About Economic Liberalisation

Topics: India, Macroeconomics, Economics Pages: 17 (4992 words) Published: January 26, 2013

Economic liberalisation in India
From Wikipedia, the free encyclopedia
The economic liberalisation in India refers to ongoing economic reforms in India that started on 24 July 1991. After Independence in 1947, India adhered to socialist policies. Attempts were made to liberalize economy in 1966 and 1985. The first attempt was reversed in 1967. Thereafter, a stronger version of socialism was adopted. Second major attempt was in 1985 by Prime Minister Rajiv Gandhi. The process came to a halt in 1987, though 1966 style reversal did not take place.[1] In 1991, after India faced a balance of payments crisis, it had to pledge 20 tons of gold to Union Bank of Switzerland and 47 tons to Bank of England as part of a bailout deal with the International Monetary Fund (IMF). In addition, the IMF required India to undertake a series of structural economic reforms.[2] As a result of this requirement, the government of P. V. Narasimha Rao and his finance minister Manmohan Singh (currently the Prime Minister of India) started breakthrough reforms, although they did not implement many of the reforms the IMF wanted.[3][4] The new neo-liberal policies included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling measures. The overall direction of liberalisation has since remained the same, irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.[5] Thus, unlike the reforms of 1966 and 1985 that were carried out by the majority Congress governments, the reforms of 1991 carried out by a minority government proved sustainable. There exists a lively debate in India as to what made the economic reforms sustainable? [6] The fruits of liberalisation reached their peak in 2007, when India recorded its highest GDP growth rate of 9%.[7] With this, India became the second fastest growing major economy in the world, next only to China.[8] The growth rate has slowed significantly in the first half of 2012.[9] An Organisation for Economic Co-operation and Development (OECD) report states that the average growth rate 7.5% will double the average income in a decade, and more reforms would speed up the pace.[10] Indian government coalitions have been advised to continue liberalisation. India grows at slower pace than China, which has been liberalising its economy since 1978.[11] The McKinsey Quarterly states that removing main obstacles "would free India’s economy to grow as fast as China’s, at 10 percent a year".[12] There has been significant debate, however, around liberalization as an inclusive economic growth strategy. Since 1992, income inequality has deepened in India with consumption among the poorest staying stable while the wealthiest generate consumption growth.[13] For 2010, India was ranked 124th among 179 countries in Index of Economic Freedom World Rankings, which is an improvement from the preceding year. Contents [hide]

1 Pre-liberalisation policies
1.1 Impact
2 Narasimha Rao government (1991–1996)
2.1 Crisis
3 Sustainability of Economic Liberalization
4 Later reforms
5 Impact of reforms
6 Ongoing economic challenges
6.1 Reforms at the state level
7 See also
8 References
9 External links
[edit]Pre-liberalisation policies

Part of a series on the
History of Modern India

British Raj (1858–1947)
Independence movement (1857–1947)
Partition of India (1947)
Political integration (1947–49)
States Reorganisation Act (1956)
Non-Aligned Movement (1956– )
Green Revolution (1970s)
Indo-Pakistani War of 1971
Emergency (1975–77)
1990s in India
Economic liberalisation
2000s in India
See also
History of India
History of South Asia
India portal
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Further information: Economic history of India and Licence Raj Indian economic policy...
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