Chapter 3 - UNIT UNIT UNIT II III ECONOMIC REFORMS SINCE...

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E CONOMIC R EFORMS S INCE 1991 UNIT II
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After forty years of planned development, India has been able to achieve a strong industrial base and became self-sufficient in the production of food grains. Nevertheless, a major segment of the population continues to depend on agriculture for its livelihood. In 1991, a crisis in the balance of payments led to the introduction of economic reforms in the country. This unit is an appraisal of the reform process and its implications for India.
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After studying this chapter, the learners will understand the background of the reform policies introduced in India in 1991 understand the mechanism through which reform policies were introduced comprehend the process of globalisation and its implications for India be aware of the impact of the reform process in various sectors. L IBERALISATION , P RIVATISATION AND G LOBALISATION : AN A PPRAISAL 3
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39 LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 3.1 I NTRODUCTION You have studied in the previous chapter that, since independence, India followed the mixed economy framework by combining the advantages of the market economic system with those of the planned economic system. Some scholars argue that, over the years, this policy resulted in the establishment of a variety of rules and laws which were aimed at controlling and regulating the economy and instead ended up hampering the process of growth and development. Others state that India, which started its developmental path from near stagnation, has since been able to achieve growth in savings, developed a diversified industrial sector which produces a variety of goods and has experienced sustained expansion of agricultural output which has ensured food security. In 1991, India met with an economic crisis relating to its external debt — the government was not able to make repayments on its borrowings from abroad; foreign exchange reserves , which we generally maintain to import petrol and other important items, dropped to levels that were not sufficient for even a fortnight. The crisis was further compounded by rising prices of essential goods. All these led the government to introduce a new set of policy measures which changed the direction of our developmental strategies. In this chapter, we will look at the background of the crisis, measures that the government has adopted and their impact on various sectors of the economy. 3.2 B ACKGROUND The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. We know that for implementing various policies and its general administration, the government generates funds from various sources such as taxation, running of public sector enterprises etc. When expenditure is more than income, the government borrows to finance the deficit from banks and also from people within the country and from international financial institutions . When we import goods like petroleum, we pay in dollars which we earn from our exports.
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This note was uploaded on 01/19/2012 for the course ECONOMICS 3EN taught by Professor Dwaynesmith during the Fall '09 term at Central European University.

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Chapter 3 - UNIT UNIT UNIT II III ECONOMIC REFORMS SINCE...

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