The License Raj System In India Economics Essay

Government aim is non to command the growing but plan the each every thing and apportion the proper resources but somehow increased corruptness rate and frauds has lead to diminish in growing rate.

The License Raj-system was in topographic point for around four decennaries. The authorities of India initiated a liberalisation policy under the Prime Minister-ship ofA Rajiv Gandhi, though much of the existent advancement was made underA P.V.Narasimha Rao. Liberalization resulted in significant growing in the Indian economic system, which continues today.


Indian economic system had experienced major policy alterations in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization ( LPG theoretical account ) aimed at doing the Indian economic system as fastest turning economic system and globally competitory. The series of reforms undertaken with regard to industrial sector, trade every bit good as fiscal sector aimed at doing the economic system more efficient.

The newA neo-liberalA policies ( economic and societal policy ) included opening for international trade and investing, A deregulating, induction of denationalization, revenue enhancement reforms, and inflation-controlling steps. The overall way of liberalization has since remained the same, irrespective of the governing party, although no party has yet tried to take on powerful anterooms such as theA trade unionsA and husbandmans, or combative issues such as reforming labour Torahs and reducingA agricultural subsidies.

The chief aim of the authorities was to reform theA economic systemA fromA socialismA toA capitalismA so as to accomplish highA economic growthA andA industrializeA the state for the wellbeing of Indian citizens. Today India is chiefly characterized as aA market economic system.

With the consequence of that alteration today about 300 million people-equivalent to the full population of the United States-haveA escaped utmost poorness. The effects of liberalization reached their pinnacle in 2007, when India recorded its highest GDP growing rate of 9 % .A With this, India became the 2nd fastest turning major economic system in the universe, following merely to China.

The reforms progressed furthest in the countries of opening up toA foreign investing, reformingA capital markets, A deregulatingA domestic concern, and reforming the trade government. LiberalisationA has done away with theA Licence RajA ( investing, A industrialA and import licensing ) and ended many public monopolies, leting automatic blessing ofA foreign direct investmentA in many sectors.

Narsimha RaoA authorities ‘s ends were cut downing theA financial shortage, A privatizationA of the populace sector, and increasing investing in substructure. Trade reforms and alterations in the ordinance ofA foreign direct investmentA were introduced to open India toA foreign tradeA while stabilising external loans.

Accountable alterations made

In the industrial sector, industrialA licensingA was cut, go forthing merely 18 industries capable to licencing. Industrial ordinance was rationalized.

Introducing theA SEBIA Act of 1992 and the Security Laws ( Amendment ) which gaveA SEBIA the legal authorization to register and modulate all security market mediators.

Get downing in 1994 of theA National Stock ExchangeA as a computer-based trading system

Reducing duties from an norm of 85 per centum to 25 per centum

EncouragingA foreign direct investmentA by increasing the maximal bound on portion ofA foreign capitalA inA joint ventures

Opening up in 1992 of India’sA equity marketsA to investing byA foreign institutional investorsA and allowing Indian houses to raise capital onA international marketsA by issuingA Global Depository ReceiptsA


Under the denationalization program, many of the public sector activities have been or are still being sold to the private sector. Thus the construct of PPP ( public private partnership ) came up. It describes a authorities service or private concern venture which is funded and operated through a partnership of authorities and one or moreA private sectorA companies.

Denationalization, in its wider sense, stands for policies to cut down the function of the province or authorities, assign larger function for the private sector prosecuting the logic of the market in all economic determinations. The entry of new private sector endeavors could present competition where populace sector enjoyed monopoly.

Each signifier of denationalization has differing deductions for the labor, consumers and the economic system. Degeneration, for case, is likely to hold small immediate inauspicious impact on employment. Degeneration, because of the remotion of entry barriers, may actuate extra investings and offer hypertrophied employment chances. It is, nevertheless, possible that new private sector entrants may indulge in ‘poaching ‘ of senior and experient employees of the populace sector by offering attractive emoluments.

The surpassing public sector employees would transport the advantage and entree to concern webs and cognition of the market with them. This phenomenon has already been seen in the air power sector and communications industry. Privatization could take to a decrease in the work force if the new directions were to choose for modernisation and mechanization. This, in all chance, is ineluctable.

Under the Indian planning system public sector investings are financed through fiscal allotments by the authorities. While there were no administrative limitations on bungalow, small town and little graduated table industries most big investing proposals by the private sector have had to go through through the examination by a multiple of regulative bureaus.

Soon after the induction of development planning in India it became apparent that the populace sector was an economic necessity for the economic system and the private sector.1 Public sector was envisaged as a major instrument for pursuit of program marks. It was universally accepted that the Indian private sector was neither capable of doing the necessary big investings nor was it expected to take up undertakings with long gestation periods and transporting low rates of return.

Industrial Policy Resolution, 1956 reserved a big sector both for sole and precedence development by the populace sector. The authorities took upon herself the undertaking of supplying indispensable substructure and public-service corporations as besides heavy industries.

Public sector in India has two chief signifiers. One, the departmentally owned and managed constitutions like railroads, stations, telecommunication, irrigation, and power undertakings ; and two, endeavors established under the Companies Act, 1956 and under particular legislative acts. At the terminal of 1992, there were 1,180 projects in which authorities owned bulk equity capital and which were categorized as authorities companies.

Public sector has been an of import employer, particularly in the organized labor market. The sector accounted for 56.84 per cent of the entire figure of 14.3 million employees in the organized sector1 in 1980-81. From about 8.1 million in 1980-81, those employed in public sector fabrication increased to 9.8 million by 1990-91.

Public sector in India follows the same policy of penchants in employment for adult females and the underprivileged subdivisions of the society as the authorities. The underprivileged classs are based on socio-economic considerations like rank of Scheduled Castes and Tribes, backward categories, weaker subdivisions, adult females and the disableds.

Some of the populace sector endeavors have closed down certain of their activities by farm outing them to private parties. Contractualisation of specific undertakings has been assisted by the general prohibition imposed by authorities on new enlistings. The activities privatized and brought under farm outing include providing ; message and courier service ; and security, cleansing and care of office edifices and office conveyance ( staff autos ) . Railways appear to hold taken to sub-contracting of services in a large mode.

Each signifier of denationalization has differing deductions for the labor, consumers and the economic system. Dereservation, for case, is likely to hold small immediate inauspicious impact on employment. Dereservation, because of the remotion of entry barriers, may actuate extra investings and offer hypertrophied employment chances. It is, nevertheless, possible that new private sector entrants may indulge in ‘poaching ‘ of senior and experient employees of the populace sector by offering attractive emoluments.

Regulative organic structures

Denationalization of big public endeavors and entry of private sector in former reserved countries has the potency of giving rise to constitution of private monopolies. The involvement of the consumers may hence hold to be protected from the normal inherent aptitude of private monopolies to work consumers in order to maximise their net incomes. One should non stretch the point excessively far as for the inclination of a public monopoly to be ever better.

Examples: –

Security Exchange of India

Electricity Regulatory Commission,

Telecom Regulatory Authority of India

Insurance Regulatory Development Authority.


Now that India is in the procedure of reconstituting her economic system, with aspirations of promoting herself from her present bare place in the universe, the demand to rush up her economic development is even more imperative. And holding witnessed the positive function that Foreign Direct Investment ( FDI ) has played in the rapid economic growing of most of the Southeast Asiatic states and most notably China, India has embarked on an ambitious program to emulate the successes of her neighbors to the E and is seeking to sell herself as a safe and profitable finish for FDI.

Globalization has many significances depending on the context and on the individual who is speaking about. The procedure of globalisation non merely includes opening up of universe trade, development of advanced agencies of communicating, internationalisation of fiscal markets, turning importance of MNC ‘s, population migrations and more by and large increased mobility of individuals, goods, capital, informations and thoughts but besides infections, diseases and pollution. The term globalisation refers to the integrating of economic systems of the universe through uninhibited trade and fiscal flows, as besides through common exchange of engineering and cognition. Ideally, it besides contains free inter-country motion of labor.

In context to India, this implies opening up the economic system to foreign direct investing by supplying installations to foreign companies to put in different Fieldss of economic activity in India, taking restraints and obstructions to the entry of MNCs in India, leting Indian companies to come in into foreign coactions and besides promoting them to put up joint ventures abroad ; transporting out monolithic import liberalisation plans by exchanging over from quantitative limitations to duties and import responsibilities, therefore globalisation has been identified with the policy reforms of 1991 in India.

Indian economic system was in deep crisis in July 1991, when foreign currency militias had plummeted to about $ 1 billion ; Inflation had roared to an one-year rate of 17 per centum ; financial shortage was really high and had become unsustainable ; foreign investors and NRIs had lost assurance in Indian Economy. Capital was winging out of the state and we were close to defaulting on loans.

Major steps initiated as a portion of the liberalisation and globalisation scheme in the early 1890ss included the followers:

Devaluation: The first measure towards globalisation was taken with the proclamation of the devaluation of Indian currency by 18-19 per centum against major currencies in the international foreign exchange market. In fact, this step was taken in order to decide the BOP crisis

Disinvestment-In order to do the procedure of globalisation smooth, denationalization and liberalisation policies are traveling along every bit good. Under the denationalization strategy, most of the public sector projects have been/ are being sold to private sector.

Dismantling of The Industrial Licensing Regime At nowadays, merely six industries are under mandatory licencing chiefly on accounting of environmental safety and strategic considerations. A significantly amended locational policy in melody with the liberalized licensing policy is in topographic point. No industrial blessing is required from the authorities for locations non falling within 25 kilometer of the fringe of metropoliss holding a population of more than one million.

Leting Foreign Direct Investment ( FDI ) across a broad spectrum of industries and promoting non-debt flows. The Department has put in topographic point a broad and crystalline foreign investing government where most activities are opened to foreign investing on automatic path without any bound on the extent of foreign ownership. Some of the recent enterprises taken to further liberalise the FDI government

Non Resident Indian Scheme the general policy and installations for foreign direct investing as available to foreign investors/ Companies are to the full applicable to NRIs every bit good. In add-on, Government has extended some grants particularly for NRIs and abroad corporate organic structures holding more than 60 % interest by NRIs

Abolition of the ( MRTP ) Act, which necessitated anterior blessing for capacity enlargement

The remotion of quantitative limitations on imports.

The decrease of the extremum imposts duty from over 300 per cent prior to the 30 per cent rate that applies now.

Wide-ranging fiscal sector reforms in the banking, capital markets, and insurance sectors, including the deregulating of involvement rates, strong ordinance and supervisory systems, and the debut of foreign/private sector competition

The Bright Side of Globalization

The rate of growing of the Gross Domestic Product of India has been on the addition from 5.6 per cent during 1980-90 to seven per cent in the 1993-2001 periods. Today Indian Economy is turning at 9 % yearly. Prime Minister Manmohan Singh is confident of holding a 10 per cent growing in the GDP in the Eleventh Five Year Plan period.

The foreign exchange militias ( as at the terminal of the fiscal twelvemonth ) were $ 39 billion ( 2000-01 ) , $ 107 billion ( 2003-04 ) , $ 145 billion ( 2005-06 ) and $ 180 billion ( in February 2007 ) . Today ( 4th Nov 2010 ) India has $ 300 billion foreign exchange militias and ranking at 6 figure on universe chart.

The entire cumulative sum of FDI influxs in India were Rs 563,656 million, about US $ 129,656 million over a decennary from 1991 to January 2010. The sectors pulling highest FDI influxs are electrical equipments including computing machine package and electronics ( 18 per cent ) , service sector ( 13 per cent ) , telecommunications ( 10 per cent ) , transit industry ( nine per cent ) , etc. In the influx of FDI, India has surpassed South Korea to go the 4th largest receiver.

Dark Side of Globalisation

Every coin has two sides ; globalization is besides non out of it. There are many disadvantages of Globalisations as good. The chief disadvantage of globalization is in Agriculture field. In 1951, agribusiness provided employment to 72 per cent of the population and contributed 59 per cent of the gross domestic merchandise. However, by 2001 the population depending upon agribusiness came to 58 per cent whereas the portion of agribusiness in the GDP went down drastically to 24 per cent and farther to 22 per cent in 2006-07. This has resulted in a take downing the per capita income of the husbandmans and increasing the rural liability.

The figure of rural landless households increased from 35 per cent in 1987 to 45 per cent in 1999, farther to 55 per cent in 2005. The husbandmans are destined to decease of famishment or self-destruction. Answering to the Short Duration Discussion on ‘Import of Wheat and Agrarian Distress ‘ on May 18, 2006, Agriculture Minister Sharad Pawar informed the Rajya Sabha that approximately 1,00,000 husbandmans committed self-destruction during the period 1993-2003 chiefly due to indebtedness.

In his interview to The Indian Express on November 15, 2005, Sharad Pawar said: “ The agriculture community has been ignored in this state and particularly so over the last eight to ten old ages. The entire investing in the agribusiness sector is traveling down. In the last few old ages, the mean budgetary proviso from the Indian Government for irrigation is less than 0.35 per centum. ”

Globalisation besides leads to unemployment in labour category people harmonizing to Minister for Labour and Employment informed the Lok Sabha on March 19, 2007, that the registration of the unemployed in the Employment Exchanges in 2006-07 was 79 hundred thousand against the norm of 58 hundred thousand in the past 10 old ages.

The lives of the educated and the rich had been enriched by globalisation. The information engineering ( IT ) sector was a peculiar donee. But the benefits had non yet reached the bulk, and new hazards had cropped up for the losers-the socially deprived and the rural hapless.

Growth of Slum Capitals

In his 2007-08 Budget Speech, Finance Minister Chidambaram put forth a proposal to advance Mumbai as a universe category fiscal Centre and to do ‘financial services ‘ the following growing engine of India. Of its 13 million populations, Mumbai metropolis has 54 per cent in slums. It is estimated that 100 to 300 new households come to Mumbai every twenty-four hours and most land up in a slum settlement. Prof R. N. Sharma of the TATA Institute of Social Science says that Mumbai is disintegrating into slums. From being known as the slum capital of India and the biggest slum of Asia, Mumbai is all set to go the slum capital of the universe.

The population of Delhi is about 14 million of which about 45 per cent population lives in slums, unauthorised settlements, JJ bunchs and undeveloped rural parts. During dry conditions these slum inhabitants use unfastened countries around their units for laxation and the full human waste generated from the slums along with the extra effluent from their families is discharged untreated into the river Yamuna.

To do Globalization Work

India should pay immediate attending to guarantee rapid development in instruction, wellness, H2O and sanitation, labor and employment so that under time-bound programmes the marks are completed without hold. A strong foundation of human development of all people is indispensable for the societal, political and economic development of the state.

The authorities should take immediate stairss to increase agricultural production and make extra employment chances in the rural parts, to cut down the turning inequality between urban and rural countries and to deconcentrate powers and resources to the panchayati raj establishments for implementing all plants of rural development.

At the present, we can besides state about the narrative of two Republic of indias: “ We have the best of times ; we have the worst of times. There is scintillating prosperity, there is stinking poorness. We have dazing five leading hotels side by side with darkened doomed huts. We have everything by globalisation, we have nil by globalisation. ”