By: Jeevansh Arora

OBJECTIVES OF PUBLIC SECTOR

To accelerate the industrial growth and development of the economy. To build up a strong infrastructure for supporting economic growth and development of the country. To provide competition to the private sector for welfare of the state and the public at large. To generate employment and strive for removal of poverty. To make investment in order to fill the gap between savings and investment. To promote balanced and comprehensive economic growth of the country.

OBJECTIVES OF PUBLIC SECTOR

To redistribute income and wealth in order to remove inequalities in society. To make investment in those areas where the private sector is not willing to invest. To promote the development of small and ancillary industries. To focus on increasing exports of the country for earning foreign exchange and also to enter sectors where imports can be substituted by products made in India. To help the govt in implementation of economic policies and achieving objectives of five year plans. To eliminate monopolies and prevent monopolistic practices.

SIGNIFICANCE OF PUBLIC SECTOR

Employment Generation Capital Formation Share in GDP Infrastructure development Strong industrial base Export promotion Import substitution Removal of regional disparities Raising internal resources Growth of ancillary industries Social welfare Competition to private sector

PROBLEMS IN PUBIC SECTOR

Social welfare rather than profit maximization Lack of good management Lack of autonomy to make decisions regarding their own growth and development Over-staffing and inefficiency of employees Under-utilization of production capacity Industrial disputes Wrong pricing policies Political interference and corruption Obsolete technology Over-capitalization Leading role to public sector: considering the demand of the situation,public sector was assigned a greater role in the industrial development of our economy.

PROBLEMS IN PUBIC SECTOR

Reasons: Development of heavy industries require heavy investments is essential for creating a heavy industrial base in the country. Public sector could also help in redistribution of income and prevention of concentration of economic power and exploitation.

ECONOMIC REFORMS

Policies directed to achieve improvements in economic efficiency By eliminating or reducing distortions such as tax policy and competition policy

Refers to deregulation

NEED TO INTRODUCE REFORMS?

Indian economic crisis which emerged in 1990-91 can be summarized as follows: A continuing and increasing fiscal deficit High rate of inflation A falling exchange rate economy A high and potentially increasing trade deficit and BOP crisis A high level and high growth rate in external debt leading to debt trap

ROOTS OF CRISIS

Controls and subsidies: controls on production ,licensing restrictions along with high protective walls had fostered monopolistic trends in our industries. license permit raj was bad and so was raj of preferences reservations and subsidies. Inward- looking policy: inward looking focus on industrialization, the excessive protection to industries through licensing and import tariffs discouraged the competition and efficiency in the economy. Burden of foreign debts: accumulation of a huge foreign debts. Financial excesses: large increase in defense expenditures, unbrilled growth of subsidies and a quantum jump in public salaries.

NEP/ ECONOMIC REFORMS SINCE 1991

DEF: a set of stabilisation and structural measures started since July 1991 in response to the merging crisis is termes as NEW ECONOMIC POLICY(NEP). OBJECTIVES: To reduce the domestic inflation rate To improve the bop situation To improve effeciency and productivity of the economy To put the economy back on the path of sustainable growth with social justice.

NEP/ ECONOMIC REFORMS SINCE 1991

LIBERALISATION

PRIVATISATION

GLOBALISATION

FEATURES OF GOVERNMENTS ECONOMIC POLICY IN PRE-REFORM ERA

1. 2. 3. 4. 5. 6. 7.

8.

Establishment of a mixed Economy. Expanded Role for Public Sector. Strict Regulation of Private Sector. Cautious Policy towards Foreign Capital. Trade Policy Restrictions. State Trading. Import Substitution. Foreign Exchange Regulation.

After introduction of NEP

BROAD DIRECTIONS

Reducing the extent of govt controls over various aspects of the domestic economy Increasing the role of pvt sector Redirecting scarce public sector resources to areas where the pvt sector is unlikely to enter. Opening up of the economy to trade and foreign investments and thus integrating it with the global economy.

COMPONENTS OF NEW ECONOMIC POLICY

Economic

Reforms include:Stabilization Policies. Policies.

Macroeconomic

Structural Adjustment

NEED

Because of the following reasons: Slow and Unsatisfactory Economic Growth. Experience of other Countries.

1)

2)

3)

Inefficiency in Public Enterprises.

Continued Inflationary Pressures.

4)

MAJOR ECONOMIC REFORMS

software

and IT constitute only a small part of the Indian economy than 50% of Indias output comes from its manufacturing and

more

70%

of its labor force is employed in agricultural.

FISCAL AND ADMINISTRATIVE REFORM

Indias fiscal reforms focused on generating revenue through rationalizing the tax structure and increasing compliance. Specifically, the reforms: Lowered taxes Broadened the tax base; Removed exemptions and concessions to reduce distortions; Simplified laws and procedures and increase compliance, including using technology to better track tax payments.

FINANCIAL SECTOR REFORMS

India has implemented reforms that have led to relatively well-functioning capital markets. Liberalized interest rates; Abolished cumbersome approval requirements for financial transactions; Liberalized capital markets through the abolition of the Controller of Capital Issues; Allowed companies to more easily sell stock.

(Rs. 000' Crore)

1000.0 2000.0 3000.0 4000.0 5000.0 6000.0 0.0

1991 1992 1993 5.4% 5.7% 6.4% 7.3% 8.0% 4.3% 6.7% 6.4% 4.4% 5.8% 3.8% 8.5% 7.5% 2006 2007 2008 2009 2010 2011
0.0% 2.0% 4.0% 6.0% 8.0%

5.3% 1.4%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
GDP GDP Growth Rate
GDP has surged from 5.7% during 1991-00 to 7.7% during 2001-11

9.5% 9.6% 9.3% 6.8% 8.0% 8.5%

10.0% 12.0%

Y-O-Y Growth (%)

45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -

3.4% 3.8% 3.8% 5.1% 5.9% 2.4% 4.7% 4.5% 2.5% 4.1% 2.1% 6.8% 7.1% 7.8% 8.0% 7.8% 5.3% 6.5% 7.1%

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Per Capita Income

-0.5%

Growth in Per Capita Income

Per Capita Income has more than doubled from Rs. 15,826 in 1991 to Rs. 41,129 in 2011; has been increasing at an average annual rate of about 7% since 2004

Y-O-Y Growth (%)

(Rs.)

Structural Change in GDP Composition

Com position of GDP (1991 v/s 2011)

Agriculture, 16.6%

2011 42.7% Services, 57.7% 1991

34.0%

Industry, 25.7% 23.2%

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