...Economic Reforms in Asia: The Indian Case Study The Asian economy has seen a rapid rise over the past decade with countries such as China, India and South Korea making major headways. China, being the leader of the group, has been largely tipped by many economists to overtake the US as the world’s superpower by 2025. Asian GDP Performance (1997-2005) Source: http://www.treasury.gov.au The success of these nations came on the back of major economic reforms which transformed these sleeping giants into what it is today. China went through a major economic reform in 1979 and soon thereafter success followed. India, followed the same path, but much later than China, and it was not until the turn on the 1990s that India went on the path of economic liberalisation. This paper will focus on the economic reforms that took place in India and its impact on the country in terms of trade and macroeconomics growth and the birth of new economy. A section of this paper will also be comparing the growth of India in comparison to its Chinese counterparts as well as discuss reasoning behind critics who believe liberalisation was not the main contributor to the growth India is achieving today. Pre-Reform Period Post independence, India saw the need to move from an agrarian economy to an industrial one and as such building its competency in crucial sectors of the economy was important. The role of government therefore included economic management...
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...Financial System is a system that allows the transfer of money between savers and borrowers. It helps in transferring of surplus amount of money from the savers to the borrowers who need money, which helps savers to earn on their investments, and this similarly helps the borrowers to fulfill the need of the money. A financial system helps promotes the wellbeing and also helps in improving the living standards of people. Lets start with the Capital Market in India first. Capital Market is a market in which individuals and institutions trade financial securities. The securities are sold off and bought in capital market for raising the funds (Investopedia, 2013). Capital Market includes both primary and secondary market. Capital market helps in proper channelization of funds and helps raising long- term funds. This kind of market is a continuous market and provides variety of services. The market where new securities are bought and sold for the first time is known as Primary Market. Types of issue in Primary Market may be through public offer (where shares are offered to general public), bonus issue, Follow- on public offers, private placement (intermediaries sell shares to selected clients at higher price), right offer (shares are offered to existing shareholders) etc. It helps in providing additional capital to issuer companies. Secondary Capital Market is a market where existing securities are bought and sold. Secondary market offers liquidity, which encourages even those investors...
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...Will Reforms Enable Outreach? M-CRIL Review of Rural Banking in India: Working Paper 1 Micro-Credit Ratings International Limited 602 Pacific Square, 32nd Milestone NH8, Gurgaon 122 001 INDIA Telephone: +91 124 230 9497, 230 9707, 405 0739, 426 8707; Fax: +91 124 230 9520 e-mail: contact@m-cril.com ; website: www.m-cril.com Study Sponsored by Swiss Agency for Development and Cooperation Micro-Credit Ratings International Limited Table of Contents Section Background Executive Summary 1 2 3 4 Introduction The Importance of Rural Banks Recent Performance of the Rural Banking System Reforms and the Rural Banks 4.1 A huge effort to reform the cooperative system 4.2 Sensible proposals for reorienting the Regional Rural Banks but… 5 Will Reforms Enable Inclusion? 5.1 Cooperative reform – is it good money after bad? 5.2 RRB reform – has the inclusion objective been sidelined? 6 Conclusion Page v vii 1 3 7 8 8 12 15 15 17 18 M-CRIL Review of Rural Banking in India Background This study follows from the discussion of issues in the performance of Regional Rural Banks (RRBs) written by Sanjay Sinha, Managing Director, M-CRIL and published in The Economic Times (newspaper) on 17 March 2007. In relation to financial inclusion, many of the issues raised there affect the performance of cooperative banks as well as the RRBs. These issues include • The effect of government ownership of RRBs on their ability to operate efficiently and effectively to fulfil the financial inclusion...
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...India suffered a financial collapse in 1992, but had been growing at almost 6% annually by 2002 making it one of the fastest growing economies of the world. India removed almost all its import and capacity licensing restrictions and adopted the Washington Consensus. Financial controls were enforced by the International Monetary Fund (IMF), thus making major economic reforms in India that would grant them loans in order to move it along toward a more market-oriented economy. The focus of these reforms was to reduce the governments’ bureaucracy and stabilize the country’s macroeconomic balance. Competition barriers became less burdensome, inflation was lowered, and the current account was balanced. Even though these issues illustrate a road to improvement, huge fiscal deficits still existed and interruptions and corruption in Pakistan continued. Foreign investment became slow to enter India due to the continued restrictions on foreign ownership, the slow progress of privatization, and India’s substandard infrastructure. To achieve growth in India, significant reforms needed to be passed. Success in India’s growth performance plan for economic and social growth into reality would be the country’s’ biggest obstacle. 1. Why did India experience relatively slow economic growth from independence until 1991? India’s population had reached 1.05 billion by 2002 and was growing at 1.5%, more than the country could support at the time. Domestic issues existed between numerous...
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...Introduction: The Economic reforms currently underway in India represent both continuity and a break with India's post-independence development. Its main objective is to restore sustained high growth to alleviate poverty and raise the standard of living. Development of Thought: Changes in the policy packages towards deregulation, liberalization and opening up of the economy were initiated in the late 70s and early 80s but it was not until 1991 that major economic reforms were undertaken. The major changes in India's economic reforms fall broadly under five heads-industrial, trade, financial, fiscal and monetary. However these measures of stabilization are not by themselves enough. The main impetus for sustainable economic growth has to originate with efficiency and productivity growth brought about through the expansion of investment and exports. Another important aspect to be considered is the large number of people in the country living on the poverty line. To make any reform process socially acceptable a poverty alleviation programme must be in. In the context of resource constraints, a serious thinking has to be done as to the extent and pace of economic reforms. Conclusion: India has to go through a painful period of adjustment before the liberalization can have its fruitful impact upon the economy. In liberalizing the economy the government must not forget to protect the poor and the needs of human development. The present bout of economic reforms in India-those started in...
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...well-knit financial system. Financial system comprises, a set of sub-systems of financial institutions financial markets, financial instruments and services which help in the formation of capital. Thus a financial system provides a mechanism by which savings are transformed into investments and it can be said that financial system play an significant role in economic growth of the country by mobilizing surplus funds and utilizing them effectively for productive purpose. The financial system is characterized by the presence of integrated, organized and regulated financial markets, and institutions that meet the short term and long term financial needs of both the household and corporate sector. Both financial markets and financial institutions play an important role in the financial system by rendering various financial services to the community. They operate in close combination with each other. Financial System; |[pic] | The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial market, financial instruments and financial intermediation Role/ Functions of Financial System:...
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...this opportunity. I will be speaking on the Indian Economy. India is home to 1.21 billion people, which is about 17.4 per cent of the global population. However, it accounts for only 2.4 per cent of world GDP in US dollar terms and 5.5 per cent in purchasing power parity (ppp) terms. Hence, there exists a huge potential for catch up. The global welfare too is linked to progress in India as reflected in the keen global interest in India. But, India seems to inspire and disappoint at the same time. This is reflected in various comments on the Indian economy. Yasheng Huang and Tarun Khanna in their much debated article in July 2003 issue of Foreign Policy had observed: “Can India surpass China? This is no longer a silly question”. The July 23rd 2011 issue of The Economist observed; “Twenty years ago they said the yardstick against which India should be measured was its potential. On that measure, there is much to do.” As a fledgling democracy, India’s economic experiment of planned development was held out as an example to many aspiring low-income countries in the 1950s. While some countries raced ahead in the development process, India lagged behind. This is evident from the fact that it took 40 long years from 1950-51 for India’s real per capita GDP to double by 1990-91. But, 1991-92 was a defining moment in India’s modern economic history as a severe balance of payments (BoP) crisis prompted far reaching economic reforms, unlocking its growth potential. As a result, in only 15 years...
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...policies governed India. Economy was characterized by extensive regulation and public ownership of large monopolies. Owing to economic liberalization in 1991, the country moved to a market based economy and slowly established itself as the world’s fastest growing economies when it reached its highest recorded GDP growth rate of 9%. However there has been significant debate, around liberalization as an inclusive economic growth strategy. Since 1992, income inequality has deepened in India with the wealthiest generating consumption growth and the consumption among the poorest remaining stable. With India’s Gross domestic product (GDP) growth rate touching a decade long low in 2012-13 , growing merely at 5%, more criticism of India's economic reforms surfaced, citing failure to address employment growth, nutritional values in terms of food intake in calories, and also exports growth - and thereby leading to a worsening level of current account deficit compared to the prior to the reform period. Growth that is not inclusive affects the society, the economy and the polity by resulting in real and perceived inequities Thus making growth more inclusive and addressing widespread poverty is a challenge for India which requires sustained investment in people, starting from health and education but also transport and energy infrastructure, review of the poverty reduction programmes, their targeting and efficiency. Sustaining High and inclusive growth Growth Potential in India India’s potential...
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...1991 Indian economic crisis By 1985, India had started having balance of payments problems. By the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had been reduced to such a point that India could barely finance three weeks’ worth of imports which lead the Indian government to airlift national gold reserves as a pledge to the International Monetary Fund (IMF) in exchange for a loan to cover balance of payment debts Recovery With India’s foreign exchange reserves at $1.2 billion in January 1991[2][3][4] and depleted by half by June,[4] barely enough to last for roughly 3 weeks of essential imports,[3][5] India was only weeks way from defaulting on its external balance of payment obligations.[3][4] Government of India's immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral. The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.[9][2][10] National sentiments were outraged and there was public outcry when it was learned that the government had pledged the country's entire gold reserves against the loan. Interestingly, it was later revealed that the van transporting the gold to the airport broke down on route and panic followed.[1] A chartered plane ferried the precious...
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...Globalization in India Overall Rating: [2/5]Total Votes [ 13 ] | Rate this page:12345 | | The economy of India had undergone significant policy shifts in the beginning of the 1990s. This new model of economic reforms is commonly known as the LPG or Liberalization, Privatization and Globalization model. The primary objective of this model was to make the economy of the seventh largest country in the world the fastest developing economy in the globe with capabilities that help it match up with the biggest economies of the world. The chain of reforms that took place with regards to business, manufacturing, and financial industries targeted at lifting the economy of the country to a more proficient level. These economic reforms had influenced the overall economic growth of the country in a significant manner. Liberalization Liberalization refers to the slackening of government regulations. The economic liberalization in India denotes the continuing financial reforms which began since July 24, 1991. Privatization and Globalization Privatization refers to the participation of private entities in businesses and services and transfer of ownership from the public sector (or government) to the private sector as well. Globalization stands for the consolidation of the various economies of the world. ------------------------------------------------- LPG and the Economic Reform Policy of India Following its freedom on August 15, 1947, the Republic of India stuck to...
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...India AHEAD Ten Things for India to Achieve its 2050 Potential (BRICS estimation) >India could be 40 times bigger by 2050. > India could be 40 times bigger by 2050 than its current capacity as estimated by brics. >To achieve this, India needs to implement many changes. India needs to improve its governance, control inflation, introduce Credible fiscal policy, liberalize financial markets and increase trade With its neighbors. >It also needs to significantly raise its basic educational standards, And increase the quality and quantity of its universities. >India needs to boost agricultural productivity, improve its infrastructure And environmental quality. >Delivery of all these would ensure strong, persistent, medium to long-term Growth, allowing India to reach its amazing potential. In this project, we outline ten crucial steps that we believe India must take in order to achieve its full potential. In our latest brics analysis, India scores below the Other three BRIC nations, and is currently ranked 110 out of a set of 181 Countries. If India were able to undertake the necessary reforms, it could raise its growth potential by as much as 2.8% per annum, placing it in a very strong position to deliver the impressive growth. We highlight the ten key areas where reform is needed. In a way these are the covered ones, we consider them to be the most crucial: 1. Improve governance. Without better governance, delivery systems and effective...
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...the empirical chapters, i.e. mainly India. The Indian emerging market has been undergoing economic reforms since 1991, prior to which it was characterised by high controls and extensive public ownership. Prior to reforms a licensing system required firms to obtain clearances for many routine operations. Clearances were typically determined not on economic or social basis but by the relative lobbying power of firms. Indeed, this may explain the large size of the Indian market in terms of number of listed firms while at the same time majority of Indian companies are relatively small (Green, Murinde and Suppakitjarak, 2001). Similarly, the foreign trade regime prior to reforms was characterised by high protectionism from import competition and restrictions on foreign ownership of Indian companies. Likewise the government was heavily involved with the workings of the financial systems. High reserve requirements were stipulated, interest rates were imposed, and credit was directed to priority sectors giving rise to manipulation and inefficiencies. Furthermore, supervision and financial discipline were slack, and equity markets suffered from lack of transparency and poor investor protection, while the large public sector was similarly inefficient. In 1991 India suffered a financial crisis which was followed by the initiation of economic reforms. For example, capital market reforms included the establishment of the Securities and Exchange Board of India (SEBI) in 1988, which was given statutory...
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...Analysis of FSLRC Report – Did it deliver what it promised? Even if India can be called a forever young nation, surely its laws are pretty old. Specially in a sector like Finance, where the last few decades has seen umpteen changes, Reserve Bank of India Act, Insurance Act etc dates back to the 1930s. Though there has been moderations of the laws over the years, Indian Financial Sector and its underlying foundation is in need of holistic restructuring. Keeping this in mind, in March 2011, the Government of India, Ministry of Finance established the Financial Sector Legislative Reform Commission or FSLRC to mend the legal and institutional structure of the Indian Financial Market. The Commission was chaired by B. N. Srikrishna, former judge of the Supreme Court and the other board members consisted of virtuoso of various fields like Finance, Economics, Laws and Public Administration. The Commission took up a intense two year process starting from April, 2011 and submitted its “text of the findings and recommendations” in March,2013. For better and effective functionality in finance sector and avoid conflicts of interest among different regulatory, the Financial Sector Legislative Reforms Commission (FSLRC) recommended to have well structured Government agencies. The Commission has pitched for specialized and consolidated set of provisions on regulatory governance by bringing a bill, called Indian Financial Code Bill. Government agencies are required to perform complicated functions...
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...BANKING SECTOR REFORMS IN INDIA . Introduction: Financial sector reforms introduced in the early 1990s as a part of the structural reforms have touched upon almost all aspects of banking operation. For a few decades preceding the onset of banking and financial sector reforms in India, banks operated in an environment that was heavily regulated and characterized by sufficient barriers to entry which protected them against too much competition. The banking reform package was based on the recommendation proposed by Narsimhan Committee report (1992) that advocated a move to a more market oriented banking system, which could operate in an environment of prudential regulation and transparent accounting. One of the primary motives behind this drive was to introduce an element of market discipline into the regulatory process that would reinforce the supervisory effort of the reserve bank of India(RBI). Market discipline, especially in the financial liberalization phase, reinforces regulatory and supervisory efforts and provides a strong incentive to banks to conduct their business in a prudent and efficient manner and to maintain adequate capital as a cushion against risk exposures. The administered interest rate structure, both on the liability and the assets side, allowed banks to earn reasonable spread without much efforts. Although banks operated under regulatory constraints in the form of statutory holding of government securities and the cash reserve ratio (CRR) and...
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...INDIA TRYING TO LIBERALISE: INTRODUCTION The foundation of credible national security is based on the level of economic prosperity and well-being of the population of any country. This is especially so for developing countries like India. The attainment of sustained high economic growth is a necessary condition for improving the national security and the quality of life of the people throughout the country Many developing countries in the Asia-Pacific region, including China and India where nearly one third of the world’s population live, are currently going through economic transitions. India launched its market-oriented economic reforms in 1991. China launched similar reforms from 1978 and is now well ahead of India in integrating its national economy with the global economy. However, India is slowly but surely catching up in this race. The contrast in the experiences of these two countries with economic reforms under radically different political systems is remarkable. In India, post-1991 economic reforms have been evolutionary and incremental in nature. There have been delays and reverses in some areas due to the interplay of democratic politics, coalition governments, and pressure groups with vested interests. However, each of the five successive governments that have held office in India since 1991 have carried on these economic reforms, which have been based on market liberalization and a larger role for private enterprise. REFORMS IN INDIA...
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