Project Report

On

Impact of Globalization and Liberalization on

Primary Sector of Indian Economy
Submitted in partial fulfillment of the requirements for the award of the Degree of
Post Graduate Diploma in Management
To
Institute of Management Studies, GHAZIABAD

Guide Name:

Submitted By Team:

Dr. Tapan Kumar Nayak

(Program Chairperson-PGDM)

BM-015121
Kiran
BM-015133
BM-015138
BM-015150
BM-015159

Laxmi Kant Yadav

Manisha Dugar
Neelish Dinmani
Nishant Kumar

G.T. Road, Lal Quan,

Ghaziabad-201 009, National Capital Region, INDIA

2015-17

ACKNOWLEDGEMENT
This Project Work titled Impact of Globalization and Liberalization on
Primary Sector of Indian Economy is a successful outcome of our hard work
with the help and guidance of our respectable faculty. We consider this as our
privilege to express a few words of gratitude and respect to all those who
contributed for the completion of our project.

We acknowledge our sincere thanks to our guide Dr. Tapan Kumar Nayak for his
kind co-operation and encouragement and for the valuable guidance and assistance
for the successful accomplishment of the project work. It gives us immense
pleasure to take the opportunity to thank for the contribution of the suggestions
given by him without which this project could never be accomplished. Last but not
least we acknowledge all of our teammates who gave us suggestion and full
support by heart.
BM-015121
BM-015133
BM-015138
BM-015150
BM-015159

Kiran
Laxmi Kant Yadav
Manisha Dugar
Neelish Dinmani
Nishant Kumar

INDEX
SNO.
1
2

CONTENT
Globalization
Sectorial aspects of Indian economy

Primary

Secondary

Tertiary
Globalization and its impact on Indian Economy: Developments and
Challenges

4
5
6

GLOBALIZATION

Chomsky made early efforts to critically analyze globalization. He summarized the process with
the phrase "old wine, new bottles," maintaining that the motive of the lites is the same as
always: they seek to isolate the general population from important decision-making processes,
the difference being that the centers of power are now transnational corporations and
supranational banks. Chomsky argues that transnational corporate power is "developing its own
Governing institutions" reflective of their global reach.
According to Chomsky, a primary ploy has been the co-opting of the global economic
institutions established at the end of World War II, the International Monetary Fund (IMF) and
the World Bank, which have increasingly adhered to the "Washington Consensus",
requiring developing countries to adhere to limits on spending and make structural adjustments
that often involve cutbacks in social and welfare programs. IMF aid and loans are normally
contingent upon such reforms. Chomsky claims that the construction of global institutions and
agreements such as the World Trade Organization, the General Agreement on Tariffs and
Trade (GATT), the North American Free Trade Agreement(NAFTA), and the Multilateral
Agreement on Investment constitute new ways of securing lite privileges while undermining
democracy. Chomsky believes that these austere and neoliberal measures ensure that poorer
countries merely fulfill a service role by providing cheap labor, raw materials and investment
opportunities for the developed world. Additionally, this means that corporations can threaten to
relocate to poorer countries, and Chomsky sees this as a powerful weapon to keep workers in
richer countries in line .
.
Chomsky takes issue with the terms used in discourse on globalization, beginning with the term
"globalization" itself, which he maintains refers to a corporate-sponsored economic integration
rather than being a general term for things becoming international. He dislikes the term antiglobalization being used to describe what he regards as a movement for globalization called
"free trade" of social and environmental justice. Chomsky understands what is popularly as a
"mixture of liberalization and protection designed by the principal architects of policy in the
service of their interests, which happen to be whatever they are in any particular period." In his
writings, Chomsky has drawn attention to globalization resistance movements. He
described Zapatista defiance of NAFTA in his essay "The Zapatista Uprising." He also criticized
the Multilateral Agreement on Investment, and reported on the activist efforts that led to its
defeat. Chomsky's voice was an important part of the critics who provided the theoretical

backbone for the disparate groups who united for the demonstrations against the World Trade
Organization in Seattle in November 1999.
.

SECTORAL ASPECTS OF INDIAN ECONOMY

We consume various types of goods and services. They can be classified into two types- (i) food
items and (ii) non-food items. To make food we need food grains, fruits and vegetables, edible
oil etc. These things are produced by farmers in the rural area. There are countless non-food
items which we use, such as, clothes, shoes, furniture, utensils, automobiles, pen, paper, book
etc. These are produced by industries in towns and cities. Since production of food grains and
production of non-food items take place in different environment we classify them as different
sectors of the economy.
TYPES

OF

OCCUPATION

PEOPLE

PURSU

To earn livelihood people pursue different types of activities based on their education, skill,
family tradition etc. Normally we classify them into three different sectors of the economy, such
as (i) primary sector, (ii) secondary sector and (iii) tertiary sector.
1.1 Primary Sector
Take the scenario in rural areas of India. How do the people, who are living in villages, earn their
livelihood? Many of them work on the fields to raise crops, which are known as cultivation.
They are known as farmers and agricultural labourers and the occupation is called agriculture.
There are different types of crops which are cultivated; such as food items and non food items.
Food items include cereal, pulses, fruits and vegetables etc. and non-food items include cotton,
jute etc.
Similarly people also earn their livelihood from forestry which refers to collection of forest
products and selling them in the market. This occupation is called forestry. Forest products
include- timber, firewood, herbal medicines etc. Many people work in mining area to extract
minerals. There also people who are engaged in raising live stock such as poultry and dairy
farming. Finally fishery is another occupation in which people catch fish in ponds, rivers or sea

to sell them in the market. All these activities i.e. agriculture, forestry, mining, livestock and
fishery are complementary to each other. We classify them as primary production and place them
in primary sector.
So primary sector of our economy includes the following.
(i) Agriculture and allied activities
(ii) Fishery
(iii) Forestry
(iv) Mining and Quarrying
ROLE AND IMPORTANCE OF PRIMARY SECTOR
In the primary sector agriculture is the predominance occupation and has the largest share in
national income. So let us concentrate on the role and importance of agriculture
in the Indian economy in terms of its share in the national income, providing employment food
and raw materials. Let us take them one by one.
1. Share in National income
At the time of independence agriculture was contributing more than 50 percent to national
income. In recent years its share has come down. In 2009-10 agriculture contributed around 15
percent to national income.
2. Providing employment to largest section of population
Agriculture is the mainstay of Indian economy. It is the occupation of the largest section of
Indias population. At the time of independence about 70 percent of our population depended on
agriculture and allied activities to earn their livelihood. With development of manufacturing and
service sector dependency on agriculture has slightly reduced. About 50 percent of Indias
population was working in agriculture in the year 2009-10.

3. Providing Food to Millions

Food is the most basic requirement of life. Without agriculture food production and supply
would be non-existent. Indias food requirement is not only very high but also increasing every
year because of increase in its population. The total food grain production of India in 2008-9 was
around 234 million tonnes. This includes wheat, rice and pulses.
4. Providing raw materials to industries
Industries such as sugar, jute, cotton textiles, vanaspati etc. get their raw materials from
agriculture. Do you know how paper is made? It requires a special type of grass, bamboo etc.
Without agriculture paper production is not possible. Look at the food processing industry which
is supplying so many different varieties of packed food items such as pickles, fruit jam, juice,
biscuits, bread, semi prepared food etc. Food processing industry is operating because of
agriculture only.

Secondary sector
This sector includes the following production activities
(a) Manufacturing
(b) Construction
(c) Gas, water and electricity supply
Manufacturing
This implies production of goods by using raw materials in manufacturing units called
factories and industries. In terms of size and expenditure involved there are small and
large scale industries. Examples of small scale units are: shoe factory, textile unit,
printing, glass making, furniture etc. The large scale manufacturing includes steel,
automobiles, aluminum, etc. Skilled people work in manufacturing business.
Construction
This activity includes construction of residential and non-residential buildings, roads,

parks, bridges, dams, airports, bus stops and so on. It is a regular activity seen in urban
areas.
Another occupation people pursue in secondary sector is gas, water and electricity
supply. These are essential services.
Tertiary Sector
People are also engaged in tertiary sector activities which are different in nature.
This sector is called service sector where following services are provided.
(i) Trade, Hotels and Restaurants
(ii) Transport, Storage and Communication
(iii) Financial services such as Banking, Insurance etc.
(iv) Real estate and Business services
(v) Public Administration
(vi) Others services.

Globalization and its impact on Indian Economy: Developments and Challenges

Globalization (or globalization) describes a process by which regional economies, societies, and
cultures have become integrated through a global network of communication, transportation, and
trade. The term is sometimes used to refer specifically to economic globalization: the integration
of national economies into the international economy through trade, foreign direct investment,
capital flows, migration, and the spread of technology. Globalization as a spatial integration in
the sphere of social relations when he said Globalization can be defined as the intensification of
worldwide social relations which link distant locations in such a way that local happenings are
shaped by events occurring many miles away and vice versa. Globalization generally means
integrating economy of our nation with the world economy. The economic changes initiated have
had a dramatic effect on the overall growth of the economy. It also heralded the integration of the

Indian economy into the global economy. The Indian economy was in major crisis in 1991 when
foreign currency reserves went down to $1 billion. Globalization had its impact on various
sectors including Agricultural, Industrial, Financial, Health sector and many others. It was only
after the LPG policy i.e. Liberalization, Privatization and Globalization launched by the then
Finance Minister Man Mohan Singh that India saw its development in various sectors.
Advent of New Economic Policy After suffering a huge financial and economic crisis Dr. Man Mohan Singh brought a new policy
which is known as Liberalization, Privatization and Globalization Policy (LPG Policy) also
known as New Economic Policy,1991 as it was a measure to come out of the crisis that was
going on at that time. The following measures were taken to liberalize and globalize the
economy:
1. Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18
to 19%.
2. Disinvestment: To make the LPG model smooth many of the public sectors were sold to the
private sector.
3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such
as Insurance (26%), defense industries (26%) etc.
4. NRI Scheme: The facilities which were available to foreign investors were also given to
NRI's.
The New Economic Policy (NEP-1991) introduced changes in the areas of trade policies,
monetary & financial policies, fiscal & budgetary policies, and pricing & institutional reforms.
The salient features of NEP-1991 are (i) liberalization (internal and external), (ii) extending
privatization, (iii) redirecting scarce Public Sector Resources to Areas where the private sector is
unlikely to enter, (iv) globalization of economy, and (v) market friendly state.
Consequences of Globalization:
The implications of globalisation for a national economy are many. Globalisation has intensified
interdependence and competition between economies in the world market. This is reflected in
Interdependence in regard to trading in goods and services and in movement of capital. As a
result domestic economic developments are not determined entirely by domestic policies and

market conditions. Rather, they are influenced by both domestic and international policies and
economic conditions. It is thus clear that a globalising economy, while formulating and
evaluating its domestic policy cannot afford to ignore the possible actions and reactions of
policies and developments in the rest of the world. This constrained the policy option available to
the government which implies loss of policy autonomy to some extent, in decision-making at the
national level.
Now for Further analysis we take up Impact of Globalization on various sector of Indian
Economy.
Impact of Globalization on Agricultural Sector:
Agricultural Sector is the mainstay of the rural Indian economy around which socio-economic
privileges and deprivations revolve and any change in its structure is likely to have a
corresponding impact on the existing pattern of Social equity. The liberalization of Indias
economy was adopted by India in 1991. Facing a severe economic crisis, India approached the
IMF for a loan, and the IMF granted what is called a structural adjustment loan, which is a loan
with certain conditions attached which relate to a structural change in the economy. Essentially,
the reforms sought to gradually phase out government control of the market (liberalization),
privatize public sector organizations (privatization), and reduce export subsidies and import
barriers to enable free trade (globalization). Globalization has helped in:
Raising living standards,
Alleviating poverty,
Assuring food security,
Generating buoyant market for expansion of industry and services, and
Making substantial contribution to the national economic growth.
Advantages of Globalization:
There is an International market for companies and for consumers there is a wider range of
products to choose from.
Increase in flow of investments from developed countries to developing countries, which can
be used for economic reconstruction.

 Greater and faster flow of information between countries and greater cultural interaction has
helped to overcome cultural barriers.
Technological development has resulted in reverse brain drain in developing countries.
Demerits of Globalization (Challenges):
The outsourcing of jobs to developing countries has resulted in loss of jobs in developed
countries.
There is a greater threat of spread of communicable diseases.
There is an underlying threat of multinational corporations with immense power ruling the
globe.
For smaller developing nations at the receiving end, it could indirectly lead to a subtle form of
colonization.
The number of rural landless families increased from 35 %in 1987 to 45 % in 1999, further to
55% in 2005. The farmers are destined to die of starvation or suicide.
A Comparison with Other Developing Countries:

Consider global trade Indias share of world merchandise exports increased from .05% to

.07% over the past 20 years. Over the same period Chinas share has tripled to almost 4%.

Indias share of global trade is similar to that of the Philippines an economy 6 times

smaller according to IMF estimates.

Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5%

for China and 5.5% for Brazil. FDI inflows to China now exceed US $ 50 billion annually. It is
only US $ 4billion in the case of India.
Globalization in agricultural sector
In Agriculture of the WTO, was the first multilateral agreement, meant to curb unfair practices in
agricultural trade and set off the process of reforms in the agricultural sector. It contained the
following broad areas :
1.Tariff Reduction : Previously trade in agriculture was restricted by quotas, import and export
licensing and other non-tariff barriers. The AoA required that all non-tariff barriers be replaced
by a single tariff rate called the bound tariff rate and that existing tariffs be reduced in a phased

manner over a stipulated period of time. Developing countries including India were expected to
reduce bound tariffs by 24 % , minimum of 10 % for each commodity over a period of 10 years.
2.Market Access : To avoid the adverse effect of tariffs on certain special products, importing
countries have given a current access commitment by establishing a tariff quota, up to which
imports are allowed at a lower rate and above which higher tariffs are charged. Under minimum
access commitment countries had to import a minimum quantity of their most restricted
products. i.e. In case of products with marginally low or no imports, countries had to impose
tariff quota imports equal to 3 % of domestic consumption, which would
increase to 5 % by 2000.
3.Export Subsidies : They are special incentives given to the exporters to encourage sales of
exports abroad, allowing them to charge competitive or lower price in the world market.
However this crated distortions in international trade and hence AoA prohibits export subsidies.
Member nations were expected to reduce them. While developed countries were supposed to cut
the value of export subsidies by 36 % over 6 years, developing countries were to reduce them by
24 % over 10 years. LDCs were exempted.
4.Domestic Support Subsidies : Domestic support through subsidies and other measures were
meant to push imports out of the market and also enable domestic exporters to compete in the
world market. WTO measured this support as (AMS) Aggregate Measurement of Support.
Domestic support is categorized in the form of red box, amber box, green box and blue box
subsidies. Red box subsidies are banned whereas amber box subsidies are not banned but
actionable.
These subsidies were believed to be the most distortive in international trade having adverse
effects on trade interests of others. Green box subsidies in the form of assistance to research
activities, disadvantaged regions or non-discriminating subsidies and Blue box subsidies in the
form of direct payments to farmers required to limit their production were permitted and nonactionable. The Blue box subsidies were not allowed to be not more than 5 % for developed
countries and 10 % for developing countries.
Globalization effect on mining sector
Currently, growth in the mining and metals industry lags behind the countrys overall economic
growth. Growth in major commodities, especially iron ore, coal and steel industry is

considerably constrained primarily due to infrastructure bottlenecks, use of obsolete technology,

governance issues and mining ban that was in force until recently in a few mining states.
Together with that, social unrest and land acquisition issues have constrained bauxite mining for
major producers. Even as broad economic indicators hint toward recovery and improving
business optimism, the Indian economy stands at a cross-road with growth and opportunity being
challenged by economic volatility, crisis in foreign countries and dire need for policy reforms.
Deft handling of these issues by the Government and the Reserve Bank of India (RBI) will
determine the pace and direction of growth for all sectors in India and especially for the mining
sector, which had been struggling with legislative inaction, weak regulatory environment and
lack of investment
In 2014 India elected a new government with a single party enjoying parliamentary majority a
first in the last 30 years, heralding a five-year term of political stability. A stable central
government, relatively free from the constraints of coalition politics, naturally instilled high
expectations of India being able to realize its mining potential by overcoming the policy
paralysis that has plagued the Indian economy in general and the mining sector in particular for
the past several years. A year down the line, wild exuberance has given way to a more realistic
optimism as the Government starts implementing its reform agenda amid obvious structural
challenges in order to unlock investments. The Governments reform measures are focused on
improving the business environment, liberalizing foreign direct investments (FDI), enhancing
investment in infrastructure, rapid resolution of corporate tax and other issues. Leading economic
indicators are pointing toward green shoots with the World Bank opining that the Indian
economy seems to have turned the corner. The GDP growth is projected to accelerate to 7.2%
in FY15 and 7.5% in FY16 compared to 6.9% in FY14 signifying a healthy pace of economic
growth. 9.7 7.3 4.7 5 6.9 7.2 7.5 2010 2011 2012 2013 2014 2015f 2016f GDP
India is in dire need of foreign investment to boost growth in various sectors particularly in
mining and metals, infrastructure and construction. To achieve this, the Government has been
opening up various sectors for foreign direct investment (FDI), since the last few years.
However, in the last two fiscal years, FDI inflow declined by 17%, while FDI into the mining
sector declined to a paltry US$24m in FY14 from US$204m in FY12. Procedural and permit
delays in mining operations, regulatory and administrative procedures, inadequate infrastructure
facilities and sustainability have led to very low FDI inflows in the mining sector historically.

Moreover, coal, the largest mined mineral in India, was never opened to commercial mining,
resulting in zero interest by global mining majors. However, with the promulgation of the
MMDR Act, investment in mining and metals sector is expected to improve.
The Indian Government has set the stage for a paradigm shift in the Indian mining sector with
the recent Supreme Court directed coal auctions and the proposed auction of other minerals.
These broad-based reforms proposed by the Government would have several implications, some
of them being: An increase in mineral exploration, production and availability, which are likely
to aid the commissioning of many stalled projects Significant fundraising for state governments
from the auction of mineral resources ( around US$250300b over a 2530 year period,
according to many prevalent estimates) A more stable and predictable regulatory environment
facilitating growth in the sector After formulating the MMDR Act, the Government in April
2015, has come out with draft rules for auction with an intention to implement them for all
further auctions of minerals. This is further expected to clarify any ambiguity and simplify
procedures in the MMDR Act and provide a fillip to mining activity in the country. The
Government has taken into account the apprehensions of many existing miners and addressed the
business continuity concerns in the MMDR Act. Accordingly, it has extended the existing and
pending leases of mines for captive purposes till 31 March 2030 and for commercial mines till 31
March 2020 or a period of fifty years, whichever is later. This has eliminated uncertainty to a
large extent in the minds of various players, thereby protecting their substantial investments

Liberalization
The economic liberalization in India refers to ongoing economic reforms in India that started on
24 July 1991.After Independence in 1947, India adhered to socialist policies. Attempts were
made to liberalize economy in1966 and 1985.Till today Agriculture remains a sensitive issue in
India with almost 70% of its population still directly dependent on it. Indian agriculture, unlike
big capital based European agriculture, revolves around numerous small farmers, who earn their
livelihoods from cultivating small plots of land, and with limited access to resources like water,
seed and fertilizer. Until June 1991, India followed a very restrictive economic policy
characterized by exclusion of the private sector from many important industries. India faced
liquidity crisis in 1991. The balance of payment situation had deteriorated so sharply and the
foreign exchange reserves had fallen so low that, the possibility of default in payment was
imminent. The fiscal situation has deteriorated sharply. The budget deficit as well as overall
fiscal had sharply increased, contributing on the one hand to large increase in money supply, and
on the other side to sharp increase in interest payments. The economic
liberalization ushered in June 1991 changed the scenario very substantially. The government had
undertaken wide ranging measures to promote exports even prior to 1991, but even then the
coverage of imports by export earnings was quite low. This significant change in the trade
balance position seems to have been realized on account of various export promotion measures,
which the government has undertaken recently. The biggest input for farmers is seeds. Before
liberalization, farmers across the country had access to seeds from state government institutions
and the seed market was well regulated, with liberalization Indias seed market opens to global
agribusiness. This hit farmers and unregulated market, seed prices shot up and fake
seeds made appearance in a big way. This also happens in fertilizers and pesticide market and it
effects agriculture in India.The effects of trade liberalization on selected commodities namely
rice, maize, rapeseed mustard and chickpea at the national level and farm level. Liberalization
and its resulted government policies had direct and indirect effects upon agriculture. The most
significant related to the efforts at reducing subsidies which affected both agricultural producers
and consumers, and the reduction of public expenditure which would have benefited cultivation.
Thus, both food and fertilizer subsidies were sought to be reduced over

this period. However, both of these strategies, which involved raising the prices for consumers of
both food and 10 fertilizers, had undesirable and even counter-productive effects, leading to the
paradoxical results of reducing consumption and simultaneously increasing subsidies.
Impact of Liberalization on Agriculture in India
The economic liberalization in India refers to ongoing economic reforms in India that started on
24 July 1991. After Independence in 1947, India adhered to socialist policies. Attempts were
made to liberalize economy in 1966 and 1985.Till today Agriculture remains a sensitive issue in
India with almost 70% of its population still directly dependent on it. Indian agriculture, unlike
big capital based European agriculture, revolves around numerous small farmers, who earn their
livelihoods from cultivating small plots of land, and with limited access to resources like water,
seed and fertilizer.

Until June 1991, India followed a very restrictive economic policy

characterized by exclusion of the private sector from many important industries. India faced
liquidity crisis in 1991. The balance of payment situation had deteriorated so sharply and the
foreign exchange reserves had fallen so low that, the possibility of default in payment was
imminent. The fiscal situation has deteriorated sharply. The budget deficit as well as overall
fiscal had sharply increased, contributing on the one hand to large increase in money supply, and
on the other side to sharp increase in interest payments. The economic liberalization ushered in
June 1991 changed the scenario very substantially. The government had undertaken wide ranging
measures to promote exports even prior to 1991, but even then the coverage of imports by export
earnings was quite low. This significant change in the trade balance position seems to have been
realized on account of various export promotion measures, which the government has undertaken
recently.
The biggest input for farmers is seeds. Before liberalization, farmers across the country had
access to seeds from state government institutions and the seed market was well regulated, with
liberalization Indias seed market opens to global agribusiness. This hit farmers and unregulated
market, seed prices shot up and fake seeds made appearance in a big way. This also happens in
fertilizers and pesticide market and it effects agriculture in India. The effects of trade
liberalization on selected commodities namely rice, maize, rapeseed-mustard and chickpea at the
national level and farm level. Liberalization and its resulted government policies had direct and
indirect effects upon agriculture. The most significant related to the efforts at reducing subsidies

which affected both agricultural producers and consumers, and the reduction of public
expenditure which would have benefited cultivation. Thus, both food and fertilizer subsidies
were sought to be reduced over this period. However, both of these strategies, which involved
raising the prices for consumers of both food and 10 fertilizers, had undesirable and even
counter-productive effects, leading to the paradoxical results of reducing consumption and
simultaneously increasing subsidies.
Indian agriculture today: A snapshot
Agriculture employs 60% of the Indian population today, yet it contributes only 20.6% to the
GDP. (Isaac, 2005) Agricultural production fell by 12.6% in 2003, one of the sharpest drops in
independent Indias history. Agricultural growth slowed from 4.69% in 1991 to 2.6% in 19971998 and to 1.1% in 2002-2003 (Agricultural Statistics at a Glance, 2006). This slowdown in
agriculture is in contrast to the 6% growth rate of the Indian economy for almost the whole of the
past decade. Farmer suicides were 12% of the total suicides in the country in 2000, the highest
ever in independent Indias history. (Unofficial estimates put them as high as 100,000 across the
country, while government estimates are much lower at 25,000. This is largely because only
those who hold the title of land in their names are considered farmers, and this ignores women
farmers who rarely hold land titles, and other family members who run the farms. Agricultural
wages even today are $1.5 $2.0 a day, some of the lowest in the world. (Issac, 2005)
Institutional credit (or regulated credit) accounts for only 20% of credit taken among small and
marginal farmers in rural areas, with the remaining being provided by private moneylenders who
charge interest rates as high as 24% a month. An NSSO2 survey in 2005 found that 66% of all
farm households own less than one hectare of land. It also found that 48.6% of all farmer
households are in debt. The same year, a report by the Commission of Farmers welfare
concluded that agriculture was in an advanced stage of crisis, the most extreme manifestation
of which was the rise in suicides among farmers. Given the performance of agriculture and
figures of farmer suicides across the country, this can be said to apply to Indian agriculture as a
whole.
The biggest problem Indian agriculture faces today and the number one cause of farmer suicides
is debt. Forcing farmers into a debt trap are soaring input costs, the plummeting price of produce

and a lack of proper credit facilities, which makes farmers turn to private moneylenders who
charge exorbitant rates of interest. In order to repay these debts, farmers borrow again and get
caught in a debt trap. The researcher will examine each one these 3 causes which led to the crisis
in Andhra Pradesh, Kerala and Maharashtra, and analyze the role that liberalization policies have
played.
Andhra Pradeshs experience is particularly relevant in this analysis because of its leadership.
Chandra Babu Naidu, Chief Minister of Andhra Pradesh from 1995-2004, was an IT savvy neoliberal, and believed that the way to lead Andhra Pradesh into the future was through technology
and an IT revolution. His zeal led to the first ever state level (as opposed to national level)
agreement with the World Bank, which entailed a loan of USD 830 million (AUD 1 billion) in
exchange to a series of reforms in APs industry and government. Naidu envisaged corporate
style agriculture in AP, and implemented World Bank liberalization policies with great
enthusiasm and gusto. He drew severe criticism from opponents, saying he was using AP as a
laboratory for extreme neo-liberal experiments. Hence, APs experience with liberalization is
critical.
The Crisis faced by Indian Agriculture:
The biggest problem Indian agriculture faces today and the number one cause of farmer suicides
is debt. Forcing farmers into a debt trap are soaring input costs, the plummeting price of produce
and a lack of proper credit facilities, which makes farmers turn to private moneylenders who
charge exorbitant rates of interest. In order to repay these debts, farmers borrow again and get
caught in a debt trap. The researcher will examine each one these 3 causes which led to the crisis
in Andhra Pradesh, Kerala and Maharashtra, and analyse the role that liberalization policies have
played.
Andra Pradeshs experience is particularly relevant in this analysis because of its leadership.
Chandrababu Naidu, Chief Minister of Andhra Pradesh from 1995-2004, was an IT savvy neoliberal, and believed that the way to lead Andhra Pradesh into the future was through technology
and an IT revolution. His zeal led to the first ever state level (as opposed to national level)
agreement with the World Bank, which entailed a loan of USD 830 million (AUD 1 billion) in

exchange to a series of reforms in APs industry and government. Naidu envisaged corporate
style agriculture in AP, and implemented World Bank liberalisation policies with great
enthusiasm and gusto. He drew severe criticism from opponents, saying he was using AP as a
laboratory for extreme neo-liberal experiments. Hence, APs experience with liberalization is
critical.
Liberalization and its effects on Agriculture: The neo-liberal economic policy package
The policies of the central government since the beginning of the 1990s have had direct and
indirect effects on farmers welfare. The economic reforms did not include any specific package
specifically designed for agriculture. Rather, the presumption was that freeing agricultural
markets and liberalizing

external trade in agricultural commodities would provide price

incentives leading to enhanced investment and output in that sector, while broader trade
liberalization would shift inter-sectoral terms of trade in favour of agriculture. However, there
were changes in patterns of government spending and financial measures which also necessarily
affected the conditions of cultivation. In particular, fiscal policies of reducing expenditure on
certain areas especially rural spending, trade liberalization, financial liberalization and
privatization of important areas of economic activity and service provision had adverse impact
on cultivation and rural living conditions. The neo-liberal economic reform strategy involved the
following measures which specifically affected the rural areas:
Actual declines in Central government revenue expenditure on rural development, cuts in
particular subsidies such as on fertilizer in real terms, and an the overall decline in per
capita government expenditure on rural areas.
Reduction in public investment in agriculture, including in research and extension.
Very substantial declines in public infrastructure and energy investments that affect the
rural areas, including in irrigation.
Reduced spread and rising prices of the public distribution system for food. This had a
substantial adverse effect on rural household food consumption in most parts of the country.
Financial liberalization measures, including redefining priority sector lending by banks,
which effectively reduced the availability of rural credit, and thus made farm investment
more expensive and more difficult, especially for smaller farmers.

 Liberalization and removal of restrictions on internal trade in agricultural commodities,

across states within India.
Liberalization of external trade, first through lifting restrictions on exports of agricultural
goods, and then by shifting from quantitative restrictions to tariffs on imports of agricultural
commodities. A range of primary imports was decreases and thrown open to private agents.
Import tariffs were very substantially lowered over the decade. Exports of important
cultivated items, including wheat and rice, were freed from controls and subsequent
measures were directed towards promoting the exports of raw and processed agricultural
goods.
In terms of fiscal policies, the reduced spending of central and state governments was the most
significant feature. Due to tax reforms, the tax/GDP ratio declined at central level. Central
transfers to state governments also declined. State governments were forced to borrow in the
market and other (often international) sources at high interest rates. As a result, the levels of debt
and debt servicing increased in most of the states. In recent years, most state governments were
in fiscal crisis and did not have funds for capital expenditures. This has been especially important
since state governments are responsible for areas critical for farmers such as rural infrastructure,
power, water supply, health and education. Meanwhile, at the central government level, capital
expenditure declined as a share of national income, and all public expenditure directed towards
the rural areas fell both as a per cent of GDP and in real per capita terms. Indias financial
liberalization strategy involved, to varying degree, the standard package such measures designed
to make the Central Bank more independent, to relieve financial repression by freeing interest
rates and allowing financial innovation, to reduce directed and subsidized credit, as well as allow
greater freedom in terms of external flows of capital in various forms. These measures,
especially reduced emphasis on priority sector lending by banks, effectively reduced the
availability of rural credit and thus made farm investment more expensive and more difficult,
especially for small farmers. In addition to declining credit-deposit ratios in rural areas, the shift
of banks away from crop lending and term lending for agriculture, the reduction in the number of
rural bank branches and less manpower for rural service provision all meant that the formal
sector 8 was increasingly unable to meet the requirements of cultivators. Farmers were therefore
forced to turn more and more to private moneylenders (who are often also input dealers and
traders) in more exploitative relationships. This has brought back the problem of interlinked

markets in which control in one market (say, credit) allows control also in other related rural
markets such as those for agricultural inputs and crop prices, as well as the labour market.
It is clear that the liberalisation policies adopted by the government of India played a dominant
role in the agrarian crisis that is now being played out. However, this is not to say that
privatisation, liberalisation and globalization are per say bad, or inherently inimical to an
economy. It is the one size fits all brand of liberalisation adopted by the IMF and the World
Bank which forces countries to privatize, liberalise and globalize without exception which has
failed. Without taking into account the state of an economy, and in this case, the state and nature
of the agricultural sector in India, the IMF and the World Bank, with the cooperation of the
Indian government, embarked on mismatched reforms, which have caused misery and despair
among millions of Indian farmers, driving large numbers of them to suicide. It is also essential to
break the link between aid and liberalization, which caused India in the first place to accept the
conditions of the IMF. Remember that India was on the brink of a financial crisis in 1991 when it
applied for the IMF loan and accepted its conditionsperhaps the course of economic reform in
India would have taken a very different course if there was no urgent need to borrow from the
IMF. The start to this process may have already occurred: recognizing the failure of its
liberalization policies, (and perhaps also the failure of DFID with APs power10 reforms) the
Blair government of Britain announced in 2004 that it will no longer make liberalization and
privatization conditions of aid. In another blow to the neo-liberal lobby, Chandra Babu Naidu
suffered the worst ever defeat in the 2004 state elections in his partys history, with rural AP
clearly rejecting his brand of World Bank sponsored liberalization. The battle, however, has not
yet been won. It is essential for the rest of the G8 to follow Britains example in order to
influence World Bank and IMF policy towards India to ensure blind liberalization is not pursued,
and so that countries like India can adopt tailor-made reforms to suit their economy.
EFFECT OF LIBERALIZATION IN MINING INDUSTRY
1.

Industrial licensing policy New industrial policy abolished all industrial licensing,
irrespective of the level of investment, except for a short list of 18 industries related to the
security and strategic concerns, social reasons, hazardous chemicals and overriding

environmental reasons and items of elitist consumption. However, of these 18 industries, 13

categories have been removed from the list gradually and currently only 5 category of
health, strategic and security considerations industries needs license viz. Alcohol, cigarettes,
hazardous chemicals, electronic, aerospace and all types of defense equipment.
Policy on Public Sector The 1956 Resolution had reserved 17 industries for the public
sector. The 1991 industrial policy reduced this number to 8. As of now only 3 industries are
reserved for government 1) Atomic Energy 2) Mining of Atomic Minerals 3) Railway
Transport.
The policy also suggested that those public enterprises which are chronically sick and
which are unlikely to be turned around will, for the formation of revival/ rehabilitation
schemes, be referred to the Board for Industrial and Financial Reconstruction (BIFR), or
other similar high level institutions created for the purpose, in order to protect the interests
of workers likely to be affected by such rehabilitation package, a social security mechanism
will be created.
Privatization/disinvestment
Government announced its intention to offer a part of government shareholding in the
public sector enterprises to mutual funds, financial institutions, the general public and the
workers. A beginning in this direction was made in 1991-92 themselves by diverting part of
the equities of selected public sector enterprises.
Monopolistic and Restrictive Trade Practice limit
Under the Monopolistic and Restrictive Trade Practice Act, all firms with assets above a
certain size (Rs.100 crore since 1985) were classified as MRTP firms. Such firms were
permitted to enter selected industries only and this also on a case by case approval basis. In
addition to control through industrial licensing, separate approvals were required by such
large firms for any investment proposals. The New Industrial Policy removed the threshold
limit in assets in respect of MRTP companies.
Policy on Foreign investment and Technology agreements
The New Industrial Policy, prepared a specified list of high technology and high investment
priority industries, wherein automatic permission was to be made available for direct

foreign investment up to 51 percent foreign equity. The industries in which automatic

approval was granted included a wide range of industrial activities in the capital goods and
metallurgical industries, entertainment electronic, food processing and the services sectors
having significant export potential. List is being expanded since then. Current situation of
FDI norms will be discussed in next article.
Abolition of Phased Manufacturing Programs for New Projects These programs was
aimed at indigenization of technology. These were in force in a number of engineering and
electronic industries. The new policy abolished such program for future.
Removal of Mandatory Convertible Clause In pre liberalization era, there was a
mandatory convertible clause in loan agreement with borrower (industries in this case).
As per this clause, banks had right to convert their loan amount into equity whenever they
feel so. This will make them owner from lender in that enterprise. This clause was used
by government as an instrument to nationalize private firms. This was removed under new
economic policy.

New economic policy was culmination of long era of inefficient dominance of public sector.
Nevertheless, public sector by this time had built strong industrial base on which other industries
can thrive in future. This was one of the objectives of Nehruvian model. Unsurprisingly,
Industrial and economic growth remained dismal during this period. Process of liberalization
begun in 1980s which showed up in better performance of economy. Recent high growth (as per
some economists) cant be attributed to initiatives of New industrial and economic policy as
statistical evidence suggest better performance from early 1980s. So much credit cant go to
intervention of International Monetary Fund.
In post liberalization era, government took up the role of facilitator and regulator. Some
conclusive indications toward this are replacing Foreign Exchange Regulation
Act with Management Act, latter one being more liberal and less harsh. Similar, MRTP act was
replaced by competition Act. Now FDI is allowed in wide array of sectors, in many of them

through automatic route. However, post 1991 growth is accused of lopsided growth with
devastating social impact as government rolled back expenditure from social sectors too.

References

Conclusion: