Date post: | 30-May-2018 |
Category: |
Documents |
Upload: | professor-tarun-das |
View: | 218 times |
Download: | 0 times |
of 36
8/14/2019 Planning and Reforms by Prof. Tarun Das
1/36
Prof. Tarun Das, IILM EEP Session-3 1
Economic Environment
and Policy (EEP)Session-3
Economic Systems, Planningand Reforms in India
Dr. Tarun Das, Professor, IILM
8/14/2019 Planning and Reforms by Prof. Tarun Das
2/36
Prof. Tarun Das, IILM EEP Session-3 2
Contents of this presentation
1. Economic Systems2. Types and dimensions of planning3. Economic Planning in India4. Background of reforms in India
5. Scope of reforms in India
8/14/2019 Planning and Reforms by Prof. Tarun Das
3/36
Prof. Tarun Das, IILM EEP Session-3 3
1. Economic Systems
8/14/2019 Planning and Reforms by Prof. Tarun Das
4/36
Prof. Tarun Das, IILM EEP Session-3 4
1.1 Various Economic Systems Economic system means relations
among economic agents as regardsownership of resources, modes ofproduction, and distribution of goods &services.
It also includes institutions,arrangements and methods to dealwith production and distribution.
Economic system determines who
owns the means of production; whoprovides labour; and how relativeshares of wages, interests, rents andprofits are determined.
8/14/2019 Planning and Reforms by Prof. Tarun Das
5/36
Prof. Tarun Das, IILM EEP Session-3 5
1.2 Various Economic Systems
In brief an economic systemdefines the institutionalframework regulating
business.
Economic systems can be
broadly classified asCapitalist, Socialist andmixed.
8/14/2019 Planning and Reforms by Prof. Tarun Das
6/36
Prof. Tarun Das, IILM EEP Session-3 6
1.3 Market Economy or
Capitalism According to Karl Mark, regarded as father of
socialism and communism, there are two distinctgroups of people- Capitalist (who owns hugeassets) and the Proletariat (who does not possessany assets).
In a capitalist society, means of production areowned and controlled by the capitalists.
Proletariat owns only labor. It lacks bargainingpower, provides cheap labor and makessignificant contribution to output.
But a major share of national income is takenaway by the capitalist in the form of rents,
interests and profits.
8/14/2019 Planning and Reforms by Prof. Tarun Das
7/36
Prof. Tarun Das, IILM EEP Session-3 7
1.4 Market Economy or
CapitalismThere exist wide disparities of incomes of the
rich and the poor.
High income inequalities and significant povertyratios are dominant features of capitalism.
Capitalism is often called free market economywhich is not planned or controlled by a centralauthority and where government intervention is
minimum. Govt makes basic rules andregulations for market players and formulatespublic policies for addressing inequalities andmarket imperfections.
USA and Canada are the very good examples ofmarket economy.
8/14/2019 Planning and Reforms by Prof. Tarun Das
8/36
Prof. Tarun Das, IILM EEP Session-3 8
1.5 Centrally Planned/ SocialistEconomy
In a socialist economy, means of
production are owned and controlled bythe state. Individual consumers andproducers loose their sovereignty.
Govt sets the rules and goals for the nationunder which economic agents are made towork accordingly.
There is small level of inequality justifiedby the differences of individual capabilities.
8/14/2019 Planning and Reforms by Prof. Tarun Das
9/36
Prof. Tarun Das, IILM EEP Session-3 9
1.6 Centrally Planned/ SocialistEconomy
The institution of private property doesnot exist to perpetuate inequality.
People contributes to the public
exchequer according to their capacityto pay, but receives govt transfersaccording to their needs. There is fairdistribution of national income among
people by the state.
8/14/2019 Planning and Reforms by Prof. Tarun Das
10/36
Prof. Tarun Das, IILM EEP Session-3 10
1.7 Command and CommunistEconomy
It is the extreme form of centrally plannedeconomy. This system refers to the political
and economic development proposed byKarl Marx and developed and implementedby V.I. Lenin.
Under this system people rule bothpolitically and economically and there is a
classless society.Totalitarian system of govt ruled by single
authoritarian party. All means of production are owned and
controlled by the govt which also
determines types, quantity, quality andprices of goods and services to beproduced.
China, Russia, Cuba, are best examples.
8/14/2019 Planning and Reforms by Prof. Tarun Das
11/36
Prof. Tarun Das, IILM EEP Session-3 11
1.8 Mixed Economy Mixed economic system is the middle path
between free market economy and the pure
socialist economy. It allows the co-existence ofboth private and public sectors. Indian economy is a very good example of
mixed economy. Since independence and beginning of planning
Indian govt has adopted the basic principle of
Growth with social justice and equity. Initially, many heavy industries were reserved
for the public sector. Since 1991 govt hasadopted new economic policy and has openedmost of the sectors for private investment.
Govt is also encouraging public-privatepartnership.
8/14/2019 Planning and Reforms by Prof. Tarun Das
12/36
Prof. Tarun Das, IILM EEP Session-3 12
2. Economic Planning in India
8/14/2019 Planning and Reforms by Prof. Tarun Das
13/36
Prof. Tarun Das, IILM EEP Session-3 13
2.1 Types of Planning
Policy planning versus physical planning
Indicative planning versus target setting
Consistency versus optimizing approach
Sectoral versus economy wide planning
Selective versus all purpose planningLearning versus blue print approach
Consultancy versus dirigist approach
Monitoring trends versus forecastingfuture
Sound public investment programs versusoverall investment planning
8/14/2019 Planning and Reforms by Prof. Tarun Das
14/36
Prof. Tarun Das, IILM EEP Session-3 14
2.2 Dimensions of Planning
Macro planning (National level)
Meso (Middle level- States, UTs)Spatial (over space- SEZs, EPZs)Regional (over regions- planning for
North Eastern States)
Local (Municipalities, Corporations)Sectoral (over industries/ sectors)Micro (at unit levels- corporate
planning)
Inter temporal (over time)Intergenerational (over generations)
8/14/2019 Planning and Reforms by Prof. Tarun Das
15/36
Prof. Tarun Das, IILM EEP Session-3 15
2.3 Economic Planning in India (1)
Since the beginning of the five year plans in 1951
Indian govt has adopted a mixed economic systemguided by Socialistic Pattern of Society and basic
objective of Growth with Social Justice and Equity.
Although basic objective remains the same, the
emphasis and the type of planning model differed insubsequent five year plans.
Over the years Indian economy has become more
liberal, more globalized and more people oriented.
i l i i di
8/14/2019 Planning and Reforms by Prof. Tarun Das
16/36
Prof. Tarun Das, IILM EEP Session-3 16
2.4 Economic Planning in India(2)
Plan andperiod
PlanningModel
Focus on Ave.growth
First Plan(1951-56)
HarrodDomar
Agriculture/rural sector
3.6
2nd Plan(1956-61) MahalanobisModel HeavyIndustry 4.3
Third Plan
(1961-66)
Leontief
input-output
Public Sector
enterprises
2.9
Plan Holi-day(66-69
Swaminathan Model
GreenRevolution
4.0
2 5 E i Pl i i I di
8/14/2019 Planning and Reforms by Prof. Tarun Das
17/36
Prof. Tarun Das, IILM EEP Session-3 17
2.5 Economic Planning in India(3)
Plan and
period
Planning
Model
Focus on Ave.
growth
5th Plan(1974-79)
SukhomayaChakravarty
Povertyreduction
4.8
Annual(1979-80)
No Model Control ofinflation
-4.9
Sixth Plan(1980-85)
SukhomayaChakravarty
IndustrialLiberalisation
5.6
7th Plan(1985-90) LeontiefIn ut- ICT,Trans ort 5.7
2 6 E i Pl i i I di
8/14/2019 Planning and Reforms by Prof. Tarun Das
18/36
Prof. Tarun Das, IILM EEP Session-3 18
2.6 Economic Planning in India(4)
Plan and
period
Planning
Model
Focus on Ave.
growth
8th Plan(1992-97)
LeontiefInput-
Output
Growth andPoverty
reduction
6.2
9th Plan(1997-02)
As above As above 5.5
10th Plan(2002-07)
As above As above 7.8
11th Plan As above Faster and 9%
8/14/2019 Planning and Reforms by Prof. Tarun Das
19/36
Prof. Tarun Das, IILM EEP Session-3 19
3. Economic Reforms in India
3 1 Background of Economic Reforms in
8/14/2019 Planning and Reforms by Prof. Tarun Das
20/36
Prof. Tarun Das, IILM EEP Session-3 20
3.1 Background of Economic Reforms inIndia
It is well known that in 1990-91 India facedan unprecedented foreign exchange crisisdue to adverse impact of the Gulf war n theIndian economy.
Our foreign exchange reserves dwindled toless than $1 billion sufficient to finance only
two weeks imports of essential items.
Non-resident Indians started withdrawingtheir deposits at a faster speed.
International credit rating organizationsdowngraded Indian scrips.
8/14/2019 Planning and Reforms by Prof. Tarun Das
21/36
Prof. Tarun Das, IILM EEP Session-3 21
3.2 Background of Economic Reforms inIndia
Windows of international commercial lendingwere closed for Indian corporate bodies as theylost confidence on the Indian economy.
At home there was fall of industrial output, highinflation at 16 percent and widespreadunemployment.
In order to create International confidence thegovernment o India had to lift gold physicallyfrom the chest of the Reserve of Bank of India atBombay and deposit it with the Bank of England
at London and the Bank of Japan at Tokyo.
8/14/2019 Planning and Reforms by Prof. Tarun Das
22/36
Prof. Tarun Das, IILM EEP Session-3 22
3.3 Core Objectives of Reforms
At that time in July 1991 the new govtwith Narasimha Rao as PM andManmohan Singh as Finance Minister lostno time to initiate wide-ranging reformsin trade, industry, financial and publicsectors;
To improve efficiency, productivity andinternational competitiveness of Indianindustries and to impart dynamism tooverall growth process.
Emphasis is on the role of marketeconomy and the so-called LPG(liberalization and privatisation along withglobalization).
8/14/2019 Planning and Reforms by Prof. Tarun Das
23/36
Prof. Tarun Das, IILM EEP Session-3 23
3.4 Indian Economy in
Pre-Reforms Period
Mixed economy, but too closedFar behind world-wide globalization
High level of control, licenses and regulation
Monopolistic practices in public utilities
Complex tax regime with high rates
High tariff walls & QRs on imports
Rigid factor markets-land, labour, capital
High fiscal deficits and public debtPrecarious balance of payments
8/14/2019 Planning and Reforms by Prof. Tarun Das
24/36
Prof. Tarun Das, IILM EEP Session-3 24
3.5 Rationale for Reforms
Over control, over regulation, licensing andhigh taxes and duties resulted in :
Low efficiency and productivity
High transactions cost
Corruption and rent seeking
Non-optimal allocation of resources
Sub-optimal choice of size, technology and
location of industries
Low quality but high prices of products
Bureaucratic inefficiency and red tape
8/14/2019 Planning and Reforms by Prof. Tarun Das
25/36
Prof. Tarun Das, IILM EEP Session-3 25
3.6 Unique Features of Reforms
Gradual, Step by Step, Evolutionary and Cumulative
Approach, not a Big Bang, Shock Therapy orRevolutionaryApproach
General political consensus
Strong emphasis on human face
Sovereignty and nationality constraint
Agency constraint- ideology of party in power
Preference for national-level decentralization
Prioritisation and sequencing of reforms
No write-off / rescheduling of external debt
Practically no sacrifice made by people
8/14/2019 Planning and Reforms by Prof. Tarun Das
26/36
Prof. Tarun Das, IILM EEP Session-3 26
3.7 Challenges of reforms
To break the nexus among vested interests so
that reforms can be implemented,To change the mind-set of all policymakers
and bureaucrats to accept change,
To achieve sustained growth with equity andsocial justice so that fruits of reforms reacheverybody,
To involve all stakeholders in the process ofdevelopment, because we know that noreforms can succeed unless we are able totake the people along with us.
8/14/2019 Planning and Reforms by Prof. Tarun Das
27/36
Prof. Tarun Das, IILM EEP Session-3 27
3.8 Reorientation of Public Policies
To create enabling environment for public-
private partnershipTo link fiscal incentives to productivityTo streamline public investment programs
To reorient planning for multi-stakeholdersconsultations, flexibility, decentralisation,
selectivity, monitoring and co-ordination
To repair market failuresTo strengthen structures & institutions
8/14/2019 Planning and Reforms by Prof. Tarun Das
28/36
Prof. Tarun Das, IILM EEP Session-3 28
4. MAJOR REFORMS
8/14/2019 Planning and Reforms by Prof. Tarun Das
29/36
Prof. Tarun Das, IILM EEP Session-3 29
4.1 Macro adjustment policies
Macro adjustment policies can be broadly
divided into two groups- stabilizationpolicies and structural reforms.
While stabilization policies aim at reducingmacro economic imbalances by attackingdemand, structural reforms aim atincreasing supply and improvingproductivity and growth by encouragingcompetitiveness, efficiency and dynamism
of industries and the corporate sector.
8/14/2019 Planning and Reforms by Prof. Tarun Das
30/36
Prof. Tarun Das, IILM EEP Session-3 30
4.2 Economic Reforms since 1991
Stabilisation Policies Fiscal policies Monetary policies Exchange rate policy Tariff policy Wage-income policy Administered price
policy
Structural Reforms Reforms in agriculture,
industry and infrastructure
Reforms in trade and
external sector Financial sector reforms
Public sector reforms
Social sector reforms
Factor market reforms
- Land, Labor, Capital
8/14/2019 Planning and Reforms by Prof. Tarun Das
31/36
Prof. Tarun Das, IILM EEP Session-3 31
4.3 Paradigms of Reforms since 1991Pre-Reforms Period
1.Quantitative licensing
on trade and industry
2. State regulated
monopolies of utilities
and trade3. Govt control on
finance and capital
markets
4.Restrictions on
foreign investment
and technology
Post Reforms Period
1.Abolition of industrial and
trade licensing
2.Removal of state
monopolies, privati-sation
& divestment
3.Liberalisation of financialand capital markets
4.Liberal regime for FDI,
portfolio investment,
foreign technology
8/14/2019 Planning and Reforms by Prof. Tarun Das
32/36
Prof. Tarun Das, IILM EEP Session-3 32
4.4 Paradigms of Reforms since 1991Pre-Reforms Period5.Import substitution
and export ofprimary goods
6.High duties & taxeswith multiple rates
and large dispersion7.Sector-specific
monetary, fiscal andtariff policies
8.End-use specific,multiple & controlledinterest rates
Post Reforms Period5.Export promotion and
export diversification,no import bias
6.Significant reductionand rationalisation of
all taxes and duties7.Sector-neutral
monetary, fiscal andtariff policies
8.Flexible interest rateswithout any end-use
8/14/2019 Planning and Reforms by Prof. Tarun Das
33/36
Prof. Tarun Das, IILM EEP Session-3 33
4.5 Paradigms of Reforms since 1991Pre-Reforms Period
9.Foreign exchangecontrol, no converti-
bility of rupee
10.Multiple and fixed
exchange rates11.Administered prices
for minerals, utilities,
essential goods
12.Tax concessions on
exports and savings
Post Reforms Period
9.Abolition of exchangecontrol, full converti-
bility on current A/C
10.United and market
determined exch.rates12.Abolition of all
administered prices
except for few drugs
12.Rationalised and
being phased out
4 6 P di f R f i 1991
8/14/2019 Planning and Reforms by Prof. Tarun Das
34/36
Prof. Tarun Das, IILM EEP Session-3 34
4.6 Paradigms of Reforms since 1991
Pre-Reforms Period
13.Explicit subsidies on
food, fertilisers, and
some essential items
14.Hidden subsidies on
power, urbantransport, public
goods, POL
15.General lack of
consumers protectionand other rights
Post Reforms Period
13. No change, budget
subsidies on LPG andkerosene introduced
14.No change, but user
charges are being
rationalised, and subsidies
targeted
15.Acts governing consumer
rights, IPR, independent
regulatory authority
4 7 P di f R f i 1991
8/14/2019 Planning and Reforms by Prof. Tarun Das
35/36
Prof. Tarun Das, IILM EEP Session-3 35
4.7 Paradigms of Reforms since 1991
Pre-Reforms Period16.Central planning,
discretion, highdegree ofbureaucracy
17.OutdatedCompanies Act
18. No exit policy forland and labour
19.Outdated legalsystem andcommercial laws
Post Reforms Period16.Decentralisation, sound
institutional framework,reforming civil services
17. No change- corporategovernance and socialresponsibility introduced.
18. No change in labor policy,
little change in land markets19. No change
8/14/2019 Planning and Reforms by Prof. Tarun Das
36/36
Prof. Tarun Das, IILM EEP Session-3 36
Thank you
Have a Good Day