Lpg affect on technological advancements in india 1989
Answers
Answer:
Explanation:
Manifest pedagogy: LPG reforms of 1991 is a strategic shift in Indian economy which changed the very Nature of Indian reality today. This topic forms the foundation for Indian Economy today. Having a fair idea about the change it brought in Indian economy and international events which lead to it is important for the Mains across disciplines.
Placing it in syllabus: Indian economy and LPG reforms
Static dimensions:
Nature of Indian economy in the pre reform era
Factors which led to 1991 economic reforms
International events associated with Indian reforms
Current dimensions:
Nature and scope of reforms
Outcome of the LPG reforms
Nature of Indian economy in the pre reform era:
Indian economic policy after independence was influenced by the colonial experience, which emphasised on industrialization under state monitoring, state intervention in labour and financial markets, a large public sector, business regulation, and central planning.
Indian economy was a closed one. Licence Raj was prevalent to set up business in India. The Indian rupee was inconvertible and high tariffs and import licensing prevented foreign goods reaching the market.
The central pillar of the policy was import substitution, the belief that India needed to rely on internal markets for development, not international trade. There was restriction of foreign investment and technology and government controlled finance and capital markets.
There were high duties and taxes with multiple rates and large dispersion. PSUs were considered as the engine of growth. There were restrictions on Foreign Direct Investment (FDI) and Multinational corporations (MNCs).
Factors which lead to 1991 economic reforms:
Rise in Prices: The inflation rate increased from 6.7% to 16.7% due to rapid increase in money supply and the country’s economic position became worse.
Rise in Fiscal Deficit: Due to increase in non-development expenditure fiscal deficit of the government increased. Due to rise in fiscal deficit there was a rise in public debt and interest. In 1991 interest liability became 36.4% of total government expenditure.
Increase in Adverse Balance of Payments: In 1980-81 it was Rs. 2214 crore and rose in 1990- 91 to Rs. 17,367 crores. To cover this deficit large amount of foreign loans had to be obtained and the interest payment got increased.
Iraq War: In 1990-91, war in Iraq broke, which led to a rise in petrol prices. The flow of foreign currency from Gulf countries stopped and this further aggravated the problem.
Dismal Performance of PSUs: These were not performing well due to political interference and became big liability for government.
Fall in Foreign Exchange Reserves: India’s foreign exchange reserve fell to low ebb in 1990-91 and it was insufficient to pay for an import bill for 2 weeks.
International events associated with Indian reforms:
The Soviet Union was collapsing at the time, proving that more socialism could not be the solution for India’s ills.
Deng Xiaoping had revolutionized China with market-friendly reforms.
1990-91 Iraq war led to the stoppage of flow of foreign currency from Gulf countries.
To tide over the Balance of Payment (BoP) issues, India borrowed huge amount from International Monetary Fund (IMF).
The Asian financial crisis of 1997-99 laid India low.
The dot-com collapse and global recession of 2001, and the huge global uncertainty created in the run-up to the invasion of Iraq in 2003.
The global boom of 2003-08 spearheaded by China.
Nature and scope of reforms:
India’s New Economic Policy was announced on July 24, 1991 known as the LPG or Liberalisation, Privatisation and Globalisation model.
Liberalization- It refers to the process of making policies less constraining of economic activity and also reduction of tariff or removal of non-tariff barriers.
Privatization- It refers to the transfer of ownership of property or business from a government to a privately owned entity.
Globalization- It refers to the expansion of economic activities across political boundaries of nation states.
The main objective was to plunge Indian economy into the arena of “Globalization” and to give it a new thrust on market orientation. The policy was intended to move towards higher economic growth rate and to build sufficient foreign exchange reserves.
It wanted to achieve economic stabilization and to convert the economy into a market economy by removing all kinds of unnecessary restrictions. The policy aimed at increasing the participation of private players in all sectors of the economy.
Salient features of LPG Policy:
Abolition of Industrial licensing/ Permit Raj
Public sector role diluted
MRTP limit goes
Beginning of privatisation
Free entry to foreign investment and technology
Industrial location policy liberalized
Abolition of phased manufacturing programmes for new projects
Removal of mandatory convertibility cause
Reduction in import tariffs
Deregulation of markets
Reduction of taxes