MAJOR Economic Reforms in Indian Financial System since 1991 – POST LIBERALISATION PERIOD
The Indian Government has introduced many Economic Reforms in India since 1991. In 1990-91 India had to face grave economic problem. India was facing serious deficiency in her foreign trade balance and it was increasing. Since 1987-88 till 1990-91 it was increasing in such a rapid scale that by the end of 1990-91 the amount of this deficit balance became 10,644 crores of rupees.
At the same time the foreign exchange stock was also decreasing. In 1990 and 1991 the government of India had to take huge amount of loan from the IMF as compensatory financial facility. Even by mortgaging 46 tons of gold it had taken short term foreign loan from the Bank of England.
At the same time India was also suffering from inflation, the rate of which was 12% by 1991. The reasons of the inflation were the increase in the procurement price of the agriculture products for distribution, the increase in the amount of monetized deficit in the budget, increase of import cost and decrease in the rate of currency exchange and Administered price like. Thus she was facing trade deficit as well as Fiscal Deficit.
To get relief from such a grave problem the government of India had only two ways before it to take foreign debt and to create favourable conditions within the country for increasing the flow of foreign exchange and also to increase the volume of export. The other was established fiscal discipline within the country and to make structural adjustment for the purpose.
Hence the government of India had to introduced a package of reforms which include:
(a) To liberalize the industrial policy of the government and to invite foreign investment by privatization of industries and abolishing the license system as part of that liberalization.
(b) To make the import- export policy of the country more liberal and so that the export of Indian goods may become more easy and necessary raw materials and instruments for both industrial development and production of exportable commodities may be imported and also to facilitates free trade by reducing the import duty.
(c) To decrease the value of money in term of dollar.
(d) To establish market economy by withdrawing and restricting government interference on investment.
(e) To reform the banking system and the tax structure of the country.
The main objectives of the new fiscal policy are, however, to establish economic structural adjustment at the first stage and then to establish market economy by removing all controls and restriction on it. There are two phase in the structural adjustment phase, the stabilization phase where all government expenditure are reduced and the banks are the restricted on creating debt. The second phase in the structural adjustment phase where the production of exportable good and the alternative of Import goods are increased and at the same time reducing governmental interference in Industry, the management skill and productive capacity of the industries are increased through privatization.
Thus, the new fiscal policy has introduced three significant things Deregulation, Privatization and Exit Policy. Excepting 15 important industries all other industries have been made free from license system. To encourage foreign investment its highest limit has been increased upto 51% 38 industries have been made open for foreign investment like the metal industry, Food Processing industry, Hotel and tourism industry etc.
The Economic liberalized have helped Indian to grow at faster pace. The per-capita GDP of India have increased, which is a sign of growth amd development.
Thus, the new economic policy is taking India towards liberal economy or market economy. It has relieved India much of her hardship that she faced in 1990-1991.