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The political environment includes alllaws,government agencies,and lobbying
groups that influence or restrictindividuals or organizations in thesociety.
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The political environment in an economy is
influenced by:� Philosophy of political parties
� Ideology of the party in power
� Nature of bureaucracy
� The political stability
� The foreign policy
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In 1991 Indian economy faced severemacro-economic imbalances:
� Huge deficit in the balance of
payments� Current Account Deficit rose to 3.2%
of GDP
� Foreign currency assets dipped fromUS $3.4 bn (march 1990) to US $975mn on July 12,1991
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The salient features of theNEP-1991:
LiberalisationExtending privatisation
Globalisation of the economy
The New Economic Policy of 1991
and the signing of GATT in 1993have reshaped the business environment inIndia.
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LIBERALISATION
Liberalization refers to a relaxationof previous government restrictions,usually in areas of social or economic policy. In some contextsthis process or concept is often, butnot always, referred to asd eregulation.
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PRIVATISATIONThe process of moving from a government-
controlled system to a privately run, for-
profit system.The repurchasing of all of a company's
outstanding stock by employees or aprivate investor. As a result of such an
initiative, the company stops beingpublicly traded.
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GLOBALISATION
Globalisation describes a process by whichregional economies, societies, and cultureshave become integrated through a globalnetwork of communication, transportation,
and trade. The term is sometimes used torefer specifically to economic globalization:the integration of national economies into theinternational economy through trade, foreigndirect investment, capital flows, migration,and the spread of technology.However,globalisation is usually recognized as beingdriven by a combination of economic,technological, sociocultural and political
factors.
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MAJOR MEASURES AS PART OF
THELPG
STRATEGY OF INDIADEVALUATION of Indian currency by 18-
19% against major currencies in theinternational foreign exchange market.
This measure was taken to resolve theBOP crisis.
Disinvestment:under the privatisationscheme,most of the public sector
undertakings have been / are being sold toprivate sector.
Dismantling of the industrial licensingregime:at present only six industries areunder compulsory licensing mainly onaccount of environmental safety.
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�Allowing FDI across a wide spectrum of
industries and encouraging non-debt flows.
E g. allowing FDI up to 100% under the automatic
route for most manufacturing activities SEZs.
�NRI scheme: The general policy and facilities for FDI as available to foreign investors/companies
are fully applicable to
NRIs as well.
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� Throwing open Industries reserved for the public sector to
private
participation. Now there are only three industries reservedfor the public sector.
� Abolition of the MRTP Act.
� The removal of quantitative restriction on imports.
� The reduction of the peak customs tariff from over 300%
to 30%.
� Wide ranging financial sector reforms in the banking,
capital marketing, insurance sectors, including deregulation
of interest rates.
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Globalization in India had afavorable impact on the overallgrowth rate of the economy.
Consequently India¶s position in theglobal economy has improved fromthe 8th position in 1991 to 4th place
in 2001; when GDP is calculated ona purchasing power parity basis.
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During 1991-92 the first year of Rao¶s reforms program, the Indianeconomy grew by 0.9% only.However the GDP growthaccelerated to 5.3 % in 1992-93,and 6.2% 1993- 94. A growth rateof above 8% was an achievedduring the year 2003-04.
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India¶s GDP growth rate can be seen from the
following graph since independence
India to become 3rd largest Economy by PPP in the world by 2012
PriceWaterhouseCoopers
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