Roman Saini is teaching live on Unacademy Plus
Effects Of Liberalization On The Indian Economy Lesson-4 Presented By: Roman Saini
In This Lesson Impact of Economic Reforms GDP Growth Rate Share of Agriculture, Industry and Services in GDP Impact On Industries Foreign Direct Investment
Impact of Economic Reforms GDP Growth Rate .In the year 1991, India's GDP growing at the rate of 1.1 per cent, lowest since independence. .The growth of GDP increased from 5.6 per cent during 1980-91 to 8.2 per cent during 2007-2012. Especially, between 2005 and 2008, the economy clocked the 9% mark annually. .With Gross Domestic Product (GDP) growth averaging 7.3 per cent for the period from 2014-15 to 2017-18, India is one of the best performing economies in the world. Currently, the country is ranked sixth in the world in terms of nominal GDP and third in terms of GDP (Purchasing power parity)
Impact of Economic Reforms .Post-reform period, the growth of agriculture has declined. While the industrial sectors reported fluctuation, the growth of service sector has gone up This indicates that the growth is mainly driven by the growth in the service sector . India's traditional occupation, agriculture now contributes only about 17% to the GDP, down from 29 percent in 1991 . Industrial sector has undergone marginal growth contributing about 29% to the GDP, while the services sector has taken the lead role in propelling the economy at the global stage contributing nearly 53% to the GDP. .
Impact of Economic Reforms Impact on Industries The manufacturing or industrial sector is very important for economic growth because it generates jobs and promotes employment. . . The inward looking policy, excessive protection of industrial sector through licencing and import tariff hampered the competition and efficiency in the economy . The liberalisation provided an opportunity to Multinational companies, to expand their business in India. This spurred competition for Indian entrepreneurs. .The main effects of reforms on industrial sector are closure, slow down, loss of production, merger and acquisition of industrial establishments by MNCs and loss of job.
Impact of Economic Reforms .All these factors resulted in lowering the demand for consumer goods and so the production was reduced Availability of low cost imported goods especially Chinese goods is the another reason for decreased production of consumer goods. We also lagged on Research and innovation during reform period. Import substitution helped India to develop capabilities to meet its needs. With the advent of economic liberalization we lost those luxuries . Liberalization helped India, the access to new products, technologies and skills, as well as lower costs of intermediate inputs.
Impact of Economic Reforms Though increased competitive pressure in some industries led to shrinking profit margins, but others managed to increase profits by adjusting to the new environment. . .The decreased regulation by Government led to improved efficiency of the sector The economic reforms of 1991 were helpful to most industries by increasing access to foreign technology and cheaper capital goods & raw materials. . .India is seen as a successful exporter of auto parts, engineering goods, IT software and textiles in the reform period.
Impact of Economic Reforms Foreign Direct investment Foreign Direct Investment(FDI) is the important factor for facilitating globalization process in the world. In India FDI were meagre before 1991 reforms. The opening up of the economy has led to rapid increase in foreign direct investment and foreign exchange reserves. . The first year of reform saw a total foreign investment of only $74 million. Since then it has been in an upward trend with occasional blips due to global economic slowdown. .
Impact of Economic Reforms Foreign Direct investment Total FDI inflow grew by 8 per cent i.e. US$ 60.08 billion in 2016-17 in comparison to US$ 55.56 billion of the previous year. It is the highest ever for a particular financial year In terms of the Sectors receiving FDI Equity inflows, Services (Finance, Banking, Insurance etc.), Telecommunications and Computer Software & Hardware have been the top three sectors with a share of 19.97 per cent, 12.80 per cent and 8.40 per cent respectively.
Impact of Economic Reforms Foreign Direct investment FDI benefits domestic industry as well as the Indian consumer by providing opportunities for technological upgradation, access to global managerial skills and practices. . It also helps in optimal utilisation of human and natural resources, making Indian industry internationally competitive, opening up export markets, providing backward and forward linkages and access to international quality goods and services . During the last 20 years number of Indian companies have gone into hands of foreign investors by way of merger and acquisitions.