Major Economic Reforms In 1st Phase

 After getting independence, it was believed that imperial foreign rule would return in
the guise of economic domination through trade and investment.
 The major failure at the overall macro-economic level was that the growth rate in
national income was very slow, particularly in per capita income.
 Under Nehru ji, India set up the Planning Commission in 1950 to oversee the entire
range of planning, including resource allocation, implementation and appraisal of
five-year plans. The five-year plans were centralized economic and social growth.
 During the Five Years Plans initiated in the 1950s, most of the policies were meant
towards the increase of exports compared to imports, central planning, business
regulation and also intervention of the state in the finance and labor markets.
 In the mid 50's huge scale nationalization was done to industries like mining,
telecommunications, electricity.
 The second five-year Plan and the Industrial Policy Resolution 1956 led to the
development of the public sector and ushered in the licence Raj. The resolution set out
as national objective the establishment of a socialist pattern of society
 During mid 60s the government initiated the ‘Green Revolution’ movement and
stressed on better agricultural yield through the use of fertilizers, improved seed and
lots more. New irrigation projects were undertaken and the rural banks were also set
up to provide financial support to the farmers. The aim was to make India self
sufficient and to increase production and export of food grains.
 The Lal Bahadur Shastri government’s Operation Flood led to a rapid increase in milk
production. Self-sufficiency in the dairy sector was achieved entirely through the
cooperative movement, which has spread to more than 12 million dairy farmers across
the country. Decades later, Amul, the brand started by cooperative farmers in Anand,
remains a market leader
 Export-Import Policy, 1985 was announced in order to pave the way for easier and
quicker access to imports, strengthening export production base and for facilitating
technological up-gradation.
Major Economic Reforms In 2nd Phase

 Due to the fall of the Soviet Union and the problems in balance of payment accounts,
the country faced economic crisis and the IMF asked for the bailout loan.
 The then government initiated economic liberation reform in the year 1991. This is
considered to be one of the milestones in India economic reform as it changed the
market and financial scenario of the country. Under the liberalization program,
foreign direct investment was encouraged, public monopolies were stopped, and
service and tertiary sectors were developed.
 The reforms are to increase the efficiency and international competitiveness of
industrial production, to utilize foreign investment and technology to a much greater
degree than in the past, to improve the performance and rationalize the scope of the
public sector and to reform and modernize the financial sector so that it can more
efficiently serve the needs of the economy.
 Fiscal Policy Reforms- The Government initiated various fiscal measures in order to
reduce the fiscal deficit from 8.4 per cent of GDP in 1990-91 to 5.0 per cent in 1996-
97 and to 3.7 per cent in 2006-2007. In order to achieve this target, the Government
introduced various controls over public expenditure and took initiative to raise both its
tax and non-tax revenue, reduction of subsidies, encouraging state governments to
streamline the working of State Electricity Boards and State Transport Corporations
and withdrawal of budgetary support to Central public sector enterprises and to
improve their profitability and efficiency.
 Pricing Policy Reforms- The Government increased the administered prices of
various commodities and inputs and gave greater freedom to public sector enterprises
to set price as per market forces.
 Industry Policy- Abolition of the scheme of industrial licensing for all industrial
projects, De-reservation of the area of public sector from 17 to 8 industries in order to
open up area of investment for the private sector, Liberalization of location policy.
 Public Sector Policy Reforms- Reservation of list of industries under public sector
reduced to 8 as against 17 industries, Progressive reduction of budgetary support of
public enterprises, Inviting private sector participation to increase market discipline
and also the competitive capacity of these public sector enterprises through
disinvestment of part of equity of selected enterprises, The Government has also
decided to disinvest 20 per cent of the equity of public enterprises to selective private
 sector enterprises. Accordingly, in 1991-92 and in 1992-93, Rs. 3,038 crore and Rs.
1,866 crore respectively were raised through disinvestment of PSE shares.
 Impact of introduction of new policies, helps in attaining economic growth at the rate
of 3 to 3.5 per cent in 1991-92 and at 4 per cent in 1992-93, Reducing the annual rate
of inflation by 9 per cent in 1991-92 followed by 6 per cent in 1992-93, Reducing
current account deficit in the budget from 2.5 per cent of GDP in 1990-91 to 2.0 per
cent by 1992-93.

Latest Major Economic Reforms

Corporate tax cut: By announcing a large corporate tax rate cut and a much lower rate
for new manufacturing companies, the government has clearly shown that it will leave no
stone unturned to revive the industry sector.

Easing of FDI norms: The opening up of FDI in several sectors is especially timely as in
this era of trade wars. Foreign investment is a key source of economic growth as well as
non-debt finance for the country. Despite the decline in FDI trends globally, India is the
recipient of an all-time high FDI inflow of $64.4 billion in 2018-19. Current policy
permits 100% FDI under the automatic route for two categories: (a) coal and lignite
mining, limited only for captive consumption purposes by power generation projects,
iron, coal washing units.

Announcements on single-brand retail: The announcement on single-brand retail is

very important as it gives major flexibility and ease of operations for potential investors.
single-brand retail firms would also be permitted to open online stores before setting up
brick-and-mortar shops. The government allowed 100% FDI in the sector, permitting
foreign players in single-brand retail trade to set up own shops in India without
government approval.

Big bank mergers: The merger of PSBs is also an idea whose time had come as stronger
banks increase productivity, lessen asset quality pressure, boost liquidity and credit flow,
improve overall operating efficiency and corporate governance. The bigger banks have
that much more ability to absorb shocks, reap economies of scale as well as the capacity
to raise resources without depending unduly on the exchequer.
Macroeconomic Factors Affecting Economic Growth

Inflation: It means increase in prices for energy, food, commodities, and other goods and
services, impact the cost of living, the cost of doing business, borrowing money. If
inflation becomes too high the economy can suffer; conversely, if inflation is controlled
and at reasonable levels, the economy may prosper. With controlled, lower inflation,
employment increases. Consumers have more money to buy goods and services, and the
economy benefits and grows

Consumer Price Index: A Consumer Price Index measures changes in the price level of
a weighted average market basket of consumer goods and services purchased by
households. The prices of goods and services fluctuate over time, but when prices change
too much and too quickly, the effects can shock an economy. The CPI measures inflation,
one of the greatest threats to a healthy economy. It eats away at the standard of living if
the income of the person doesn't keep pace with rising prices. Over time, it increases your
cost of living. If the inflation rate is high enough, it hurts the economy.

Gross Domestic Product: is a calculation of the total market value (that is, the total
selling price) of all goods and services produced in the country. It includes commercial
goods, which are physical items that are sold – such as an automobile, a piece of jewelry,
a book or a cantaloupe. If the value of GDP is increasing compared to the last year or last
GDP result then it means the economy is in good shape but if the value is low then the
economy is not in good state. Conversely, the higher GDP growth reflects a healthier
economy with low unemployment and high wages, as businesses demand labour to meet
the growing economy.

Unemployment: Unemployment rate of a country is a very common measure for

determining the health of an economy. he effects of unemployment on the economy are
equally severe; a 1 percent increase in unemployment reduces the GDP by 2 percent.
High unemployment indicates the economy is operating below full capacity and is
inefficient; this will lead to lower output and incomes. The unemployed are also unable to
purchase as many goods, so will contribute to lower spending and lower output.