Module 3

ECONOMIC REFORMS

India’s economy went through several episodes of economic liberalization in the 1970s and the 1980s under Prime Minsters Indira Gandhi and, later,Rajiv Gandhi. However, these attempts at economic liberalization were half hearted,self-contradictory, and often self-reversing in parts.

In contrast, the economic reforms launched in the 1990s (by Prime Minister P V Narasimha Rao and Dr. Manmohan Singh as his Finance Minister) were ‘much wider and deeper’ and decidedly marked a ‘U-turn’ in the direction of economic policy followed by India during the last forty years of centralized economic planning.

• The root cause of the twin crisis could be traced to macro-economic mismanagement throughout the 1980s as reflected in an unsustainably high fiscal deficit, in particular the revenue deficit and the monetized deficit.

• The central government’s fiscal deficit alone peaked at 7.9 percent as a percentage of GDP in 1989-90.

• Foreign-exchange reserves dwindled to a low of US$2.2 billion(with less than 15 days’ cover against annual imports).

• Prime Minister Narasimha Rao converted the prevailing economic crisis into an opportunity to launch massive economic reforms.

• First, he introduced an economist (rather than a politician) into the Cabinet as Finance Minister and gave the new Minister his full support, allowing him to evolve and implement path-breaking economic reforms.

• The government took two years to get over the immediate macroeconomic crisis, initially with the help of a balance of payments loan facility from the International Monetary Fund

The fundamental objective of economic reforms is to bring aboutrapid and sustained improvement in the quality of the people ofIndia.

Central to this goal is the rapid growth in incomes andproductive employment…

The only durable solution to the curse of poverty is sustained growth of incomes and employment….

Such growth requires investment: in farms, in roads, in irrigation, inindustry, in power and, above all, in people.

And this investment must be productive.

Successful and sustained development depends on continuing increases in the productivity of our capital, our land and our labour.

Economic Crisis in IndiaThe new economic policy was announced in 1991 following the worst economic crisis that ever occurred in the country.

Extremely low foreign exchange reserves of Rs.2400crs in early 1991 were just enough only for three week requirementsRapid increasing burden of national debt which exceed 60% of GNP in 1991

The most damaging feature of the 1991 crisis was high price level.

During 1985-90, the GDP grew at average rate of 5.7% but money supply increased at 15.7% per annum. This excess liquidity led to high price rise which touched 17%

1989-90 1990-91

(a) WPI (1981-82 = 100)

All Commodities 8.1 % 13.5 %

1. Primary articles 3.6% 18.9%

2. Fuel, power and light 2.3% 19.2%

3. Manufactured products 11.8% 9.6%

(b) CPI (1982 = 100)For Industrial workers 5.4% 13.7%

Trends in Wholesale price Index and Consumer Price Index

ECONOMIC REFORMS

Macroeconomic Crisis of the Early 1990--- Three Aspects1. Fiscal Imbalance2. Fragile Balance of Payment Situation3. Inflationary Pressures

ECONOMIC REFORMSIn response to the crisis situation of 1990-91 the government decided to introduce economic policy reforms which consisted of two distinct strands1. Macroeconomic Stabilization2. Structural ReformsThe stabilization deals with demand management, structural reforms deal sectoral adjustments designed to tackle the problems on the supply side of the economy.

Main Objectives of Policy(a) Reducing the government deficit to 6.5% of

GDP in 1991-92 and 5% in 1992-93, with further reduction thereafter leading to containment of inflation;

(b) Reduction of the current account deficit in the balance of payments to 2.7% of GDP in 1991-92 and t0 1.5% by 1995-96 as a result of export –growth

(c) Raising GDP growth to around 6% by mid-1990’s

COMPONENTS OF NEW ECONOMIC POLICY 1991The new economic policy has four components:1. Liberalization2. Privatisation3. Globalization4. StabilizationTogether called as Structural Adjustment Programme (SAP)

Model Of Economic Management in India Pre-reform strategies Economic reform strategies

Closed economy Open economy

Self reliance Integrate with world markets

Import substitution strategies Export oriented strategies

State-led economic growth Market determined economic growth

License dominated regime Delicensing, deregulation, debureaucratisation

Frequent state interventions Selective and effective state intervention

Political administered prices Market determined prices at large

Pre-reform strategies Economic reform strategies

Not much concern for deficits Contain all kinds of deficits

Development by inflationary pressure Deflationary monetary and fiscal policiesPSUs as engine of growth Private investment as growth rate

Dominance of PSUs Withdrawal from the area of private interest

Philosophy of natural monopoly Minimise gap between public and private sector

Restrictions of FDI and MNCs Inducement of FDI and MNCs

Restrictions on currency movement Liberalization of restrictions

State controlled interest rates Deregulation of interest rates

State controlled credit Credit policy reforms

Underdeveloped capital market Reforms in capital market

Huge public sector budgetary resources (PSBR) liability on the government

Minimise PSBR

High tax rates Tax reforms

Macroeconomic Stabilization --Demand Management

Macroeconomic stabilisation (often called just stabilization) involves returning to low and stable inflation and a sustainable fiscal and balance of payments position.

1. Control of inflation2. Fiscal correction3. Improving the balance of payments position

Structural Reforms

Since july 1991 comprehensive structural reforms have been undertaken to improve the supply-side of the economy.1. Trade and capital flows reforms2. Industrial deregulation3. Public sector reforms and disinvestment 4. Financial sector reforms

Remarkable changes in the growth rate of Indian economy

• After the crisis induced low growth of 0.9% in 1991-92, the economy responded smartly to economic reforms and recorded 6.8% in 1996-97

• Industrial growth has registered around 8% per annum

• Exports have grown comfortably and foreign investment inflow has been exceedingly good.

• Consequently , foreign currency reserves have stock piled

• Price level too has been brought down to less than 8%

• Poverty level came down• Overall increase in productivity, quality and

competitiveness of Indian goods and services

Economic Reforms 1991– An AppraisalThe pace of economic reforms, though fast during the first three years, slowed down from 1994 onwards.Elections to several state assembly were held in 1994Though economic reforms are announced by Central Government, their implementation is in the hands of state government

The Central government’s fiscal deficit continues to be high and this is reflected in continuing inflationary pressureForeign exchange front may not continue to be comfortable for all the days to comeWeakness in reforms is already visible and the process of reforms is not complete even though reforms are decade old. Many area need policy changesThe reforms have hit the labour hard

The Second Generation Reforms

Yet much more needs to be done to reap the full benefits of what has so far been done. This calls for the implementation of the second generation reforms.A. Exploiting the Knowledge-based Global

economyB. Growing Indian Transnational CorporationsC. High growth of AgricultureD. Empowering the poor

E. Human DevelopmentF. Clean EnvironmentG. Improvements to Governance

GlobalizationThe IMF defines globalization as “ the growing interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology”

Globalization of Business

Globalization is an attitude of mind- it is a mind-set which views the entire world as a single market so that the corporate strategy is based on the dynamics of the global business envionment

Globalization encompasses the following:• Doing, or planning to expand, business

globally• Giving up the distinction between the

domestic market and foreign market and developing a global outlook of the business

• Locating the production and other physical facilities on a consideration of the global business dynamics, irrespective of national consideration

• Basing product development and production planning on the global market considerations

• Global sourcing of factors of production, ie raw materials, components, machinery, technology, finance ect., are obtained from the best source anywhere in the world

• Global interaction of organizational structure and management culture

Drivers of Globalization

• International Trade (lower trade barriers and more competition)

• Financial flows (foreign direct investment, technology transfers / licensing, portfolio investment and debt)

• Communications (traditional media and internet)• Technological advances in transportation,

electronics, bioengineering and related fields• Population mobility, especially of labour

Levels of Globalisation

Globalisation at world level– globaliastion of production and globalisation of finance

Globalisation at the level of a specific country

Globalisation at the level of a specific industry

Globalistion at the level of a specific company

Factors influencing globalization

Dismantling of barriers to international economic transactions

Over-capacity and over-productionTechnological advancesEmerging forms of industrial organizationPolitical factors

GlobalizationThe IMF defines globalization as “ the growing interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology”

Globalization of Business

Globalization is an attitude of mind- it is a mind-set which views the entire world as a single market so that the corporate strategy is based on the dynamics of the global business environment

Globalization encompasses the following:

• Doing, or planning to expand, business globally

• Giving up the distinction between the domestic market and foreign market and developing a global outlook of the business

• Locating the production and other physical facilities on a consideration of the global business dynamics, irrespective of national consideration

• Basing product development and production planning on the global market considerations

• Global sourcing of factors of production, ie raw materials, components, machinery, technology, finance ect., are obtained from the best source anywhere in the world

• Global interaction of organizational structure and management culture

Drivers of Globalization

• International Trade (lower trade barriers and more competition)

• Financial flows (foreign direct investment, technology transfers / licensing, portfolio investment and debt)

• Communications (traditional media and internet)• Technological advances in transportation,

electronics, bioengineering and related fields• Population mobility, especially of labour

Levels of Globalisation

Globalisation at world level– globaliastion of production and globalisation of finance

Globalisation at the level of a specific country

Globalisation at the level of a specific industry

Globalistion at the level of a specific company

Factors influencing globalization

Dismantling of barriers to international economic transactions

Over-capacity and over-productionTechnological advancesEmerging forms of industrial organizationPolitical factors

Features Of Current Globalization

• New markets• New actors– WTO, ASEAN, NAFTA etc.,• New rules and norms• New tools of communication

Globalization in India

India’s economic integration with the rest of the world was very limited because of the restrictive economic policies until 1991.With the new economic policy in 1991, globalization of Indian firms are expanding their overseas business by different strategies

Steps towards globalization

• Exchange rate adjustment and Rupee convertibility

• Import Liberalization• Opening up to Foreign capital

Obstacles To Globalization

• Government Policy and Procedures• High Cost• Poor Infrastructure• Resistance to change• Poor Quality Image• Supply Problems• Small Size

• Lack of Experience• Limited R & D and Marketing Research• Growing Competition• Trade Barriers

Effects of Globalization

• Effects on the external sector• Effects on the Indian Enterprise

Factors Favouring Globalization

• Human Resources• Wide Base• Growing Entrepreneurship• Growing Domestic Market• Niche Market (a niche is a small segment of

market ignored or not properly served by large players)

• Expanding Markets

• Transnationalisation of World Economy• NRIs• Economic Liberalization• Competition

Year Growth (real) (%)

2000 5.5

2001 6.0

2002 4.3

2003 4.3

2004 8.3

2005 6.2

2006 8.4

2007 9.2

2008 9.0

2009 7.4

2010 10.6

GDP growth rate the economic liberalization of 1991, India's GDP has been growing at a higher rate.

Features Of Current Globalization

• New markets• New actors– WTO, ASEAN, NAFTA etc.,• New rules and norms• New tools of communication

Globalization in India

India’s economic integration with the rest of the world was very limited because of the restrictive economic policies until 1991.With the new economic policy in 1991, globalization of Indian firms are expanding their overseas business by different strategies

Steps towards globalization

• Exchange rate adjustment and Rupee convertibility

• Import Liberalization• Opening up to Foreign capital

Obstacles To Globalization

• Government Policy and Procedures• High Cost• Poor Infrastructure• Resistance to change• Poor Quality Image• Supply Problems• Small Size

• Lack of Experience• Limited R & D and Marketing Research• Growing Competition• Trade Barriers

Effects of Globalization

• Effects on the external sector• Effects on the Indian Enterprise

Factors Favouring Globalization

• Human Resources• Wide Base• Growing Entrepreneurship• Growing Domestic Market• Niche Market (a niche is a small segment of

market ignored or not properly served by large players)

• Expanding Markets

• Transnationalisation of World Economy• NRIs• Economic Liberalization• Competition

Globalization and its impact on Indian economy

Globalization and its impact on India

“ Globalization means free movement of capital, goods, technology, ideas and people. Any globalization that omits the last one is partial and non sustainable” ---- Branko Milanovic

Globalization is the process of integrating various economies of the world without creating hindrances in the free flow of goods and services, technology, capital and even labour or human capital.The term globalization has therefore four parameters:1. Reduction of trade barriers to permit free flow of goods and

services among nation-states;2. Creation of environment in which free flow of capital can take

place among nation-states;3. Creation of environment, permitting free flow of technology; and4. From the point of view of developing countries, creation of

environment in which free movement of labour can take place in different countries in the world

Thus basically globalization signifies a process of “ industrialization plus liberalization”

• In nutshell , globalization is considered as• the engine of growth, • $technical advancement, • raising productivity,• enlarging employment and • bringing about poverty reduction along with

modernization

1. Increase of imports far greater than increase in exports ( as percentage of GDP at market price)

YEAR Exports Imports Total trade

Trade balance

Net invisible balance

Current account

External debt

1990-91 5.8 8.8 14.6 -3 -.1 -3.1 28.7

1995-96 9.1 12.3 21.4 -3.2 1.6 -1.7 27

2000-01 9.9 12.6 22.5 -2.7 2.1 -.6 23.3

2001-02 9.4 11.8 21.2 -2.4 3.1 +.7 21.2

2002-03 10.6 12.7 23.3 -2.1 3.4 +1.3 20.3

2003-04 11.1 13.3 24.4 -2.2 4.6 +2.3 17.8

2004-05 12.2 17.1 29.3 -4.9 4.5 -0.4 18.5

2005-06 13 19.5 32.5 -6.5 5.2 -1.1 17.2

2006-07 14 20.9 34.9 -6.9 5.8 -1.1 17.9

2007-08 14.1 21.9 36 -7.8 6.3 -1.4 19.0

2008-09 15.4 25.1 40.5 -9.7 7.4 -2.4 20.5

2009-10 14.4 23.1 37.5 -8.7 6.4 -3.1 20.1

2. Foreign Investment FlowsForeign investment takes two forms– foreign direct investment (FDI) and foreign portfolio investment (FPI)FDI helps to increase the productive capacity of the economy , whileFPI a more speculative nature and is thus volatileThere exist a gap between approved FDI and actual inflows. If globalization has to make an impact and prove its efficiency , the gap has to be reducedFDI inflows and outflows:Whereas the Government of India has been initiating measures to attract FDI inflows into India, certain Indian firms have been undertaking investment projects in other countries. This has resulted in FDI outflows. Thus Net FDI inflow = FDI inflows – FDI outflows

FDI INFLOWS AND OUTFLOWS IN INDIA US$ millionFigures in brackets are percentage of FDI inflows

YEAR INFLOWS (1)

OUTFLOWS (2)

NET FDI INFLOWS (3 = 2-1)

1992-97 * 1,676 (100.0) 96 (5.7) 1,580 (94.3)1998 2,633 (100.0) 47 (1.8) 2,586 (98.2)

1999 2,168 (100.0) 80(3.7) 2,088 (96.3)

2000 2,319 (100.0) 509 (21.9) 1,810 (78.1)2001 3,403 (100.0) 1,397 (41.0) 2,006 (58.9)

2002 3,449 (100.0) 1,107 (32.1) 2,342 (67.9)

2003 4,269 (100.0) 913 (21..4) 3,356(78.6)

2007 25,122 (100.0) 17,281 (68.8) 7,841 (31.2)

2008 40,418 (100.0) 18,499 (45.8) 21,919 (54.2)

2009 34,613 (100.0) 14,897 (43.0) 19,716 (57.0)

• The consequence of the larger FDI outflows after 2000 has been a sizable reduction in net FDI inflows. Ultimately , it is the net FDI inflow which increases the rate of investment and the productivity of the Indian economy.

• Beside this, FDI investment is used to nullify the comparative cost advantage, more especially cheap labour as well as raw materials by transferring production processes to developing economies.

• FDI inflows are not all growth-oriented as advocated by pro-globalizers lobby, a big part of the inflows is used to destroy the comparative cost advantage of developing countries.

• The MNCs undertake outsourcing and insist on Just-In- Time delivery and thereby enhance their profits from the production processes established in developing countries.

3. Employment, Flexibility and Impact on Labour:World Commission on social Dimension of Globalization states “for the world as a whole the latest estimates show that open unemployment has increased over the last decade to about 188 million in 2003”Employment situation in India during the era of Globalization:The employment situation in India has worsened in the era of globalization.The rate of growth of employment which was 2.04% during 1983-94 declined to low level of 0.98 in 1994-2000.This was a consequence of a negative growth rate of employment in agriculture.The neglect of agriculture and shedding excess load in the employment of public sectors by imposing continuous ban on recruitment and not filling up even the positions vacated by retirement of public sector employers

• Globalization pushed workers from the organized sector to unorganized sectors.

• Globalization increased the process of informalization of the economy.

• The problems of unemployment, casualization, lower wages, part-time jobs, less or no security in jobs have manifested themselves in a much greater degree.

• The bargaining power of trade unions has been considerably reduced and they are to accept “ concession bargaining” instead of “ collective bargaining”Mandays lost 1976 and 1990 1991 and 2000

strikes 54.9% 39.2%

lockout 45.1% 60.8%

Inequality and Poverty:ILO Report (2004) states “ income inequality has increased in some industrialized countries, reflected in an increase in the share of capital in national income as well as an increase in wage inequality between mid-1980’s and the mid 1990’s”Poverty declined from 36% in 1993-94 to 26.1 in 1999-2000 but significant increase in rural-urban inequalities at all – India levelSlowing down of the process of Poverty Reduction:The growth rate of GDP was higher in 1990’s than in 1980’s.The paradox of higher growth of GDP and lower rate of poverty reduction is the direct result of unequal distribution of rich and marginalized section of the population.The main reason for the slow decline in poverty reduction is geographical pattern of growth promoted by policies of LPG.

Double Standards of Developed Countries:Developed countries demand so many concession and reductions in tariffs from developing countries, but are they encouraging free flow of trade, capital and technology across states ; or they using globalization to their advantage?Feminization of labour in low wage jobs:Since majority of women are working in the informal sector, they are most affected by the forces of free trade and are driven into low-end jobs.By exploiting home-based workers, the employers are able to reduce their costs to the minimum.The unfair treatment of women labour which has been caused by globalization calls for remedial actions

Goal of full employment and decent work sidelined under Globalization:ILO has been pleading for the “ promotion of opportunities for men and women to obtain decent and productive work in conditions of freedom, equality, security and human dignity”Weakening of the welfare state in favour of markets:Pressure by MNC’s, the IMF and World Bank forced

government to take decision about privatization of public enterprise , opening of FDI in several sectors such as retail trade, consumer goods hurting small and medium enterprise leading to closure and resultant unemployment

Globalization has led to more insecurity for workers, increased militancy of employers against workers and enhanced the phenomenon of lock outs

Failed to provide infrastructural facilities to rural areasGlobalization bypassed the agricultural sector – 60% of

populationPowerful MNC’s replaced public monopolies to private

monopoliesD. Narashima Reddy in his presidential address to Indian

Society of Labour Economics (2004) concluded “ that markets have a place but the task is to place the markets in their place. Markets should not be allowed to destroy the social fabric, which even the state cannot reconstruct easily. Markets need to be regulated in order to prevent them from causing social disruption. The task of ensuring ‘ decent work’ in third world is a task of restoring the state its rightful place in development”

Industrial Policy - 1991 Industrial policy has so dominantly determined the

pattern and direction of development of the economy

Industrial policy indicated the respective roles of the public, private, joint and cooperative sectors; small, medium and large scale industries and the national priorities and the economic development strategy.

INDUSTRIAL POLICY UP TO 1991

• RESERVATION OF INDUSTRIES

• DOMINANCE OF PUBLIC SECTOR

• ENTRY AND GROWTH RESTRICTIONS

• RESTRICTIONS ON FOREIGN CAPITAL AND TECHNOLOGY

THE NEW INDUSRIAL POLICY

• The Industrial Policy announced on July 24, 1991, which heralded the economic reforms in India, has enormously expanded the scope of the private sector by opening up most of the industries for the private sector and substantially dismantling the entry and growth restrictions.

• The industrial policy reforms have reduced the industrial licensing requirement, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and foreign direct investment.

Objectives• Self-reliance to build on the many sided gains already

made• Encouragement to Indian entrepreneurship ,

promotion of productivity and employment generation

• Development of indigenous technology through greater investment in R&D and bringing in new technology to help Indian manufacturing units attain world standards.

• Increasing the competitiveness for the benefit of the common man

• Incentives for the industrialisation of back ward areas• Enhanced support to the small – scale sector• Ensure running of public sector undertakings (PSUs)

on business lines and cut their losses.• Protect the interests of workers• Abolish the monopoly of any sector in any field of

manufacturing except on strategic or security grounds

• To link indian economy to the global market so that we acquire the ability to pay for imports, and to make us less dependent on aid

Initiatives of policies relating to the following areas:

• Industrial Licensing

• Foreign Investment

• Foreign Technology Agreements

• Public Sector Policy

• MRTP Act

SMALL SCALE INDUSTRIES• The village and small industries (VSI) sector in

India consists of a very wide spectrum of industries categorised under small, tiny and cottage segments

• The VSI sector consists , broadly of:Traditional cottage and household industries

( viz., handloom, khadi and village industries, sericulture, handicrafts )

Modern small-scale industries including tiny units and power looms

Importance of SSI in India:95% of the industrial units40% of output in manufacturing sectors35% of total exportsEmployment of about 18 million people

Role & Performance of cottage &SSI in Indian Economy

1. Expansion of SSI sector and its share in industrial output

2. Employment generation3. Efficiency of SSI industries4. Equitable distribution of National income5. Mobilisation of capital & entrepreneurial skill6. Regional dispersal of industries7. Less industrial disputes8. Contribution to exports

PROMOTIONAL MEASURESNumber of measures have been taken by the governments, central and state, to protect this sector from the onslaught of the large sector and to promote its growth.1. Reservation of products2. Reservation and Preference in Government

Procurement3. Infrastructural and Institutional support(DIC, KVIC)4. Machinery on Hire Purchase (NSIC)5. Marketing Assistance(SIDO, KVIC etc)6. Financial Assistance

….contd

7. Training ( EDII)8. Supply of raw materials

• Industrial Estate programme• EPZs / SEZs Industrial parks• Integrated Infrastructural Development

Scheme• Cluster development• Industrial Growth Centres Schemes

INSTITUTIONAL SUPPORT STRUCTURE

• Women Entrepreneurs• State industrial policies• Khadi and Village Industries• Ancillary Industries

Industrial sickness

• Causes of sickness• Preventive and curative measures

• According to Companies Act, 2002"`Sick Industrial Company' means an industrial company which hasi) The Accumulated losses in any financial year equal to 50 per cent or more of its average net worth during four years immediately preceding such financial year; orii) Failed to repay its debts within any three consecutive quarters on demand made in writing for its repayment by a creditor or creditors of such company."

Causes of sickness in small scale industryThe different types of industrial sickness in Small Scale Industry (SSI) fall under two important categories. They are as follows:Internal causes for sicknessWe can say pertaining to the factors which are within the control of management. This sickness arises due to internal disorder in the areas justified as following:

a) Lack of Finance: This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds.

b) Bad Production Policies : The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.

• c) Marketing and Sickness : This is another part which always affects the health of any sector as well as SSI. This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions.

• d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers.

• e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc.

External causes for sicknessa) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area.b) Marketing Constraints: The second cause for the sickness is related to marketing. The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession.c) Production Constraints: This is another reason for the sickness which comes under external cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions.d) Finance Constraints: The another external cause for the sickness of SSIs is lack of finance. This arises due to credit restrains policy, delay in disbursement of loan by govt.

Consequences of Industrial Sickness

• Setback to employment prospect• Fear of industrial unrest• Wastage of resources• Adverse impact on related units• Adverse effect on investors and entrepreneurs• Losses to banks and financial institutions• Loss of revenue to Government

EXIT Policy

The action plan entails closure of sick units, both in public and private sectors.

Exit policy refers to the policy regarding the retrenchment of the surplus manpower resulting from restructuring of industrial units or the workers becoming unemployed by the closure of sick units.

Need for EXIT Policy

• Surplus manpower is a major problem of many industrial units in India.

• In a competitive system demands cost efficiency improvement and cost reduction

• There is no economic and social justification for continuation of sick units

• The closure of unviable sick units are not allowed , the whole economy would become sick in due course

• Technological developments which increase productive efficiency are affecting employment in many organisations all over the world.

• According to Sudipto Mundle , 2.4 million surplus manpower in the industrial sector in India

• Business today estimated tat 1.8 million of the total of over 10 million government staff, including administrative staff and workers in departmental undertakings( like railways, telecom etc) was excess

NATIONAL RENEWAL FUNDAn important step taken by Central Government to benefit workers affected by industrial restructuring, modernisation or closure of the unit was the establishment of NRF which was operationalised in 1992Objectives :1. To provide assistance to cover the cost of retraining and redeployment of employees arising as a result of modernisation and technological upgradation

2. To provide funds for compensation to employees affected by restructuring or closure of industrial units, both in public and private sectors3. To provide funds for employment generation schemes in the organised and unorganised sectors to provide social safety net for labour

EXIM POLICY

Trade Policy in India• Since independence the number of changes has been took

place in all most all sectors of the Indian economy.• As far as foreign trade is concerned ,India has adopted an

inward-oriented restrictive trade policy till 1960"s. • Since 1960"s, India has adopted the import substitution

policy, however the liberalisation era was started in 1970"s, but it is a mild in nature, in the late 1980"s and early 1990"s the drastic changes have been took place under the leadership of Prime Minister Mr. P.V.NarshimhaRao, and the finance minister Dr. Manmohan Singh.

Trade Policy in India

• Indian economy has shifted towards the globalisation and our economy is linked with world economy. During 1950-1951 to 2011- 2012 the Govt, of India have been implemented number of foreign trade policies, these policies have brought a tremendous changes in Indian’s foreign trade.

• As far as foreign trade policy is concerned number of changes have been took place during the planning period i.e. 1951-1952 onwards

Trade Policy of GOI

Solution of the balance of payments problems of a country depends considerably on the policies it adopts in the important sector and export sector.Classification of periods in India:1) pre- reform period ( prior to 1990)2) The post reform period (after 1990)

New Trade Policy- The Reform Period

FEATURES• Free imports and exports• Rationalisation of tariff structure• Decanalisation• Convertibility of rupee on current account• Trading house• Special Economic Zones• EOU scheme• Agriculture Export Zones

…contd

• Market acess intitative schemes• Focus on service exports• Concessions and exemptions

Foreign Trade Policy (2004-2009)

• The new Foreign Trade takes an integrated view of the overall development of India’s foreign trade and goes beyond the traditional focus on pure exports.

“Trade is not an end in itself, but a means to economic growth and traditional development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity.”

Objectives of FTP 2004-09

1. To double our percentage share of global merchandise trade within the next five years and

2. To act as an effective instrument of economic growth by giving thrust to employment generation

Strategy of FTP 2004-09

1. Un lacking of controls and creating an atmosphere of trust and transparency in dealing with business

2. Simplifying procedures and bringing down transaction costs.

3. Neutralising incidence of all levels and duties on imports used in export products

4. Facilitating development of India as a global hub for manufacturing, trading and services

…contd

5. Identifying and nurturing special focus areas which would generate additional employment opportunities, particularly in semi-urban and rural areas6. Facilitating technological and infrastructural upgradation of all the sectors of the Indian economy, especially through import of capital goods and equipment7. Avoiding inverted duty structures and ensuring that domestic sectors are not disadvantaged in trade agreements

…contd

8. Reviatilising the Board of Trade by redefining its role, and inducing into it experts on trade policy9. Upgrading the infrastructural network related to the entire foreign trade chain, to international standards

Main Features of FTP – 2004-09• Doubling share of global merchandise• Five thrust sector• ‘served from India ’ to be built as a brand• New categories of star houses• ‘Target Plus’ scheme• Setting up of Free Trade and Warehousing Zones (FTWZs)• Sops for EOUs• Reducing Transactional costs and simplifying procedures• Focus on Infrastructure Development• Other Measures

MODULE 5

INFRASTRUCTURAL DEVELOPMENT IN INDIAN ECONOMY

Development of Infrastructure is a sine qua non of economic development. Industrial progress depends on the development of

power and electricity generation, transport and communications.

1. Sources of energy in IndiaI ) Sources of energy

a. Power or electricity … Electricity Act 2003 … sources of power

b. Coalc. Oil and Gas

d. Atomic energye. Non Conventional Energy Sources

… Biogas … Solar energy … Wind power

II ) Energy CrisisIII) Energy Strategy

… Energy resources and their exploitation … Energy Conservation and Management of oil

…. Energy strategy for the future …. Strategies for achieving energy security

2. TRANSPORT SYSTEM IN INDIA

1. Problems and Issues in Railway Development

2. Road Development3. Water Transport

4. Air Transport5. Communications

2. Natural Resource Management

Resources are generally defined as all those things available in man’s physical environment on which he depends for the

satisfaction of some want or other.

NATURAL RESOURCES AND ECONOMIC DEVELOPMENTThe classical economists had interpreted development or

under development of particular regions in terms of availability of natural resources.

a) Land resourcesb) Water resource and National policy

c) Forest resource and Government policyd) Mineral resources and Government Policy

e) Ecological Imbalance and its causes and remedies

3. Environment and Sustainable Development

Sustainable development can be achieved only if the environment is covered and improved. Therefore, a

development path is sustainable “if only if the capital assets remains constant or rises over time”

A) GROWTH AND ENVIRONMENTAL DEGRADATION:1. Water pollution

2. Air pollution3. Soil degradation4. Deforestation

5. Loss of Biodiversity6. Atmospheric changes – green house effect and ozone

depletion

…. cotd

B) THE BURDEN OF POPULATION ON ENVIRONMENT:

- Rural population and environmentUrban Population and environment

C) ENVIRONMENT AS A NECESSITY AND LUXURY:

D) THE GLOBAL CONCERNS