CHAPTER –
3
ECONOMIC
REFORMS IN INDIA SINCE 1991
PART - 4
(Liberlisation – Foreign Exchange Reforms)
(Liberlisation – Trade and
Investment Policy reforms)
FOREIGN EXCHANGE REFORMS
EXTERNAL SECTOR REFORMS
The country faced a serious foreign exchange crisis in 1991. To
overcome from this situation, government has taken two steps:
(1) DEVALUATION OF RUPEES
Devaluation refers to reduction (lower) in the value of
domestic currency (in terms of foreign currencies) by the government.
$ 1 = Rs. 08 (Revaluation – If govt. done)
$ 1 = Rs. 10
$ 1 = Rs. 12 (Devaluation –
If govt. done)
$ 1 = Rs. 08 (Appreciation – If market forces done)
$ 1 = Rs. 10
$ 1 = Rs. 12 (Depreciation –
If market forces done)
As a result of this policy, exports become cheaper in
international market and imports become costlier in domestic market. This would
help to increase exports and decrease import and finally the situation of
Balance of Payments.
To overcome from the Balance of Payment crisis, the government
devaluated the rupee by 18-19 percent against foreign currencies in July 1991.
This led to an increase in the inflow of foreign exchange.
* 1947-1971 - PAR value system of exchange rate / Pagged Exchange Rate with
$.
* 1971-75 - Pagged Exchange Rate with £
* 1975-1992 - Fixed exchange rate system with basket of 5 major trading
partner’s currency.
* 01.03.1992 - Liberlised Exchange Rate Management System (LERMS)
* 01.03.1993 - Unified Exchange Rate System (UERS)
DEVALUATION OF INDIAN CURRENCY
(2) MARKET DETERMINATION OF EXCHANGE RATE
The government allowed rupee value to be free from its control.
Now the exchange rate of rupee will be determined by the market forces of
demand and supply of currency. However, to ensure orderly condition in the
foreign exchange market, the RBI keeps intervening from time to time. This has
been termed as ‘managed floating regime’. Under managed floating, the exchange
rate is allowed to ‘float’ according to the forces of demand and supply in the
market but such ‘float’ is managed by the RBI to ensure that is does not get
out of hand.
TRADE AND INVESTMENT POLICY REFORMS
Prior to 1991, India has adopted the policy of import substitution /
protectionism.
To protect domestic industries, India has imposed a lot of restrictions
(high tariffs and quotas) on imports. However, this protection reduced the
efficiency and competitiveness of domestic industries and led to their slow
growth.
Objectives of Trade and Investment Policy Reforms:
(i) To promote foreign investment and technology into the economy;
(ii) To promote efficiency of local industries and adoption of modern technology;
(iii) To increase the international competitiveness of industrial production.
FOREIGN TRADE REFORMS
(1) REDUCTION IN IMPORT DUTIES
As a first step towards
gradual reduction in the import tariffs, the 1991-92 Budget reduced the peak
rate of import duty from more than 300% to 150%. This process of reducing
import duties was carried further in subsequent budgets. The 2007-08 Budget
reduced the peak rate of import duty to 10%.
(2) RELAXATION IN IMPORT LICENSING
Import licensing has been abolished except in case of hazardous
goods and environmentally sensitive industries. Now domestic industries can import
raw material at better price.
(3) REMOVAL OF
QUANTITATIVE RESTRICTIONS
Quantitative restrictions on imports were reduced in stages
and totally withdrawn in Export-Import policy 2000-01.
(4) DECANALISATION OF IMPORT AND EXPORT
Pre-reforms period, most of the export and import used to be canalized
through public sector agencies like STC (State Trading Corporation), MMTC
(Minerals and Metals Trading Corporation) etc. Decanalistion of imports and exports is an important step towards
opening up more areas of external sector to the private sector.
(5) LIBERLISATION IN EXPORT TRADE
Now exporters have a self assessment system to facilitate
trade. Currently, about 80% transactions are cleared without intervention by
customs and 98% of documents are processes electronically.
FOREIGN INVESTMENT REFORMS
(1) The number of products in which foreign investment is freely permitted
has been significantly raised.
(2) Simplification of the FDI policy to provide ease of doing business climate
in the country.
(3) The foreign investors are free to compete with the domestic producers in
the Indian Market.
(4) Upto 51% foreign investment was permitted in high priority industries.
For industries in service sector, the limit of foreign investment was raised
from 51% to 74% and then 100%.
(5) Special Economic Zones (SEZs) are being setup to attract foreign
investment. Companies, that setup production units in SEZs, do not have to pay
taxes for an initial period of five years.
REFERENCE VIDEO
(Foreign
Exchange Reforms / Trade and Investment Policy Reforms)
Please like, Share
Subscribe and download app from play store by link given in description.
https://play.google.com/store/apps/details?id=com.theappsstation.android5c3989dd91d21
Regards
Dr. Asad Ahmad
KV IIM, Lucknow
##pls share other
educational / official school group, so that more students will get benefit.
Thanks a lot.
To get link text
on
08770981320/ 09451927636
Facebook page - https://m.facebook.com/madeeconomicseasy/?ref=bookmarks
Blog -
http://drahmadasad.blogspot.com/?m=1
No comments:
Post a Comment