MODULE 2

ECONOMIC ENVIRONMENT

Economic Environment
Those economic factors which have their affects on the working of the business is known as Economic Environment.

• It includes system, policies and nature of an economic trade cycles, economic resources Level in income,
distribution of income and wealth etc.
• The economic environment represents the economic conditions in the country where the international
organization operates.
• Economic environment refers to the aggregate of the nature of economic system of the country
• Economic Environment is very dynamic and complex in nature. It does not remain the same. It keeps on
changing from time to time whith the changes in an economy like in Govt. policies, political situations etc.

Structure of Economy
In modern economic phases are somewhat differently expressed by 4 degrees of activity.

• Primary Stage
• Secondary stage
• Tertiary Stage
• Quaternary Stage
1. Primary Stage

It involves the extraction and production of raw materials such as corn, coal, wood and iron.
2. Secondary Stage

It involves the transformation of row or intermediate materials into goods.

3. Tertiary Stage

It involves the provision of services to consumers and businesses such as cinema and banking.
4. Quaternary Stage

It involves the research and development needed to products from natural resources and their Subsequent by-
products.

Features Of Economic Environment

• Directly related with economic activities

• Impact of non economic factors

• Impact of basic infrastructure

• Impact of ideology of the people

• Availability of capital

• Economic disparities
• Economic planning
• Public morality

• Ideology of the Gotland economic system

• Directives of the Govt.
Components of Economic Environment

• Income and Wealth : Income in an economy is measured by GDP,GNP, and Per Capita Income. High
values of these factors shows a progressive economic environment.
• Employment levels : High employment represents a positive picture of the economy. However there are
many forms of unemployment including partial employment and disguised unemployment.
• Productivity: This is the output generated from a given amount of inputs. High levels of productivity
supports the economic environment

Elements of Economic Environment

It has five main components

• Economic Conditions

• Economic Systems

• Economic Policies

• International/Global Environment

• Economic Legislations

Objectives of Economic Environment

• Proper functioning of an economy

• knowledge of new opportunities and resources
• Study of environmental factors
• Removal of obstacles and challenges
• Optimum use of environment Minimizing ill effects

Factors Affecting the Economic Environment

The Economic Environment of a nation as well as the world is impacted by;

A. Inflation and Deflation

B. Interest Rates

C. Exchange Rates

D. Monetary and Fiscal policy

A Inflation and deflation

Inflation is the rate at which the prices for goods and services increase. Inflation often affects the buying capacity of
consumers. Most Central banks try to limit inflation in order to keep their respective economies functioning
efficiently
Deflation is generally the decline in the prices for goods and services that occur when the rate of inflation falls below
0%. Deflation will take place naturally, if and when the money supply of an economy is limited.
B. interest rate
Interest rate is the amount , a lender charges for the use of asset that expressed as % of principal amount. It is
typically noted annual basis known as Annual Percentage Rate (A P R). It determines the lost of borrowing and the
flow of money towards business.

C. Exchange rate
An exchange rate is the value of one nation's currency versus the currency of another nation . It will rise or fall
based on supply and demand in the market..
D. monetary and fiscal policy

ECONOMIC SYSTEM:
Organized way in which a state or nation allocates its resources and apportions goods and services in the national
community
An economic system is comprised of the various processes of organizing and motivating labor, producing,
distributing, and circulating of the fruits of human labor, including products and services, consumer goods,
machines, tools, and other technology used as inputs to future production, and the infrastructure within and through
which production, distribution, and circulation occurs

There are mainly three types of economic system.

1. Market economy/ Capitalism (Business controlled privately)

2. Planned economy/ communism or socialism (Business controlled by the government China,)

3. . Mixed Economy (Capitalism + Socialism:)

[Link] Economy/Capitalism:
An economic system based on a free market, open competition, profit motive and private ownership of the means
of production.

• Capitalism encourages private investment and business, compared to a government-controlled economy.

Investors in these private companies (.e. shareholders) also own the firms and are known as capitalists.
• In such a system, individuals and firms have the right to own and use wealth to earn income and to sell and
purchase labor for wages with little or no government control
• The function of regulating the economy is then achieved mainly through the operation of market forces where
prices and profit dictate where and how resources are used and allocated
The following are the chief features of capitalism

1. The rights of private property

2. Freedom of enterprise

3. Freedom of choice by the consumers

4 profit motive

5. competition
6. importance of price system

7 class-conflict
8. Labor treated commodity

9. Freedom of price determination

2. Socialism:
Socialism is an economic organization of society in which the materials means of production are owned by the whole
community and operated by organs representative according to a general plan.
In socialism the production and distribution of goods are controlled substantially by the government rather than by
private enterprise, and in which cooperation rather than competition guides economic activity. There are many
varieties of socialism. Some socialists tolerate capitalism, as long as the government maintains the dominant
influence over the economy others insist on an abolition of private enterprise. All communists are socialists, but not
all socialists are communists

The following are the chief features of socialism

[Link] ownership:

Socialism implies social ownership/state ownership of means of [Link] ownership means that the
entire structure of production and all natural resources be held in common by all people. This means that every
person will stand in equal relationship with every other person with respect to the means of producing the things we
need to Eve, that is mines, industrial plants, manufacturing units, all land and farms, and all means of transport and
distribution. This also means the common ownership of all natural resources.

2. It implies equality : Equality among people

3. Social welfare and social security

[Link] society
In socialism, social relationships of common ownership and equality will end class divisions

3. Mixed Economy
Mixed economy means that is opened both by private enterprise and pubic enterprise That is mixed economy is the
mixture of capitalism & socialism.
In a mixed economy, both the private ownership as wells the state take part in the means of production, distribution
and other economic activities The mixed economy allows private participation in the field of production in an
environment of competition with an objective of attaining profit.

The following are the features of a mixed economy

• Co-existence of the public and private sectors.

• The govt. take necessary steps for the reduction of inequalities of income & wealth
• The allocation of productive resources is partly determined by the price system and partly by the
[Link].
• The govt. tries to control & regulate monopoly

INDUSTRIAL POLICY
The term "industrial Policy" refers to government's policy towards industries, their establishment, functioning,
growth and management. The concept is comprehensive and it covers all those procedures, principles, policies
rules, and regulations which control the industrial undertakings of a country and shape the pattern of
industrialisation. The policy will indicate the respective areas of the public, private, joint and co-operative sectors
as also of the large, medium, and small-scale and co operative sectors. Naturally, the industrial development of
a country will be shaped, guided, fostered, regulated and controlled by its industrial policy.

Industrial policy Resolution 1948 ( IPR 1948)

The attainment of independence by India in 1947 made a tremendous difference to the industrial landscape.
Indigenous enterprise was no longer required to function as the camp follower of foreign interests. Production in
India declined but population was increasing. Inflation was worsened by the economic upheaval of the partition of
the country and the refugee rehabilitation problem, In view of the need to step up production and counter inflationary
tendencies, it was essential to announce an industrial policy which would create conditions of economic security so
very vital for the growth of the industrial structure and thus produce a cli mate for stimulating investment in industry.

With less than one year after independence, the National Government on April 6, 1948, announced a comprehensive
industrial policy which attempted to demarcate definite spheres for government undertakings and private-owned
industry and also indicated the broad lines of state regulation and control of industries. This policy aimed at providing
a rapid rise in standard of living of the people by exploiting the later resources the country, increasing production,
and offering opportunities to for employment in the service of the community.
The main features of industrial policy, 1948
[Link] of both private and public sector

The industrial policy resolution 1948 accepted the significance of both private and public sector. It assigned a
progressive and active role to the state. It adopted the strategy of: expansion of the state sector in the field where it
was operating and in new lines of production; allowing the private sector to subsist and expand under proper
direction and regulation.
[Link] of the large-scale industries The resolution divided large scale industries into four categories:
a) Exclusive state monopoly : In this category, only state exclusive monopoly industries were referred which
included de fence and strategic industries including manufacture of arms and ammunitions, the production and
control of atomic energy, and the ownership and management of railway transport.

b) Government Controlled Industries : The Government exercises full control over the industries under this
category. It includes basic and key industries such as iron and steel, coal, air craft manufacture. Ship-building,
manufactures of telephone and wireless apparatus and mineral oils.
c) Private industries subject to state regulation and control : This category consists of private industries of basic
importance. Industries like heavy chemicals, sugar, cotton, woolen textiles, cement paper, salt, machine tools,
automobiles, fertilizers.

D) Private enterprise: The remaining industries are to be run by private enterprises, The private industrialists were
entirely free to operate these industries and state control over the world be merely of a general nature.

3. Role of Small scale and cottage Industries

The resolution accepted the importance of cottage and small- scale industries. These industries held an important
position in the national economy. These industries are to be developed on co operative lines as far as possible and
are to be co-ordinated and integrated with large-scale industries.
4 Mixed Economy

The industrial policy statement desired to control the capitalistic form of industrial organisation and to introduce a
form of institutional framework which was called 'mixed economy. Both sectors were to co-operate in the task of
national development.
5. Role of foreign capital:

The government also accepted in view of national interests the investment of foreign capital in Indian industries will
be put under complete regulation, and the major control will remain in Indian hands.

6. Establishment of harmonious employee – employer relationship

7. Enhance workers participation in management
8. Development of infrastructure

INDUSTRIAL POLICY RESOLUTION, 1956

The adoption of a socialistic pattern of society as the national objective and the programme of rapid industrialisation,
in the second Five year plan, necessitated a clear and positive formulation of industrial policy in relation to planned
economic development. In the context of this bold industrial programme there was an urgent necessity of
reformulation and re-orientation of the 1948 Industrial Policy Resolution. The new Industrial Policy was announced
on 30th April, 1956.

Reasons for the revision of IPR 1948

• Introduction of the constitution of India

• Adoption of a planned economy
• Declaration by the parliament that India going to have a socialist pattern of society
IPR 1956 has been known as economic constitution or bible of state of capitalism
Features of IPR 1956

[Link] of industries
Instead of division into four categories as in the 1948 Industrial Policy, industries are now divided into three broad
categories.

• Schedule A
Firstly, we have industries whose future development will be the exclusive responsibility of the state. In this
category are included 17 major industries such as, arms and ammunitions, atomic energy, iron and steel,
heavy machinery, coal, mineral oils, aircraft manufacture etc. Railway , atomic energy would be in central
monopoly.
• Schedule B
Secondly, there is a list of 12 industries (listed in schedule B) which will be progressively state owned and
in which the state will, therefore, generally take the initiative in establishing new undertaking but in which
private enterprise will also be expected to supplement the efforts of the state. Of the 12 industries included
in the second category, the most important ones are: aluminium, non-ferrous metals, machine tools,
antibiotics, fertilizers synthetic rubber, road and sea transport etc.
• Schedule C
Thirdly, there is the list of residual industries whose future development will be left to the initiative and enterprise
of the private sector.
2. Give stress to the cottage and small scale industries

The 1956 policy makes special reference to the role of cottage and small-scale industries in the development of
the national economy. Their advantages in providing immediate employment, ensuring a more equitable
distribution of national income and mobilizing un- utilised resources capital and labour, are specially stressed
The government is also determined to co-ordinate the development of small industries with large-scale
production.
[Link] of regional disparities

The state will try to reduce the disparities in industrial development in the different regions of the country and for
this purpose provide power, water and transport facilities to the industry backward regions. Industrial facilities will
be extended gradually to those regions where there is large-scale unemployment This aspect of the 1956 policy is
direct concomitant of balanced industrial development envisaged in our Five year plans.
4. Technical and managerial personnel
 The 1956 policy notes that the programme of industrial de development will necessitate the organisation of suitable
technical and managerial cadres, extension of training facilities for business management and proper regulations of
industrial relations.
5. Attitude towards foreign capital

The attitude regarding foreign capital remained unchanged, The government suggested to follow the directions of
Industrial Policy of 1948.

6. Industrial peace
IPR 1956 put effort to maintain industrial peace in the economy .

Objectives of IPR 1956

• Industrial peace
• Expansion of public sector and growth of co-operative sector
• State takes the responsibility for setting up new industries in backward areas.
• Prevent private monopoly and the concentration of wealth in few hands
INDUSTRIAL POLICY STATEMENT, 1977-
In December 1977, the Janata Government announced its New Industrial Policy through a statement in the
Parliament.

• The main thrust of this policy was the effective promotion of cottage and small industries widely
dispersed in rural areas and small towns.
• In this policy the small scale sector was classified in to three categories. cottage and household sector ,
tiny sector and small scale industries.
• The 1977 Industrial Policy prescribed different areas for large scale industrial sector- Basic
industries, Capital goods industries, High technology industries and Other industries outside the list of
reserved items for the small scale sector.
• The 1977 Industrial Policy restricted the scope of large business houses so that no unit of the same
business group acquired a dominant and monopolistic position in the market.
• It put emphasis on reducing the occurrence of labour unrest. The Government encouraged the worker’s
participation in management from shop floor level to board level.

INDUSTRIAL POLICY OF 1980

It sought to promote the concept of economic federation, to raise the efficiency of the public sector and to
reverse the trend of industrial production of the past three years and reaffirmed its faith in the Monopolies
and Restrictive Trade Practices (MRTP) Act and the Foreign Exchange Regulation Act (FERA)

New Industrial policy 1991

In order to accelerate Industrial Development in India, and in accordance with the changing circumstances, various
industrial policies were declared in the years 1948, 1956, 1977, and 1980 but in spite of all efforts, the pace and as
well as the level of Industrial Development in India, could not reached according to its need.
Therefore, in order to lift unnecessary restrictions on Industries, under the licensing policy, and to increase their
efficiency, development and technological level, in order to make Indian goods usable in the competitive global
market, on 24th July, 1991, in LokSabha the Minister of States for industries, Mr. P. I. Kurian declared the Industrial
Policy, 1991
The new policy contained policy directions for reforms and thus for LPG (Liberalisation, Privatisation and
Globalisation). It enlarged the scope of private sector participation to almost all industrial sectors except three
(modified). Simultaneously, the policy has given welcome to foreign investment and foreign technology. Since 1991,
the country's policy on foreign investment is gradually evolving through the introduction of liberalization measures.

OBJECTIVES OF NEW INDUSTRIAL POLICY, 1991

• To liberalise the economy

• To increase employment opportunities
• To encourage foreign assistance and co-partnership
• To make the Public Sector more competitive
• To increase the production and productivity, give encouragement to Industries
• To liberate the economy from various government restrictions
• Industrial development of backward areas
• To give liberty to private sector to work independently
• To increase exports and fecilitate Imports

Features of New Industrial Policy 1991

1. Industrial delicensing policy or the end of red tapism:

The most important part of the new industrial policy of 1991 was the end of the industrial licensing or the
license raj or red tapism. Under the industrial licensing policies, private sector firms have to secure licenses
to start an industry. This has created long delays in the start up of industries. The industrial policy of 1991
has almost abandoned the industrial licensing system. It has reduced industrial licensing to fifteen sectors.
Now only 13 sector need license for starting an industrial operation.

2. Dereservation of the industrial sector

Previously, the public sector has given reservation especially in the capital goods and key industries.
Under industrial deregulation, most of the industrial sectors was opened to the private sector as well.
Previously, most of the industrial sectors were reserved to the public sector. Under the new industrial policy,
only three sectors- atomic energy, mining and railways will continue as reserved for public sector. All other
sectors have been opened for private sector participation.

3. Reforms related to the Public sector enterprises:

reforms in the public sector were aimed at enhancing efficiency and competitiveness of the sector. The
government identified strategic and priority areas for the public sector to concentrate. Similarly, loss making
PSUs were sold to the private sector. The government has adopted disinvestment policy for the restructuring
of the public sector in the country. at the same time autonomy has been given to PSU boards for efficient
functioning.
[Link] investment policy and technology

another major feature of the economic reform measure was it has given welcome to foreign investment and
foreign technology. This measure has enhanced the industrial competition and improved business
environment in the country. Foreign investment including FDI and FPI were allowed. Similarly, loan capital
has also introduced in the country to attract foreign capital.

[Link] of MRTP Act:

The New Industrial Policy of 1991 has abolished the Monopoly and Restricted Trade Practice Act.

In 2010, the Competition Commission has emerged as the watchdog in monitoring competitive practices in the
[Link] industrial policy of 1991 is the big reform introduced in Indian economy since independence. The
policy caused big changes including emergence of a strong and competitive private sector and a sizable number of
foreign companies in India.
Monetary Policy

Monetary policy is a central bank's actions and communications that manage the money supply. The money supply
includes forms of credit, cash, checks, and money market mutual funds. Monetary policy increases liquidity to create
economic growth. It reduces liquidity to prevent inflation.

Types of Monetary Policy

A . Central banks use contractionary monetary policy to reduce inflation. They reduce the money supply in the
economy .

B . Central banks use expansionary monetary policy to lower unemployment and avoid recession. They increase
liquidity by giving banks more money to lend. Banks lower interest rates, making loans cheaper.

• Monetary policy involves influencing the supply and demand for money through interest rates and other
monetary tools.
• Monetary policy is usually conducted by the Central Bank, e.g. UK – Bank of England, US – Federal
Reserve.
• The target of Monetary policy is to achieve low inflation (and usually promote economic growth)
• The main tool of monetary policy is changing interest rates. For example, if the Central Bank feel the
economy is growing too quickly and inflation is increasing, then they will increase interest rates to reduce
demand in the economy.
• Expansionary monetary policy increases the growth of the economy, while contractionary policy slows
economic growth.
• The three objectives of monetary policy are controlling inflation, managing employment levels, and
maintaining long term interest rates.

Techniques or Instruments of Monetary Policy

The instruments of monetary policy are of two types:

1. Quantitative, general or indirect (CRR, SLR, Open Market Operations, Bank Rate, Repo Rate, Reverse Repo
Rate)
2. Qualitative, selective or direct (change in the margin money, direct action, moral suasion)

These both methods affect the level of aggregate demand through the supply of money, cost of money and
availability of credit. Of the two types of instruments, the first category includes bank rate variations, open market
operations and changing reserve requirements (cash reserve ratio, statutory reserve ratio).

Policy instruments are meant to regulate the overall level of credit in the economy through commercial banks. The
selective credit controls aim at controlling specific types of credit. They include changing margin requirements and
regulation of consumer credit.

Quantitative Techniques
a. Bank Rate Policy:
The bank rate is the minimum lending rate of the central bank at which it rediscounts first class bills of exchange
and government securities held by the commercial banks. When the central bank finds that inflation has been
increasing continuously, it raises the bank rate so borrowing from the central bank becomes costly and commercial
banks borrow less money from it (RBI).
The commercial banks, in reaction, raise their lending rates to the business community and borrowers who further
borrow less from the commercial banks. There is contraction of credit and prices are checked from rising further.
On the contrary, when prices are depressed, the central bank lowers the bank rate.

It is cheap to borrow from the central bank on the part of commercial banks. The latter also lower their lending rates.
Businessmen are encouraged to borrow more. Investment is encouraged and followed by rise in Output,
employment, income and demand and the downward movement of prices is checked.

b. Open Market Operations:

Open market operations refer to sale and purchase of securities in the money market by the central bank of the
country. When prices start rising and there is need to control them, the central bank sells securities. The reserves of
commercial banks are reduced and they are not in a position to lend more to the business community or general
public.

Further investment is discouraged and the rise in prices is checked. Contrariwise, when recessionary forces start in
the economy, the central bank buys securities. The reserves of commercial banks are raised so they lend more to
business community and general public. It further raises Investment, output, employment, income and demand in
the economy hence the fall in price is checked.

c. Changes in Reserve Ratios:

Under this method, CRR and SLR are two main deposit ratios, which reduce or increases the idle cash balance of
the commercial banks. Every bank is required by law to keep a certain percentage of its total deposits in the form of
a reserve fund in its vaults and also a certain percentage with the central bank.
When prices are rising, the central bank raises the reserve ratio. Banks are required to keep more with the central
bank. Their reserves are reduced and they lend less. The volume of investment, output and employment are adversely
affected. In the opposite case, when the reserve ratio is lowered, the reserves of commercial banks are raised. They
lend more and the economic activity is favourably affected.

Qualitative Techniques

1. Selective credit control

Selective credit controls are used to influence specific types of credit for particular purposes. They usually take the
form of changing margin requirements to control speculative activities within the economy. When there is brisk
speculative activity in the economy or in particular sectors in certain commodities and prices start rising, the central
bank raises the margin requirement on them.

2. Change in Margin Money:

The result is that the borrowers are given less money in loans against specified securities. In case of recession in a
particular sector, the central bank encourages borrowing by lowering margin requirements.

3. Moral Suasion: Under this method RBI urges to commercial banks to help in controlling the supply
of money in the economy.

Objectives of the Monetary Policy of India

1. Price Stability:
Price Stability implies promoting economic development with considerable emphasis on price stability. The centre
of focus is to facilitate the environment which is favourable to the architecture that enables the developmental
projects to run swiftly while also maintaining reasonable price stability.

2. Controlled Expansion Of Bank Credit:

One of the important functions of RBI is the controlled expansion of bank credit and money supply with special
attention to seasonal requirement for credit without affecting the output.

3. Promotion of Fixed Investment:

The aim here is to increase the productivity of investment by restraining non essential fixed investment.

[Link] of Inventories:
Overfilling of stocks and products becoming outdated due to excess of stock often results is sickness of the unit. To
avoid this problem the central monetary authority carries out this essential function of restricting the inventories.
The main objective of this policy is to avoid over-stocking and idle money in the organization

[Link] of Exports:
Monetary policy pays special attention in order to boost exports and facilitate the trade. It is an independent objective
of monetary policy.

[Link] Distribution of Credit

Monetary authority has control over the decisions regarding the allocation of credit to priority sector and small
borrowers. This policy decides over the specified percentage of credit that is to be allocated to priority sector and
small borrowers.

[Link] Distribution of Credit:

The policy of Reserve Bank aims equitable distribution to all sectors of the economy and all social and economic
class of people.

8. To Promote Efficiency:
It is another essential aspect where the central banks pay a lot of attention. It tries to increase the efficiency in the
financial system and tries to incorporate structural changes such as deregulating interest rates, ease operational
constraints in the credit delivery system, to introduce new money market instruments etc.
Fiscal Policy

Fiscal policy means the use of taxation and public expenditure by the government for stabilization or growth of the
economy.

• Fiscal policy relates to the impact of government spending and tax on aggregate demand and the economy.
• Expansionary fiscal policy is an attempt to increase aggregate demand and will involve higher government
spending and lower taxes.
• Expansionary fiscal policy will lead to a larger budget deficit.
• Deflationary fiscal policy is an attempt to reduce aggregate demand and will involve lower spending and
higher taxes.
• This deflationary fiscal policy will help reduce a budget deficit.
 Differences between Fiscal and Monetary Policy

OBJECTIVES OF FISCAL POLICY

• Boosting employment levels or full employment
• Maintain or stabilize the economy’s growth rate
• Maintain or stabilize the price levels
• Encourage economic development
• Raising the standard of living
• Prevention of economic inequality

EXIM POLICY

Export Import Policy or better known as Exim Policy is a set of guidelines and instructions related to the import and
export of goods. The Export-Import Policy (EXIM Policy), announced under the Foreign Trade Development and
Regulation Act, 1992, would reflect the extent of regulations or liberalization of foreign trade and indicate the
measures for export promotion. Although the EXIM Policy is announced for a five- year period, announcing a Policy
on March 31st of every year,

Export-Import (EXIM) Policy frames rules and regulations for exports and imports of a country. This policy is also
known as Foreign Trade Policy. It provides policy and strategy of the government to be followed for promoting
exports and regulating imports. This policy is periodically reviewed to incorporate necessary changes as per
changing domestic and international environment. In this policy, approach of government towards various types of
exports and imports is conveyed to different exporters and importers.
Export refers to selling goods and services to other countries, while import means buying goods and services from
other countries. Now in the era of globalization, no economy in the world can remain cut-off from rest of the world.
Export and import play a significant role in the economic development of all the developed and developing
economies. With the growth of international organisations like WTO, UNCTAD, ASEAN, etc., world trade is
growing at a very fast rate.

India in 1991, after liberalization, totally lifted all sorts of restrictions from trade for the purpose of improvement in
the balance of payment position. A strong need was felt for Indian markets to work globally, and the economy was
set free. But in a developing economy, it is not possible to develop industries without the protection of policies.
Therefore, later, it was necessary for India to impose a restriction on its economy through trade policies to regulate
import and export.

Objectives of EXIM Policy:

1. To enable substantial growth in exports from India and import to India to boost the economy.
2. To make at least double the percentage share of global merchandise trade conducted within the next five years.
3. To improve the balance of payment and trade.
4. To act as an effective instrument of economic growth by creating employment opportunities for the citizens; the
larger the expansion of trade activities, the more the workforce required.
5. To provide for sustainable growth by giving access to essential raw materials for production and other components,
consumables and capital goods required for increasing production and providing efficient services.
6. To raise the technological capacity for production and cost-effectiveness of industry and services, thereby improving
their competitive strength in comparison to other countries, and to encourage the accomplishment of internationally
accepted standards of quality.
7. To provide buyers or clients with high-quality goods and services at globally competitive rates and quality.
8. Creation of opportunities by engaging in good and ethical practices.
9. Accelerating the economy from low-level economic activities to high-level economic activities by making it a
globally oriented and vibrant economy
10. To derive maximum benefits from expanding the global market and seizing the best opportunities available.
11. Making policies that favor ease of doing business and e-governance.
12. To allow for hassle-free transactions for both import and export.
13. Reducing the interference between the exporters and Directorate General of Foreign Trade by reducing the number
of export documents.
14. To allow the import of technology and equipment’s which may help in achieving better international standards of
quality and reduce the cost of production.
15. To allow the import of certain goods as listed in the Open General License; a kind of export license which is issued
by Government to domestic suppliers.

Economic Reforms

The new industrial policy of 1991 is the heart of new economic reforms . During the last 25 years the new economic
reforms has produced significant impact on the economy.

Features

1. Delicencing.: Only six industries were kept under Licencing scheme.

2. Entry to Private Sector : The role of public sector was limited only to four industries; rest all the industries were
opened for private sector also.

3. Disinvestment: Disinvestment was carried out in many public sector enterprises.

4. Liberalisation of Foreign Policy : . The limit of foreign equity was raised to 100% in many activities, i.e., NRI
and foreign investors were permitted to invest in Indian companies.

5. Liberalisation in Technical Area :. Automatic permission was given to Indian companies for signing technology
agreements with foreign companies.

6. Setting up of Foreign Investment Promotion Board (FIPB):This board was set up to promote and bring foreign
investment in India.

7. Setting up of Small Scale Industries:. Various benefits were offered to small scale industries

Reforms and LPG

1. Liberalisation
 Liberalisation or liberalization is any method of how a state raises limitations on some private individual
ventures. Liberalisation befalls when something which was forbidden is no longer forbidden or when
government laws are loosened.
It is the process of liberalise the rules and regulations for entering individual venture or business.

Reforms under liberalisation

• Deregulation of industrial sector

• Financial sector reforms
• Tax reforms
• Foreign exchange reforms
• Foreign trade policy reforms
2. Privatisation
It means a transfer of ownership, management, and control of public sector enterprises to the private sector.
Privatization can suggest several things including migrating something from the public sector into the private
sector.

Privatisation of the public sector companies by selling off part of the equity of PSEs to the public is known
as disinvestment

Reforms under Privatisation

1. Divestment: The government will sell a majority stake of the enterprise to one or more private companies. It may
keep some ownership but will be a minority stakeholder in the enterprise.

2. Displacement: The first step here will be deregulation. This will allow private players to enter the market. And
slowly and gradually the private company will displace the public enterprise.

Here the private sector will compete with public companies and ultimately outperform them, causing the public
enterprise to be displaced.

[Link]: Directly selling a portion or whole of a public enterprise to private parties.

3. Globalisation

Globalization is a process of interaction and integration among the people, companies, and governments of different
nations, a process driven by international trade and investment and aided by information technology. This process
has effects on the environment, on culture, on political systems, on economic development and prosperity, and
on human physical well-being in societies around the world.