Planning And Economic Reforms In India

Objectives of Planning 1. Increase in national income and rise in the growth rate of the economy. 2. Reducing inequalities in distribution of income and other assets 3. Reducing/removing poverty 4. Achieving full employment. 5. Attaining economic self–reliance 6. Modernisation of various sectors 7. Greater regional balances 8. Price Stability

Phases of Planning • 1947- Mid 1950s: Preparatory Phase • Mid 1950s – Mid 1960s: Period of rapid industrialisation • Late 1960s – 1970s: Focus on Agriculture • Mid 1980s – 1990: Tentative Liberalisation • 1990s onwards: Globalisation and full fledged liberalisation

Various Plans • The First Plan (1952-56) • Correct the problems of the economy arising from ravages of WW-II, • Initiate all round balanced development for increasing standards of living, removing food crisis, building up infrastructure • The Second Plan (1956-61) • Rapid industrialisation with emphasis on heavy and basic industries • A large expansion in employment opportunities

Various Plans • The Third Plan (1962-66) • More focus on agriculture • The Fourth Plan (1969-74) • Growth with stability • Progressive achievement of self reliance • The Fifth Plan (1974-79) • Removal of Poverty • Economic Self Reliance

Various Plans • The Sixth and Seventh Plan (1980-85, 85-90) • Main emphasis on infrastructure building and modernising the economy. Partial liberalisation begins. Increased focus on exports. Poverty • The Eighth Plan (1992-1997): • Beginning of economic reforms; constituting liberalisation of domestic policies and globalisation. • The Ninth Plan (1997-2002) • Greater reliance on the market mechanism and cooperative federalism

Various Plans • The Tenth Plan (2002-2007) • Growth, Equity and Sustainability: Recognition of the fact that growth and equity are inter-linked. While growth is necessary to raise per capita income and increase employment opportunities. It is also true that high growth rates cannot be sustained unless accompanied by dispersion of purchasing power which can provide the demand needed to support increase in output without relying excessively on export market.

Various Plans • Thus focus of plan on Agriculture • Sectors which have high potential for providing employment opportunities, e.g. SSI, ITES, modern retailing, construction, housing and real estate etc.

Evolving Focus of Various Plans • Till about the mid-eighties, government was at the commanding heights with public sector, public investment and various rules and regulations acting as the guiding principle for strategy of growth. • It build up strong and diversified industrial base, however, growth rate continued to lag behind the projected and in the first 3 decades registered growth of around 3.5 per cent. • Till about the fifth plan, policies were inward looking with focus on building domestic industry, protecting them from foreign competition and low emphasis on exports.

Evolving Focus of Various Plans • Decade long industrial downturn beginning from the mid-60s, saw the policies changing and more focus on market oriented policies and giving greater freedom for private players. Delicensing, relaxation of MRTP Act • The Seventh Plan saw partial liberalisation, However, deep fiscal crisis landed India at the door of IMF-World Bank for loans. • Conditionalities saw the beginning of economic reforms

Economic Reforms • Economic Reforms has 3 Aspects:

• 1. Liberalisation; • 2. Privatisation; and • 3. Globalisation

India’s Economic Reform • A move away from Inward looking economy to a more open economy or export oriented strategy of growth. • That in turn means doing away with government intervention as much as possible and giving greater freedom to private enterprise operations. • Policy focus is on – • Deregulating Indian industry; • Allowing the industry freedom and flexibility in responding to market forces and profitability

India’s Economic Reform • Providing a policy regime that facilitates and fosters growth of Indian industry to let the entrepreneurs make investment decisions on the basis of their own commercial judgment. • Since the attainment of technological dynamism and international competitiveness requires that enterprises must be enabled to swiftly respond to fast changing external conditions that have become characteristic of today's industrial world, policy changes is aimed at enabling that.

Meaning of Liberalisation 1. Dismantling of industrial licensing system and dilution of MRTP Act; 2. Reduction in quantitative restrictions in imports as well as rate of import duties; 3. Reductions in control on foreign exchange; 4. Financial and banking sector reforms; 5. Reductions in the level of corporate and personal income taxes; 6. Reductions in restrictions on Foreign Investments (Direct as well as Portfolio)

Meaning of Liberalisation 7. De-reservation of basic industries, power,

transport, banking etc. 8. Privatisation of PSUs (Public Sector Units) Measures towards Globalisation 1. INVESTMENT REFORMS Allowing entry of MNCs by scrapping restrictive laws like FERA and changing into FEMA Permitting Indian companies to collaborate with foreign companies in the form of joint ventures Liberalising inflow of foreign direct investment, Incentives for MNCs and NRIs for investing in India

Measures towards Liberalisation, Globalisation and Privatisation Expanding list of items for automatic approval of foreign equity 2. TRADE REFORMS Import liberalisation – reduction of import tariffs, replacing import licenses with import tariffs, removing quantitative restrictions on imports Removing export subsidies, replacing licenses of exports with export duties, low flat tax on export income Decanalising oil and agricultural trade

Liberalisation, Globalisation and Privatisation 3. FINANCIAL AND BANKING REFORMS Allowing FIIs to invest in Indian Capital Market; Allowing Indian companies to procure capital from foreign countries through “Euro Issues” and “Global Deposit Receipts” Is to invest in Indian Capital Market; Allowing Mutual Funds to invest in foreign companies Interest Rate to be market Determined Lowering SLR and CRR in banks Allowing private sector into banking

Liberalisation, Globalisation and Privatisation 4. EXCHANGE RATE REFORMS Move towards flexible exchange rate; LERMS Liberalised Exchange Rate Management System Flexible Exchange Regime or Managed float 5. FISCAL CONSOLIDATION Reduce Fiscal Deficit Reduction in Public Expenditure Tax reforms: VAT and Income tax and Corporate taxes Privatisation

Liberalisation, Globalisation and Privatisation 6. INDUSTRIAL REFORMS • De-Licensing; • De-reservation; • Broad banding; • Dilution of MRTP Act