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!