The govt. at this severe crisis managed the situation along classical lines. In the short term, theGovt. pledged a part of gold reserves to meet foreign exchange liabilities. In the medium term,the govt. arranged a loan from IMF and in the long run, the govt. initiated far-reaching reformsprogramme which included changes in trade policy and economic policy. There were structuralreforms in the entire economic system. The central theme of structural reforms was restorationof fiscal balance to contain inflation and giving relief.
Thus, a number of economic and structural reformswere undertaken to bring about a radicalchange in business environment of the country. The changes which were brought about are asfollows:a)Abolition of licensingb)Abolition of FERA and liberalizing MRTPc)Higher percentage of foreign holdingd)Privatization of oil sector, telecom, aviation, banking, mininge)Giving more autonomy to public sectorf)Lowering corporate taxes, excise duties, import dutiesg)Low excise dutiesh)Taxing servicesi)Decanalisation of importsj)No export subsidiesk)Offering global patent protectionl)Convertibility of rupee in stagesm)Opportunity for Indian companies to become globaln)Financial sector with interest deregulation, and capital market reformso)Subsidy cutp)More liberalization FII normsq)Privatization of various infrastructurer)Setting up various regulatory bodies like TRAI, SEBI, IDRAs)New sea port policies, export-import policiest)More financial sector reformsWe indicate feature and realities of the changes in various sectors but in the course ofdiscussion we will analyze the basic framework, perspectives in the latest changes. However andmeanwhile, we may indicate the types of changes that have been brought in the model ofEconomic Management.Pre Reform StagesPost Economic Reform StagesClosed economyPublic sector in commanding heightImport substitutionLicense dominatedState interventionAdministered priceDeficit has no perilNatural monopolyRestriction on FDI and MNCsHigh tax regimeCredit market, state controlledOpen economyMarket determined growthExport promotionDelicensed, deregulatedSelective interventionMarket determined priceContained deficitCompetitive deficitFDI and MNCs welcomedLow tax regimes and tax reformsDeregulated credit reforms
Govt. abolishes the practices of multiplicity of agency network which give permission to newprojects. Companies Act has been changed to create room for merger and amalgamation. Banksand other PSUs have been given more freedom. More attempts have been made to createvibrant capital market.There has been more easy access to ADR/GDR market of the Indian companies at present. Thegovt. has set up a number of regulatory bodies to control unfair competition in trade andpricing. Private agencies have been invited for infrastructure building.MACROECONOMIC STABILISATIONOften called as just stabilisation, it involves returning to low and stable inflation and asustainable fiscal and balance of payments position. In the short run, trade liberalization mayincrease deficits in the BoPs and financial sector reforms may worsen fiscal position by raisingcost of public borrowing. Therefore, stabilisation must accompany structural reforms and