tochange. The task of modern governments is to ensure that our countries can rise to thischallenge." [1]

In developing countries, economic liberalization refers more to liberalization or further "openingup" of their respective economies to foreign capital and investments. Three of the fastest growingdeveloping economies today; Brazil , China and India , have achieved rapid economic growth inthe past several years or decades after they have "liberalized" their economies to foreign capital.[2]

Many countries nowadays, particularly those in the third world, arguably have no choice but toalso "liberalize" their economies in order to remain competitive in attracting and retaining boththeir domestic and foreign investments. In the Philippines for example, the contentious proposalsfor Charter Change include amending the economically restrictive provisions of their 1987constitution. [3]



certain unprofitable groups of consumers or geographical areas. Yet such concerns could beaddressed through regulation and by a universal service obligations in contracts, or in thelicensing, to prevent such a situation from occurring. Of course, this bears the risk that thisbarrier to entry will dissuade international competitors from entering the market (seeDeregulation ). Examples of such an approach include South Africa's Financial Sector Charter or

Indian nurses who promoted the nursing profession within India itself, which has resulted in arapid growth in demand for nursing education and a related supply response [4].

Definitions of Economic liberalization on the Web:

y 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 withneoliberalism. ...en.wikipedia.org/wiki/Economic_liberalization

y Also liberalization. An economic policy that limits the role of government inan effort to make a market economy function more efficiently. Liberalizationoften includes privatization and deregulation of state-run industries, as wellthe reduction or removal of tariffs and other trade barriers.www.pbs.org/wgbh/rxforsurvival/glossary.html

We often hear the term Human Resource Management, Employee Relations and Personnel Management used in thepopular press as well as by Industry experts. Whenever we hear these terms, we conjure images of efficientmanagers busily going about their work in glitzy offices. In this article, we look at the question ³what is HRM ?´ bygiving a broad overview of the topic and introducing the readers to the practice of HRM in contemporaryorganizations. Though as with all popular perceptions, the above imagery has some validity, the fact remains thatthere is much more to the field of HRM and despite popular depictions of the same, the ³art and science´ of HRM isindeed complex. We have chosen the term ³art and science´ as HRM is both the art of managing people by recourseto creative and innovative approaches; it is a science as well because of the precision and rigorous application of



theory that is required.

As outlined above, the process of defining HRM leads us to two different definitions. Th e first definition of HRM isth at it is t h e process of managing people in organizations in a structured and t h oroug h manner . This coversthe fields of staffing (hiring people), retention of people, pay and perks setting and

management, performance management, change management and taking care of exits from the company to roundoff the activities. This is the traditional definition of HRM which leads some experts to define it as a modern versionof the Personnel Management function that was used earlier.

Th e second definition of HRM encompasses t h e management of people in organizations from a macroperspective i.e. managing people in the form of a collective relationship between management and employees. Thisapproach focuses on the objectives and outcomes of the HRM function. What this means is that the HR function incontemporary organizations is concerned with the notions of people enabling, people development and a focus onmaking the ³employment relationship´ fulfilling for both the management and employees.

Human resources may be defined as the total knowledge, skills, creative abilities, talents andaptitudes of an organization's workforce, as well as the values, attitudes, approaches and beliefsof the individuals involved in the affairs of the organization. It is the sum total or aggregate of inherent abilities, acquired knowledge and skills represented by the talents and aptitudes of thepersons employed in the organization.

The human resources are multidimensional in nature. From the national point of view, humanresources may be defined as the knowledge, skills, creative abilities, talents and aptitudesobtained in the population ; whereas from the viewpoint of the individual enterprise, theyrepresent the total of the inherent abilities, acquired knowledge and skills as exemplified in thetalents and aptitudes of its employees .

Hu man Reso u rce Management: Nat u re Human Resource Management is a process of bringing people and organizations together so thatthe goals of each are met. The various features of HRM include:

It is pervasive in nature as it is present in all enterprises. Its focus is on results rather than on rules. It tries to help employees develop their potential fully. It encourages employees to give their best to the organization. It is all about people at work, both as individuals and groups. It tries to put people on assigned jobs in order to produce good results. It helps an organization meet its goals in the future by providing for competent and well-

motivated employees. It tries to build and maintain cordial relations between people working at various levels in the

organization. It is a multidisciplinary activity, utilizing knowledge and inputs drawn from psychology,

economics , etc.

Hu man Reso u rce Management: Scope



The scope of HRM is very wide:1. Personnel aspect-This is concerned with manpower planning, recruitment, selection,placement, transfer, promotion, training and development, layoff and retrenchment,remuneration, incentives, productivity etc.2. Welfare aspect-It deals with working conditions and amenities such as canteens, creches, rest

and lunch rooms, housing, transport, medical assistance , education, health and safety,recreation facilities, etc.3 . Industrial relations aspect-This covers union-management relations, joint consultation,collective bargaining, grievance and disciplinary procedures, settlement of disputes, etc.

Hu man Reso u rce Management: Beliefs The Human Resource Management philosophy is based on the following beliefs:

Human resource is the most important asset in the organization and can be developed andincreased to an unlimited extent.

A healthy climate with values of openness, enthusiasm, trust, mutuality and collaboration isessential for developing human resource.

HRM can be planned and monitored in ways that are beneficial both to the individuals and theorganization.

Employees feel committed to their work and the organization, if the organization perpetuates afeeling of belongingness.

Employees feel highly motivated if the organization provides for satisfaction of their basic andhigher level needs.

Employee commitment is increased with the opportunity to dis¬cover and use one's capabilitiesand potential in one's work.

It is every manager's responsibility to ensure the development and utilisation of the capabilitiesof subordinates.

Hu man Reso u rce Management: Objectives

To help the organization reach its goals. To ensure effective utilization and maximum development of human resources. To ensure respect for human beings. To identify and satisfy the needs of individuals. To ensure reconciliation of individual goals with those of the organization. To achieve and maintain high morale among employees. To provide the organization with well-trained and well-motivated employees. To increase to the fullest the employee's job satisfaction and self-actualization.T o develop and maintain a quality of work life . To be ethically and socially responsive to the needs of society.

To develop overall personality of each employee in its multidimensional aspect. To enhance employee's capabilities to perform the present job. To equip the employees with precision and clarity in trans¬action of business. To inculcate the sense of team spirit, team work and inter-team collaboration.

Hu man Reso u rce Management: F u nctions In order to achieve the above objectives, Human Resource Management undertakes thefollowing activities:



1. Human resource or manpower planning.2. Recruitment, selection and placement of personnel.3 . Training and development of employees.4. Appraisal of performance of employees.5. Taking corrective steps such as transfer from one job to another.

6. Remuneration of employees.7. Social security and welfare of employees.8. Setting general and specific management policy for organizational relationship.9. Collective bargaining, contract negotiation and grievance handling.10. Staffing the organization.11. Aiding in the self-development of employees at all levels.12. Developing and maintaining motivation for workers by providing incentives.1 3 . Reviewing and auditing man¬power management in the organization14. Potential Appraisal. Feedback C ounseling .15. Role Analysis for job occupants.16. Job Rotation.

17. Quality Circle, Organization development and Quality of Working Life.

Economic liberalisation in India

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