policy change after 1990 26/06 (liberalization (Financial sector reforms…
policy change after 1990 26/06
India approached IBRD and IMF took 7 billion$
Indian government borrowed money (deficit financing), became unsustainable.. crisis in 1991
india agreed to conditions of liberalization and reducing role of government in many areas. announced NEP
india faced foreign exchange reserve crisis( unable to make repayment of external borrowing, and raising prices of essential goods.
according to NEP, short-term measures to stabilize such as control inflation
Financial sector reforms
financial institutions allowed to take decisions on many matters without consulting RBI, banks allowed to lend above floor rates based on perception of risk
led to establishment of private sector banks, indian as well foreign.
RBI's role changed from regulator to facilitator of financial sector
foreign investment increased to around 50%
include commercial bank, investment banks, stock exchange and foreign exchange markets.
few aspects retained with RBI in the interest of account holders.
FII allowed to invest in indian financial markets
now accepted moderate tax rate promote voluntary disclosure of income and promotes savings.
rate of direct taxes reduced, as high rate of tax is the reason for tax evasion
rate of corporate tax gradually reducted
trying to structure indirect taxes.. in order to establish common national market.
fiscal policy meaning
simplification also encourages better compliance from tax payers.
deregulation of industrial sector
industrial licensing was abolished except a few(8), removed many of above restrictions
goods reserved only for small-scale industries dereserved.
previously, it was mandatory to obtain licence from govt officials to start a firm. private section not allowed in many sectors, some goods only for small scale industries and control of price fixation and distributions
market allowed to determine prices
foreign exchange reforms
allowed free determination of rupee based on international marked
often marked demand and supply determines exchange rates
indian currency devalued against foreign currency, allowing for foreign investment
various sectors, financial, industrial, tax reforms foreign exchange market and trade and investment sector
government's rules and regulations made to protect domestic players and lead to growth of economy, started to hamper the development
Trade and investment policy
remove quantitative restrictions on imports. removeal of tarrifs
import licencing abolished except in case of hazardous and environmentally sensitive industries
promote adoption of modern technology in local industries
quantitative restrictions on manufactured consumer goods and agricultural products full removed april 2001;
reforms to increase international competitiveness of industrial products, bring foreign investments and technology into economy.
Export duties also removed to make indian goods competitive in international maket
many custom duties rationalized.