From July 1991, Government of India has radically changed its policy following a macro economic crisis. There were serious economic imbalances before the period. The imbalances occurred due to constant rise in fiscal deficit, a higher import bill, sluggish export growth, a constant Balance of Payment crisis (continuous deficit in Current Account).
The fiscal corrections and fiscal adjustment process require reduction of government’s role in economic activity. (In 1991 during American-Iraq war, India faced a severe oil crisis and foreign exchange reserves came down to Rs 2400 crores a balance equivalent to three weeks imports.)
Government at this severe crisis managed the situation along classical lines. In the short term, the Government pledged a part of its gold reserves to meet foreign exchange liabilities. In the medium term the government arranged a loan from IMF and in the long run government initiated far reaching reforms programme which included changes in trade policy and economic policy.
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There were structural reforms in the entire economic system. The central theme of structural reforms was restoration of fiscal balance to contain inflation and giving relief. BOP pressures not only on short term but also on long term perspectives.
Thus the economic reforms which were undertaken brought a radical change in business environment in the country.
The changes which were brought about are as follows:
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(a) Abolition of licensing
(b) Abolition of FERA and liberalising MRTP.
(c) Higher percentage of foreign holding
(d) Privatisation of oil sector, telecom, aviation, banking, mining.
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(e) Giving more autonomy to public sector.
(f) Lowering corporate taxes, excise duties, import duties.
(g) Low excise duties.
(h) Taxing services.
(i) Decanalisation of imports.
(J) No export subsidies.
(k) Offering global patent protection.
(l) Convertibility of rupee in stages,
(m) Opportunity to Indian companies becoming global.
(n) Financial sector with interest deregulation, and capital market reforms.
(o) Subsidy cut.
(p) More liberalisation on FII norms.
(q) Privatisation of various infrastructure.
(r) Setting up of various regulatory bodies like TRAI, SEBI, IDRA
(s) New sea port policies, Export-Import policies.
(t) More Financial sector reforms.
We indicate features and realities of the changes in various sectors but in the course of discussion we will analyse basic framework, perspectives in the latest changes. However and meanwhile we may indicate here types of changes that have been brought in the model of Economic Management.
Government abolishes the practices of multiplicity of agency network which give permission to new projects. Companies Act has been changed to create room for merger and amalgamation. Banks and other PSUs have been given more freedom. More attempts have been made to create a vibrant capital market.
There has been more easy access to ADR/GDR market of the Indian companies at present. The government has set up a number of regulatory bodies to control of unfair competition in trade and pricing. Private agencies have been invited for infrastructure building.
Thus we can see there have been elaborate changes in the entire business environment after economic reforms in India.