the economic crisis of 1991

7/27/2019 The Economic Crisis of 1991

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INTRODUCTION


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Introduction There was a serious fiscal crisis in which fiscaldeficit reached the level of 6.6% of GDP.

Internal debts rose to about 50% of GDP withinterest payments draining about 39% of totalrevenue collections of the central government.

GNP growth rate fell to 1.4% from the peak levelof 10.5% in 1988-89.


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Negative growth rates

i. Agriculture promotion: -2.8%.

ii. Food grain production:-5.3%.

iii. Industrial production:-0.1%.

Inflation rate based both on WPI & CPI soared highat 13-14%.


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Foreign trade shrunk imports falling by 19.4% & exports by1.5%.

Rupee depreciated by 26.7% vis--vis US dollars.

Fall in foreign exchange reserves.

Confidence of the international financial institutions was badly shaken.

In may 1991, the government had to lease 20 tons of goldout of its stock to the SBI to enable it to sell the gold withrepurchase option after 6 months. In addition RBI wasallowed to pledge 47 tons of gold to the BOE to raise a loanof $600mn.


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M AJOR STEPS TAKEN TO M ANAGE TH E CRI SI S


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Major steps taken to manage the

crisisFiscal correction aimed at reducing fiscal deficit byabout Rs 7700 core in 1991-92 compared to1990-91.

Announcement of new industrial policy in June1991.

Abolition of industrial licensing for industrial projects except 18 industries of high strategic &environmental importance. About 80% of theindustries were delicensed.


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9 areas in basic & core industries earlier reserved for publicsector opened to private sector

Limit of foreign equity holding raised from 40% to 51% ina wide range of priority industries.

Foreign investment promotion board (FIPB) established tonegotiate proposals from international firms & expediteclearances of the investment proposals.

Bringing back of gold earlier pledged to the BOE & BOJ.

Continuance of the measures of import control & creditsqueeze.


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Import licensing was eliminated in many goods &

advance licensing system was simplified.

Foreign investment promotion board established to

negotiate proposals from large international firms

Rupee devaluation by 18 percent

Negotiation of $500 million structural adjustment


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LIBERALIZATION,PRIVATIZATION,

GLOBALIZATION


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LIBERALIZATION


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Liberalization DELICENSING

FREEDOM FROM LOCATIONAL REQUIREMENTS ANDGOVERNMENT CLEARANCE

PERMISSION TO CORPORATES FOR BUYBACK OFSHARES

CORPORATISATION OF DEPARTMENTALUNDERTAKINGS AND PUBLIC UNDERTAKING

INCREASE IN THE INVESTMENT CEILING OF SMALL

SCALE ENTERPRISES


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LIBERALIZATION OF TAX PROVISION FOR

SELECTED SECTOR

FREEDOM TO BANKS TO ENTER THEINSURANCE SECTOR

FREEDOM TO TRANSFER LICNSES ANDASSETS

REMOVAL OF RESTRICTION ON MOVEMENTOF PRODUCTS AND SALE PURCHASE OFASSETS


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PrivatizationDIVESTITURE

DENATIONALIZATIONFRANCHISING OF PUBLIC SECTOR SERVICES TO DESIGNATED PRIVATESECTOR UNITS

LICENSING OF TECHNOLOGY OF PUBLICSECTOR UNITS TO PRIVATE ENTERPRISE]


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GOVERNMENT WITHDRAWAL

PRIVATIZATION OF MANAGEMENT

OPENINING UP OF A NUMBER OF CORESECTORS EARLIER RESERVED FOR PUBLIC SECTOR TO PRIVATEINVESTMENT

FREEDOM TO BANKS TO DETERMINETHEIR OWN LENDING RATES


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GLOBALIZATION


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GlobalizationREDUCTION IN THE SCOPE OF RESTRICTIVECANALIZED TRADE

INCREASE IN THE LIMIT OF FOREIGN DIRECTINVESTMENT IN A NUMBER OF AREAS

PERMISSION TO EXPORTERS TO KEEPFOREIGN EXCHANGE ACCOUNTS

CREATION OF FOREIGN PROMOTION BOARD


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REF ORM STRATEGY


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I ndustry & L abour Strategy Removing regulatory obstacles.

Disinvestment in public sector.

Increase in foreign share.

Competitive market structure.

Growth in productivity.

Withdrawal of power.


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STRATEGY

TRADE

AGRICUL-

TURE

INFRASTRU

C-TURE


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TRADE Liberalize foreign trade.

Minimization of imports.

Fixation of tariff.

Removal of restrictions.

Reduction in import tariff.


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AGRICULTURE Growth rate -

Investment & capital -

Credit structure -

Pricing policy -

Agriculture products withinthe country.

CRP(credit relief package)

Increase in import duty.

Quality improvement.


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INFRASTRUCTURE TRAI ( telecom regulatory authority of India).

Private sector BOT

Golden Quadrilateral project.


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BIBLIOGRAPHY www.google.com

www.wikipedia.com

http://business.rediff.com/slide-show/2009/may/25/slide-show-5-lord-desai-on-recession-and-indian-politics.htm


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the economic crisis of 1991

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