1991

                                            India's development strategy has no charted path.Our's is an experimental path to a great extent. Since 1951 we have been in this track.within the framework of mixed economy we go with state intervention, centralized planning and expansion of public sector. There have been major developments in our polices since 1951. In 1991 we broke away from the old traditions in a big way.

                             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 reserve , which we generally maintain to import petrol and other important items, dropped to the 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.

BACKGROUND 

                                                   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 fund from various sources such as taxation, running of public sector enterprises etc. Wen 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 institution .

                                                                 Development policies required that even though the revenues were very low, the government had to overshoot its revenue to meet the problems like unemployment,poverty and population explosion. the continued spending on development programmes of the government did not generated additional revenue. Moreover the government was not able to generate sufficiently from internal sources such as taxation.When the government was spending a large share of its income on areas which do not provide immediate returns such as social sector and defence , there was a need to utilise the rest of its revenue in ahighly efficient manner. The income from the public sector undertaking was also not very high to meet the growing expenditure . At times,our foreign exchange borrowed from other countries and international financial institutions, was spent on meeting consumption needs . Neither was an attempt made to reduce such profligate spending nor sufficient attention was given to boost exports to pay for the growing imports. 

                                               In the late 1980s , government expenditure began to exceed its revenue by such large margins that meeting expenditure through borrowing became unsuitable. price of many essential goods rose sharply. Import grew at a high rate without matching growth of exports.As pointed out earlier, foreign reserves declined to a level that was not adequate to finance imports for more than two weeks.There was also not sufficient foreign exchange to pay the interest that needs to be paid to international lenders. Also no country or international funder was willing to lend to India.

                                               India approached the International Bank for Reconstruction and Development(IBRD),popularly known as World Bank and the International Monetary Fund(IMF),and received $7 billion as loan to manage the crises. For availing the loan, these international agencies expected India to liberalise and open up the economy by removing restrictions on the private sector, reduce the role of government in many areas and remove trade restrictions between India and other countries.

                                              India agreed to the conditionalities of the World Bank and IMF and announced New Economic Policy(NEP). The NEP consisted of wide ranging economic reforms. The thrust of the policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. this set of policies can broadely be classified into two groups: the stabilisation measures and the structural reforms measures. sabilisation measures are short term measures, intended to correct some weaknesses that have developed in the balance of payment  and bring inflation under control.On the other hand structural reforms policies are long term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of Indian economy. The government initiated a variety of policies which fall under three heads that is liberalization, privatization and globalization.

LIBERALIZATION 

                                                Indian economy prior to the nineties was practically an economy of controls or restrictions. Some of them were:physical control on output, price restrictions, restriction on investment level of big industrial houses, control in capital issue, check on foreign investment technology, license for imports and so on.These restrictions negatively affected the initiative of people and competitiveness of of enterprises. the end result of these restrictions was curruption and delays as the big industrialists could overcome them with the help of corrupted bureaucracy. In other words intervention was practically turned into interference, blocking growth and social justice. Thus it become more and more convincing that many of these restrictions were to be removed. The slackened policy towards the economic restriction came to be known as liberalization.

                                                                                        The major initiative for liberalization came with the announcement of industrial policy of  1991 and 1993 by the then Finance Minister                    Dr. Manmohan  Singh.  It had many liberal provision or promotional features in the areas of licensing, foreign investment and technology agreements, exit of industries etc. Besides, it had liberal provision in the matter of establishment, merger, amalgamation, takeover of units and appointment of certain directors.

        In the case of licensing the need was originally limited to only 18 commodities. Later three more were de-listed. The liberal provisions in other areas also were notable. Liberalisation also involves de-bureaucration.

PRIVATIZATION

                The policy of privatization aims at reducing the role of government in directly participating in industrial, business and commercial fields. In certain cases it means denationalization. The Government was operating in key  sectors of the economy. Besides it was directly operating in many areas where it ought not to be. This practice has led to the emergence of many undesirable trends. This made the notion 'government has no business to do business' literally relevant in many cases.

                                    Government has two options before it to implement privatization : (a) sell out those undertakings which are not to be those owned and managed by government, (b) Disinvest the share of those undertaking which do not perform satisfactorily . Disinvestment of shares of loss making undertakings is not an easy task as there would be no buyers for the shares of such concerns. So in most cases, for want of funds, government is being forced to sell out the shares of profit making  undertakings.

                          

                             There are many models of privatization such as (a) Disinvestment or selling off ownership (b) Retaining a portion of the stocks and selling off the balance. (c) selling out shares to the employees and running the enterprises on cooperative principle (d) Bundling shares of profit-making and loss making enterprises and so on. We have tried all these models in our country.

GLOBALIZATION

                     Integration of economies is possible either through aid or through trade. Globalization seeks to integrate economies through trade. The new policy holds that the Indian economy must be closely related to the world economy so that can be unrestricted exchange of goods. the policy of protectionism had in effect proved to be one of protecting inefficiency of domestic producers. the devices of quota restriction and tariff walls had actually made us uncompetitive . So globalization aimed at removing or reducing these devices. By doing so the economy becomes truly open. Globalisation facilitates integration of product  market by way of facilitating free flow of good. it also integrates factor market by ways of facilitating free flow of capital in the form of investment.the World Trade Organisation -WTO -is keen on chalking out policies strengthening globalization. Removal on non-tariff barriers, reduction of tariff barriers and removal reduction of subsidies are top measures in this reward.

                                             The process of gobalisation through liberalisation and privatisation policies has produced positive as well as negative results both for India and other countries. Some scholars argue that globalisation should be seen as an opportunity in terms of greater access to global markets , high technology and increased possibility of large industries of developing countries to become important players in the international arena.On the contrary, the critics argue that golbalisation is a strategy of the developed countries to expand their markets in other countries. According to them , it has compromised the welfare and identity of people belonging to poor countries. It has further been pointed out that market-driven globalisation has widened the economic disparities among nation and people.

                                           Viewed from the Indian context. some studies have stated that the crisis that erupted in the early 1990s was basically an outcome of the deep-rooted inequalities  in Indian society and the economic reform policies initiated as a response to the crisis by the government , with externally advised policy package, further aggravated the inequalities. Further,it has increased the income and quality of consumption of only high-income groups and the growth has been concentrated only in some select areas in the services sectors such as telecommunication, information technology , finance,entertainment, travel and hospitality services, real estate and trade, rather than viral sectors such as agriculture and industry which provide livelihoods to millions of people in the country.