CHAPTER-VII

Economic Reforms in India

Meaning of new economic policy or Economic reforms:
According to C. Rangarajan, the new economic policy comprises various policy measures and changes introduced since 1991. The thrust of new economic policy was towards creating a more competitive environment in the economy as means of improving the productivity and efficiency of the system. Thus, in a bid to achieve the objectives of new economic policy, significant reforms have been introduced in Industrial policy, Trade policy, Fiscal policy and Monetary policy.

Background of Economic Reforms in 1991:

1991 was the year of crisis for the Indian economy which is clear from the following. a) National income was growing at the rate of 0.8%. b) Inflation reached the height of 16.8%. c) Balance of payment crisis was to the extent of 10,000 crores. d) India was highly indebted county. It was paying 30,000 crores interest charges per year. e) Foreign exchange reserves were only 1.8 billion dollars which were sufficient for only three weeks. f) Indian sold large amount of gold to Bank of England. g) India applied for the loan from IMF to the extent of 5 billon dollars. h) Fiscal deficit was more than 7.5%. i) Deficit financing was around 7.5%. j) Trade relation with Soviet bloc had broken down. k) Remittances from non-residence Indians stopped due to war in Arab countries. l) Prices of petroleum products were very high.

Industrial Sector-New Industrial Policy (Nip), 1991.

The Government of India announced the NIP on 24th July, 1991. The main aim of this policy was to unshackle the Indian industrial economy from the cobwebs of unnecessary bureaucratic control. It was a policy of privatization, liberalisation and globalisation. Its main features were: 1. Industrial Licensing Policy a. Industrial licensing has been abolished except for a list of 18 industries (now reduced to 6) related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental reasons. At present the industries coming under the purview of industrial licensing. These are alcohol, cigarettes, hazardous chemicals, electronic aerospace and defence equipment, industrial explosives and drugs and pharmaceuticals. With this step almost 90 per cent of the industries have been taken out of licensing framework. b. Existing units will be provided a new broad banding facility to enable them to produce any article without any investment. c. Exemption from licensing will apply to all subsequent expansion of existing units. d. All existing schemes (the license registration, exempted registration, DGTD registration) will be abolished.

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e. Entrepreneurs will henceforth be required to file an information memorandum on new projects and subsequent expansions. f. In cities with a population of more than 1 million, industries other than those of nonpolluting nature will be located outside 25 kilometres of periphery. g. Banks and financial institutions which gave loans to industrial units normally included a convertibility clause in their lending operations for new projects. The mandatory Convertibility clause will no longer be applicable for term loans from financial Institutions for new projects.

2. Public Sector
(a) The number of industries reduced for public sector is three. They are (a) Atomic Energy, (b) Substance in pacified in the schedule of the notification of India in the department of atomic energy and (c) Rail Transport. These industries relate to: (i) essential infrastructural goods and services, (ii) exploration and exploitation of oil and mineral resources, (iii) technology development and building of manufacturing capabilities in areas which are crucial in the long-term development of economy and where investment by private sector is inadequate (iv) manufacture of products where strategic considerations pre-dominate such as defence equipments. (b) Chronically sick public units will be referred to the Board for industrial and Financial Reconstruction (BIFR). (c) A part of the Governments shareholding in the public sector would be offered to general public, workers, financial institutions and mutual funds. This will help in raising resources for the public sector and ensuring public participation. (d) Board of public sector companies will be made professional and given greater power. (e) There will be greater emphasis on improvement of the performance of public sector units. The management of these units will be provided greater autonomy through Memorandum of Understanding.

3. Foreign Investment and Foreign Technology Agreements:

The policy enables free flow of foreign investment and technology. The main provisions are: (a) Foreign equity holding upto 51 per cent by international trading companies is allowed. (b) It provides for automatic approval to foreign technology agreements in the case of priority industries (34 industries) within certain guidelines. (c) In high technology and high investment priority industries (34 industries) where imported capital goods are required, automatic clearance (upto 51 per cent) will be given. (d) The guidelines on Euro issues and External Commercial Borrowing have been liberalised to ease the access of Indian Companies to international capital markets. 4. MRPT Act The MRPT (Monopolies and Restrictive Trade Practices) Act has been amended accordingly. The amended Act gives more emphasis to the prevention and control of restrictive and unfair trade practices as to protect the interest of consumers.

5. Financial Sector
Banking Sector reforms included. 1. CRR was lowered to 5% in 2004.
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2. SLR was lowered to 25% in recent years. 3. Prime lending rates (PLR) of banks for commercial credits are to be decided by the banks. Also, PLR has been converted into a benchmark rate for banks (rather than treating it as the minimum rate) 4. Bank rate was lowered to 6% from 2003. 5. Rate of interest in saving deposits of commercial banks has been reduced to 3.5% in recent years. 6. Non-resident Indians can participate in the primary equity of a new bank to the maximum extent of 40%. 7. Derivative products such as Forward Ratio Agreement (FRA) and interest rate swaps have been introduced. 8. RBI has cleared a roadmap for entry of foreign banks consistent with WTO. 9. RBI will monitor the progress of implementation of the Basel II framework. 10. In 2005, principles governing the dividend payments were further liberalized.

6. External Sector:
1. 2. 3. 4. 5. 6. 7. Measures taken to reform the external sector of the country were: RBI devalued its rupees by about 20% in two instalments in 1991. In 1993, transactions in trade account were freed from foreign exchange control. With EXIM policy in 1992, liberalisation was in focus. Free trade of all items except a negative list of imports and exports was allowed. Except defence goods, environmentally hazardous goods and some other sensitive goods, domestic markets have been opened to all kinds of goods. Indian import tariff has been reduced to 15% in 2006-07. Export Promotion Capital Goods (EPCG) scheme was liberalised in 1992 to encourage imports of capital goods. FERA (Foreign Exchange Management Act of 1973) discouraged external trade. Now, FEMA (Foreign Exchange Management Act) has been passed which has the objective of facilitating external trade and payment. Vishesh Krishi Upaj Yojana has been started to promote agricultural exports. The NIP 1991 seeks to raise efficiency and accelerate industrial production in the following ways. Due to changes in industrial licensing policy and MRPT Act, prior clearance by the government is not needed. This reduces the cost of project and the project time, thus, enhancing their efficiency. As a result of changes with respect to foreign investment and technology, there will flow of foreign capital, technology and managerial expertise from abroad. This will improve the supply of scare resources in our country. The new policy encouraged mergers, acquisition, amalgamations and takeovers. Opening up of a number of areas to the private sector will promote economic efficiency and growth. Also privatization will enhance efficiency. There has been a noticeable improvement in the work culture. The workers have become quality and cost conscious.

8.

7. Impact Of Economic Reforms:

a.

b.

c. d. e.

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Critics of the New Industrial policy point out that: a. Memorandum of Understanding does not ensure efficiency of public sector enterprises. b. Due to liberalization, there may bee misallocation and wastage of scarce resources. c. The liberalisation of MRPT Act has resulted in concentration of economic power in few hands. d. Privatization has lead to retrenchment of labour and labour unrest. e. Some important sectors like chemicals have witnessed retarded growth. f. Many small-scale units have closed down due to excessive competition.

Indian Economy Today.

Economic reforms have come a long way from the crisis year of 1991: a) Growth in real GDP in 2009-10 was ___ per cent as estimated by the Central Statistical Organisation. Economy is likely to grow at ___% during 2009-10. This is despite shortfall in south-west monsoon, hardening of international prices of oil and steel and Tsunami disaster. b) Industrial sector has grown at ___% in 2009-10 against ___ % in the previous year. Service sector has grown at ___% against previous record of ___%. c) Overall agricultural output reduced from 181.0, million tonnes in 2003-04 to ____ million tonnes in 2009-10. d) Inflation as measured by wholesale price index was ___% in Feb., 2010 on year-to-year basis. e) The gross fiscal deficit as a proportion of GDP was at ____% in 2009-10. f) Gross domestic savings are expected to improve marginally from 26.5% of GDP in 200203 to ____% GDP in 2009-10 as a result of better performance by household saving and private corporate savings. g) Top 50 stock (Nifty) generated returns of 11% in 2004 are followed by 36% in 2005 and ____ in 2009. h) Strong BOP position. Foreign exchange reserves crossed the US $ __________ million 2009-10. i) Adequate liquidity in banking system continues and interest rates have softened. Gross bank credit conversion increased to 19.9% compared to 9.3% in previous year. j) Recovery management of bank has improved due to various steps taken including enactment of Securitisation Act.

Liberalisation, Privatisation and Disinvestment.

Liberalisation:
Liberalisation means relaxation of previous governments restrictions usually in areas of social and economic policies of the country. Liberalisation in trade means removals of tariff, and other restrictions on the flow of goods and services between countries.

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The Background of Privatisation

The extensive studies done on the performance of SOEs (State Owned Enterprises) are virtually unanimous in concluding that the performance of SOEs is far from satisfactory. All the three essential elements of performance measurement referred to us the three Es Efficiency Effectiveness and Economy-show poor performance of PEs. The first few years of 1980s were difficult for practically all countries. Economic growth slowed markedly. Hard experience tended of fade the pristine attraction of state ownership as a vehicle for occupying the commanding heights. As a result denationalization, a particular form of privatisation, is proceeding rapidly in both developed and less developed nations. Margaret Thatcher in UK and Ronald Reagan in U.S.A. championed the cause of privatisation. The sweeping process of privatisation has now emerged as one of the major policy instrument globally in more eighty countries

Definition of privatisation:
Privatisation may be defined as the transfer of a function, activity or organisation from the public to the private sector. The concept is not new, it can be found in the writings of Adam Smith as early as 1762. The word Privatize first appeared in a dictionary in 1983. Privatisation indicates the emergence of a new culture in the society in which marketisation, competition, efficiency become the guiding principle in economic decisionmaking. The range of activities covered under privatisation is: total denationalization, liquidation, creation of joint ventures, workers cooperatives contracting out to priv ate agencies, leasing and financial restructuring. The most common and important objectives of privatisation are as follows: (a) Improving the government financial position by - Raising funds from the sales of enterprises or their assets; - Making the enterprises raise internal resources and from capital markets, thereby reducing budgetary support to them. (b) Improving the performance of an enterprise through - Increased efficiency; - Requiring enterprises to meet commercial performance objectives; - Greater responsiveness to consumers (whether in terms of quantity, quality diversity or services); - Relief from public sector financial constraints; - More managerial autonomy. Besides the above two broad objectives, privatisation would help in reducing the burden on public administration by reducing the size of the public sector, strengthening market forces and competition within an economy and promoting wider share ownership among public.

1. Arguments in Favour of Privatisation.

1. 2. 3. 4. Privatisation will introduce efficiency and profitability is PSUs. It will reduce budgetary deficits which result from expenditure on loss making PSUs. It will help in reviving sick units which are a burden on public sector. It will help in bringing about globalisation by opening out of an economy and increasing its competitiveness in international market. 5. It will use modern techniques of production. 6. IT will introduce accountability and responsibility in PSUs.

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2. Arguments against Privatisation.

1. Privatisation encourages growth of monopoly power in the hands of big business houses. This results in greater inequalities of income and wealth. 2. Private enterprises may not show any interest in buying shares of sick PSUs. 3. Private sector produces with profit motive and has no consideration for social welfare motive. 4. Private sector is not interested in those projects which take long to complete and have low profitability. This includes water supply , salt production, education for poor, etc., 5. Private sector is not interested in taking up risky projects.

Disinvestment
1. Meaning and methods of Disinvestment:
Disinvestment is the sale of a part of equity holdings held by the government in any PSUs to private investor. Disinvestment has been a major strategy by which the government has financed fiscal deficit. Besides financing fiscal deficit, the economic motivation behind it is to improve efficiency of PSUs. The government expects that even small percent of private ownership will discipline inefficient managers and motivate them. This can be substantiated by the fact that during 1982-93, the net profit to the capital employed in the PSUs was one-third (2.0%) as that of the private sector. In the literature on valuation of share for disinvestment decisions, reference is made to the following five distinct methods, viz, 1. Net tangible Assets Method. 2. Market Value Method. 3. Earning Capacity Value Method, 4. Fair Value Method and 5. Face Value plus Interest Method.

The methods of disinvestment have been:

1. Domestic public issues: It means equity was offered to retail investors through domestic public issues. 2. Global Depository Receipts (GDPs): GDPs were issued to tap overseas markets 3. Cross-holding: In this method, the government simply sells part of its shares in one PSU to other PSUs. 4. Warehousing: In this method, the governments own financial institutions buy the governments stake in select PSUs and hold them until a third buyer comes up. 5. Golden share: In this method the government retains stake upto 26% in the PSU to protect its interest. 6. Strategic Sale: In this method, the government sell a major portion of its stake to a strategic buyer and also gives out the management control. 2. Pace and Effects of the Disinvestment Process. The disinvestment process was first initiated in 1991-92. Year Disinvestment Target Disinvestment Achieved 1991-1992 2500 3,083 1999-2000 10,000 1829 2000-2001 10,000 1,869 2001-2002 12,000 5,632 2002-2003 12,000 3,348
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2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

14,500 4,000 -

15,547 2,765 1567

A look at the figures in above Table on Indias disinvestment programme shows that India has tried on improve the pace of disinvestment targets progressively moving up from Rs. 2,500 crores in 1991-92 to Rs. 14,500 crores in 2003-2004. But the achievement fell far short of the target. Of the Rs. 66,000 crores of disinvestment planned between 1990-91 and 20012002 the actual sales were only Rs. 25260 crores. However in 2003-04, realisation from disinvestment exceeded the targeted amount. In 2004-05 disinvestment target was only Rs. 4,000 crores and the realised disinvestment proceeds were of Rs. 2,765 crores. In 2008-09 the disinvestment of Rs. ___________ was achieved by the government. The sale of part of PSU shares held by the Government of India does not imply outright privatization. Any process of disinvestment requires utmost transparency and consistency of purpose and speed of implementation. At present, the Government is considering the public offer route to sell minority stake in 13 profit-making central PSUs to public sector financial institutions and banks. Privatized PSUs are: 1. Modern Food Ltd. 2. Lagan Jute Machinery Co., 3. BALCO 4. CMC 5. Hindustan Teleprinters Ltd. 6. Videsh Sanchar Nigam Limited (VSNL) 7. JBP Company (IBP) 8. Paradeep phosphates Ltd., (PPL) 9. Jessop &Co. Ltd. (JCL) 10. Hindustan Zinc Ltd. (HZL) 11. Indian Petrochemical Corp. (IPCL) 12. Maruti Udyog Limited (MUL) 13. Hotel Corporation of India Limited (HCL) Although, effects of the process of disinvestment on the working of the enterprise are not immediately clear, yet certain indicators have come in view which point toward Positive impact of the disinvestment process.

GLOBALISATION:
Meaning and Parameters of Globalisation:
Globalisation is a multidimensional process, encompassing economic, political, cultural and social dimensions. Globalisation refers to opening up of economies and societies through movement of goods, services, people and information across national boundaries. The nature and speed of this process has been accelerated by ne developments in information and communication technologies. International financial markets and transborder production networks have been driving the global integration of economies.
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Globalisation means integrating the economy of a country with the world economy. In India, the process of globalisation picked up with the policy reforms of 1991. It was pushed forward by the coming up of the WTO. Globalisation refers to growing economic interdependence among countries in the world with regard to technology, capital, information, goods, services, etc. The term Globalisation has four parameters: 1. Reduction of trade barriers to permit free flow of goods and services across national frontiers. 2. Creation of an environment in which free flow of capital can take place. Transfer of wealth across national boundaries, particularly financial transfers, is, made possible by large organisational network and new electronic technologies. 3. Creation of an environment in which free movement of labour can take place in different countries of the world. The advocates of globalisation, more especially from developed countries, limit the definition of globalisation to only three parameters, namely, unhindered trade flows, capital flows and technology flows. They insist upon developing countries to accept their definition of globalisation. However, several economists in the developing world believe that this definition is incomplete and in case the globalisers ultimate aim is to look upon the world as a global village, then unrestricted movement of labour cannot be left out. But the entire issue, whether debated at the World Trade Organisation (WTO) or at other forums, avoids and ignores labour flow as an essential parameter of globalisation. However, the process of globalisation has started and it is irreversible since borders cannot be closed, flows cannot be stopped and ideas cannot be prevented from motivating people.

Case for Globalisation:

Global economic integration is one of the most pronounced developments of the late twentieth century. Advocates of globalisation justify it on the following grounds: 1. Adoption of new, flexible production methods: Globalisation will raise allocation efficiency, specially in underdeveloped and developing countries by: (a) Reducing capital output ratio; (b) Enhancing labour productivity (c) Developing export culture; (d) Raising capital flow; (e) Modernising technology; and (f) Increasing the competitive edge of firms 2. Restructure production and trade patterns: Globalisation will help in restructuring production and trade practices in accordance with the factor intensity of a country. 3. Raise foreign capital: Globalisation will attract foreign capital which will lead to technological upgradation. 4. Quality improvement: In order to withstand competition offered by other firms, quality enhancement will take place. 5. Rise in employment: It is expected that integration between different sectors will lead to more production in the home country. This will raise employment opportunities. 6. Rise in banking and foreign sector efficiency: Banking and foreign sector of the home country will raise their competitive skill and efficiency in order to have a competitive edge over foreign banks.

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7. Creation of new world order: The pursuit of new world order and widespread adoption of structural adjustment programmes will lead to a new enabling policy framework for a global free trade regime. 8. Accelerate human development: Education and skill training are the most important components of globalisation. Knowledge and technology rules the global market. To face the competition offered by global market, the quantity and quality of education will improve. 9. Reduce poverty: With globalisation, many micro-credit programmes are being implemented to prioritise the needs of the poor. 10. Enhance integration: Continued export growth is essential to benefit from globalisation this requires diversification into goods and services for which demand is elastic. To enhance integration, there should be rise in the level of trade and capital flows and fall in risk inherent in greater economic openness.

Case against Globalisation:

Much of the criticism of globalisation has been its failure to address inequities and adverse effects suffered by the poor nations and poor people. Adversaries of globalisation, particularly belonging to Latin America, parts of Asia and Africa, maintain that globalisation has more demerits than merits. Major points against globalisation are: 1. Devastation of local producers: Globalisation has devastated local producers since they are unable to compete with cheap imports. 2. Mounting strikes: Globalisation has led to mounting workers unrest. Workers have protested against low wages, despotic working conditions, autocratic management rule, long work days and declining social benefits. 3. Public employees are worse off: Globalisation has made public employees worse off. Public employees are adversely affected by budget cuts, privatisation and massive loss of purchasing price. 4. Small businesses are adversely affected: Small business class is adversely affected by cutbacks of public subsidies, de-industrialisation and floods of cheap imports. 5. Decline in income: During the globalisation phase, about half a billion people in South Asia have experienced a decline in their income. The record so far shows that it is the poor who have suffered most. 6. Weal social safety net provisions: Since the governments ability to help the victims of globalisation has been eroded, the provisions of social safety net have been weakened

Measures towards Globalisation:

As Mahub-ul-Haq puts it, Globalisation is no longer an option, it is a fact. Developing Countries have either to learn to mange it more skilfully or simply drawn is global cross currents. Positive effects of globalisation on economic growth and human development depends on how the process is managed nationally and internationally. At the national level, countries need to make sustained efforts in four policy area: accelerate human development, (especially education), reduce poverty, improve economic management and enhance regional and global integration. 1. Countries, like India, must prepare is labour force to face global competition. Central to this is the strategy to provide quality primary education to all school-age children, provide them the appropriate skill-training as well as higher levels of education in new
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2.

3.

4.

5.

6.

7.

technological fields. While government should allocate sufficient resources for primary and secondary education, private sector should be mobilised to set up technical institutions for imparting training for higher levels. Poverty reduction strategies must be built micro and macro policies Globalisation policies should focus on cash crops instead of food crops, and capital-intensive industries rather than labour-intensive industries. Economic management in all countries needs to be improved. Reforms must continue but with a human face. The focus should be on improving management of resources, reducing corruption, taxing the rich, cutting non-merit subsidies and establishing institutions to implement and monitor reforms. All globalisation policies and strategies must be judged by one yardstick: how are they impacting on people, on poverty reduction, on job creation, on children and on women. Integration with the global economic system should be enhanced. Developing countries should not only continue in more traditional labour-intensive low-technology exports, but also diversify into high technology goods and services. Indias success in establishing a niche for itself in the fast growing global software and information technology market demonstrates that such diversification can be achieved. Another important measure that has been taken up is making the currency fully convertible. It means allowing the currency to determine its own exchange rate in the international market without any official intervention. India achieved full convertibility of capital account in India will still take more years. Import liberalisation has been taking place. India has reduced import duties on wide range of capital goods. Also, as a part of Agreement on TRIPs the Patents (Amendments) Act was passed in 1999 to provide for Exclusive Marketing Rights (EMRs). Foreign Direct Investment up to 26%, 49% 51% 74% and even up to 100% has been allowed in different industries. A number of measures have been taken to open the economy to foreign capital.

Effects of Globalisation on Indian Economy

The effects of globalisation on various sectors of the Indian economy are: 1. India foreign currency reserves were ___________ billion dollars in 2009 from 1 billion in 1991. 2. Indias share in world trade rose to _______ in 2009 from 0.53 in 1991. 3. Average growth rate of exports has been 10% per annum during 1992-2004. 4. Current account surplus was between 0.7 and 1.08 percent of GDP in 2001-03. (It was minus 3 percent of GDP in 1991). 5. External debt is growing by less than $ 3 billion per year as compared to the earlier figure of $ 8 billion per year. 6. FDI was around _______ million dollars in 2009-10 (from 155 million dollars in 1991). 7. Larger variety, improved quality and lower prices of consumer goods are available after globalisation. 8. Indian companies have opened branch offices in other countries. 9. Corporate sectors are conducting programmes on quality management and Research and Development

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10. Three-quarter of AIDS cases in India were in three states- Maharshtra, Tamil Nadu and Manipur. Despite alarming statistics, the government response has not been adequate to the changes faced by the country. 11. Poverty alleviation programme: In the globalisation era, anti poverty programmes have been strengthened to generate additional employment, create productive assets, import technical and entrepreneurial skills and raise income level of the poor. 12. Social protection programme: In the globalisation era, job and income insecurities are increasing, especially for women and other vulnerable groups who are dependent on informal and casual work, without any provision for social protection. In India, only about 10 per cent of the population is covered by social security system.

Main Organisations for Facilitating Globalisation

Among the most powerful of the multilateral economic institutions are the Bretton Woods Institutions (BWI), i.e., the IMF, the World Bank and the WTO.

1. International Monetary Fund (IMF)

The decision to establish the International Monetary Fund (IMF) was made at a conference held in Bretton Woods in July 1944. The IMF came into official existence on December 27, 1945 with the signing of its Articles of Agreement. It commenced financial operations on March 1, 1947. 1. Current Membership: 185 Countries (There were 31 members at the time of inception) 2. Governing Bodies: Board of Governors, International Monetary and Financial Committee, and Executive Board. 3. Rodrigo Rato, from Spain is Managing Director since May 5th 2004. 4. Staff: Approximately 2,650 from 140 countries. 5. Accounting Unit: Special Drawing Rights (SDR). 6. Total Quotas: SDR 212.7 billion (US$ 280 billion).

Objectives
Article I of the Articles of Agreement states that the objectives of the IMF are as follows: 1. IMF is responsible for promoting international monetary cooperation. 2. Facilitating the expansion and balanced growth international trade; 3. Promoting exchange stability; 4. Expanding international liquidity (Convertibility to cash); 5. To expand capital investment in underdeveloped countries. 6. To remove the disequilibrium in the balance of payments. 7. To establish multilateral trade and payments. 8. To generate higher employment and income. More generally, and in accordance with its other purposes, IMF is responsible for ensuring the stability of the international financial system.

Functions
The work of IMF is of three main types: 1. Surveillance involves monitoring of economic and financial developments, provision of policy advice, aimed especially at crisis-prevention. 2. Lends to countries with balance of payment difficulties, provides temporary financing and support policies aimed at correcting the underling problems and gives loan to lowincome countries. In addition to regular facilities (standby Arrangements; the Extended
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Fund Facility the Supplemental Reserve Facility; Contingent Credits Lines and the Compensatory Financing Facility), it provides concessional assistance under its poverty Reduction and Growth Facility (PRGF) and debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. 3. Provides technical assistance and training in its areas of expertise. 4. In recent years, as part of its efforts to strengthen the international financial system and to enhance its effectiveness at preventing and resolving crisis, the IMF has applied both its surveillance and technical assistance work to the development of standards and codes of good practice in its areas of responsibility and to the strengthening of financial sectors.

2. The World Bank or International Bank for Reconstruction and Development (IBRD)
World Bank is organisation affiliated with United Nations and designed to finance productive projects that further the economic development of member nations. Resulting from negotiations that culminated in the United Nations Monetary and Financial Conference at Bretton Woods, in July 1994, the bank officially began operations in June 1946. Although, its first loans were made for post-World War II reconstruction, by 1949 the emphasis had shifted to loans for the purpose of economic development. World Bank headquarters are in Washington, D.C. 1. Current membership: 185 member countries. 2. Shareholders: The five largest shareholders of the Bank are USA, Japan, Germany, Great Britain and France. India is the sixth largest contributor. 3. Total Capital: $ 171 billion. 4. World Bank Group: It consists of International Development Association (IDA), International Finance Corporation (IFC), Multi-lateral investment Guarantee Agency (MIGA) and International Centre for Settlement of Investment Disputes (ICSID).

Objectives
1. 2. 3. 4. 5. 6. 7. 8. Protecting the environment. Investing in basic health and educational programmes. Promoting social development Assistance and encouragement to private business. Promoting reforms which will create stable microeconomic environment. Strengthening the ability of the government to deliver quality services. Establishing peace time economy. Maintaining equilibrium in the balance of payments.

Functions:
1. To promote foreign investment and credit by providing guarantee of repayment to the private investors. 2. To assist its member counties by facilitating the investment of capital for productive purposes. 3. To promote the long-term balanced growth of international trade and equilibrium in balance of payment situation. 4. To settle disputes by ICSID office (International Centre for settlement of Investment Disputes)
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World Bank and India

India is one of the founder members of the World Bank. It has been allotted a permanent seat on the board of Executive Director of the Bank. India has the privilege of presiding the annual general meeting of the Board. India is the largest borrower of the World Bank. The loan from the world has helped India in the development of coal industry, road constructions, irrigation projects, water supply and sanitation, off-shore petrol projects and refineries, power projects of Domadar Valley Corporation, etc,.

3. World Trade Organisation (WTO)

The General Agreement on Tariffs and Trade (GATT) was established in Geneva to pursue the objective of free trade in order to help in the growth and development of all member countries. In 1947, 23 countries signed GATT. India was one of the founder members of GATT. In 1994, 118 countries were members of GATT. The main purpose of GATT was to ensure competition in commodity trade by removal of trade barriers. The first seven rounds of negotiations conducted under GATT aimed at stimulating international trade by reducing tariff barriers and non-tariff restrictions on imports imposed by member countries. A preparatory committee was set-up GATT which in turn set-up the world trade Organisation (WTO) in 1995. The WTO acts as a permanent watchdog of international trade. GATT was converted from a provisional agreement into a formal international organisation called World Trade Organisation (WTO) with effects from January 1, 1995.It is directed by the ministerial conference that meets at least once every years and its regular business is seen by the General Council. WTO is a more powerful body with greater functions as compared to GATT and it plays a major role in the world economic affairs.

Features:
The main features of the WTO are: 1. The WTO is global in its membership. At present there are 151 member countries. 2. It is the main organ of implementing the Multilateral Trade Agreements. 3. It has a much wider scope than its predecessor GATT. 4. The representatives of the members and all officials of the WTO enjoy international privileges. 5. Each member of WTO has a single voting right. 6. It is a full fledged international organisation in its own right. 7. The WTO administers a unified package of agreements to which all members are committed. 8. It is the forum for negotiations among its members, whereby member- nations discuss issues related to MTAs and associated legal instruments.

Functions:
The WTO has the following functions: 1. It provides the forum for negotiations among its members concerning their multilateral trade relations. 2. It facilitates the implementation, administration and operation of the objectives of the Multilateral Trade Agreements.
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3. It administers the Trade Review Mechanism. 4. It administers the understanding rules and procedures governing the settlement disputes. 5. It co-operates with IMF.IBRD and its affiliated agencies to achieve better place in global economic policy making. 6. It is a watchdog of international trade. It examiners the trade regimes of individual members. 7. Trade disputes that cannot be solved through bilateral talks are forwarded to the WTO dispute settlement court. 8. It is a management consultant for world trade. It economists keep close watch on the activities of the global economy and provide studies on the main issues of the day.

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