Describe the overall impact of the Industrial Policy, 1991 on Indian
industry. Give illustrations.
Answer. New Industrial Policy, 1991:
The New Industrial Policy of 1991 incorporated the concepts of liberalization,
globalization, internationalization, and privatization. They also incorporated the
following significant features: emphasis on consumer concerns, such as quality, cost,
and variety; encouragement of competition; quality assurance and the need to
continuously upgrade quality, and at reduced costs; a border-less, boundary-less
world, incorporating free exchange of money, ideas, and expertise; fostering of
strategic partnerships and alliances in the best service of the consumer; and human
resource development.
The recent economic and industrial policy reforms call for integration of the Indian
economy and industry with their global counterparts. This calls for quantum leaps in our
levels of productivity and efficiency to survive in the face of international competition. In
addition to resource constraints, we will have to conform to international levels in terms
of energy use and environmental appropriateness, in addition to quality, reliability, and
costs. Simultaneously, we have to maximize employment opportunities. The basic
philosophy of the new policy has been summed up as continuity with change.
Objectives:
To consolidate the strengths built up during the last four decades of economic
planning and to build on the gains already made.
To correct the distortions or weaknesses that may have crept in the industrial
structure as it has developed over the last four decades.
To maintain a sustained growth in the productivity and gainful employment; and
To attain international competitiveness. The pursuit of these objectives will be
tempered by (a) the need to preserve the environment, and (b) the need to ensure
the efficient use of available resources.
Policy Changes Important changes in the NIP 1991, including the subsequent
changes, can be recounted as follows:
Industrial Licensing Policy
Industrial licensing has been abolished for all projects except for a short list of
industries related to security and strategic concerns, social reasons, hazardous
chemicals and overriding environmental reasons, and items of elitist consumption.
Only three industries groups where security and strategic concerns predominate
will be reserved exclusively for the public sector.
In projects where imported capital goods are required, automatic clearance will be
given in the following cases:
Where foreign exchange availability is ensured through foreign equity.
If the CIF value of imported capital goods required is less than 25 per cent of the
total value of plant and equipment, up to a maximum value of Rs.2 crore.
There is no requirement of obtaining industrial approvals from the Central
Government (except for industries under compulsory licensing) for location not
falling within 25 kms. Of cities having population of more than one million.
Industries of non-polluting nature such as electronics, computer software and
printing can hi located within 25 kms. Of the periphery of cities with more than one
million population. Other industries are permitted only if they are located in
designated industrial areas.
The mandatory convertibility clause will no longer be applicable. for term loans
from the financial institutions for new projects.
Since July 1991, Indian industry has undergone a sea-change in terms of the basic
parameters governing its structure and functioning. The major reforms include widescale
reduction in the scope of industrial licensing, simplification of procedural rules
and regulations, reduction of areas reserved exclusively for the public sector,
disinvestment of equity of selected public sector undertakings, enhancing the limits of
foreign equity participation in domestic industrial undertakings, liberalization of trade
and exchange rate policies, rationalization and reduction of customs and excise duties
and personal and corporate income-tax, extension of the scope of MODVAT etc.
Separate policy measures have been announced in the form of specific packages
aimed at upliftment of the small scale, tiny and cottage industries as well as 100 per
cent EOU's (Export Oriented Units) and units located in the EPZs (Export Processing
Zone) and Technology Parks.
It is observed
from the table that since 1992-93, all the major sectors had responded to economic
reforms with dynamism and witnessed significant acceleration of their respective
growth rates. However, during the current year until October 1996 there has been a
deceleration of industrial growth rates due to poor performance by mining and
electricity generation.
The adoption of a New Industrial Policy in 1991 was accompanied by a series of
complementary reforms in fiscal, trade and foreign investment policies, which gradually
opened up the industrial sector to international competition. There was a shift in focus
from import substitution to competitiveness in international markets, with trade
liberalization contributing to reducing effective protection for industry.
The Foreign Direct Investment (FDI) policy was further liberalized and limits for foreign
equity participation in domestic industrial undertakings were enhanced. In 1996, a list
of nine industries, which included infrastructure, electronics and software, for which
joint ventures upto 74% foreign equity would be automatically cleared, was approved.
The number of industries eligible for automatic approval upto 51% foreign equity was
also expanded from 35 to 48.
Domestic industry is increasingly open to competition from international markets, with
quantitative restrictions on imports removed with effect from April 1, 2001 (Planning
Commission, 2001a). Tariff levels have also been decreased drastically since the
initiation of reforms. It is estimated that India's weighted import tariff has declined from
around 90% at the start of reforms to around 34% in 2001/02.
Environmental Impact
The energy and resource intensity of industrial production has been associated with
adverse environmental impacts. These can be categorized under four heads:
emissions, effluent discharges, generation of wastes including hazardous wastes and
the production of ozone-depleting substances (ODS). The quantum of industrial solid
wastes (non-hazardous) generated has nearly doubled in the last decade, from 77
MTPA (million tonnes per annum) in 1990 to 147.05 MTPA in 1999. In addition, about
7.2 million tonnes of industrial hazardous wastes are generated in the country (MoEF,
2000). A discussion of the extent of industrial emissions and effluent discharge is
presented in the chapters on Atmosphere and Water.
Employment generation and labour welfare
The industrial sector is an important source of employment in the country. The estimate
of employment in organized public and private sector stood at 27.9 million (MoF, 2002).
In addition, large numbers are employed in the unorganized sector. In the context of
economic reforms and restructuring of the industrial sector, changes in the labour
market involving redeployment and retrenchment of labour would be associated with
social costs. These costs would have to be minimized by providing for social security
mechanisms. Most importantly, productive employment generation and labour welfare
in the unorganized sector, where it will have the greatest poverty-reducing impact, will
have to be ensured.
Wednesday, June 10, 2009
Write a note on the annual trends of these collaborations
Collect data on foreign technical and financial collaborations for the past onedecade
and write a note on the annual trends of these collaborations.
Answer. Developing countries like India have been using import of technology through
foreign collaboration as a strategy to bridge the technological gaps in the country, to
expedite economic development.
The number of foreign collaborations has been increasing on a cyclical manner in the
first forty years, from 1951-91, starting with a meager 44 collaboration in the year 1951,
it increased to 592 in the year 1961 and then suddenly to 402 in 1962, the year in
which India faced war with China. The number of collaborations hovered around the
same figure. until 1965, when India faced war with Pakistan, when number dropped
further to 343. This was followed with further decline due to political turmoil and rapid
changes in government policies, marked with stricter regulatory requirements. The
trend continued more or unchanged during 1970s, when the country underwent
dramatic changes is political arena, with the imposition of emergency followed by short
lived Janata Party government at the Centre. Eighties, however, saw the return to the
rising trend, which became steeper and steeper in the 1990s, Total number of
collaborations in the eighties equaled the total number of collaborations in the three
decades of 1950s, 1960s and 1970s. The period 1991-2000 saw total number of
collaborations in the decade surpassing the total number of all the collaborations in the
4 decades preceding it. Indeed, the total number collaborations in the 9 years of postliberalization
(1992-2000) period is observed to be 17810, while in the 41 years of preliberalization
(1951-91), there were only 15105 foreign collaborations. India is thus
banking on expert technological support for goods and services at an accelerated pace
than in the pre-liberation era. The rise in number is substantial in the post liberalization
era, 10-fold compared to the decade of 1950s, 5- fold compared to the decades of
1960s and 1970s and 2-fold compared to the decade of 1980s.
An interesting development is observed in terms of number of countries with whom
India has foreign collaborations.
In the 41 years of pre-liberalization era, the foreign collaborations were limited to 25
countries only. In the post liberalization era, the number of countries, with whom India
has entered into foreign collaboration, swelled to 112, a dramatic over 4-fold rise
indeed. It would be noticed from the table 2 that the number of countries with whom
India has very large number of collaborations (more than 1000 each) during the 41
years of preliberalisation era (1951-91) and the 9 years of post- liberalization era
(1992-2000) has not changed substantially, except that NRIs have engaged in a big
way in the post liberalization era.
The approvals of foreign collaborations have been classified in two classes; namely
technological (without foreign equity participation) and financial (having Foreign equity
participation).
and write a note on the annual trends of these collaborations.
Answer. Developing countries like India have been using import of technology through
foreign collaboration as a strategy to bridge the technological gaps in the country, to
expedite economic development.
The number of foreign collaborations has been increasing on a cyclical manner in the
first forty years, from 1951-91, starting with a meager 44 collaboration in the year 1951,
it increased to 592 in the year 1961 and then suddenly to 402 in 1962, the year in
which India faced war with China. The number of collaborations hovered around the
same figure. until 1965, when India faced war with Pakistan, when number dropped
further to 343. This was followed with further decline due to political turmoil and rapid
changes in government policies, marked with stricter regulatory requirements. The
trend continued more or unchanged during 1970s, when the country underwent
dramatic changes is political arena, with the imposition of emergency followed by short
lived Janata Party government at the Centre. Eighties, however, saw the return to the
rising trend, which became steeper and steeper in the 1990s, Total number of
collaborations in the eighties equaled the total number of collaborations in the three
decades of 1950s, 1960s and 1970s. The period 1991-2000 saw total number of
collaborations in the decade surpassing the total number of all the collaborations in the
4 decades preceding it. Indeed, the total number collaborations in the 9 years of postliberalization
(1992-2000) period is observed to be 17810, while in the 41 years of preliberalization
(1951-91), there were only 15105 foreign collaborations. India is thus
banking on expert technological support for goods and services at an accelerated pace
than in the pre-liberation era. The rise in number is substantial in the post liberalization
era, 10-fold compared to the decade of 1950s, 5- fold compared to the decades of
1960s and 1970s and 2-fold compared to the decade of 1980s.
An interesting development is observed in terms of number of countries with whom
India has foreign collaborations.
In the 41 years of pre-liberalization era, the foreign collaborations were limited to 25
countries only. In the post liberalization era, the number of countries, with whom India
has entered into foreign collaboration, swelled to 112, a dramatic over 4-fold rise
indeed. It would be noticed from the table 2 that the number of countries with whom
India has very large number of collaborations (more than 1000 each) during the 41
years of preliberalisation era (1951-91) and the 9 years of post- liberalization era
(1992-2000) has not changed substantially, except that NRIs have engaged in a big
way in the post liberalization era.
The approvals of foreign collaborations have been classified in two classes; namely
technological (without foreign equity participation) and financial (having Foreign equity
participation).
"Business must be run in a socially responsible manner". Comment on the statement.
"Business must be run in a socially responsible manner".
Comment on the statement in the context of Indian business along with
examples.
Answer. Social responsibility of a business refers to what the business does, over and
above the statutory requirement, for the benefit of the society. The term corporate
citizenship is also commonly used to refer to the moral obligations of the business to
the society. This implies that just as individuals, corporates are also integral part of the
society and their behaviour shall be guided by certain social norms. The operations of
business enterprises affect a wide spectrum. The resources they make use of are
limited to those of the proprietors and the impact of their operations is felt also by many
a people who are in no way connected with the enterprise.
The current concept of CSR (corporate social responsibility) covers a range of issues
that could perhaps be covered under and be linked to the fabric of sustainable
development. Protection of the environment and a country's natural resources would
certainly be a paramount element of this concept of sustainable development. But what
would be equally important is the need to ensure that society does not suffer from
disparities of income and provision of basic services like health care, education and
literacy. To carry this list further, it could be argued that the United Nations' Millennium
Development Goals (MDGs) and the WEHAB (Water, Energy, Health, Agriculture, and
Biodiversity) agenda of the UN Secretary General are key essentials for bringing about
a solution to the very basic problems facing society. Consequently, if corporate actions
are to target the most fundamental problems facing a poor country like India, then the
components of the MDGs, including water and sanitation, prevention of eradicable
diseases and the items included in the WEHAB agenda in some sense become
guideposts for corporate social strategy and action. It is often asked why a company
should worry about anything other than the bottom line measured purely in financial
terms.
One response is of course to say what has been stated above, namely the cliche that
business cannot succeed in a society that fails. Hence, in an indirect but powerful way
the success of business even in narrow financial terms depends on the success of
society as a whole. The progress and welfare of society is not merely the responsibility
of governments alone. In an effective sense it involves appropriate actions by all
stakeholders, of which the corporate sector is extremely important. Hence, actions to
address some of these basic challenges also become important for leaders of business
and industry.
Social Responsibility Examples
Companies in India enjoy touting their socially responsible credentials, but are failing to
demonstrate accountability in real. Corporate responsibility in India has come out of its
infancy and has become a business in itself. If one goes by the number of companies
touting their achievements, civil society groups and consultants offering ethical
corporate services, and government framing policies to involve business in
development issues, then corporate responsibility has evolved to be acceptable to all,
at least in concept.
Case 1- A V Birla Group - Hindalco
The social projects are carried out under the aegis of the Aditya Birla Centre for
Community Initiatives and Rural Development, which is stewarded by Mrs. Rajashree
Birla, who is a Director on your Board.
The footprint of our social work straddles across 332 villages that we have adopted,
close to our plants at Renukoot and Renusagar in Uttar Pradesh and our mines at
Jharkhand and Chattisgarh. The work has touched the lives of more than 400,000
people.
Case 2: HLL's INITIATIVE IN RURAL DEVELOPEMENT
HLL has been proactively engaged in rural development since 1976 with the initiation
of the Integrated Rural Development Programme in the Etah district of Uttar Pradesh, in
tandem with the company’s dairy operations. This Programme now covers 500 villages
in the district. Subsequently, the factories that HLL continued establishing in lessdeveloped
regions of the country have been engaged in similar programmes in
adjacent villages.
ACTIVITIES
To improve the business skills of the SHG women, extensive training programmes are
being held. Such workshops have already covered a large number of Shakti
Entrepreneurs in Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Uttar
Pradesh, Tamilnadu, Chattisgarh and Orissa
As part of their training programme, all HLL Management Trainees spend about 4
weeks on Project Shakti in rural areas with NGOs or SHGs. Assignments include
business process consulting for nascent enterprises engaged in the manufacture of
products such as spices and hosiery items.
Shakti: The Vision
HLL envisions the creation of 25,000 Shakti Entrepreneurs covering 100,000 villages,
and touching the lives of 100 million rural people by the year 2005.
Case 3: Coca Cola
Coca-Cola continues to face agitation from local communities around its plant in the
southern state of Kerala; the agitation is now a thousand days old. Ironically, Pepsi and
Coca-Cola claim to be socially responsible in India, and have HIV/AIDS and water
harvesting projects respectively. Are they socially responsible in the true sense?
Case 3: Reliance Energy
Reliance Energy continues to pollute the soil around its plant in Maharashtra, even
after being held responsible for it. Rather than correcting its own operations, it is busy
influencing policymakers and authorities to revise the local law in its favour. This at a
time when its chief Anil Ambani was given the ‘CEO of the Year’ award at the Platts
Global Energy Awards for 2004 in New York.
These illustrations are not meant to disfigure all the genuine good happenings in India,
but to pause and reflect on the state of affairs. In conclusion, but a beginning of a
useful thought, corporate responsibility reports about India need to be absorbed with
caution. It is important to look beyond the obvious and question every statement made
by both businesses and NGOs about the improvements on the Indian environmental
and social responsibility scene.
Comment on the statement in the context of Indian business along with
examples.
Answer. Social responsibility of a business refers to what the business does, over and
above the statutory requirement, for the benefit of the society. The term corporate
citizenship is also commonly used to refer to the moral obligations of the business to
the society. This implies that just as individuals, corporates are also integral part of the
society and their behaviour shall be guided by certain social norms. The operations of
business enterprises affect a wide spectrum. The resources they make use of are
limited to those of the proprietors and the impact of their operations is felt also by many
a people who are in no way connected with the enterprise.
The current concept of CSR (corporate social responsibility) covers a range of issues
that could perhaps be covered under and be linked to the fabric of sustainable
development. Protection of the environment and a country's natural resources would
certainly be a paramount element of this concept of sustainable development. But what
would be equally important is the need to ensure that society does not suffer from
disparities of income and provision of basic services like health care, education and
literacy. To carry this list further, it could be argued that the United Nations' Millennium
Development Goals (MDGs) and the WEHAB (Water, Energy, Health, Agriculture, and
Biodiversity) agenda of the UN Secretary General are key essentials for bringing about
a solution to the very basic problems facing society. Consequently, if corporate actions
are to target the most fundamental problems facing a poor country like India, then the
components of the MDGs, including water and sanitation, prevention of eradicable
diseases and the items included in the WEHAB agenda in some sense become
guideposts for corporate social strategy and action. It is often asked why a company
should worry about anything other than the bottom line measured purely in financial
terms.
One response is of course to say what has been stated above, namely the cliche that
business cannot succeed in a society that fails. Hence, in an indirect but powerful way
the success of business even in narrow financial terms depends on the success of
society as a whole. The progress and welfare of society is not merely the responsibility
of governments alone. In an effective sense it involves appropriate actions by all
stakeholders, of which the corporate sector is extremely important. Hence, actions to
address some of these basic challenges also become important for leaders of business
and industry.
Social Responsibility Examples
Companies in India enjoy touting their socially responsible credentials, but are failing to
demonstrate accountability in real. Corporate responsibility in India has come out of its
infancy and has become a business in itself. If one goes by the number of companies
touting their achievements, civil society groups and consultants offering ethical
corporate services, and government framing policies to involve business in
development issues, then corporate responsibility has evolved to be acceptable to all,
at least in concept.
Case 1- A V Birla Group - Hindalco
The social projects are carried out under the aegis of the Aditya Birla Centre for
Community Initiatives and Rural Development, which is stewarded by Mrs. Rajashree
Birla, who is a Director on your Board.
The footprint of our social work straddles across 332 villages that we have adopted,
close to our plants at Renukoot and Renusagar in Uttar Pradesh and our mines at
Jharkhand and Chattisgarh. The work has touched the lives of more than 400,000
people.
Case 2: HLL's INITIATIVE IN RURAL DEVELOPEMENT
HLL has been proactively engaged in rural development since 1976 with the initiation
of the Integrated Rural Development Programme in the Etah district of Uttar Pradesh, in
tandem with the company’s dairy operations. This Programme now covers 500 villages
in the district. Subsequently, the factories that HLL continued establishing in lessdeveloped
regions of the country have been engaged in similar programmes in
adjacent villages.
ACTIVITIES
To improve the business skills of the SHG women, extensive training programmes are
being held. Such workshops have already covered a large number of Shakti
Entrepreneurs in Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Uttar
Pradesh, Tamilnadu, Chattisgarh and Orissa
As part of their training programme, all HLL Management Trainees spend about 4
weeks on Project Shakti in rural areas with NGOs or SHGs. Assignments include
business process consulting for nascent enterprises engaged in the manufacture of
products such as spices and hosiery items.
Shakti: The Vision
HLL envisions the creation of 25,000 Shakti Entrepreneurs covering 100,000 villages,
and touching the lives of 100 million rural people by the year 2005.
Case 3: Coca Cola
Coca-Cola continues to face agitation from local communities around its plant in the
southern state of Kerala; the agitation is now a thousand days old. Ironically, Pepsi and
Coca-Cola claim to be socially responsible in India, and have HIV/AIDS and water
harvesting projects respectively. Are they socially responsible in the true sense?
Case 3: Reliance Energy
Reliance Energy continues to pollute the soil around its plant in Maharashtra, even
after being held responsible for it. Rather than correcting its own operations, it is busy
influencing policymakers and authorities to revise the local law in its favour. This at a
time when its chief Anil Ambani was given the ‘CEO of the Year’ award at the Platts
Global Energy Awards for 2004 in New York.
These illustrations are not meant to disfigure all the genuine good happenings in India,
but to pause and reflect on the state of affairs. In conclusion, but a beginning of a
useful thought, corporate responsibility reports about India need to be absorbed with
caution. It is important to look beyond the obvious and question every statement made
by both businesses and NGOs about the improvements on the Indian environmental
and social responsibility scene.
"Liberalisation, privatization and globalization are the means to achieve certain ends by the society."
"Liberalisation, privatization and globalization are the means to
achieve certain ends by the society." In the light of the statement, list five major
goals/ends, which these instruments are intended to achieve.
Answer.
Liberalisation
In general, liberalization refers to a relaxation of previous government restrictions,
usually in areas of social or economic policy.
Policies that make an economy open to trade and investment with the rest of the world
are needed for sustained economic growth. The evidence on this is clear. No country in
recent decades has achieved economic success, in terms of substantial increases in
living standards for its people, without being open to the rest of the world. In contrast,
trade opening (along with opening to foreign direct investment) has been an important
element in the economic success of East Asia, where the average import tariff has
fallen from 30 percent to 10 percent over the past 20 years. The goals of Liberalization
are listed below:
1) Opening up their economies to the global economy has been essential in enabling
many developing countries to develop competitive advantages in the manufacture of
certain products. There is considerable evidence that more outward-oriented countries
tend consistently to grow faster than ones that are inward-looking.
2) Indeed, one finding is that the benefits of trade liberalization can exceed the costs by
more than a factor of 10.
3) Countries that have opened their economies in recent years, including India,
Vietnam, and Uganda, have experienced faster growth and more poverty reduction.
4) On average, those developing countries that lowered tariffs sharply in the 1980s
grew more quickly in the 1990s than those that did not.
5) Freeing trade frequently benefits the poor especially. Developing countries can illafford
the large implicit subsidies, often channeled to narrow privileged interests, that
trade protection provides. Moreover, the increased growth that results from freer trade
itself tends to increase the incomes of the poor in roughly the same proportion as those
of the population as a whole.
6) New jobs are created for unskilled workers, raising them into the middle class.
Overall, inequality among countries has been on the decline since 1990, reflecting
more rapid economic growth in developing countries, in part the result of trade
liberalization.
7) The potential gains from eliminating remaining trade barriers are considerable.
Estimates of the gains from eliminating all barriers to merchandise trade range from
US$250 billion to US$680 billion per year. About two-thirds of these gains would
accrue to industrial countries. But the amount accruing to developing countries would
still be more than twice the level of aid they currently receive. Moreover, developing
countries would gain more from global trade liberalization as a percentage of their GDP
than industrial countries, because their economies are more highly protected and
because they face higher barriers.
Although there are benefits from improved access to other countries' markets, countries
benefit most from liberalizing their own markets. The main benefits for industrial
countries would come from the liberalization of their agricultural markets. Developing
countries would gain about equally from liberalization of manufacturing and agriculture.
The group of low-income countries, however, would gain most from agricultural
liberalization in industrial countries because of the greater relative importance of
agriculture in their economies.
Globalization
Economic "globalization" is a historical process, the result of human innovation and
technological progress. It refers to the increasing integration of economies around the
world, particularly through trade and financial flows. The term sometimes also refers to
the movement of people (labor) and knowledge (technology) across international
borders.
The term has come into common usage since the 1980s, reflecting technological
advances that have made it easier and quicker to complete international
transactions—both trade and financial flows. It refers to an extension beyond national
borders of the same market forces that have operated for centuries at all levels of
human economic activity—village markets, urban industries, or financial centers.
Markets promote efficiency through competition and the division of labor—the
specialization that allows people and economies to focus on what they do best. Global
markets offer greater opportunity for people to tap into more and larger markets around
the world. It means that they can have access to more capital flows, technology,
cheaper imports, and larger export markets. But markets do not necessarily ensure that
the benefits of increased efficiency are shared by all.
The globalization integrates the Indian Economy with world economy. It is a reform
package. It allows the:
Reduction of barriers in various countries regarding imports & exports. Various
trade norms have been setup that allows free flow of information, goods & services
countries have agreed to follow a common protocol with reference to the trade
polices. This allows an easy approach towards business activities, leading to a
win-win situation of business activities among various nations
There is an environmental setup where free flow of capital takes place. One
country can invest in the fruitful products / projects of the other countries & this
happens only when there is an environment of harmony for it. The disputes among
various nations lead to the friction in relationship thereby creating a distrustful
environment. No business can prosper in such an environment. In order to have a
prosperous business one need to have an environment of harmony. Thus a free
trade can only happen in an environment where capital flow occurs freely.
Technology is essential for prosperity of a nation. A nation can prosper only if it
has technology driven attitude. Technology could be imported from other nations
& can be developed in house as well. This can happen only when there is an
environment of the kind, maintained therein, Technical collaborations are the key
to globalization activities. There must be parity among the countries of world in
terms of technology being used, otherwise they would lag behind. In order to have
uniformity in the process, behaviour & price of technology there must be sufficient
measures to propagate it to the counties access the world. Thus free flow of
technology among nations and states is another benefit of globalization.
Globalization also makes sure that the manpower skills can be utilized effectively.
Once we have integrated the economy there happens a free flow of information,
labour, resources from one nation to another thereby reducing the distances &
narrowing the gaps. The labour forces learn to work in an environment that
belongs to foreign culture. Thus the world acts as a global village where everyone
can work as per international rules & scenarios.
Promotion of globalization has been prioritized in the Indian economy. Restrictions of
imports Exports, education, technical collaborations etc. have been lifted up. Bans on
certain restricted goods have also been taken off. This has provided a way towards
broadening of activities among the two nations. Foreign investment has been
encouraged & certain policies with effect to it have been framed. Direct foreign
investment has been invited by the government of India for better functioning. Now
technicians can move across the world to solve the problems of their clients. No
permission is needed for them to hire & take their services. Thus globalization has
eased the working among the technicians & businessmen. It has helped a lot in
generating effective development policy.?.
Privatization
Privatization (sometimes privatization, denationalization, or, especially in India,
disinvestment) is the process of transferring property, from public ownership to private
ownership and/or transferring the management of a service or activity from the
government to the private sector. The opposite process is nationalization or
municipalization.
Privatization is frequently associated with industrial or service-oriented enterprises,
such as mining, manufacturing or power generation, but it can also apply to any asset,
such as land, roads, or even rights to water. In recent years, government services such
as health, sanitation, and education have been particularly targeted for privatization in
many countries. In theory, privatization helps establish a "free market", as well as
fostering capitalist competition, which its supporters argue will give the public greater
choice at a competitive price. Conversely, socialists view privatization negatively,
arguing that entrusting private businesses with control of essential services reduces
the public's control over them and leads to excessive cost cutting in order to achieve
profit and a resulting poor quality service.
Types of privatization
In terms of outright privatization (that is, sale of a business), there are three major
types:
share issue privatization (SIP) - selling shares on the stock market
asset sale privatization - selling the entire firm to an investor, usually by auction
voucher privatization - shares of ownership are distributed to all citizens, usually
for free or at a very low price.
Share issue privatization is the most common type. Voucher privatization has mainly
been used in the transition economies of Eastern Europe - countries such as Russia,
Poland and the Czech Republic. Share issue can broaden and deepen domestic
capital markets, boosting liquidity and potentially economic growth, but if the capital
markets are insufficiently developed it may be difficult to find enough buyers, and
transaction costs (eg underpricing required) may be higher. Risks (political risk,
currency risk) are also higher, deterring foreign portfolio investors. As a result, asset
sales are more common in developing countries.
Arguments in Favour of privatization
Advocates of privatization argue that governments run businesses poorly for the
following reasons:
Performance. The government may only be interested in improving a company in
cases when the performance of the company becomes politically sensitive.
Improvements. Conversely, the government may put off improvements due to
political sensitivity — even in cases of companies that are run well.
Corruption. The company may become prone to corruption; company employees
may be selected for political reasons rather than business ones.
Goals. The government may seek to run a company for social goals rather than
business ones (this is conversely seen as a positive effect by critics of
privatization).
Capital. It is claimed by supporters of privatization, that privately-held companies
can more easily raise capital in the financial markets than publicly-owned ones.
Unprofitable companies survive. Governments may "bail out" poorly run
businesses with money when, economically, it may be better to let the business
fold.
Unprofitable units survive. Parts of a business which persistently lose money are
more likely to be shut down in a private business.
Political influence. Nationalized industries can be prone to interference from
politicians for political or populist reasons. Examples include making an industry
buy supplies from local producers (when that may be more expensive than buying
from abroad), forcing an industry to freeze its prices/fares to satisfy the electorate
or control inflation, increasing its staffing to reduce unemployment, or moving its
operations to marginal constituencies. It is argued that such measures can cause
nationalized industries to become uneconomic and uncompetitive.
Privatization Goals
It reduces the fiscal burden of the State by relieving it of the losses of the SOEs
and reducing the size of the bureaucracy.
Privatization of SOEs enables the govt. to mop up funds.
Privatisation helps the State to trim the size of the administrative machinery.
It enables the government to concentrate more on the essential State functions.
Privatization helps accelerate the pace of economic development as it attracts
more resources from the private sector for development.
It may result in better management of the enterprise.
Privatization may also encourage entrepreneurship.
Liberalization, Globalization & Privatization are the economic reforms aiming
towards the regulation of the basic activities related to opening new arenas,
providing better control & defining uniformity in operations across the world. It
helps the countries to achieve higher growth rates, employment & self reliance.
achieve certain ends by the society." In the light of the statement, list five major
goals/ends, which these instruments are intended to achieve.
Answer.
Liberalisation
In general, liberalization refers to a relaxation of previous government restrictions,
usually in areas of social or economic policy.
Policies that make an economy open to trade and investment with the rest of the world
are needed for sustained economic growth. The evidence on this is clear. No country in
recent decades has achieved economic success, in terms of substantial increases in
living standards for its people, without being open to the rest of the world. In contrast,
trade opening (along with opening to foreign direct investment) has been an important
element in the economic success of East Asia, where the average import tariff has
fallen from 30 percent to 10 percent over the past 20 years. The goals of Liberalization
are listed below:
1) Opening up their economies to the global economy has been essential in enabling
many developing countries to develop competitive advantages in the manufacture of
certain products. There is considerable evidence that more outward-oriented countries
tend consistently to grow faster than ones that are inward-looking.
2) Indeed, one finding is that the benefits of trade liberalization can exceed the costs by
more than a factor of 10.
3) Countries that have opened their economies in recent years, including India,
Vietnam, and Uganda, have experienced faster growth and more poverty reduction.
4) On average, those developing countries that lowered tariffs sharply in the 1980s
grew more quickly in the 1990s than those that did not.
5) Freeing trade frequently benefits the poor especially. Developing countries can illafford
the large implicit subsidies, often channeled to narrow privileged interests, that
trade protection provides. Moreover, the increased growth that results from freer trade
itself tends to increase the incomes of the poor in roughly the same proportion as those
of the population as a whole.
6) New jobs are created for unskilled workers, raising them into the middle class.
Overall, inequality among countries has been on the decline since 1990, reflecting
more rapid economic growth in developing countries, in part the result of trade
liberalization.
7) The potential gains from eliminating remaining trade barriers are considerable.
Estimates of the gains from eliminating all barriers to merchandise trade range from
US$250 billion to US$680 billion per year. About two-thirds of these gains would
accrue to industrial countries. But the amount accruing to developing countries would
still be more than twice the level of aid they currently receive. Moreover, developing
countries would gain more from global trade liberalization as a percentage of their GDP
than industrial countries, because their economies are more highly protected and
because they face higher barriers.
Although there are benefits from improved access to other countries' markets, countries
benefit most from liberalizing their own markets. The main benefits for industrial
countries would come from the liberalization of their agricultural markets. Developing
countries would gain about equally from liberalization of manufacturing and agriculture.
The group of low-income countries, however, would gain most from agricultural
liberalization in industrial countries because of the greater relative importance of
agriculture in their economies.
Globalization
Economic "globalization" is a historical process, the result of human innovation and
technological progress. It refers to the increasing integration of economies around the
world, particularly through trade and financial flows. The term sometimes also refers to
the movement of people (labor) and knowledge (technology) across international
borders.
The term has come into common usage since the 1980s, reflecting technological
advances that have made it easier and quicker to complete international
transactions—both trade and financial flows. It refers to an extension beyond national
borders of the same market forces that have operated for centuries at all levels of
human economic activity—village markets, urban industries, or financial centers.
Markets promote efficiency through competition and the division of labor—the
specialization that allows people and economies to focus on what they do best. Global
markets offer greater opportunity for people to tap into more and larger markets around
the world. It means that they can have access to more capital flows, technology,
cheaper imports, and larger export markets. But markets do not necessarily ensure that
the benefits of increased efficiency are shared by all.
The globalization integrates the Indian Economy with world economy. It is a reform
package. It allows the:
Reduction of barriers in various countries regarding imports & exports. Various
trade norms have been setup that allows free flow of information, goods & services
countries have agreed to follow a common protocol with reference to the trade
polices. This allows an easy approach towards business activities, leading to a
win-win situation of business activities among various nations
There is an environmental setup where free flow of capital takes place. One
country can invest in the fruitful products / projects of the other countries & this
happens only when there is an environment of harmony for it. The disputes among
various nations lead to the friction in relationship thereby creating a distrustful
environment. No business can prosper in such an environment. In order to have a
prosperous business one need to have an environment of harmony. Thus a free
trade can only happen in an environment where capital flow occurs freely.
Technology is essential for prosperity of a nation. A nation can prosper only if it
has technology driven attitude. Technology could be imported from other nations
& can be developed in house as well. This can happen only when there is an
environment of the kind, maintained therein, Technical collaborations are the key
to globalization activities. There must be parity among the countries of world in
terms of technology being used, otherwise they would lag behind. In order to have
uniformity in the process, behaviour & price of technology there must be sufficient
measures to propagate it to the counties access the world. Thus free flow of
technology among nations and states is another benefit of globalization.
Globalization also makes sure that the manpower skills can be utilized effectively.
Once we have integrated the economy there happens a free flow of information,
labour, resources from one nation to another thereby reducing the distances &
narrowing the gaps. The labour forces learn to work in an environment that
belongs to foreign culture. Thus the world acts as a global village where everyone
can work as per international rules & scenarios.
Promotion of globalization has been prioritized in the Indian economy. Restrictions of
imports Exports, education, technical collaborations etc. have been lifted up. Bans on
certain restricted goods have also been taken off. This has provided a way towards
broadening of activities among the two nations. Foreign investment has been
encouraged & certain policies with effect to it have been framed. Direct foreign
investment has been invited by the government of India for better functioning. Now
technicians can move across the world to solve the problems of their clients. No
permission is needed for them to hire & take their services. Thus globalization has
eased the working among the technicians & businessmen. It has helped a lot in
generating effective development policy.?.
Privatization
Privatization (sometimes privatization, denationalization, or, especially in India,
disinvestment) is the process of transferring property, from public ownership to private
ownership and/or transferring the management of a service or activity from the
government to the private sector. The opposite process is nationalization or
municipalization.
Privatization is frequently associated with industrial or service-oriented enterprises,
such as mining, manufacturing or power generation, but it can also apply to any asset,
such as land, roads, or even rights to water. In recent years, government services such
as health, sanitation, and education have been particularly targeted for privatization in
many countries. In theory, privatization helps establish a "free market", as well as
fostering capitalist competition, which its supporters argue will give the public greater
choice at a competitive price. Conversely, socialists view privatization negatively,
arguing that entrusting private businesses with control of essential services reduces
the public's control over them and leads to excessive cost cutting in order to achieve
profit and a resulting poor quality service.
Types of privatization
In terms of outright privatization (that is, sale of a business), there are three major
types:
share issue privatization (SIP) - selling shares on the stock market
asset sale privatization - selling the entire firm to an investor, usually by auction
voucher privatization - shares of ownership are distributed to all citizens, usually
for free or at a very low price.
Share issue privatization is the most common type. Voucher privatization has mainly
been used in the transition economies of Eastern Europe - countries such as Russia,
Poland and the Czech Republic. Share issue can broaden and deepen domestic
capital markets, boosting liquidity and potentially economic growth, but if the capital
markets are insufficiently developed it may be difficult to find enough buyers, and
transaction costs (eg underpricing required) may be higher. Risks (political risk,
currency risk) are also higher, deterring foreign portfolio investors. As a result, asset
sales are more common in developing countries.
Arguments in Favour of privatization
Advocates of privatization argue that governments run businesses poorly for the
following reasons:
Performance. The government may only be interested in improving a company in
cases when the performance of the company becomes politically sensitive.
Improvements. Conversely, the government may put off improvements due to
political sensitivity — even in cases of companies that are run well.
Corruption. The company may become prone to corruption; company employees
may be selected for political reasons rather than business ones.
Goals. The government may seek to run a company for social goals rather than
business ones (this is conversely seen as a positive effect by critics of
privatization).
Capital. It is claimed by supporters of privatization, that privately-held companies
can more easily raise capital in the financial markets than publicly-owned ones.
Unprofitable companies survive. Governments may "bail out" poorly run
businesses with money when, economically, it may be better to let the business
fold.
Unprofitable units survive. Parts of a business which persistently lose money are
more likely to be shut down in a private business.
Political influence. Nationalized industries can be prone to interference from
politicians for political or populist reasons. Examples include making an industry
buy supplies from local producers (when that may be more expensive than buying
from abroad), forcing an industry to freeze its prices/fares to satisfy the electorate
or control inflation, increasing its staffing to reduce unemployment, or moving its
operations to marginal constituencies. It is argued that such measures can cause
nationalized industries to become uneconomic and uncompetitive.
Privatization Goals
It reduces the fiscal burden of the State by relieving it of the losses of the SOEs
and reducing the size of the bureaucracy.
Privatization of SOEs enables the govt. to mop up funds.
Privatisation helps the State to trim the size of the administrative machinery.
It enables the government to concentrate more on the essential State functions.
Privatization helps accelerate the pace of economic development as it attracts
more resources from the private sector for development.
It may result in better management of the enterprise.
Privatization may also encourage entrepreneurship.
Liberalization, Globalization & Privatization are the economic reforms aiming
towards the regulation of the basic activities related to opening new arenas,
providing better control & defining uniformity in operations across the world. It
helps the countries to achieve higher growth rates, employment & self reliance.
Distinguish between free trade and protection.
Distinguish between free trade and protection. Discuss the merits
and demerits of free trade vs. protection for a developing country like India.
Answer. External Sector Management refers to Policies adopted by a country with
reference exports and imports. It can be free trade policy or restricted trade policy. A
restricted trade policy seeks to maintain a system of trade restrictions with the objective
of protecting domestic economy from competition of foreign products. A free trade
policy involves complete absence of tariffs, quotas, exchange restrictions etc.
Thus, external sector management strongly influences the direction, trend and growth
of foreign trade of country. This is an important economic instrument, which can be
used by a, country, with suitable modifications from time to time, to achieve its longterm
objectives.?
Trade policy is alternatively called as (EXIM) Export- Import policy. In India Trade
policy is a policy, which is adopted by a country with references to exports and imports.
FREE TRADE POLICY: A policy that doesn’t impose any constraints on the
interchange of goods and services between separate countries. A policy includes full
absence of tariffs, quotas; interchange constraints on production taxes and subsidies.
Case in favour of Free Trade
Most arguments for free trade have been built on the grounds of efficiency, economic
growth and welfare. According to Samuelson "trade promotes a mutually profitable
regional division of labour, greatly enhances the potential real national product of all
nations, and makes possible higher standards of living all over the globe"
Free trade policy is economically advantageous to the participating countries since it
maximizes their social product. Free trade is supposed to be carried out under the
conditions of free competition in which price mechanism "… automatically ensures that
each country, specialized in the production of those goods, and those goods which it
can produce more cheaply, talking account of transport (cost)". Given the real
resources of a country, if it specializes in the production of goods in which it is
relatively more efficient, or its cost of production is comparatively lower, its total
national product will be much larger than if it spreads its limited resources over the
production of all goods, irrespective of the cost of production. With specialization in the
efficient sectors, a larger national product can be achieved; a larger exportable surplus
can be generated; and a larger volume of goods & services of the country’s
requirements can be imported from other countries at lower prices. This increases total
availability of goods and services and raises the standard of living of the people.
Possibly the mist attractive argument in favour of free trade is that ‘it lowers the prices
of imported goods’. Moreover, free trade in international market has an ‘educative
effect’ in the sense that it compels countries to enhance their efficiency through better
management of resources and quick adoption of improved and more efficient
techniques of production.
In theoretical terms, free trade offers various MERITS in realistically below developed
countries where as DEMERITS in such a system of international trade. As an
inference, international economy survives a difficult period of protective trade policies.
Trade policies may be outward looking or inward looking.
(i) Outward looking: An outward looking trade policy encourages not only free trade
but also the free movement of capital, workers enterprises and students, a welcome to
the (MNC) organizations and an open system of communications
Primary outward Policies: Goaled at encouraging export of raw material and
agricultural.
Secondary outward Policies: Goaled at promoting manufactured exports
(ii) Inward looking: An inward looking true policy stresses the requirement for a
Country to its own style of development and to be the master of its own fate with
limitations on the movement of goods, services and people in and out of the Country.
Primary inward policies: Opinion is to get agricultural self-sufficiency
Secondary inward policies: By import substitution opinion is attaining
manufactured commodity self-sufficiency.
Merits of FREE trade
If free trade between nations did not exist, then economies would stagnate.
Free trade allows nations to flourish at what goods and/or services they excel at
providing, fits into this scenario like a hand to a glove.
Free trade gives consumers more, and cheaper, choices.
It also helps to facilitate co-operation between the weaker developing countries
and help the South build a joint economic perspective.
Demerits
FREE trade affects every country in the world and every section of society within
those countries.
Industries face stiff competition from foreign companies.
Small scale industries, which already have very less resources have to face high
competition.
Protection
For some political reasons most countries had adopted a projectionist policy. Perhaps
the world market never provided the perfect conditions required for free trade on a
global scale. For the purpose of regulating foreign trade or protecting a country’s
interest in foreign trade, tariff is one of the most important tools.
Merits
1. A protective trade policy by a country seeks to maintain a system of trade limitations
with the opinion of protecting the domestic economy from the competition of foreign
products.
2. During the decades of 50, 60 and 70 and some enhanced in 80. Protective trade
policy constituted a significant plank (part) in the commercial policies of below
developed countries.
3. It helps in development of the industries in the country.
4. Local industries don't have to face high competition from the foreign countries.
DEMERITS
Many undeveloped countries continue to have protective trade policies.
The product prices are high due to protective trade policies.
Consumers have to feel the heat of protective trade policies.
The economy can't grow at high pace.
It also discourages foreign investments.
In a developing country like India, we cannot have a full-fledged free trade policy due
to the following reasons:
Several industries in a developing country like India are in the initial stage of
industrial growth, most industries are in their infancy. In infant industries are
exposed to competition with the industries of developed nations, which have
achieved a high level of technical efficiency , economies of scale and financial
strength, they would run the risk of dying out in their infancy. The infant industries
of developing economy need protection.
Promotion of employment: Tariff protection is also suggested as an effective
remedy to the serious unemployment problem in underdeveloped countries.
Imposition of tariffs on imports directly competing with the domestic products helps
to expand employment opportunities in the import-competing industries by
securing the domestic market.
and demerits of free trade vs. protection for a developing country like India.
Answer. External Sector Management refers to Policies adopted by a country with
reference exports and imports. It can be free trade policy or restricted trade policy. A
restricted trade policy seeks to maintain a system of trade restrictions with the objective
of protecting domestic economy from competition of foreign products. A free trade
policy involves complete absence of tariffs, quotas, exchange restrictions etc.
Thus, external sector management strongly influences the direction, trend and growth
of foreign trade of country. This is an important economic instrument, which can be
used by a, country, with suitable modifications from time to time, to achieve its longterm
objectives.?
Trade policy is alternatively called as (EXIM) Export- Import policy. In India Trade
policy is a policy, which is adopted by a country with references to exports and imports.
FREE TRADE POLICY: A policy that doesn’t impose any constraints on the
interchange of goods and services between separate countries. A policy includes full
absence of tariffs, quotas; interchange constraints on production taxes and subsidies.
Case in favour of Free Trade
Most arguments for free trade have been built on the grounds of efficiency, economic
growth and welfare. According to Samuelson "trade promotes a mutually profitable
regional division of labour, greatly enhances the potential real national product of all
nations, and makes possible higher standards of living all over the globe"
Free trade policy is economically advantageous to the participating countries since it
maximizes their social product. Free trade is supposed to be carried out under the
conditions of free competition in which price mechanism "… automatically ensures that
each country, specialized in the production of those goods, and those goods which it
can produce more cheaply, talking account of transport (cost)". Given the real
resources of a country, if it specializes in the production of goods in which it is
relatively more efficient, or its cost of production is comparatively lower, its total
national product will be much larger than if it spreads its limited resources over the
production of all goods, irrespective of the cost of production. With specialization in the
efficient sectors, a larger national product can be achieved; a larger exportable surplus
can be generated; and a larger volume of goods & services of the country’s
requirements can be imported from other countries at lower prices. This increases total
availability of goods and services and raises the standard of living of the people.
Possibly the mist attractive argument in favour of free trade is that ‘it lowers the prices
of imported goods’. Moreover, free trade in international market has an ‘educative
effect’ in the sense that it compels countries to enhance their efficiency through better
management of resources and quick adoption of improved and more efficient
techniques of production.
In theoretical terms, free trade offers various MERITS in realistically below developed
countries where as DEMERITS in such a system of international trade. As an
inference, international economy survives a difficult period of protective trade policies.
Trade policies may be outward looking or inward looking.
(i) Outward looking: An outward looking trade policy encourages not only free trade
but also the free movement of capital, workers enterprises and students, a welcome to
the (MNC) organizations and an open system of communications
Primary outward Policies: Goaled at encouraging export of raw material and
agricultural.
Secondary outward Policies: Goaled at promoting manufactured exports
(ii) Inward looking: An inward looking true policy stresses the requirement for a
Country to its own style of development and to be the master of its own fate with
limitations on the movement of goods, services and people in and out of the Country.
Primary inward policies: Opinion is to get agricultural self-sufficiency
Secondary inward policies: By import substitution opinion is attaining
manufactured commodity self-sufficiency.
Merits of FREE trade
If free trade between nations did not exist, then economies would stagnate.
Free trade allows nations to flourish at what goods and/or services they excel at
providing, fits into this scenario like a hand to a glove.
Free trade gives consumers more, and cheaper, choices.
It also helps to facilitate co-operation between the weaker developing countries
and help the South build a joint economic perspective.
Demerits
FREE trade affects every country in the world and every section of society within
those countries.
Industries face stiff competition from foreign companies.
Small scale industries, which already have very less resources have to face high
competition.
Protection
For some political reasons most countries had adopted a projectionist policy. Perhaps
the world market never provided the perfect conditions required for free trade on a
global scale. For the purpose of regulating foreign trade or protecting a country’s
interest in foreign trade, tariff is one of the most important tools.
Merits
1. A protective trade policy by a country seeks to maintain a system of trade limitations
with the opinion of protecting the domestic economy from the competition of foreign
products.
2. During the decades of 50, 60 and 70 and some enhanced in 80. Protective trade
policy constituted a significant plank (part) in the commercial policies of below
developed countries.
3. It helps in development of the industries in the country.
4. Local industries don't have to face high competition from the foreign countries.
DEMERITS
Many undeveloped countries continue to have protective trade policies.
The product prices are high due to protective trade policies.
Consumers have to feel the heat of protective trade policies.
The economy can't grow at high pace.
It also discourages foreign investments.
In a developing country like India, we cannot have a full-fledged free trade policy due
to the following reasons:
Several industries in a developing country like India are in the initial stage of
industrial growth, most industries are in their infancy. In infant industries are
exposed to competition with the industries of developed nations, which have
achieved a high level of technical efficiency , economies of scale and financial
strength, they would run the risk of dying out in their infancy. The infant industries
of developing economy need protection.
Promotion of employment: Tariff protection is also suggested as an effective
remedy to the serious unemployment problem in underdeveloped countries.
Imposition of tariffs on imports directly competing with the domestic products helps
to expand employment opportunities in the import-competing industries by
securing the domestic market.
"All modern economies have certain economic problems to deal
"All modern economies have certain economic problems to deal
with". Examine and illustrate the statement.
Answer. Most economic problems arise due to limited resources and unlimited wants.
The problem of economy is how to use the relatively limited resources with alternative
uses in face of unlimited wants. Society has to decide which commodities to make. For
example, do we make missiles or hospitals? We have to decide how to make those
commodities. Do we employ robot arms or workers? Who is going to use the goods that
are eventually made? Do we build a sports hall in Wigan or Woking? Seven general
problems that are faced by all economies, whether they are capitalist, socialist, or
communist, and mixed are listed below:
What commodities are being produced and in what quantities? This question
arises directly out of the scarcity of resources. It concerns the allocation of scarce
resources among alternative uses.
By what methods are these commodities produced? This question arises
because there is almost more than one technically possible way in which goods
and services can be produced. Agriculture goods, example, can be produced by
farming a small quantity of land very intensively, using large quantities of fertilizer,
labour and machinery, or farming a large quantity of land extensively, using only
small quantities of fertilizer, labour and machinery. Both methods can be used to
produce the same quantity of some good; one method is frugal with land and uses
larger quantities of other resources, whereas the other method uses large
quantities of land but is frugal in its use of the other resources. The same is true
with manufactured goods.
How is society’s output of goods and services divided among its members?
Why can some individuals and groups consume a large share of the national
output while other individuals and groups can consume only a small share? The
superficial answer is because the former earn large incomes and the latter earn
small incomes? Economists wish to know why any particular division occurs in a
free- market society and what forces, including government interventions, can
cause it to change.
Such questions have been of great concern to economists since the beginning of
the subject. These questions are the subject of Theory of Distribution.
How efficient is the society’s production and distribution? This question quite
naturally arises out of the 1, 2, and 3. Having asked what quantities of goods are
produce, how they are produced and to whom they are distributed, it is natural to
go on to ask whether the production and distribution decisions are efficient.
The concept of efficiency is quite distinct from the concept of justice. The latter is a
normative concept, and a just distribution of the national product would be one
that our value judgements told us was a good or a desirable distribution. Efficiency
and inefficiency are positive concepts. Production is said to be inefficient is it
would be possible to produce more of at least one commodity without
simultaneously producing less of any other – by merely reallocating resources.
The commodities that are produced are said to be inefficiently distributed if it
would be possible to redistribute them among the individuals in the society and
make at least one person better off without simultaneously making anyone worse
off. Questions about the efficiency of production and allocation belong to the
branch of economic theory called welfare economics.
Are the country’s resources being fully utilized, or some of them lying idle?
We have already noted that the existing resources of any country are not sufficient
to satisfy even the most pressing needs of all the individual consumer. Surely if
resources are so scarce that there are not enough of them to produce all of those
commodities which are urgently required, there can be no question of leaving idle
any of the resources that are available. Yet one of the most disturbing
characteristics of free - market economies is that such waste sometimes occurs.
When this happens the resources are said to be involuntarily unemployed (or,
more simply, unemployed). Unemployed workers would like to have jobs, the
factories in which they could work are available. The managers and owners would
like to be able to operate their factories, raw materials are available in abundance,
and the goods that could be produced by these resources are urgently required by
individuals in the community. Yet, for some reason; nothing happens: the workers
stay unemployed, the factories lie idle and the raw materials remain unused. The
cost of such periods of unemployment is felt both in terms of the goods and
services that could have been produced by the idle resources, and in terms of the
effects on people who are unable to find work for prolonged periods of time.
Why do market society's experiences such periods of involuntary unemployment
which are unwanted by virtually everyone in the society, and can such
unemployment be prevented from occurring in the future? These questions have
long concerned economists, and have been studied under the heading Trade
cycle Theory
Is the purchasing power of money and savings constant, or is it being
eroded because of inflation? The world's economies have often experienced
periods of prolonged and rapid changes in price levels. Over the long swing of
history, price levels have sometimes risen and sometimes fallen. In recent
decades, however, the course of prices has almost always been upward. The
1970s, 1980s and 1990s saw a period of accelerating inflation in Europe, the
United States and in most of the world, more particularly in the less developed
countries.
Inflation reduces the purchasing power of money and savings. It is closely related
to the amount of money in the economy. ,Money is the invention of human beings,
not of nature, and the amount in existence can be controlled by them. Economists
ask many questions about the causes and consequences of changes in the
quantity of money and the effects of such changes on the price level. They also
ask about other causes of inflation.
Is the economy's capacity to produce goods and services growing from year
to year or is it remaining static? Why the capacity to produce grows rapidly in
some economies, slowly in others, and not at all in yet others is a critical problem
which has exercised the minds of some of the best economists since the time of
Adam Smith. Although a certain amount is now known in this field, a great deal
remains to be discovered. Problems of this type are topics in the THEORTY OF
ECONOMIC GROWTH.
Tuesday, May 26, 2009
The achievements and adverse effects of regulatory framework in the course of India’s industrialization
Critically analyze the achievements and adverse effects of regulatory framework in the course of India’s industrialization.
India's experience with regulation in the sense of control is not new. Till recently, all sectors of the economy were regulated. For example, in the infrastructure sectors, the governments or their instrumentalities owned, operated, and regulated services. The central government, the Central Electricity Authority, state governments, and state electricity boards regulate the power sector under the authority of the
Electricity (Supply) Act, 1948 and Indian Electricity Act, 1910; the Department of Telecommunications regulates the telecom sector under the Indian Wireless Telegraphic Act, 1933 and the Indian Telegraphic Act, 1885; the central government, state governments, Directorate General of Shipping, and dock labour boards regulate the port sector under the Ports Act, 1908, the Major Port Trusts Act, 1963, the Merchants Shipping Act, 1958, and the Dock Workers (safety, health and welfare) Act, 1986. In addition, there are other regulators created under various other acts relating to environment, safety, labour, etc. Regulation as it existed then, and still continues to exist in several areas, is rooted in the belief that only the public sector can provide basic infrastructure services, that the entry of the private sector should strictly be regulated if it cannot be altogether prevented, and that the public sector agencies providing services should serve the interests and compulsions of the government. There was no attempt to distance the government's role as the policy maker and
protector of public interest from its role as operator or provider of services. In fact, considerations of efficiency, productivity, and consumer interests were not of any importance. There was also the implied belief that accountability to the government and through the government to the Parliament or the legislature was adequate to ensure transparency and that no objectivity in regulation or disclosure to the public was necessary. This form of regulation or control inevitably resulted in unlimited discretionary powers to the service providers operational inefficiency and poor quality of service lack of transparency in the decision-making process and of accountability high barriers to entry and negligible flow of private capital
financial mismanagement lack of protection of consumer interest with non-competitive prices at the consumer end and highly restricted consumer choices.
Reforms and liberalization of the Indian economy started in 1991/92 with the power and telecom sectors being thrown open gradually to private investment and competition.
The telecom sector was opened up in 1991 with private investment being permitted in
the manufacture of telephone equipment. Value-added services were thrown open for
private investment in 1992, and in 1994, the National Telecom Policy reiterated the
government's commitment to further liberalize the sector. The guidelines of 1991
allowed private sector entry in the generation of power. This was followed by several
initiatives to attract and facilitate private investment in the power sector. Private sector
participation by way of leasing port facilities was permitted in 1994 and investment in
the creation of new facilities in the existing ports or establishment of new ports in 1996.
However, regulation in the power and telecom sectors was not contemplated or
provided for as a part of the initial reforms process, unlike in the UK where the
electricity industry restructuring and positioning of the regulator were simultaneous. In
the case of the telecom and power sectors, the regulators came much later, whereas in
the case of the port sector the decision to set up a tariff regulatory authority was
announced as a part of the policy statement in 1996. In the insurance sector, the
regulatory authority has preceded the opening up of the sector. This sequence would
seem to indicate that progressively there is a realization in the government that reform
cannot be put into force without independent regulation and that a regulatory authority
should be set up. In the hydrocarbons sector, where the pace of reform is rapid, the
regulator is not yet in sight. To what extent do the laws setting up these regulatory
bodies incorporate the requisites of a sound regulation? Annex 1 sets out the
provisions of the TRAI (Telecom Regulatory Authority of India) Act, 1997; the PLA (Port
Laws [Amendment]) Act, 1997; the ERC (Electricity Regulatory Commissions) Act,
1998; and the IRA (Insurance Regulatory Authority) Bill, 1998 under the categories of
scope, autonomy, accountability, and powers. The scope of regulation in the four
sectors differs widely. Whereas TRAI has been specifically mandated to regulate the
telecom sector as a whole and advise on the timing of entry of players, licensing
conditions, technical capability, etc., the CERC (Central Electricity Regulatory
Commission) is essentially set up to regulate tariff for central generating agencies and
for interstate transmission of power. On the other hand, TAMP (Tariff Authority for
Major Ports) is only a tariff regulatory authority on the lines of a tariff commission and is
not a regulator of port activities at all. The IRA is being assigned a bigger mandate,
which is comparable with that of TRAI, in the insurance sector. Also TRAI and the IRA
at the bill stage have been specifically mandated to protect the interests of the
consumers, monitor the quality of service, and ensure compliance of minimum service
obligations, whereas in the case of the CERC, these have been left as objectives of the
CAC (Central Advisory Committee), without any clear indication of the value of the
advice of the CAC or how such advice would be heeded. In the case of TAMP, these
issues have not been addressed at all.
The regulatory laws do not provide for any flexibility for speedy and effective response
to changing circumstances. Since a regulator facilitates the process of transition from
the monopolistic market to a competitive economy, its form, functions, and scope
cannot be static. It is possible that as services are unbundled and competition
increases, certain areas presently regulated may at some future date call for no
regulation. For example, in the power sector it is possible that at some stage
generation or distribution may not require tariff regulation. Secondly, as an economy
matures and becomes sophisticated, the approach to regulation may have to change.
The traditional practice of regulating the rate of return of the utilities is already
undergoing a change with concepts like performance-based regulation or marginal cost
approach being introduced. Technological advances may also alter the boundaries of
regulation, a possibility that is looming large with telecommunications and broadcasting
beginning to use the same pathways. Ideally, therefore, there should be some provision
in the laws or mechanisms to ensure that the scope and nature of regulation is
continuously under review.
India has had robust economic growth since 1991 when the government reversed its
socialist-inspired policy of a large public sector with extensive controls on the private
sector and began to liberalize the economy. Liberalization has proceeded in fits and
starts since then, mainly due to political pressures, but the economy has responded
well by posting strong growth in many sectors. A 2003 report by Goldman Sachs
predicts that India's economy would be the third largest by 2050.
With a GDP of $550 billion ($2.66 trillion at PPP) India has the world's 12th largest
economy in US dollar terms and the 4th largest in PPP terms. However, the large
population means that per capita income is quite low. In 2002 the World Bank ranked
India 145th in PPP per capita income and 159th in real terms, among 208 countries.
About 60% of the population depends directly on agriculture. Industry and services
sectors are growing in importance and account for 25% and 50% of GDP, respectively,
while agriculture contributes about 25.6% of GDP. More than 25% of the population live
below the poverty line, but a large and growing middle class of 300 million has
disposable income for consumer goods.
India embarked on a series of economic reforms in 1991 in reaction to a severe foreign
exchange crisis. Those reforms have included liberalized foreign investment and
exchange regimes, significant reductions in tariffs and other trade barriers, reform and
modernization of the financial sector, and significant adjustments in government
monetary and fiscal policies.
The reform process has had some very beneficial effects on the Indian economy,
including higher growth rates, lower inflation, and significant increases in foreign
investment. Real GDP growth was 4.3% in 2002-03, mainly due to a severe drought.
Growth in 2003-2004 is expected to be above 6%. Foreign portfolio and direct
investment flows have risen significantly since reforms began in 1991 and have
contributed to healthy foreign currency reserves ($85 billion in August 2003) and a
moderate current account deficit of about 1% (2002-03). India's economic growth is
constrained, however, by inadequate infrastructure, cumbersome bureaucratic
procedures, and high real interest rates. India will have to address these constraints in
formulating its economic policies and by pursuing the second generation reforms to
maintain recent trends in economic growth.
Examine the growth of SSI in the post-reforms period.
Examine the growth of SSI in the post-reforms period.
According to the committee of economic development USA, a small business
is one which possesses at least 2 of the following 4 characteristics:
Management of the firm is independent. Usually the managers are also the
owners.
Capital is supplied and the ownership is held by an individual or a small group.
The area of operation is mainly local, with the workers and owners living in one
home community.
The relative size of the firm within its industry must be small when compared with
the biggest units in its field. These measures can be of sales volume, number of
employees or other significant comparisons.
The basic of distinction between the large, medium, and small scale industries is
generally the size, capital resources and labour force of the individual unit.
SSI Sector in India creates largest employment opportunities for the Indian populace,
next only to Agriculture. It has been estimated that a lakh rupees of investment in fixed
assets in the small scale sector generates employment for four persons.
Generation of Employment - Industry Group-wise
Food products industry has ranked first in generating employment, providing
employment to 4.82 lakh persons (13.1%).
The next two industry groups were Non-metallic mineral products with employment of
4.46 lakh persons (12.2%) and Metal products with 3.73 lakh persons (10.2%).
In Chemicals & chemical products, Machinery parts and except Electrical parts, Wood
products, Basic Metal Industries, Paper products & printing, Hosiery & garments,
Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%,
the total contribution by these eight industry groups being 49%.
In all other industries the contribution was less than 5%.
Production
The small scale industries sector plays a vital role for the growth of the country. It
contributes 40% of the gross manufacture to the Indian economy.
It has been estimated that a lakh rupees of investment in fixed assets in the small scale
sector produces 4.62 lakhs worth of goods or services with an approximate value
addition of ten percentage points. The small scale sector has grown rapidly over the
years. The growth rates during the various plan periods have been very impressive.
The number of small scale units has increased from an estimated 8.74 lakhs units in
the year 1980-81 to an estimated 31.21 lakhs in the year 1999.
From the year 1990-91 this sector has exhibited a comparatively lower growth trend
(though positive) which continued during the next two years. However, this has to be
viewed in the background of the general recession in the economy. The transition
period of the process of economic reforms was also affected for some period by
adverse factors such as foreign exchange constraints, credit squeeze, demand
recession, high interest rates, shortage of raw material etc.
When the performance of this sector is viewed against the growth in the manufacturing
and the industry sector as a whole, it instills confidence in the resilience of the smallscale
sector.
The estimates of growth for the year 1995-96 have shown an upswing. The growth of
SSI sector has surpassed overall industrial growth from 1991 onwards. The positive
trend is likely to strengthen in the coming years. This trend augurs a bright future for
the small-scale industry.
Export contribution
SSI Sector plays a major role in India's present export performance. 45%-50% of the
Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector
account for nearly 35% of total exports. The number of small-scale units that undertake
direct exports would be more than 5000.
Besides direct exports, it is estimated that small-scale industrial units contribute around
15% to exports indirectly. This takes place through merchant exporters, trading houses
and export houses. They may also be in the form of export orders from large units or
the production of parts and components for use for finished exportable goods.
It would surprise many to know that non-traditional products account for more than 95%
of the SSI exports. The exports from SSI sector have been clocking excellent growth
rates in this decade. It has been mostly fuelled by the performance of garment, leather
and gems and jewellery units from this sector.
Opportunities
Small industry sector has performed exceedingly well and enabled our country to
achieve a wide measure of industrial growth and diversification.
Economic Indicators
The Small Scale Industry today constitutes a very important segment of the Indian
economy. The development of this sector came about primarily due to the vision of our
late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a
supporting sector in the form of small scale enterprises.
Small Scale Sector has emerged as a dynamic and vibrant sector of the economy.
Today, it accounts for nearly 35% of the gross value of output in the
manufacturing sector and over 40% of the total exports from the country.
In terms of value added this sector accounts for about 40% of the value added in
the manufacturing sector.
The sector's contribution to employment is next only to agriculture in India. It is
therefore an excellent sector of economy for investment.
According to the committee of economic development USA, a small business
is one which possesses at least 2 of the following 4 characteristics:
Management of the firm is independent. Usually the managers are also the
owners.
Capital is supplied and the ownership is held by an individual or a small group.
The area of operation is mainly local, with the workers and owners living in one
home community.
The relative size of the firm within its industry must be small when compared with
the biggest units in its field. These measures can be of sales volume, number of
employees or other significant comparisons.
The basic of distinction between the large, medium, and small scale industries is
generally the size, capital resources and labour force of the individual unit.
SSI Sector in India creates largest employment opportunities for the Indian populace,
next only to Agriculture. It has been estimated that a lakh rupees of investment in fixed
assets in the small scale sector generates employment for four persons.
Generation of Employment - Industry Group-wise
Food products industry has ranked first in generating employment, providing
employment to 4.82 lakh persons (13.1%).
The next two industry groups were Non-metallic mineral products with employment of
4.46 lakh persons (12.2%) and Metal products with 3.73 lakh persons (10.2%).
In Chemicals & chemical products, Machinery parts and except Electrical parts, Wood
products, Basic Metal Industries, Paper products & printing, Hosiery & garments,
Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%,
the total contribution by these eight industry groups being 49%.
In all other industries the contribution was less than 5%.
Production
The small scale industries sector plays a vital role for the growth of the country. It
contributes 40% of the gross manufacture to the Indian economy.
It has been estimated that a lakh rupees of investment in fixed assets in the small scale
sector produces 4.62 lakhs worth of goods or services with an approximate value
addition of ten percentage points. The small scale sector has grown rapidly over the
years. The growth rates during the various plan periods have been very impressive.
The number of small scale units has increased from an estimated 8.74 lakhs units in
the year 1980-81 to an estimated 31.21 lakhs in the year 1999.
From the year 1990-91 this sector has exhibited a comparatively lower growth trend
(though positive) which continued during the next two years. However, this has to be
viewed in the background of the general recession in the economy. The transition
period of the process of economic reforms was also affected for some period by
adverse factors such as foreign exchange constraints, credit squeeze, demand
recession, high interest rates, shortage of raw material etc.
When the performance of this sector is viewed against the growth in the manufacturing
and the industry sector as a whole, it instills confidence in the resilience of the smallscale
sector.
The estimates of growth for the year 1995-96 have shown an upswing. The growth of
SSI sector has surpassed overall industrial growth from 1991 onwards. The positive
trend is likely to strengthen in the coming years. This trend augurs a bright future for
the small-scale industry.
Export contribution
SSI Sector plays a major role in India's present export performance. 45%-50% of the
Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector
account for nearly 35% of total exports. The number of small-scale units that undertake
direct exports would be more than 5000.
Besides direct exports, it is estimated that small-scale industrial units contribute around
15% to exports indirectly. This takes place through merchant exporters, trading houses
and export houses. They may also be in the form of export orders from large units or
the production of parts and components for use for finished exportable goods.
It would surprise many to know that non-traditional products account for more than 95%
of the SSI exports. The exports from SSI sector have been clocking excellent growth
rates in this decade. It has been mostly fuelled by the performance of garment, leather
and gems and jewellery units from this sector.
Opportunities
Small industry sector has performed exceedingly well and enabled our country to
achieve a wide measure of industrial growth and diversification.
Economic Indicators
The Small Scale Industry today constitutes a very important segment of the Indian
economy. The development of this sector came about primarily due to the vision of our
late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a
supporting sector in the form of small scale enterprises.
Small Scale Sector has emerged as a dynamic and vibrant sector of the economy.
Today, it accounts for nearly 35% of the gross value of output in the
manufacturing sector and over 40% of the total exports from the country.
In terms of value added this sector accounts for about 40% of the value added in
the manufacturing sector.
The sector's contribution to employment is next only to agriculture in India. It is
therefore an excellent sector of economy for investment.
* Organisational measures, which promote privatization
Discuss the various organisational measures, which promote privatization.
(i) Ownership measures: By the extent of ownership transferred the degree of privatisation is judged form the public enterprises to the private sector. Ownership almost transferred to a separate, co-operative or corporate sector. This can have three forms:
(a) Entire Denationalisation implies 100% transfer of ownership of a public enterprise to private sector.
(b) Joint venture implies partial transfer of a public enterprise to the private sector. It can have various variants – 25% transfer to private sector in a joint venture implies that majority ownership and control remains with the public sector. 51% transfer of ownership to the private sector shifts the balance in optimum to the private sector, through the public sector retains a substantial stake in the undertaking. 74% transfer of Ownership to the private sector implies a dominant share being transferred to private sector. In such a situation, the private sector is in a better position to change the character of the enterprise.
(c) Liquidation implies sale of assets to a person who may use them for the same purpose or some other purpose. This solely depends on the preference of the buyer.
(d) Workers’ co-operative is a special form of denationalisation. In this form, ownership of the enterprises is transferred to workers who may form a co-operative to run the enterprise. In such a situation, relevant provision of bank loans is build to enable workers to buy the shares of the enterprise. The burden of running the enterprises rests on the workers in workers co-operative. The workers become entitled to ownership dividend besides achieving wages for their services.
Organisational measures involve a variety of measures to limited state control. They added:
(a) In their day-to-day commands a structure of holding company almost designed in that the government limits its control to top-level big decisions and leaves a sufficient degree of autonomy for the operating companies. A big company like the Somnath enterprises of India limited (SEIL) or Raghvan Heavy Electrical Limited (RHEL) may acquire a holding company status, thereby transferring a number of functions to its smaller units. In this way, a decentralised pattern of management emerges.
(b) Leasing: In this arrangement, the government agrees to transfer the use of assets of a public enterprise to a private bidder for a specified period, say of 5 years. While entering into a lease, the bidder is required to give an assurance of the quantum of profits that would be built available to the state. This is a kind of tenure ownership. The government reserves the right to review the lease to the same person or to grant the lease to another bidder depending upon the circumstances of the cases.
(c) Restructuring there are two categories of restructuring: financial restructuring and basic restructuring.
(1) Financial Restructuring implies the writing off of accumulated losses and rationalisation of capital composition in respect of debt-equity ratio. The main purpose of this restructuring is to improve the financial health of the enterprise.
Basic Restructuring is said to occur when the public enterprise decides to shed some of its activities to be taken up by ancillaries or small-scale units.
(i) Ownership measures: By the extent of ownership transferred the degree of privatisation is judged form the public enterprises to the private sector. Ownership almost transferred to a separate, co-operative or corporate sector. This can have three forms:
(a) Entire Denationalisation implies 100% transfer of ownership of a public enterprise to private sector.
(b) Joint venture implies partial transfer of a public enterprise to the private sector. It can have various variants – 25% transfer to private sector in a joint venture implies that majority ownership and control remains with the public sector. 51% transfer of ownership to the private sector shifts the balance in optimum to the private sector, through the public sector retains a substantial stake in the undertaking. 74% transfer of Ownership to the private sector implies a dominant share being transferred to private sector. In such a situation, the private sector is in a better position to change the character of the enterprise.
(c) Liquidation implies sale of assets to a person who may use them for the same purpose or some other purpose. This solely depends on the preference of the buyer.
(d) Workers’ co-operative is a special form of denationalisation. In this form, ownership of the enterprises is transferred to workers who may form a co-operative to run the enterprise. In such a situation, relevant provision of bank loans is build to enable workers to buy the shares of the enterprise. The burden of running the enterprises rests on the workers in workers co-operative. The workers become entitled to ownership dividend besides achieving wages for their services.
Organisational measures involve a variety of measures to limited state control. They added:
(a) In their day-to-day commands a structure of holding company almost designed in that the government limits its control to top-level big decisions and leaves a sufficient degree of autonomy for the operating companies. A big company like the Somnath enterprises of India limited (SEIL) or Raghvan Heavy Electrical Limited (RHEL) may acquire a holding company status, thereby transferring a number of functions to its smaller units. In this way, a decentralised pattern of management emerges.
(b) Leasing: In this arrangement, the government agrees to transfer the use of assets of a public enterprise to a private bidder for a specified period, say of 5 years. While entering into a lease, the bidder is required to give an assurance of the quantum of profits that would be built available to the state. This is a kind of tenure ownership. The government reserves the right to review the lease to the same person or to grant the lease to another bidder depending upon the circumstances of the cases.
(c) Restructuring there are two categories of restructuring: financial restructuring and basic restructuring.
(1) Financial Restructuring implies the writing off of accumulated losses and rationalisation of capital composition in respect of debt-equity ratio. The main purpose of this restructuring is to improve the financial health of the enterprise.
Basic Restructuring is said to occur when the public enterprise decides to shed some of its activities to be taken up by ancillaries or small-scale units.
Different sources of external assistance for India
What are the different sources of external assistance for India? Why has external assistance utilization increased steadily over the period? Comment.
The sources of external assistance for India are grouped under:
1. Consortium Members: Comprising Austria, Belgium, Canada, Denmark, France, West Germany, Italy, Japan, Netherlands, Norway, Sweden, UK, USA, the World Bank, and International Development Association.
2. USSR & East European Countries: Which include Bulgaria, Czechoslovakia, Hungary, Poland, USSR, and Yugoslavia.
3. Others: Consist of Australia, European Economic Community (E.E.C), Oil Producing & Exporting Countries (O.P.E.C.), etc.
The external assistance – source wise, authorized and utilized are presented for select years in tables and Consortium members have been the major source of external assistance for India, be it loans or grants. The PL 480/665, etc. assistance was obtained from the USA for food imports. On an average, more than three-fourths of the total external assistance came from the consortium members to India.
A more disaggregated picture reveals that India acquires external assistance for various purposes from various sources:
· Loans are received from international institutions such as the World Bank and international Development Association for specific projects. The loans given by the I.D.A. are on easier terms, i.e., interest free loans for the development of ports, etc.
· Credits are given by individual countries such as the U.S.A., the U.S.S.R., the U.K., West Germany, Japan, Canada, etc. Most of these loans are project loans.
· Specific aid loans for a particular purpose, such as agriculture development loans from the World Bank, irrigation loans by the I.D.A., etc.
· Grants given for various social purposes including technical training, health, and nutrition by different countries like the U.S.A., U.S.S.R., etc.
External assistance to India is broadly classified under loans, grants and P.L. 480/665 assistance.
Independent India had a negligible share of external debt. However, after the beginning of economic planning in 1951, to cover the investment and the balance of payments gap, the government resorted to seeking external assistance. The amount of external assistance approved by different sources and utilized by India has grown steadily over a period of time since then.
India got external assistance in several forms. It includes outright grants, loans repayable in rupees and loans repayable in foreign currencies. Technical assistance has also been made available on different terms from different countries. Deferred credits have also been provided by foreign suppliers.
During the first five-year plan, the utilization of external assistance comprising loans, grants and commodity assistance amounted to approximately Rs. 400 crore. It was utilized mainly for the procurement of commodities like wheat and capital goods required for various development projects including irrigation and power projects, etc.
The emphasis on the development of basic and heavy industries for rapid industrial development during the second five-year plan prompted the Government to go for more external assistance. Besides, the trade deficit widened during this period owing to a large increase in imports. All this necessitated a huge foreign capital inflow. The total external assistance utilized was approximately Rs. 1500 crore, during the second plan.
During the third five-year plan, the policy of strengthening the industrial base of the country was continued. On the defense front, the Chinese invasion of 1962 and Indo-Pak war in 1965, forced the country to concentrate on defense industry production and development. Further, due to adverse monsoons, agricultural production was far insufficient to meet the country’s demand. This necessitated large imports of food grains and other agricultural commodities under the US Public Law 480 programme. As a result of all these, India had to utilize external assistance to the extent of almost Rs. 2900 crores, during the Third Plan period.
During the three annual plans. The drought conditions in the country necessitated heavy food imports under PL 480. In addition, the development of defense industries, trade deficit, etc. led to reliance on external assistance to the tune of more than Rs. 3000 crores.
During the Fourth Plan, thanks to recovery in agricultural production, the Country’s dependence on PL 480 food aid came down. Further, due to currency devaluation of 1966, exports grew significantly during this period thereby reducing the trade deficit. Due to these factors, the amount of external assistance utilization stood at Rs. 4183.7 crores.
After the Fourth Plan, external assistance sought by India increased dramatically. The major factors, which led to a sharp rise in India seeking external assistance, were:
· Steep rise in the international prices of crude oil and petroleum products, Increase in the prices of food and fertilizers in the world market.
The sources of external assistance for India are grouped under:
1. Consortium Members: Comprising Austria, Belgium, Canada, Denmark, France, West Germany, Italy, Japan, Netherlands, Norway, Sweden, UK, USA, the World Bank, and International Development Association.
2. USSR & East European Countries: Which include Bulgaria, Czechoslovakia, Hungary, Poland, USSR, and Yugoslavia.
3. Others: Consist of Australia, European Economic Community (E.E.C), Oil Producing & Exporting Countries (O.P.E.C.), etc.
The external assistance – source wise, authorized and utilized are presented for select years in tables and Consortium members have been the major source of external assistance for India, be it loans or grants. The PL 480/665, etc. assistance was obtained from the USA for food imports. On an average, more than three-fourths of the total external assistance came from the consortium members to India.
A more disaggregated picture reveals that India acquires external assistance for various purposes from various sources:
· Loans are received from international institutions such as the World Bank and international Development Association for specific projects. The loans given by the I.D.A. are on easier terms, i.e., interest free loans for the development of ports, etc.
· Credits are given by individual countries such as the U.S.A., the U.S.S.R., the U.K., West Germany, Japan, Canada, etc. Most of these loans are project loans.
· Specific aid loans for a particular purpose, such as agriculture development loans from the World Bank, irrigation loans by the I.D.A., etc.
· Grants given for various social purposes including technical training, health, and nutrition by different countries like the U.S.A., U.S.S.R., etc.
External assistance to India is broadly classified under loans, grants and P.L. 480/665 assistance.
Independent India had a negligible share of external debt. However, after the beginning of economic planning in 1951, to cover the investment and the balance of payments gap, the government resorted to seeking external assistance. The amount of external assistance approved by different sources and utilized by India has grown steadily over a period of time since then.
India got external assistance in several forms. It includes outright grants, loans repayable in rupees and loans repayable in foreign currencies. Technical assistance has also been made available on different terms from different countries. Deferred credits have also been provided by foreign suppliers.
During the first five-year plan, the utilization of external assistance comprising loans, grants and commodity assistance amounted to approximately Rs. 400 crore. It was utilized mainly for the procurement of commodities like wheat and capital goods required for various development projects including irrigation and power projects, etc.
The emphasis on the development of basic and heavy industries for rapid industrial development during the second five-year plan prompted the Government to go for more external assistance. Besides, the trade deficit widened during this period owing to a large increase in imports. All this necessitated a huge foreign capital inflow. The total external assistance utilized was approximately Rs. 1500 crore, during the second plan.
During the third five-year plan, the policy of strengthening the industrial base of the country was continued. On the defense front, the Chinese invasion of 1962 and Indo-Pak war in 1965, forced the country to concentrate on defense industry production and development. Further, due to adverse monsoons, agricultural production was far insufficient to meet the country’s demand. This necessitated large imports of food grains and other agricultural commodities under the US Public Law 480 programme. As a result of all these, India had to utilize external assistance to the extent of almost Rs. 2900 crores, during the Third Plan period.
During the three annual plans. The drought conditions in the country necessitated heavy food imports under PL 480. In addition, the development of defense industries, trade deficit, etc. led to reliance on external assistance to the tune of more than Rs. 3000 crores.
During the Fourth Plan, thanks to recovery in agricultural production, the Country’s dependence on PL 480 food aid came down. Further, due to currency devaluation of 1966, exports grew significantly during this period thereby reducing the trade deficit. Due to these factors, the amount of external assistance utilization stood at Rs. 4183.7 crores.
After the Fourth Plan, external assistance sought by India increased dramatically. The major factors, which led to a sharp rise in India seeking external assistance, were:
· Steep rise in the international prices of crude oil and petroleum products, Increase in the prices of food and fertilizers in the world market.
Role of government and economic reforms
How economic reforms have affected the role of government? Explain in detail with examples/illustrations.
Economy reforms have also witnessed a big change in the role of the Government over time. Ever since independence till around the 1980s, as we discussed in the previous units, our objective was to have planned economic development without adopting extreme forms of capitalism or communism.
Heavy industry and infrastructure were left in the hands of the Government to develop. The Government decided upon priority sectors. In agriculture, development was encouraged along capitalistic lines. To prevent monopoly, mitigate cyclical fluctuations, lessen interpersonal inequalities of income and wealth and promote economic development, measures of command and control were frequently resorted to, though some measures operating through the market mechanism were also adopted. Little attention was however paid by the Government to prevent environmental degradation or reduce inter-regional or gender-based inequalities.
The situation in which we found ourselves by the 1980s was not a happy one. Our
Government could not provide adequate infrastructure facilities. While we had some success in increasing agricultural production, the level of our per capita consumption of food was woefully low. Further, agriculture, even now, seems affected by the vagaries of the weather, causing cyclic fluctuations in the economy. You will find that there have been an official statement that while the Indian economy has grown, this growth has not trickled down sufficiently. Further, Government-owned enterprises in basic and heavy industries were functioning far from efficiently and have mostly been using outdated technology. Moreover, because of resort to command and control measures, a number of private sector units of the Indian economy were also more or less in the same boat. There were hence slow rumblings of change in India’s economic policy form the 80s.
It soon became clear, however, that such gradual changes will simply not work. The unprecedented crisis in the Indian economy in 1990-91 was the last straw on the camel’s back. Our foreign exchange reserves fell to an all-time low level of $ 2.2 billion. Inflation rate had already crossed the double-digit figure and was actually at 14%. Fiscal deficit had risen to 8.4% of the Gross Domestic Product. The current account deficit on balance of payments was as high as $ 9.9 billion. International Credit Rating agencies went on to considerably downgrade India’s creditworthiness.
The Government and many economists agreed that a shock therapy was immediately required to pull the Indian economy out of the woods. The World Bank agreed to bail India out, but imposed certain conditionalities for doing so. It wanted two major types of programmes to be carried out. Firstly, there were to be short-term stabilization measures to control inflation and wipe out the balance of payments deficit. These were agreed upon. You are aware that attempts are being made to rationalize subsidies and cut down wasteful Government expenditure to reduce the fiscal deficit. The rupee has been devalued to correct the balance of payments deficit. Secondly, there had to be structural reforms to make the Indian economy competitive and attain a high rate of growth with social justice. These have also been accepted and measures are being taken to liberalize and globalize the Indian economy.
As a result of all this, there was considerable rethinking, reinforced by the conditionalities imposed by the World band to help India out of her difficulties. Steps began to be initiated in the 1980s and these gathered considerable momentum in the 1990s. A sea change has thus come about in the economic role of the Government in India since the 1990s. Many of the sectors reserved for the public sector have now been thrown open to the private sector. More and more physical controls are being replaced by measures to guide the economy through the market mechanism. Restraints in the way of international trade and factor movements are being gradually reduced. The seeming intention is to make the Indian economy face international competition and become efficient in performance. The Government role in the provision of public goods is not likely to increase, but as regards the protection of the environment, the Government is likely to play an increasing role.
Economy reforms have also witnessed a big change in the role of the Government over time. Ever since independence till around the 1980s, as we discussed in the previous units, our objective was to have planned economic development without adopting extreme forms of capitalism or communism.
Heavy industry and infrastructure were left in the hands of the Government to develop. The Government decided upon priority sectors. In agriculture, development was encouraged along capitalistic lines. To prevent monopoly, mitigate cyclical fluctuations, lessen interpersonal inequalities of income and wealth and promote economic development, measures of command and control were frequently resorted to, though some measures operating through the market mechanism were also adopted. Little attention was however paid by the Government to prevent environmental degradation or reduce inter-regional or gender-based inequalities.
The situation in which we found ourselves by the 1980s was not a happy one. Our
Government could not provide adequate infrastructure facilities. While we had some success in increasing agricultural production, the level of our per capita consumption of food was woefully low. Further, agriculture, even now, seems affected by the vagaries of the weather, causing cyclic fluctuations in the economy. You will find that there have been an official statement that while the Indian economy has grown, this growth has not trickled down sufficiently. Further, Government-owned enterprises in basic and heavy industries were functioning far from efficiently and have mostly been using outdated technology. Moreover, because of resort to command and control measures, a number of private sector units of the Indian economy were also more or less in the same boat. There were hence slow rumblings of change in India’s economic policy form the 80s.
It soon became clear, however, that such gradual changes will simply not work. The unprecedented crisis in the Indian economy in 1990-91 was the last straw on the camel’s back. Our foreign exchange reserves fell to an all-time low level of $ 2.2 billion. Inflation rate had already crossed the double-digit figure and was actually at 14%. Fiscal deficit had risen to 8.4% of the Gross Domestic Product. The current account deficit on balance of payments was as high as $ 9.9 billion. International Credit Rating agencies went on to considerably downgrade India’s creditworthiness.
The Government and many economists agreed that a shock therapy was immediately required to pull the Indian economy out of the woods. The World Bank agreed to bail India out, but imposed certain conditionalities for doing so. It wanted two major types of programmes to be carried out. Firstly, there were to be short-term stabilization measures to control inflation and wipe out the balance of payments deficit. These were agreed upon. You are aware that attempts are being made to rationalize subsidies and cut down wasteful Government expenditure to reduce the fiscal deficit. The rupee has been devalued to correct the balance of payments deficit. Secondly, there had to be structural reforms to make the Indian economy competitive and attain a high rate of growth with social justice. These have also been accepted and measures are being taken to liberalize and globalize the Indian economy.
As a result of all this, there was considerable rethinking, reinforced by the conditionalities imposed by the World band to help India out of her difficulties. Steps began to be initiated in the 1980s and these gathered considerable momentum in the 1990s. A sea change has thus come about in the economic role of the Government in India since the 1990s. Many of the sectors reserved for the public sector have now been thrown open to the private sector. More and more physical controls are being replaced by measures to guide the economy through the market mechanism. Restraints in the way of international trade and factor movements are being gradually reduced. The seeming intention is to make the Indian economy face international competition and become efficient in performance. The Government role in the provision of public goods is not likely to increase, but as regards the protection of the environment, the Government is likely to play an increasing role.
Comment: Economic reforms have an adverse effect on food security and health security’
Economic reforms have an adverse effect on food security and health security’. Comment.
Food security and health security have been adversely affected for the poor as a consequence of new economic reforms. The poor avail of less than one-third of the food grains provided by the Public Distribution System.
Food security is related to (i) employment security via rate of growth of the economy, (ii) government policies regarding prices of food grains and food subsidies, and (iii) general rate of inflation and more especially the prices of food grains. Since the period of economic reform has been characterised as the period of jobless growth or very slow growth of employment, this has produced an adverse effect on food security of the poor by a fall on employment. The continuous rise in the prices of food grains, more especially of consumer price index of agricultural labourers, remaining above the double-digit level, also adversely affected food security of the poor. Agricultural labourers suffered the impact of double squeeze – firstly, lower level of employment resulted in an erosion of their real earnings over the year;
Secondly, the continuous rise of Consumer Price Index for Agricultural Labourers (CPIAL) by over 10 per cent for the entire 5-year period (1990-91 to 1995-96) has reduced their real wages in two ways – a depreciation of the purchasing power of the Rupee and the failure of the wage to increase commensurate with the rise of CPIAL. There is no doubt that the food security of the poor has been adversely hit by the reform.
Employment Security and New Economic Reform
The new economic reforms have been emphasing new power projects both in the public and the private sectors. Besides causing environmental problems, these projects have been displacing people from their traditional livelihood systems. By encouraging multinationals to enter food-processing industries, the reform process by the sheer competition from these business giants has led to labour displacement. The entry of big business in agriculture has also led to displacement of labour displacement. The entry of big business in agriculture has also led to displacement of labour engaged in the marketing of agricultural produce. The case of fisherman is glaring and has resulted in massive protests from fishermen who were faced with a threat to unemployment as a consequence of competition from mechanized boats. Consequently, there is a good deal of evidence to corroborate the view that the process of economic reform has generated far greater backwash effects in terms of labour displacement, than in generating spread effects in terms of enlarging new employment opportunities. The net effect of these trends is the deterioration in the quality of employment opportunities. The net effect of these trends is the deterioration in the quality of employment and this is witnessed in the growing increase in the number of casual labourers – the most unprotected form of Indian labour. Casualisation of a labour is witnessed even in industry as a result of the growing phenomena of lockouts and closures. G. Parthasarthy reviewing the impact of structural adjustment on employment concludes: “Given this short period experience, what the medium-term has in store for the Indian poor is anybody’s guess. It is essentially dependent upon the rate and composition of growth and its effects on employment. With past experience as a guide, we may achieve a high growth rate, the benefits of which may flow to the affluent and middle class. The poor may not gain because jobs are not found to grow with incomes. This type of scenario could call for effective safety nets for unorganized sectors in the form of right to work at a minimum subsidized wage and guarantee against unemployment through unemployment insurance.” (Parthasarthy G, Social Security and Structural Adjustment, the Indian Journal of Labour Economics, Vol. 39, No. 1, Jan-March 1996).
Health Security
As a result of the process of economic reform, privatisation of health services is recommenced. But according to the 42nd round of NSS, the average payment for private hospitals in rural areas was Rs. 735.4 as against Rs. 304.3 for Government hospitals i.e. 2.3 times more than charged by Government hospitals. In urban areas, the situation was even worse. Private hospitals charged Rs. 1,206 as against Government hospitals charging Rs. 355. In other words, charges in private hospitals in urban areas were 3.13 times more than in Government hospitals. Privatisation is thus bound to affect adversely the maintenance cost of health services of the poor. This has been compounded by the fact that in view of the patent rights payments to be made to patent-holders, viz. multinational corporations, the cost of medicines has been rising under the new economic reforms.
Food security and health security have been adversely affected for the poor as a consequence of new economic reforms. The poor avail of less than one-third of the food grains provided by the Public Distribution System.
Food security is related to (i) employment security via rate of growth of the economy, (ii) government policies regarding prices of food grains and food subsidies, and (iii) general rate of inflation and more especially the prices of food grains. Since the period of economic reform has been characterised as the period of jobless growth or very slow growth of employment, this has produced an adverse effect on food security of the poor by a fall on employment. The continuous rise in the prices of food grains, more especially of consumer price index of agricultural labourers, remaining above the double-digit level, also adversely affected food security of the poor. Agricultural labourers suffered the impact of double squeeze – firstly, lower level of employment resulted in an erosion of their real earnings over the year;
Secondly, the continuous rise of Consumer Price Index for Agricultural Labourers (CPIAL) by over 10 per cent for the entire 5-year period (1990-91 to 1995-96) has reduced their real wages in two ways – a depreciation of the purchasing power of the Rupee and the failure of the wage to increase commensurate with the rise of CPIAL. There is no doubt that the food security of the poor has been adversely hit by the reform.
Employment Security and New Economic Reform
The new economic reforms have been emphasing new power projects both in the public and the private sectors. Besides causing environmental problems, these projects have been displacing people from their traditional livelihood systems. By encouraging multinationals to enter food-processing industries, the reform process by the sheer competition from these business giants has led to labour displacement. The entry of big business in agriculture has also led to displacement of labour displacement. The entry of big business in agriculture has also led to displacement of labour engaged in the marketing of agricultural produce. The case of fisherman is glaring and has resulted in massive protests from fishermen who were faced with a threat to unemployment as a consequence of competition from mechanized boats. Consequently, there is a good deal of evidence to corroborate the view that the process of economic reform has generated far greater backwash effects in terms of labour displacement, than in generating spread effects in terms of enlarging new employment opportunities. The net effect of these trends is the deterioration in the quality of employment opportunities. The net effect of these trends is the deterioration in the quality of employment and this is witnessed in the growing increase in the number of casual labourers – the most unprotected form of Indian labour. Casualisation of a labour is witnessed even in industry as a result of the growing phenomena of lockouts and closures. G. Parthasarthy reviewing the impact of structural adjustment on employment concludes: “Given this short period experience, what the medium-term has in store for the Indian poor is anybody’s guess. It is essentially dependent upon the rate and composition of growth and its effects on employment. With past experience as a guide, we may achieve a high growth rate, the benefits of which may flow to the affluent and middle class. The poor may not gain because jobs are not found to grow with incomes. This type of scenario could call for effective safety nets for unorganized sectors in the form of right to work at a minimum subsidized wage and guarantee against unemployment through unemployment insurance.” (Parthasarthy G, Social Security and Structural Adjustment, the Indian Journal of Labour Economics, Vol. 39, No. 1, Jan-March 1996).
Health Security
As a result of the process of economic reform, privatisation of health services is recommenced. But according to the 42nd round of NSS, the average payment for private hospitals in rural areas was Rs. 735.4 as against Rs. 304.3 for Government hospitals i.e. 2.3 times more than charged by Government hospitals. In urban areas, the situation was even worse. Private hospitals charged Rs. 1,206 as against Government hospitals charging Rs. 355. In other words, charges in private hospitals in urban areas were 3.13 times more than in Government hospitals. Privatisation is thus bound to affect adversely the maintenance cost of health services of the poor. This has been compounded by the fact that in view of the patent rights payments to be made to patent-holders, viz. multinational corporations, the cost of medicines has been rising under the new economic reforms.
various kinds of external debt , need for external debt and its implications.
Describe the various kinds of external debt and discuss the need for external debt and its implications.
External debt may be broadly classified under eight kinds. These include multilateral, bilateral and commercial loans and cover both the Government and non-government sectors. These also comprise highly concessional loans as well as loans on market terms.
(i) Multilateral Debt
This refers to loans and credits extended by multilateral organizations to the Government or, in some cases, with Government guarantee, to Public and Private sector corporate bodies. This includes long-term credits (40 years) of International Development Association (IDA) and long-term loans from the World Bank or the Asian Development Bank (ADB), which have market interest rates and long repayment period (15-20 years).
(ii) Bilateral Loans
This refers to borrowing on varying degrees of concessionality, from other governments. Such loans are given to the government and in some cases to public sector organizations.
(iii) Loans from the International Monetary Fund (IMF)
The IMF debt assumed significance in the early 1980s, when India resorted to withdrawals under the Extended Fund Facility (EFF)/supplementary Financing Facility (SFF) to ease out the balance of payments difficulties.
(iv) Export Credit
This comprises buyers’ credit, suppliers’ and exports credit for defense purchases. Buyers’ credit and suppliers’ credit are treated as forms of commercial borrowing.
(v) Commercial borrowing
This includes market borrowings abroad by corporate entities and public sector undertakings and includes commercial bank loans, securitized borrowings (including India Development Bonds) and loans or securitized borrowings with multilateral or bilateral guarantees. Commercial borrowings also include loans from International Finance Corporation (IFC), Washington, and self-liquidating loans.
(vi) Non-Resident Deposits
This refers to various types of Non-Resident (NR) deposits and Foreign Currency (Banks & others) Deposits (FC (B&O) D) with maturities of over one year.
(vii) Rupee Debt
This refers to debt denomination in rupees owed to Russia (with some very small amounts owed to other East European Countries) and paid through exports. Rupee debt is broken up into a defense and a civilian component. Since March 1990. The civilian component of rupee debt has also included rupee supplier’s credits.
(viii) Short-term debt
This refers to debt with a maturity period of upto one year. This is usually trade related debt.
The first seven categories may be termed as long-term debt. The eighth category is short term, as the very name suggests. A comprehensive definition of India’s external debt must include all these items although in different contexts external debt is defined to include only some of these kinds.
External debt may be broadly classified under eight kinds. These include multilateral, bilateral and commercial loans and cover both the Government and non-government sectors. These also comprise highly concessional loans as well as loans on market terms.
(i) Multilateral Debt
This refers to loans and credits extended by multilateral organizations to the Government or, in some cases, with Government guarantee, to Public and Private sector corporate bodies. This includes long-term credits (40 years) of International Development Association (IDA) and long-term loans from the World Bank or the Asian Development Bank (ADB), which have market interest rates and long repayment period (15-20 years).
(ii) Bilateral Loans
This refers to borrowing on varying degrees of concessionality, from other governments. Such loans are given to the government and in some cases to public sector organizations.
(iii) Loans from the International Monetary Fund (IMF)
The IMF debt assumed significance in the early 1980s, when India resorted to withdrawals under the Extended Fund Facility (EFF)/supplementary Financing Facility (SFF) to ease out the balance of payments difficulties.
(iv) Export Credit
This comprises buyers’ credit, suppliers’ and exports credit for defense purchases. Buyers’ credit and suppliers’ credit are treated as forms of commercial borrowing.
(v) Commercial borrowing
This includes market borrowings abroad by corporate entities and public sector undertakings and includes commercial bank loans, securitized borrowings (including India Development Bonds) and loans or securitized borrowings with multilateral or bilateral guarantees. Commercial borrowings also include loans from International Finance Corporation (IFC), Washington, and self-liquidating loans.
(vi) Non-Resident Deposits
This refers to various types of Non-Resident (NR) deposits and Foreign Currency (Banks & others) Deposits (FC (B&O) D) with maturities of over one year.
(vii) Rupee Debt
This refers to debt denomination in rupees owed to Russia (with some very small amounts owed to other East European Countries) and paid through exports. Rupee debt is broken up into a defense and a civilian component. Since March 1990. The civilian component of rupee debt has also included rupee supplier’s credits.
(viii) Short-term debt
This refers to debt with a maturity period of upto one year. This is usually trade related debt.
The first seven categories may be termed as long-term debt. The eighth category is short term, as the very name suggests. A comprehensive definition of India’s external debt must include all these items although in different contexts external debt is defined to include only some of these kinds.
Short Notes: Foreign Trade Policy of India
a) Foreign Trade Policy of India
India’s foreign trade can be traced back to the age of the Indus Valley civilization. But the growth of foreign trade gained momentum during the British rule. During that period, India was a supplier of foodstuffs and raw materials to England and an importer of manufactured goods. However, organized attempts to promote foreign trade were made only after Independence, particularly with the onset of economic planning. Indian economic planning is nearing five decades’ of completion. During this period, the value, composition and direction of India’s foreign trade have undergone significant changes.
India’s foreign trade has come a long way since 1950-51. The values of both exports and imports have increased several times over the period (table). The value of exports rose from Rs. 606 crore in 1950-51 to Rs. 608 crore to Rs. 1,21647 crore. With the exception of 1971-72 and 1976-77, the value of India’s imports has always been higher than that of India’s foreign trade is the fluctuation growth rates of exports and imports. The growth rate for exports ranged from as low as – 19.3 percent in 1952-53 – 21.1 percent in 1952-53 to 58.3 percent in 1973-74.
Imports: - During 1950s the value of trade increased only marginally. The value of exports, remained the same, more or less. But the value of imports, with certain fluctuations, increased by about 60 percent during the decade. The significant rise in imports was largely due to the increase in the quantum of imports of food grains, raw materials, capital equipments and machinery. The emphasis on heavy industries during the second Five Year Plan necessitated the imports of machinery and capital equipments, which contributed to the increase in the value of imports.
Exports: - Exports were more or less stagnant at around Rs. 600 crore during the fifties. The introduction of some export promotion measures led to the rise of exports in the sixties significant rise was seen in the exports of gems and jewellery, readymade garments and engineering goods. After the devolution of 1966,exports of iron ore, leather and leather manufactures, chemical and allied products, etc. received a further boost. During 1960/61-1969/70, exports grew, on an average, by 10.2 percent.
The high growth rate of India’s exports in the 70s were mainly due to:
· The increase in the unit value index of exports
· The increase in the quantum index of exports
· New markets for India‘s exports in oil producing countries with the boom in oil prices
· Increase in the price competitiveness of Indian exports as a result of a rise in the world prices of all commodities
· Boom in the value of agro-based exports such as oil cakes, marine products, and sugar; and
· Increase in project exports to the Middle East countries.
India’s foreign trade can be traced back to the age of the Indus Valley civilization. But the growth of foreign trade gained momentum during the British rule. During that period, India was a supplier of foodstuffs and raw materials to England and an importer of manufactured goods. However, organized attempts to promote foreign trade were made only after Independence, particularly with the onset of economic planning. Indian economic planning is nearing five decades’ of completion. During this period, the value, composition and direction of India’s foreign trade have undergone significant changes.
India’s foreign trade has come a long way since 1950-51. The values of both exports and imports have increased several times over the period (table). The value of exports rose from Rs. 606 crore in 1950-51 to Rs. 608 crore to Rs. 1,21647 crore. With the exception of 1971-72 and 1976-77, the value of India’s imports has always been higher than that of India’s foreign trade is the fluctuation growth rates of exports and imports. The growth rate for exports ranged from as low as – 19.3 percent in 1952-53 – 21.1 percent in 1952-53 to 58.3 percent in 1973-74.
Imports: - During 1950s the value of trade increased only marginally. The value of exports, remained the same, more or less. But the value of imports, with certain fluctuations, increased by about 60 percent during the decade. The significant rise in imports was largely due to the increase in the quantum of imports of food grains, raw materials, capital equipments and machinery. The emphasis on heavy industries during the second Five Year Plan necessitated the imports of machinery and capital equipments, which contributed to the increase in the value of imports.
Exports: - Exports were more or less stagnant at around Rs. 600 crore during the fifties. The introduction of some export promotion measures led to the rise of exports in the sixties significant rise was seen in the exports of gems and jewellery, readymade garments and engineering goods. After the devolution of 1966,exports of iron ore, leather and leather manufactures, chemical and allied products, etc. received a further boost. During 1960/61-1969/70, exports grew, on an average, by 10.2 percent.
The high growth rate of India’s exports in the 70s were mainly due to:
· The increase in the unit value index of exports
· The increase in the quantum index of exports
· New markets for India‘s exports in oil producing countries with the boom in oil prices
· Increase in the price competitiveness of Indian exports as a result of a rise in the world prices of all commodities
· Boom in the value of agro-based exports such as oil cakes, marine products, and sugar; and
· Increase in project exports to the Middle East countries.
Short Notes: Main items of exports of India
Write short notes on
a) Main items of exports of India
(a) India Policy incentives to promote exports can be broadly classified as under:
Special facilities to make the material inputs needed by exporters available, at reduced cost
Free Trade Zones and Export oriented units
Facilities for making capital equipments available, at reduced rate
Incentives for and assistance with export marketing
Profit tax and credit subsidies and
Subsidies on Domestic raw materials.
Over a period of time, the Government has steadily increased and extended these items.
Special Facilities for Material Inputs
Availability of qualitative raw materials in sufficient quantity and at the right time, at competitive prices, is crucial for export growth. In India, this was ensured through special import licenses for exporters (known as replenishment (REP) and imprest licenses) combined with duty drawback and cash compensation.
The REP and imprest licenses allow the exporter to import certain restricted raw materials and components, upto a specified percentage of specified exports. The imports pay normal customs duties, but refunds can be claimed through the duty drawback scheme.
Imprest licenses are issued on the basis of export contracts or on past export performance, and components, upto a specified percentage of specified exports. The imports pay normal customs duties, but refunds can be claimed through the duty drawback scheme.
The duty drawback scheme allows the refund of excise, sales and other indirect taxes (apart from customs duties) included in the cost of domestically purchased raw materials. This is exporter for other domestic taxes such as excise duties and sales taxes included in the cost of electricity.
Free Trade Zones and Export Oriented Units (EOU)
Free Trade Zones or Export Processing Zones (EPZs) and EOUs are the other means, which Government has adopted to promote exports.
The rationale for establishing EPZs is that export production can be initiated without adjusting or transforming the regime of protection for companies producing for the domestic market. EPZs are treated as operating outside the domestic tariff area, and hence have the right to import all their requirements, including capital goods and spare parts as well as raw materials, free of import licensing controls and import duties.
India was the first developing country to establish an EPZ. In 1965, one such zone was established in Kandla while in 1974 a second zone was set up – the Santa Cruz Electronic Export Processing Zone (SEEPZ) near Bombay. In 1983, a decision was taken to create four more EPZs, which came up subsequently: Madras, Kochi, and Noida, near New Delhi and Falta, Calcutta.
An EPZ creates a free trade environment allowing for duty free imports of capital goods and intermediate inputs and tax-free exports of manufactures. It overcomes the problem of administrative control and bureaucratic intervention. Ultimately, the objectives is to attract foreign companies to establish export units.
The Export Oriented Units (EOU) scheme was implemented in 1981 to provide duty-free access to imports of all inputs for such export-oriented companies and to create a single point clearance with regard to industrial licensing and foreign collaborations. A company is required to fulfill three conditions to be eligible as an EOU:
(a) Its output should entirely be exported,
(b) The domestic value added content of the export value should be 20 percent at least; and
(c) Export production should be under a custom bond for 10 years for products facing rapid technological change.
3. Availability of Capital Equipments at Reduced Rates
The liberalization of imports of capital goods and associated tariff reductions was introduced in 1976. The objective was to make specialized and upto-date machines available and less expensive for export oriented industries such as leather, garment, hosiery, seafood, woolen textile and diamond processing industries. In 1986, the policy was broadened to other export potential industries.
4. Export Marketing
From an early stage, Government has recognized that marketing of exports is generally a more difficult task than selling in the domestic market. Many small and medium firms and even many large firms, by Indian standards, may not be able to market their products on their own, in the international market. Therefore, the Government allowed for the first time in 1960, the coming up of export houses. In 1981, in emulation of Japan and South Korea, it encouraged the development of larger trading houses.
In 1963, an Export Inspection Council (EIC) was established whose function is to conduct pre-shipment inspection to prevent the export of inferior quality products.
Over a period of time, the Government has also promoted 18 industries specific Export Promotion Councils: Apparel Export Promotion Council – to promote garment exports, Engineering Export Promotion Council – to promote engineering goods exports, etc. The Trade Development Authority (T.D.A.) and Trade Fair Authority of India (T.F.A.I.) were the other agencies promoted by the Government for export promotion. [In 1994, T.D.A. and T.F.A.I. were merged to form Indian Trade Promotion Organization (I.T.P.O.)]. All these fall under the purview of the Ministry of commerce.
5. Profit Tax and Credit Subsidies
Exporters had received, in one form or another, profit tax concession since the early 1960s. There were also provisions for preferential pre-shipment and post-shipment credit. The formation of EXIM bank in the early 80s marked another significant development towards improved financial flow for exporters. Export credit guarantees for banks and credit insurance for exporters are available from the Export Credit Guarantee Corporation (ECGC).
6. Subsidies on Domestic Raw Materials
These are also schemes for refunding to exporters the difference between the domestic and world prices of Indian materials. The most important is the International Price Reimbursement Scheme (IPRS) for steel. The scheme was introduced in 1981. In 1986 this scheme was extended from basic steel products to alloy steels. There are also similar subsidy schemes, i.e., for other import raw materials such as aluminum and copper.
a) Main items of exports of India
(a) India Policy incentives to promote exports can be broadly classified as under:
Special facilities to make the material inputs needed by exporters available, at reduced cost
Free Trade Zones and Export oriented units
Facilities for making capital equipments available, at reduced rate
Incentives for and assistance with export marketing
Profit tax and credit subsidies and
Subsidies on Domestic raw materials.
Over a period of time, the Government has steadily increased and extended these items.
Special Facilities for Material Inputs
Availability of qualitative raw materials in sufficient quantity and at the right time, at competitive prices, is crucial for export growth. In India, this was ensured through special import licenses for exporters (known as replenishment (REP) and imprest licenses) combined with duty drawback and cash compensation.
The REP and imprest licenses allow the exporter to import certain restricted raw materials and components, upto a specified percentage of specified exports. The imports pay normal customs duties, but refunds can be claimed through the duty drawback scheme.
Imprest licenses are issued on the basis of export contracts or on past export performance, and components, upto a specified percentage of specified exports. The imports pay normal customs duties, but refunds can be claimed through the duty drawback scheme.
The duty drawback scheme allows the refund of excise, sales and other indirect taxes (apart from customs duties) included in the cost of domestically purchased raw materials. This is exporter for other domestic taxes such as excise duties and sales taxes included in the cost of electricity.
Free Trade Zones and Export Oriented Units (EOU)
Free Trade Zones or Export Processing Zones (EPZs) and EOUs are the other means, which Government has adopted to promote exports.
The rationale for establishing EPZs is that export production can be initiated without adjusting or transforming the regime of protection for companies producing for the domestic market. EPZs are treated as operating outside the domestic tariff area, and hence have the right to import all their requirements, including capital goods and spare parts as well as raw materials, free of import licensing controls and import duties.
India was the first developing country to establish an EPZ. In 1965, one such zone was established in Kandla while in 1974 a second zone was set up – the Santa Cruz Electronic Export Processing Zone (SEEPZ) near Bombay. In 1983, a decision was taken to create four more EPZs, which came up subsequently: Madras, Kochi, and Noida, near New Delhi and Falta, Calcutta.
An EPZ creates a free trade environment allowing for duty free imports of capital goods and intermediate inputs and tax-free exports of manufactures. It overcomes the problem of administrative control and bureaucratic intervention. Ultimately, the objectives is to attract foreign companies to establish export units.
The Export Oriented Units (EOU) scheme was implemented in 1981 to provide duty-free access to imports of all inputs for such export-oriented companies and to create a single point clearance with regard to industrial licensing and foreign collaborations. A company is required to fulfill three conditions to be eligible as an EOU:
(a) Its output should entirely be exported,
(b) The domestic value added content of the export value should be 20 percent at least; and
(c) Export production should be under a custom bond for 10 years for products facing rapid technological change.
3. Availability of Capital Equipments at Reduced Rates
The liberalization of imports of capital goods and associated tariff reductions was introduced in 1976. The objective was to make specialized and upto-date machines available and less expensive for export oriented industries such as leather, garment, hosiery, seafood, woolen textile and diamond processing industries. In 1986, the policy was broadened to other export potential industries.
4. Export Marketing
From an early stage, Government has recognized that marketing of exports is generally a more difficult task than selling in the domestic market. Many small and medium firms and even many large firms, by Indian standards, may not be able to market their products on their own, in the international market. Therefore, the Government allowed for the first time in 1960, the coming up of export houses. In 1981, in emulation of Japan and South Korea, it encouraged the development of larger trading houses.
In 1963, an Export Inspection Council (EIC) was established whose function is to conduct pre-shipment inspection to prevent the export of inferior quality products.
Over a period of time, the Government has also promoted 18 industries specific Export Promotion Councils: Apparel Export Promotion Council – to promote garment exports, Engineering Export Promotion Council – to promote engineering goods exports, etc. The Trade Development Authority (T.D.A.) and Trade Fair Authority of India (T.F.A.I.) were the other agencies promoted by the Government for export promotion. [In 1994, T.D.A. and T.F.A.I. were merged to form Indian Trade Promotion Organization (I.T.P.O.)]. All these fall under the purview of the Ministry of commerce.
5. Profit Tax and Credit Subsidies
Exporters had received, in one form or another, profit tax concession since the early 1960s. There were also provisions for preferential pre-shipment and post-shipment credit. The formation of EXIM bank in the early 80s marked another significant development towards improved financial flow for exporters. Export credit guarantees for banks and credit insurance for exporters are available from the Export Credit Guarantee Corporation (ECGC).
6. Subsidies on Domestic Raw Materials
These are also schemes for refunding to exporters the difference between the domestic and world prices of Indian materials. The most important is the International Price Reimbursement Scheme (IPRS) for steel. The scheme was introduced in 1981. In 1986 this scheme was extended from basic steel products to alloy steels. There are also similar subsidy schemes, i.e., for other import raw materials such as aluminum and copper.
Explain the growth of private sector (using the latest available data).
Explain the growth of private sector (using the latest available data).
A major segment of the organized private sector is the corporate sector. Let us now look at the private corporate sector: As the organized private sector is generally equated with the private corporate sector in a narrow sense, it is convenient and useful to study the growth of private corporate sector and compare it with the growth of public sector. Table brings out clearly the growth of the corporate sector in India over the period 1957 to 1991. The public sector companies in the early 1990’s occupied a major position in terms of the amount of paid up capital. Even though the number of government companies the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1957 and 1991 the number of government companies increased by nearly 16 times from 74 to 1779. During the same period, the number of non-government companies increased by about 7.5 times only, from 29283 to 219542. As can be seen from table the same is the trend in respect of paid-up capital.
The largest industrial activity among the private sector corporate units in terms of paid-up capital was processing and manufacture of foodstuffs, other processing and manufacture, commerce, agriculture and allied industries, construction, etc.
Selected Growth Rates
Table gives selected growth rates in respect of organized private and public sectors. Nominal sales (value of sales at current prices) in the case of corporate private sector recorded a growth rate of 17.93 per cent during the period 1985 – 1995, while the corresponding growth rate for public sector was 13.18 per cent. Gross fixed assets in the case of private corporate sector recorded an annual growth rate for public sector being 15.1 per cent. Profits before depreciation interest and tax (PBDIT) in the case of private sector grew at an annual average rate of 22.0 per 16.2 per cent. Thus during the recent decade all the growth rates mentioned above are higher in the case of private sector as compared with the public sector.
A major segment of the organized private sector is the corporate sector. Let us now look at the private corporate sector: As the organized private sector is generally equated with the private corporate sector in a narrow sense, it is convenient and useful to study the growth of private corporate sector and compare it with the growth of public sector. Table brings out clearly the growth of the corporate sector in India over the period 1957 to 1991. The public sector companies in the early 1990’s occupied a major position in terms of the amount of paid up capital. Even though the number of government companies the rate of growth of public sector companies has been faster than those of the private sector companies. Between 1957 and 1991 the number of government companies increased by nearly 16 times from 74 to 1779. During the same period, the number of non-government companies increased by about 7.5 times only, from 29283 to 219542. As can be seen from table the same is the trend in respect of paid-up capital.
The largest industrial activity among the private sector corporate units in terms of paid-up capital was processing and manufacture of foodstuffs, other processing and manufacture, commerce, agriculture and allied industries, construction, etc.
Selected Growth Rates
Table gives selected growth rates in respect of organized private and public sectors. Nominal sales (value of sales at current prices) in the case of corporate private sector recorded a growth rate of 17.93 per cent during the period 1985 – 1995, while the corresponding growth rate for public sector was 13.18 per cent. Gross fixed assets in the case of private corporate sector recorded an annual growth rate for public sector being 15.1 per cent. Profits before depreciation interest and tax (PBDIT) in the case of private sector grew at an annual average rate of 22.0 per 16.2 per cent. Thus during the recent decade all the growth rates mentioned above are higher in the case of private sector as compared with the public sector.
Define the socio-cultural environment of business and explain how is it important for business.
Define the socio-cultural environment of business and explain how is it important for business.
Business must have a social purpose; business concerns must discharge social responsibility and social obligations and have social commitment. Otherwise, business cannot enjoy social sanction. This makes it necessary for us to understand the social environment of business. You may question: what factors constitute this environment? There are a host of factors like social values, culture, beliefs, tradition and convention, social attitudes, social institutions, class structure, social group pressure and dynamics, and what have you. The nature of social objectives and priorities, along with the set of social constraints, give form and content to several social movements, and their underlying ethos. Business ethics are very much influenced by social movements, social systems to be the culmination of forces operating from different platforms such as history, culture, polity, ethics and morality, values and institutions, geography and ecology, and the like. Society itself has to balance the achievements and aspirations of various individuals, groups, communities and institutions. No business can survive and grow without social harmony. Different countries, over different time periods, attain social harmony and order of different forms, through different ways and means. Thus the social environment differs over space, time and methods.
You have observed how business and society interact with each other. Business exists in the context of a society. In a (traditional) pre-industrial society, business transactions are negligible or nil; in that society production is mainly done for self-cnsumption and the need for exchane is minimum. In a modern industrial society, business grows by leaps and bounds: production is meant for the market; the subsistence system is replaced by the commercialized system and, therefore, exchange transactions multiply. In a post industrial (recent) society business gets specialized and professionalised. With growing monetisation, both primary and secondary, the complexity of business grows manifold. Business grows in variety. Business becomes more and more service-oriented from being production-oriented. Thus as transition takes place in a society through various stages, business changes in terms of size, structure, strategy and system. On the other hand, as business changes in terms of its form and organization, society also undergoes changes. Social values, social institutions, social order, social contract, social conflict, social problems – everything changes along with a change in the business culture. In other words, business determines society as much as society determines business. Therefore, business must be socially responsible.
Over two decades ago, Peter Druker stated in the context of American business, “If there is one development during the last ten years that stands out above all others, it is the eagerness with which business has embraced social responsibilities”. This is true of Indian or any other national business today. It is no longer fashionable for business corporations the world over to take a gleeful pride in making money. What is more fashionable is to show that it is a great innovator, more specifically a great public benefactor and that it exists to serve the public.
From the standpoint of business, we have already identified each element of this public. They are: owners/shareholders, managers, workers, suppliers, distributors, consumers, Government officials and similar social groups. All these have a stake in business and can be known as stakeholders.
Each and every social group has a very definite expectation from business. The shareholders, promoters and owners expect a fair return n their investment; unless lucrative dividends are paid, they do not want to supply venture capital for business.
The workers expect fair wages and bonus, otherwise they feel exploited when they produce output more in value than the input. The salaried managers likewise expect a remunerative packet of pay and perks, otherwise they do not find any incentive to work hard and long for their business concern. The consumers expect a quality product and service at fair prices, otherwise they feel cheated. The suppliers expect a prompt settlement of their bills. The distributors expect after sales service as well as fair commission on sales, otherwise they do not find incentives to promote sales. The Government expects business to pay taxes and to be accountable for subsidies. And, importantly, there are others who are not directly concerned with business, yet they have a lot of expectations from it. These could be ordinary citizens forming themselves into clubs or associations of some type, expecting charitable donations for promoting education and culture; the ecologists who want business to minimize, if not avoid totally, pollution and degradation of the physical environment; the social workers who want business to adopt backward villages and undertake all round development of housing, health, and sanitation. There is no end to the expectations of these various social groups. The more you come up to their expectations, the more they expect from you and your business.
Business has to balance these manifold expectations and optimize a general social welfare function subject to the constraint of maintaining social harmony. This is a difficult and stupendous task and it involves a measure of social efficiency of business operations. Normally, private business enterprises do not bother about social efficiency, they are guided by the commercial profitability criterion. For them, social responsibility is more a facade and a decoration; it is mostly a means of maximizing the long-run return on investment. But, for public enterprises, social desirability is an important consideration. Therefore, they have to attempt a detailed social cost-benefit analysis of their projects and operations. Such enterprises, which produce public goods and services, have to maximize net social return. However, social responsibility does not mean that they should continue to run losses. After all, they are not meant for supplying free or subsidized social service. Social obligations should not eclipse their economic viability, which in itself is a social purpose. Thus, even public enterprises have social as well as commercial obligations. In fact, in India we want our public enterprise to generate source of financing planned economic development. A losing public enterprise is ultimately a burden on society, and therefore if the unit is sick, even if it is a public and hardship in the short run, but in the long run it will be good for society. Social achievements like employment creation and import substitution should never be made an alibi for an unsatisfactory economic and financial performance.
Public enterprises in a democracy like ours are accountable (a) to Parliament, (b) through audit and (c) through annual reports. Parliamentary control over public enterprises is a well-established form of social control. Similarly, as an instrument of accountability, public enterprises are subject to financial audit, efficiency audit and propriety audit. Finally, a well-drafted annual report is an important medium of communication between the enterprises and the public.
Public accountability of private enterprises is also statutorily required. Very often, the Annual General Meeting (AGM) is an occasion where annual reports/balance-sheets can be seriously examined and the shareholders can take their public limited company to task. But this requires the shareholders’ movement to be organized and strong. In fact, strong trade unionism, a strong conservationist movement, and a strong consumer movement are additional requirements to enable any business – private or public, national or multinational, small or big – to discharge – its social obligations and commitment.
Finally you must note that as society has expectations from business, so does business have from society. Society must also act responsibly. Social groups, through violent and irresponsible methods, may hold the business to ransom and ruin it. Ultimately, that will be a social loss. Business can discharge its responsibility, provided it enjoys some authority and support facilities. Social movement should support business by indicating right directions in the national interest.
Subscribe to:
Posts (Atom)
Posts
