REPORT
ON
NEW ECONOMIC POLICY IN INDIA

Submitted to:
Dr. S R Dash
PROF. SANJAY MANGLA
(Faculty of IMS)

Submitted by:
GROUP MEMBERS

Abhay Singh Solanki (BM-010003)

Abhinandan Mehrotra (BM-010004)

Daya Shankar Rai (BM-010044)

Dhritiman Das (BM-010049)

Vaibhav Bhatnagar (BM-010160)

INSTITUTE OF MANAGEMENT STUDIES

  1  
  

CONTENTS  

Declaration

Certificate
Acknowledgement

1. INTRODUCTION                  

Implementation of New Economic Policy to Indian economy in 1991

Major areas of New Economic Policy 1991

Industrial Policy Resolution 1991 (IPR-1991)

Foreign Investment Policy

Public Sector Policy

India Economy GDP

Effects of Globalization on Macro-economic Balances

2. LITERATURE  REVIEW                
3. OBJECTIVE                  
4. RESEARCH  METHODOLOGY              
5. DATA  ANALYSIS                
             Performance  of  Small  Scale  Industries  (SSIs)  in  the  Era  of  Globalization  

6. FINDINGS                    
7. CONCLUSION                    
8. REFERENCE                  

  2  
  

 
DECLARATION

This is to certify that We, Abhay Singh Solanki, Abhinandan

Mehrotra, Daya Shankar Rai, Dhritiman Das, Vaibhav Bhatnagar
student of Post Graduate Diploma in Management (PGDM MM) 3rd
Trimester have personally worked on the report titled “CORRUPTION
IN INDIA” under the guidance of Dr. S.R Dash and Prof. Sanjay
Kumar Mnagla. The data mentioned in this report were obtained
during genuine work done and collected by us. Data obtained from
survey(questionnaire), Internet, books, journals and magazines have
been duly acknowledged. we, hereby affirm that the work has been
done by us in all its aspects and results reported in this study are
genuine and true to best of our knowledge.

Abhay Singh Solanki (BM-010003)

Abhinandan Mehrotra (BM-010004)

Daya Shankar Rai (BM-010044)

Dhritiman Das (BM-010049)

Vaibhav Bhatnagar(BM-010160)

 
 
 

  3  
  

CERTIFICATE  
 
This is to certify that Mr. Abhay Singh Solanki, Mr. Abhinandan
Mehrotra, Mr. Daya Shankar Rai, Mr. Dhritiman Das, Mr. Vaibhav
Bhatnagar students of PGDM MM Ist year have completed their
project under our guidance with full honesty and integrity and
submitted this project report towards partial fulfillment of Post
graduate diploma in management at IMS Ghaziabad.

 
   
 

 
 
 

 
 

         Dr.  S.R  Dash             Prof.  Sanjay  Kumar  Mangla  

   Faculty  of  IMS    Ghaziabad         Faculty  of  IMS  Ghaziabad  

   Signature  :                                      Signature  :  

                                         

  4  
  

ACKNOWLEDGEMENT

I have had considerable help and support in making this project

report a reality. First and foremost, gratitude goes to DR. S.R. DASH
and Prof SANJAY MANGLA, faculty members, IMS Ghaziabad who
provided us all the guidance and support in realizing the dissertation
and helping us in each and every step where I needed their help.
We all thank all those people who have directly or indirectly helped us
during the course of this project. Last but not the least we would like
to thank our parents for their support and cooperation.

Abhay Singh Solanki (BM-010003)

Abhinandan Mehrotra (BM-010004)

Daya Shankar Rai (BM-010044)

Dhritiman Das (BM-010049)

Vaibhav Bhatnagar(BM-010160)

  5  
  

INTRODUCTION

Implementation of New Economic Policy to Indian economy in 1991

Several major economic and political changes occurred during the 1970s and
1980s, which affected the developing countries and paved the way for the
implementation of IMF-sponsored Structural Adjustment Policies (New
Economic Policy) in India in 1991. This was due to a combination of factors
such as stagnant agriculture, low levels of industrial growth and
diversification, inadequate capital formation, adverse terms of trade in
international markets, limits to domestic resource mobilization due to a
fairly narrow tax-base, loss making public sector enterprises, over regulated
and controlled economy, poor industrial productivity, huge amount of fiscal
deficit, huge amount of public debt, poor rating of Indian economy by
international agencies, foreign exchange crisis etc.

New Economic Policy of 1991 includes globalization, liberalization and

privatization (Disinvestment)

1. Globalization means flow capital (finance in the form of foreign direct

investment (FDI) and foreign portfolio investment (FPI), technology,
human resource, goods and service among countries. FDI is
investment in real assets like automobile, consumer goods production,
service sectors like insurance, telecommunication, air transport etc.
2. Liberalization means freeing the economic activities and business
from unnecessary bureaucratic and other controls imposed by the
governments.
3. Privatization or Disinvestment: Selling the government owned public
sector enterprises to private industrialists and opening the government
operating sectors for private investment.

The New Economic Policy includes reduction in government expenditure,

opening of the economy to trade and foreign investment, adjustment of the
exchange rate from fixed exchange rate system to flexible exchange rate
system, deregulation in most markets and the removal of restrictions on
entry, on exit, on capacity and on pricing.

  6  
  

Immediate consequences of economic liberalization that are to focus on are

(a) an increase in internal and external competition and (b) structural change
induced by changes in relative prices in the economy.

The Major areas of New Economic Policy 1991 are

1. Fiscal policy reforms

2. Monetary policy reform
3. Pricing policy reform
4. External policy reform
5. Industrial policy reform
6. Foreign investment policy reform
7. Trade policy reform
8. Public sector policy reform

The principal reforms initiated in the year 1991 included; reduction in

import tariffs on most goods other than consumer goods, removal of
quantitative restrictions and liberal terms of entry for foreign investors.
India’s simple average tariff rate was reduced from 128% in 1991 to about
32.3% in 2001-02. Quotas and non-tariff barriers were also reduced. To
restore Macro economic stability, the reforms package of structural
adjustment policies are aimed at freeing markets by dismantling controls on
production, prices and trade and reducing intervention in the economy. The
need to control the fiscal deficit led to policies to curb public expenditure
and these cuts were mainly on social sector expenditure and on production
and consumption subsidies, which directly affected the living standards of
the economically vulnerable sections of the population. Privatization,
Liberalization and export-promotion were the main features of the economic
reforms recommended by the international institutions for the problems
facing by the developing countries .At the same time, the role of the state in
advanced industrial economies was not shrinking as expected, but growing
despite the ideological bias in favor of a “rolled back” state. The share of
national income spends by government, which averaged 30% in the rich
industrial countries in 1960 increased to 42.5% by 1980 and 45% by
1990.The experiences of countries, which have undergone these reforms,
have in most cases not led to the expected outcome but have in fact
worsened the state of their economies. In India, the New Economic Policy
(NEP) is a set of policies and administrative procedures introduced in July
1991 to bring about changes in the economic direction of the country.

  7  
  

Industrial Policy Resolution 1991 (IPR-1991)

The regulatory policy framework which acted as a barrier to entry and

growth by the entrepreneur was sought to be basically changed by the
Industrial Policy announced in July 1991.The measures introduced in this
area along with other economic reforms were as under: Industrial licensing
has been abolished for all projects except for a list of 15 industries related to
security, strategic or environmental concerns and certain items of luxury
consumption that have a high proportion of imported inputs. The exemption
from licensing also applies to the expansion of existing units.

• Industrial licensing was abolished for all projects except for a list of
15 industries related to security, strategic or environmental concerns
and certain items of luxury consumption that had a high proportion of
imported inputs.
• The Monopolies and Restrictive Trade Practices (MRTP) Act applied
in a manner, which eliminated the need to seek prior government
approval for expansion of present undertakings and establishment of
new undertakings by large companies.
• The set of activities henceforth reserved for the public sector was
much narrower than before, and there would be no ban on the
remaining reserved areas being opened up to the private sector.

Foreign Investment Policy

The Industrial Policy 1991 also provided increased opportunities for

foreign investment with a view to take advantage of technology transfer,
marketing expertise and introduction of modern managerial techniques. It
was also intended to promote a much – needed shift in the composition of
external private capital flows. The following measures were announced in
this regard:

• Automatic approval would be given for direct foreign investment up

to 51 per cent foreign equity ownership in a wide range of industries.
Earlier, all foreign investment was generally limited to 40 per cent.
• To provide access to international markets, major foreign equity
holdings up to 51 per cent equity would be allowed for trading
companies primarily engaged in export activities.
• Automatic permission would be given for foreign technology
agreements for royalty payments up to 5 per cent of domestic sales or

  8  
  

8 per cent of export sales or for lump sum payments of Rs.10 million.
Automatic approval for all other royalty payments will also be given
if the projects can generate internally the foreign exchange required.
• Abolished MRTP Act and FERA and instead of FERA, FEMA Act
was passed in the Parliament.
• The threshold (Minimum) asset limit for companies under MRTP Act
was raised from Rs.20 crores to Rs.100 Crores.

Public Sector Policy

The Government was of the view that public sector had not generated
internal surpluses on a large scale. On account of its inadequate exposure to
competition; the public sector was subject to a high cost structure. To
provide a solution to the problems of the public sector, Government decided
to adopt a new approach, the key elements of which were:

• The existing portfolio of public sector investment would be reviewed

with a greater sense of realism to avoid areas where social
considerations were not paramount or where the private sector would
be more efficient.
• Enterprises in areas where continued public sector involvement was
judged appropriate would be provided a much greater degree of
managerial autonomy.
• Budgetary support to public enterprises would be progressively
reduced
• To provide further market discipline for public enterprises,
competition from the private sector would be encouraged and part of
the equity in selected enterprises would be disinvested; and
• Chronically sick public enterprises would not be allowed to incur
heavy losses.

As a follow up of this policy, several measures were taken:

• The number of industries reserved for the public sector was reduced
from 17 to 8. Even in these areas, private sector participation was
allowed selectively. Joint ventures with foreign companies would be
encouraged.
• Public enterprises that were chronically sick and unlikely to be turned
around would be referred to the Board for Industrial and Financial
Reconstruction (BIFR) for rehabilitation or restructuring.

  9  
  

• The existing system of monitoring public enterprises through

Memorandum of Understanding (MOU) was strengthened with
primary emphasis on profitability and rate of return.
• Initiated the disinvestment of public sector enterprises.

India Economy GDP

India's economy is the twelfth largest in the world in terms of market
exchange rates. Since liberalization of the economy in 1991, the economy
has progressed towards a market-based system from a regulated and
protected one. The country became the second fastest growing economy in
the world in 2008. India Economy GDP growth rate was 6.1% in 2009.

Gross Domestic Product (GDP) is the measure of a country's economic

performance. It is the market value of all the goods and services produced in
a year. GDP can be calculated in three ways namely through the product (or
output) approach, expenditure approach and income approach. The product
approach is the most direct one that calculates the total product output of
each class.

The expenditure approach calculates the total value of the products bought
by an individual that should be equal to the expenditure of the things bought.
The expenditure approach calculates the sum of all the producers' incomes
where the incomes of the productive factors are equal to the value of their
product.

In 2007, the Indian economy GDP crossed over a trillion dollar that made it
one of the twelve trillion dollar economy countries in the world. There has
been excellent progress in knowledge process services, information
technology, and high-end services. But the economic growth has been sector
and location specific.

The trend for India's GDP growth rate are given below

1960-1980 - 3.5%
1980-1990 - 5.4%
1990-2000 - 4.4%
2000-2009 - 6.4%

  10  
  

Contribution of different sectors in GDP

Below are the contributions of different sectors in the India's GDP for 1990-
1991

Agriculture: - 32%
Service Sector: - 41%
Industry: - 27%

Below are the contributions of different sectors in the India's GDP for 2005-
2006

Agriculture: - 20%
Service Sector: - 54%
Industry: - 26%

Below are the contributions of different sectors in the India's GDP for 2007-
2008

Agriculture: - 17%
Service Sector: - 54%
Industry: - 29%

The service sector contributes more than half of India's GDP. Earlier
agriculture was the main contributor to the GDP. To improve the GDP and
boost the economy, the government has taken various steps like
implementation of FDI policies, SEZ's and NRI investments.

The GDP growth rate slowed down to 6.1% in 2009. In 2006, the country's
trade contributed to around 24% of the GDP from 6% in 1985. According to
Goldman Sachs, India's GDP in current prices may overtake France and Italy
by 2020, Russia, Germany and UK by 2025 and Japan by 2035. It is also
predicted that Indian economy will be the third largest after US and China
by 2035.

In 2007, agriculture contributed around 16.6% of the GDP. Even though its
share has been declining, agriculture plays a major role in the India's socio
economic development. Industry contributes around 27.6% of the GDP
(2007 est). The services sector contributed to 55% of the GDP in 2007. The
IT industry contributed around 7% of the GDP in 2008 that was 4.8% in

  11  
  

2005-06. Remittances from overseas Indian migrants were around $27

billion or around 3% of the GDP of India's economy in 2006.

Effects of Globalization on Macro-economic Balances

Analyzing the data in pre-globalization and post-globalization periods,

Olekalnsa and Cashin (2000) concluded: Indian government revenue and
expenditure data indicates that adherence to the intertemporal budget
constraint has not characterized Indian fiscal policy. These results provide
support for the moves towards fiscal consolidation, which occurred since the
early 1990s. However, it is important to note that the reforms are unlikely to
have led to a sustainable path for the debt stock. This is despite the fact that
the size of the budget deficit as a proportion of GDP has fallen since 1991.
Following the reforms, deficits have been financed through borrowings in a
relatively less regulated financial market. As domestic markets have been
liberalized, the cost of domestic borrowing has increased and concessional
external financing has become a smaller proportion of total borrowing. This
has led to a major increase in interest liabilities and to an increase in the
debt-to-GDP ratio. Further fiscal consolidation may well be required if
Indian public finances are to be consistent with debt sustainability (Fig 1 &

  12  
  

  13  
  

REVIEW OF LITERATURE

As said by Lawrence Saez, the adoption of NEP has led to shift in the inter
governmental cooperation between the central government and the states to
inter jurisdictional competition among the latter.

The policies of economic reforms have widened regional inequalities with

the states having higher levels of income and better infrastructure outpacing
others and providing services at the higher level. These states have been
magnets for the private investments including the FDI. If we look at the rates
of economic growth across Indian states, states that have gained significantly
are Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh. The growth has
actually registered decline in Bihar, U.P, Orissa, Punjab, Rajasthan and some
states of North East. The reasons for growth acceleration in some states is
because they have been able to attract new private investment, both domestic
and foreign and deceleration in others is because they are unable to readily
attract new private investments and are amongst India’s poorer states.

The rise of the regional parties and presence of coalition government have
brought the states into national arena as the new economic policies are being
influenced by state level leadership.

Williams and Laumas (1984) found that there were considerable economies
of scale in India’s manufacturing sector although they were more
predominant in some industrial groups than in others. They found that
shortage of capital and skilled labour was not a serious constraint on the rate
of growth in output. Increase in the supply of raw materials could help
stimulate further growth of manufacturing sector. They also found that the
Cobb-Douglas production function was largely unsuitable to understand the
working of Indian manufacturing sector.

Nath (1996) studied the efficiency of small-scale industries in different

states of India. His relative efficiency measures indicated that in
Maharashtra and Madhya Pradesh, most of the SSIs were more efficient than
in other states. On the other hand, in Andhra Pradesh, Bihar, Kerala, Tamil
Nadu and West Bengal they were less efficient. Ause-based classification of

  14  
  

industries revealed that consumer durable industries had some of the highest
average efficiency indexes and relatively smaller coefficient of variations. It
could be due to greater diffusion of technical knowledge and more uniform
demand for the products across the states. On the other hand, the
intermediate product industries and the consumer non-durables industries
had wider variations in their relative efficiency indexes across states. Nath
found that relative efficiency was positively correlated with relative size in
some industries. The efficiency index had positive correlation with the level
of capacity utilization in most of the industry groups studied by him.

Nikaido (2004) observed that the industrial policies in the past discriminated
in favour of SSI through regulating and restricting economic activities of all
firms including not only domestic large firms and foreign firms, but also
small-scale firms, which might have invoked invisible cost and
disadvantage.

These representative studies indicate that the manufacturing sector in the

pre-liberalization era often exhibited increasing returns to scale (primarily
due to restrictions on size of the factory, input procurement and limited
market) and a sub-optimal input mix in favour of excessive employment of
manpower.

The New Economic Policy of 1991 removed many of those restrictions and
regulations. Consequently, one may expect, therefore, capital to be
substituted for labour, firm sizes to grow, small scale industries to be pushed
behind, increasing returns to scale to vanish and, in turn, production to grow
in size and variety.

A number of researchers have found these changes occurring. Some have

found globalization discriminating against the unorganized sector, pushing
them farther to the margin (Hensman, 2001; Saptari, 2001). The percentage
of workers in manufacturing in urban areas started decreasing since 1977,
and continued apace between 1987-88 and 1993-94, while two sectors that
have experienced systematic increases in employment share have been the
“wholesale and retail trade” and “community and other services”. Kundu
(1997) explains the loss of manufacturing employment in terms of jobs
being subcontracted out by large manufacturing units to smaller ones which
are often household units that classify themselves as service units (Dutt and
Rao, 2000).

  15  
  

Chand and Sen (2002) found that post-reform trade liberalization in Indian
manufacturing raised total factor productivity growth. Their results also
support a key postulate of the new growth theories, that liberalization of the
intermediate-good sectors has a larger favorable impact on total factor
productivity growth than that of the final-good sectors.

Driffield and Kambhapati (2003) analyzed the determinants of firm-level

efficiency in some manufacturing sectors (transport, textiles, metals,
machines, foods and chemicals) in India and found that the overall
efficiency in most of those sectors has increased. They also found that the
output elasticity of labour is less than that of capital.

Kalirajan and Bhide (2004) observed that the economic reforms of the early
1990s did not lead to sustained growth of the manufacturing sector. After
acceleration in the mid-1990s, growth slowed in the decade's second half.
They found that manufacturing-sector growth in the post-globalization
period has been "input driven" rather than "efficiency driven," with
significant levels of technical inefficiency.

Balakrishnan et al. (2002) studies efficiency and returns to scale in 15

manufacturing sectors and found the hypothesis of constant returns-to-scale
mostly untenable. They also found that a move to a more competitive market
structure or an improvement in scale efficiency is not widespread across
Indian manufacturing.

Nikaido (2004) used industry-state-wise data to study the technical

efficiency of two-digit industry-groups belonging to small-scale category
(SSI) and the relationship between the technical efficiency and firm size and
location. He found that on an average the industry groups operate at 80 per
cent of the potential maximum production frontier, although diversification
among industry groups is observed. The agglomeration of firms has a
positive effect on the technical efficiency, while the firm size has a negative
effect on it.

  16  
  

OBJECTIVES

The main objectives of the study are:

• To examine the impact of New Economic Policy(NEP) 1991 year-

wise, country-wise, sector-wise .
• To examine the impact of NEP on the growth of GDP and
contributions from various sectors of economy towards GDP.
• To examine the impact of NEP on employment position, inflation.
• To examine the performance of SSIs in terms of growth rates of the
number of units, employment, output and exports, during the 1980s,
1990s and the later period.

  17  
  

RESEARCH METHODOLOGY

To achieve the objectives of the study, secondary data have been used. The
major sources of secondary are Annual Economic Surveys of Government of
India, relevant RBI publications, research journals like, Economic and
Political Weekly, Icfai University journal, book and Internet search engines
like Google.
The study period is 1981-2006. This period has been further divided into
three sub-periods, 1981-1990, 1991-2000, and 2001-06. This classification
has been done in order to make an in depth analysis. The data have been
analyzed by using various statistical tools like percentage, Compound
Annual Growth Rate (CAGR) and independent sample t-test.

  18  
  

DATA ANALYSIS

Performance   of   Small   Scale   Industries(SSIs)   in   the   Era   of  

Globalization  
In   order   to   comment   on   the   impact   of   economic   liberalization   on   the  
SSIs   in   India,   we   first   analyze   the   contribution   of   these   industries   to  
exports.   The   data   in   this   regard   are   presented in Table1. It is obvious
from Table1 that contribution of the SSI sector in the total exports of
India during the pre-globalization period, has ranged from 22% to
29%. However, its share rose to 36.4% in 1993-94, but it came down
slightly in the next three-year. The share again went up to 38.2% in
the year 1997-98. But, what attracts our attention is the stagnation of
the percentage share of the SSI sector in total exports, during the
recent seven years. That is, the percentage share of SSI sector has
been hovering between 33% and 35% since 1999. Table 1 also
exhibits that total exports and SSI exports have registered a CAGR of
19.23% and 21.4% respectively, during the period 1981-2006. This
indicates that the CARG of exports of SSI sector is higher than that of
total exports of India.  
 
 
 
 
  19  
  

 
 
 
Table  1:  Contribution  of  SSI  Sector  to  Total  Exports(in  Rs.  Cr)  
%  Share  in  
Year   Total  Export   SSI  Export  
Total  Exports  
1980-­‐81   6711   1643   24.5  
1981-­‐82   7806   2071   26.5  
1982-­‐83   8803   2045   23.2  
1983-­‐84   9771   2164   22.1  
1984-­‐85   11744   2553   21.7  
1985-­‐86   10895   2773   25.5  
1986-­‐87   12452   3631   29.2  
1987-­‐88   15674   4535   28.9  
1988-­‐89   20232   5681   28.1  
1989-­‐90   27658   7990   28.9  
1990-­‐91   32553   9763   30.0  
1991-­‐92   44042   13883   31.50  
1992-­‐93   53350   17785   33.30  
1993-­‐94   69546   25307   36.40  
1994-­‐95   82674   29068   35.20  
1995-­‐96   106353   36470   34.30  
1996-­‐97   117525   39250   33.40  
1997-­‐98   126286   44442   38.20  
1998-­‐99   139753   48979   35.19  
1999-­‐00   159561   54200   35.06  
2000-­‐01   202509.7   69797   33.83  
2001-­‐02   207745.6   71244   34.47  
2002-­‐03   255137   86013   33.71  
2003-­‐04   293367   97644   33.28  
2004-­‐05   357077   124417   34.84  
CAGR   19.23   21.44   -­‐  
Source:  www.smallindustryindia.com  
 

  20  
  

 
With the aim of observing the impact of liberalization process on the
SSI exports of India, we apply the t-test . The result of the test as
indicated by Table 2 reveal that, the average percentage share of
SSIs in total export during 1981-1990 is 25.86% and during 1991-
2000 is 34.26%, and the difference between these two means is
significant at 1% level of significance. The mean share of SSI in total
exports during 2001-06 is found to be 34.02% and it is not found to
be significant different from the mean share obtained during 1991-
2000 (i.e., 34.26).
 
Table2:  Average  Percentage  Share  of  SSI  Sector  in  Total  Exports  
During  Pre-­‐  and  Post-­‐  Liberalization  Period  
Time  Period  for   Time  Period  for  
Statistics   Comparison   Comparison  
1989-­‐1990   1991-­‐2000   1991-­‐2000   2001-­‐2006  
Mean   25.8600   34.2550   34.2550   34.0260  
SD   2.8976   2.3551   2.3551   0.6234  
t-­‐test   -­‐7.1100   -­‐   0.2100   -­‐  
N   10   10   10   5  
Df   18   -­‐   13   -­‐  
Sig.  (2-­‐
0   -­‐   0.8370   -­‐  
tailed)  
 
Note:  df  =  Degree  of  Freedom,  SD  =  Standard  Deviation  ,  and  N  =  No.  of  
Observation  
Source:  Calculated  from  the  Data  from  table  1.  
 

  21  
  

Further it is clear from Table 3 that CAGR of percentage share of SSI

exports was higher (2.45%) in the pre-liberalization period than the
post-liberalization period(0.43). While the former is found to be
significant, the later turns to be insignificant. Thus, the exports of SSI
sector have stagnated over the recent year, as the rate of annual
growth (i.e., 0.43%) is very low.

Table  3:  CAGR  of  Percentage  Share  of  SSI  Sector  in  Total  Exports  
During  Pre-­‐  and  Post-­‐  Liberalization  Periods  
Statistics   Pre-­‐Liberalization   Post-­‐Liberalization  
R2   0.413   0.1140  
df   8   13  
F-­‐  value   5.6300   1.6700  
Sig.  Level   0.0450   0.2190  
bo  (y-­‐  intercept)   22.5072   32.9803  
CAGR   2.45%   0.43%  
Note:  R  is  the  coefficient  of  determination  ,  bo  is  the  value  of  constant  
2  

on  the  basis  of  linear  equation  and  df  =  Degree  of  Freedom.    
Source:  Calculated  from  the  Data  from  table  1.  
 
The study further brings out the impact of liberalization on growth in
number of units, employment level, production (at constant prices),
fixed investment, and the value of plant and machinery, in the SSI
sector, during the period 1981-2006. The CAGR concerning these
aspects are given in Table 4.

  22  
  

Table 4 clearly indicates that the growth rate of number of SSI units
was quite higher in the pre-liberalization era. The number of SSI units
has increased at an average rate of 8.5% during 1081-1990, but after
1991 it declined to 5.1%. Same is the case with employment,
investment, production, and value of plant (P) and Machinery (M).
The CAGR has decreased significantly. This implies that growth in all
the variables has taken place only in absolute terms, but in reality the
SSI sector is facing tough competition, that is why the growth rates of
all variables are falling.

 
 
 
Table4:  Growth  in  SSI  Sector  in  Pre-­‐  and  Post-­‐Liberalization  
Period(in  %)  

Growth  Variables   CAGR  in  Pre-­‐ CARG  in  Post-­‐

Liberalization   Liberalization  
Of  SSI  Sector   Period   Period  
No.  of  SSI  Units   8.50   5.10  
Employment(  in  lakh)   5.94   4.04  
Investment(in  cr)   12.63   10.92  
Production(in  cr)   18.97   14.44  
Value  of  P  and  M(in  
10.76   6.97  
cr)  
Source:  Calculated  from  the  Data  from  Ministry  of  Small  Scale  Industry,  
government  of  India.  
 
 

  23  
  

FINDINGS

Economic Survey Highlights 2010-11

1. Robust growth and steady fiscal consolidations have been the

hallmark of the Indian economy in the year 2010-11 so far.
2. The growth rate has been 8.6 percent in 2010-11 and is expected to be
around 9 percent in the next fiscal year.

3. The growth has been broad based with a rebound in the

Agriculture sector, which is expected to grow around 5.4 per cent.
4. Manufacturing and Services sector have registered impressive gains.
Savings and investment are looking up while exports are rising.
5. Food inflation, higher commodity prices and volatility in global
commodity markets have been a cause of concern underscoring the
need of fiscal consolidation and stronger reserves.
6. Recognizing the fact that inflation continues to be high even though it
has come down markedly from where it was at the start of the fiscal
year, the Survey underlined the need to monitor emerging trends in
inflation on a sequential monthly basis.
7. In order to check food inflation, it has suggested, the Government
should improve the delivery mechanisms by strengthening the
institutions and addressing corruption.
8. The survey has pointed out that the inflation is expected to be 1.5
percent higher than what would be if the country was not on the
growth curve.
9. The Survey has observed that a rise in savings and investments and
pick up in private consumption has resulted in 9.7 per cent growth of
GDP at market prices (constant) in 2010-11.
10. Savings rate has gone up to 33.7 percent while the investment rate is
up to 36.5 percent of GDP in 2009-10.
11. The Survey points out that the agriculture sector growth in the first
four years of the 11th Plan (2007-12) is estimated at 2.87 per cent.
12. The food grain production went up to 232.1 billion tones from 218.1
billion tones in 2009-10.

  24  
  

13. With a relatively good monsoon the agriculture-sector is expected to

grow at 5.4 per cent during 2010-11.
14. The rising food inflation and the critical role of agriculture underline
the need for a larger investment in agriculture enroute to the second
green revolution.
15. The Survey reports that the industrial output growth rate was 8.6 per
cent while the manufacturing sector registered a growth rate of 9.1 per
cent in 2010-11.
16. During April-November 2010 telecom, crude oil production, civil
aviation sectors performed well while the power generation, cement
and fertilizer production, railway freight traffic and cargo handling at
major ports have grown at comparatively lower rates.
17. Six core industries registered a growth of 5.3 per cent (provisional) in
April-December, 2010 as against 4.7 per cent during the same period
in 2009-10.
18. Economic Survey 2010-11 has highlighted the increasing role of
infrastructure services, which have been deepening rapidly with rising
investments.
19. However unmet gaps still remain large and accelerated investments
will be needed in the next Plan period for addressing delays, cost
overruns and regulatory and pricing impediments.
20. The telecommunications sector has done exceedingly well as the tele
density has increased from 20.74 per cent in 2004 to 143.95 percent in
2010 in urban areas.
21. While in the rural areas it has gone up from 1.57 per cent in 2004 to
30.18 percent in 2010.
22. Lauding the role of services sector as the potential growth engine, the
Survey has called for the policies to promote further opportunities in
new areas in global demand such as accounting, legal, tourism,
education, financial and other services beyond the IT and business
process sectors.
23. The Survey points out that the exports in April-December 2010 went
up by 29.5 per cent while the imports during the same period
registered a growth rate of 19 per cent.
24. The trade gap narrowed down to US $ 82.01 bn in the same period.
Balance of payment situation has improved due to surge in capital
flows and rise in foreign exchange reserves, which have been
accompanied by rupee appreciation.

  25  
  

25. During current fiscal foreign exchange reserves increased by US

$ 18.2bn from US $ 279.4 bn in end April 2010 to US $ 297.3 bn in
end December 2010.
26. The inclusive growth agenda of the Government is reflected in the 59
per cent rise in Net Bank Credit .
27. The expenditure on Social sector programs has been stepped up by 5
percent point of GDP over the past five years.
28. The Survey points out that Gross Fiscal Deficit is 4.8% of GDP in
2010-11 as against 6.3 percent of GDP in the previous year.
29. The Revenue deficit in the current financial year has been 3.5 percent
of GDP as against 5.1 percent in the previous year.
30. The Economic Survey 2010-11 has expressed satisfaction at the
progress of fiscal consolidation and the role of monetary policy on
tackling inflation, ensuring availability of funds and expansion of
credit growth.
31. It has called for efficient taxation of goods and services by a new GST,
raising revenues, installing stronger safeguards and measures to
accelerate financial inclusion.
32. The Economic Survey 2010-11 has lauded the Government's efforts in
addressing social and financial inclusion.
33. The specific schemes for Scheduled Castes, Tribes, OBCs and the
regions such as North-East, expansion of Mahatma Gandhi NREGA,
Sarva Shiksha Abhiyan, National Rural Health Mission, in terms of
coverage as well as the spending and monitoring have found specific
mention in the report.
34. The survey has advised that a better convergence of the schemes to
address the issues of unemployment and poverty alleviation could
avoid duplication and leakages.
35. A call for reforms in the university and higher education and
correcting the demand supply mismatch in the job market has been
made in the report.
36. It says the gap in resources for higher education may be met on the
basis of public private partnership without diluting the regulatory
oversight of the Government.
37. The Survey has also made specific mention of Government's active
engagement on issues related to climate change with expanded
financing of programs and better policies.
38. The Economic Survey has suggested that in the long run the potential
engines of growth for the country could be from skill development

  26  
  

and innovative activity and therefore, efforts should be made to

promote them.
39. Regarding the outlook for the Indian economy, the Survey says that
despite the risks of global events, such as volatility in commodity
prices like crude oil exacerbated by political turmoil in the Middle-
East, the Indian economy seems poised to scale greater heights in
terms of macro economic indicators.
40. The Economic Survey sums up by stating that the real GDP growth is
expected to reach the 9 per cent mark in 2011-12 and the next two
decades may well see the economy growing faster than it has done
any time in the past.

  27  
  

CONCLUSION

The process of NEP not only opened up the economy and accelerated cross-
border mobility of persons, goods, capital, data and ideas but also opened up
the society to infections, diseases and pollution, drugs, criminalization, etc.
(UNESCO).
The mixed picture that emerges on economic performance and on changes in
employment, inequality and poverty make it extremely difficult to generalize
on what the impact of NEP has been. In part, this is because NEP is a
complex phenomenon. Observed outcomes such as changes in the level of
unemployment and of poverty reflect the combined results of a complex of
factors of which globalization, however broadly defined, is but one.
Domestic structural factors such as the degree of inequality in the
distribution of income and wealth and the quality of governance are often
important fundamental influences on these outcomes. It is important to avoid
the common error of attributing all observed outcomes, positive or negative,
entirely to globalization.

The SSI sector has been contributing enormously to the Indian economy in
the liberalization era. Its share in total exports from India is above 34%, and
it also contributes significantly in employment generation. However, the
industry has suffered a lot during the last 15 years in terms of lower growth
rate of the number of units established, employment level, investment and
production. Further, SSI’s share in total bank credit has also declined
alarmingly. The sector is in dire need of financial, marketing, training and
other facilities at reasonable price. In this age of institutions must
realizations must realize their responsibilities so as to ensure the survival,
growth and promotion of the SSI sector in India.
Finally, irrespective of the degree of support extended by the amount of
effort put in by small industries and their associations, India is going to
experience the emergence of the small industry sector, which is
quantitatively superior, technologically vibrant and internationally
competitive, in the next 5-10 years because the ‘inefficient ones’ are likely
to vanish gradually. The objective of the policymakers as well as small
industry associations should be to enable the sector to be vibrant and
competitive without any reduction in its size and thereby enable it to make a
sustainable contribution to national income, output and exports.

  28  
  

REFERENCES

• Sachdeva, J.K. (2010), “Business Research Methodology” (first

edition), Himalaya Publishing House, New Delhi
• Gupta, S.C.(2009), “Fundamentals of Statistics”, Himalaya
Publishing House, New Delhi
• Koutsoyiannis, A. (2007), “Theory of Econometrics” (second
edition), Palgrave Publishers Ltd.
• Sancheti, D.C. & Kapoor, V.K.(2007), “Business
Mathematics”,Sultan Chand & Son, New Delhi

S K Mishra and P Nayak (2007), “Socioeconomic Dimensions of

Globalization in India”, The Icfai Journal of Managerial Economics, Vol. V,
No. 1

Ahluwalia, M.S (2002) “Economic reforms in India since 1991: Has

Gradualism
Worked?,” Journal of Economic perspectives 16(3), 67-88.

Bauman, Z (1998) “Globalization: The Human Consequences”. Columbia

University Press, New York.

Micheal V P (1999), Globalization, Liberalization and Strategic

Management, Himalaya Publishing House, Bangalore.

Sahana Joshi (2006), “Liberalization and FDI Flow in Service Sector”,

Southern Economist, Vol.45, No. 9.

Bhargava, R (2003) “India in the face of Globalization”,

www.openDemocracy.net

Cochhar, K (2004) “India: Macroeconomic Implications of the Fiscal

Imbalances”. Conference on Fiscal Policy in India National Institute of
Public Finance and Policy (NIPFP) and the International Monetary Fund
(IMF), New Delhi.

  29