Roman Saini is teaching live on Unacademy Plus
Effects Of Liberalization On The Indian Economy Lesson-5 Presented By: Roman Saini
In This Lesson Impact of Economic Reforms Impact On Agriculture Growth and Employment Reforms and Fiscal Policies Foreign Exchange Reserves
Impact of Economic Reforms Impact on Agriculture In a developing country like India, agriculture sector and rural economy have a significant role in providing livelihoods, ensuring food security and providing impetus to the growth of industries and service sectors. Though the share of agriculture to India's GDP is declining, this sector employs more than 50 per cent of the total workforce in India. . Post- reforms, India witnessed gradual decline in the agriculture sector's contribution to the Indian economy. Agriculture sector benefited little from the economic reforms. . The uncertainties in growth in agriculture are explained by the fact that more than 50 percent of agriculture in India is rainfall dependent which aggravate the production risk. .
Impact of Economic Reforms Public investment in agriculture sector especially in infrastructure, which includes irrigation, power, roads, market linkages and research and extension has fallen in the reform period. . The removal of fertiliser subsidy has led to increase in the cost of production, which has severely affected the small and marginal farmers. . A number of policy changes such as reduction in import duties on agricultural products, removal of minimum support price and lifting of quantitative restrictions on agricultural products have severely affected Indian farmers as they now have to face increased international competition.
Impact of Economic Reforms .Due to export-oriented policy strategies in agriculture, there has been a shift from production for the domestic market towards the production for the export market focusing on cash crops in lieu of production of food grains. This leads to pressure on the price of food grains. Decline in capital formation in agriculture, inadequate expenditure on irrigation and extension services in rural areas, and a dearth of cheap institutional credit, resulted in a slowdown of agricultural growth. . Benefits from reforms The reduced protection to industry coupled with depreciation in the exchange rate, has tilted relative prices in favor of agriculture and helped agricultural exports. .
Impact of Economic Reforms Indian Agriculture Since WTO The establishment of World Trade organization (WTO) in 1995 had major implications for India and its agriculture. . . The Agreement on Agriculture (AOA) with its three broad areas viz., market access, export subsidies and domestic support was expected to improve India's agricultural trade under the new regime of multilateral, transparent and non-discriminatory trade. .But even after liberalization and formation of WTO few countries control most of the world markets.
Impact of Economic Reforms Growth and Employment The inability of conventional industries to pull workers out of agriculture into gainful employment is the biggest drawbacks of Indian economy. . .More or less two-fifth of population is part of the labour force. The average value for India during reform period was 3.89 percent with a minimum of 3.41 percent in 2014 and a maximum of 4.43 percent in 2002. India's Unemployment Rate increased to 3.52 % in Dec 2017, from the previously reported number of 3.51 % in Dec 2016. . The sectoral composition of labour has witnessed a notable change. The agriculture sector, which is considered India's backbone, now employs more thar 50% of the labour force, while industrial and service sectors have marginally surged ahead. .
Impact of Economic Reforms The significant impact of globalisation on the unorganised workers is the jobless growth promoted by the new technological changes and structural shifts in the global economy in favour of the so-called new economy. . Though a country like India needs a labour intensive technology at least in the unorganised sector to accommodate the job-seeking labour force, the process of globalisation and liberalisation sets on a shift towards capital-intensive technology . .So, in order to increase efficiency and to meet competition, firms are forced to modernise their operations involving machineries, capital and high technologies. The immediate consequence of the shift is the replacement of unskilled personnel with skilled people. .
Impact of Economic Reforms Reforms and Fiscal Policies Economic reforms have placed limits on the growth of public expenditure especially in social sectors. The tax reductions in the reform period, aimed at yielding larger revenue and to curb tax evasion, have not resulted in increase in tax revenue for the government . Also, the reform policies involving tariff reduction have curtailed the scope for raising revenue through customs duties. . In order to attract foreign investment, tax incentives were provided to foreign investors which further reduced the scope for raising tax revenues. This has a negative impact on developmental and welfare expenditures. .
Impact of Economic Reforms Foreign exchange reserves It was India's inadequate forex reserves that forced the government to bring in economic reforms The impact of economic reforms on foreign exchange reserves has grown faster in post reform period. The BoP crisis was over by the end of March 1994 and foreign exchange reserves rose to USD 15.7 billion .India's forex reserves become seventh largest in the world at the end of 2002. India's foreign exchange reserves reached US$ 409.4 billion on December 29, 2017, with a growth of 14.1 per cent on a YoY basis from end-December 2016 and growth of 10.7 per cent from end-March 2017.