Question

economy adapt to globalisation in indian?

Answer 1

Measure 1# Import Liberalization:

For liberalizing foreign trade, import controls through licensing was abolished.

With this almost all items of capital goods, raw materials, intermediate goods can be freely imported subject only to payment of customs duties. For some time quantitative restric­tions on consumer goods remained but with effect from 1995 all quantitative restrictions, even on imports of consumer goods, have been lifted.

ADVERTISEMENTS:

To liberalize imports peak customs duties which in some cases were as high as over 300 per cent were lowered in stages to 150 per cent in July 1991, to 85 per cent in Feb. 1993, 50 per cent in 2002. The average import duty was further reduced to 31 per cent in 2003 and to 20 percent in Jan. 2004, to 15 per cent in 2005 and further to 12.5% in 2006.

Import duties on capital goods have been reduced even below 20 per cent for certain categories. This phased reduction in exceptionally high customs duties and a phased removal of quantitative restrictions on imports has substantially reduced anti- export bias in the earlier trade and balance of payment policies.

Measure 2# Imports of Gold and Silver:

Imports of Gold and Silver have been considerably liberalized. This reduced the incentive for smuggling. In Jan. 2004 imports of gold were made free from any commission charged for it.

Measure 3# Market-Determined Exchange Rate:

An important measure in external sector was to devalue the rupee in July 1991 and after about 2 years in 1993 exchange rate was changed from basket based pegged exchange rate system to market-determined exchange rate. With this the exchange rate of the rupee today is determined by demand and supply conditions in the foreign exchange markets.

Measure 4# Convertibility of Rupee:

ADVERTISEMENTS:

Another important reform for globalizing the Indian economy was the convertibility of rupee on balance of payments on current account. This implies the importers can get their required quantity of foreign exchange by converting their rupee resources into dollars from the foreign exchange market. The exporters do not have to surrender their foreign exchange (US dollar or EU Euro) earned abroad to RBI but can now sell them in the foreign exchange markets.

Measure 5# Liberalisation of Foreign Investment:

The new economic policy adopted since 1991 considerably liberalized the scope of foreign investment, both direct and portfolio. Earlier investment by foreign companies required prior approval of the government and was restricted to 40 per cent equity participation and was also subjected to the conditions of technology transfer to India. Besides, foreign investment was permitted in priority areas only. Foreign portfolio investment was allowed mainly into a limited number of public sectors bond issues.