I B.

Com A&F
Unit-1
Indian Economy: I had given the notes
Basic Characteristic of Indian Economy: I had given the notes
Objectives and Strategy of Economic Planning in India: I had given the notes
Liberalization:
Liberalization is the process or means of the elimination of control of the state over economic
activities. It provides a greater autonomy to the business enterprises in decision-making and
eliminates government interference. Liberalization refers to the relief of state restrictions within
the areas of social, political, and economic policies. Liberalization in economic policy focuses
on the reduction of government laws and restrictions in place to encourage greater participation
by private entities. Liberalisation was begun to put an end to these limitations, and open
multiple areas of the economy. Though some liberalisation proposals were prefaced in the
1980s in areas of export-import policy, technology up-gradation, fiscal policy, and foreign
investment, industrial licensing, and economic reform policies launched in 1991 were more
general. There are a few significant areas, namely, the financial sector, industrial sector, foreign
exchange markets, tax reforms, and investment and trade sectors that gained recognition in and
after 1991.
Liberalization in India
Since the adoption of the New Economic Strategy in 1991, there has been a drastic change in
the Indian economy. With the arrival of liberalisation, the government has regulated the private
sector organisations to conduct business transactions with fewer restrictions. For the
developing countries, liberalisation has opened economic borders to foreign companies and
investments. Earlier, the investors had to encounter difficulties to enter countries with many
barriers. These barriers included tax laws, foreign investment restrictions, accounting
regulations, and legal issues. Economic liberalisation reduced all these obstacles and waived a
few restrictions over the control of the economy to the private sector.
Objectives
• To boost competition between domestic businesses
• To promote foreign trade and regulate imports and exports
• To improve the technology and foreign capital
• To develop a global market of a country
 • To reduce the debt burden of a country
• To unlock the economic potential of the country by encouraging the private sector and
multinational corporations to invest and expand
• To encourage the private sector to take an active part in the development process
• To reduce the role of the public sector in future industrial development
• To introduce more competition into the economy with the aim of increasing efficiency
Reforms under Liberalisation
• Deregulation of the Industrial Sector
• Financial Sector Reforms
• Tax Reforms
• Foreign Exchange Reforms
• Trade and Investment Policy Reforms
• External Sector Reforms
• Foreign Exchange Reforms
• Foreign Trade Policy Reforms
Impact of Liberalisation
Positive Impact of Liberalisation in India
Free flow of capital: Liberalisation has enhanced the flow of capital by making it affordable
for the businesses to reach the capital from investors and take a profitable project.
Diversity for investors: The investors will be benefitted by investing a portion of their
business into a diversifying asset class.
Impact on agriculture: In this area, the cropping designs have experienced a huge change,
but the impact of liberalisation cannot be accurately measured. Government’s restrictions and
interventions can be seen from the production to the distribution of the crops.
Negative Impact of Liberalisation in India
The weakening of the economy: An enormous restoration of the political power and economic
power will lead to weakening the entire Indian economy.
Technological impact: Fast development in technology allows many small scale industries
and other businesses in India to either adjust to changes or shut their businesses.
Mergers and acquisitions: Here, the small businesses merge with the big companies.
Therefore, the employees of the small companies may need to enhance their skills and become
technologically advanced. This enhancing of skills and the time it might take, may lead to non-
productivity and can be a burden to the company’s capital.
 Economic Reforms during Liberalization
Several sectors were affected by the impact of Liberalisation. A few economic reforms were:
• Financial Sector Reforms
• Tax Reforms / Fiscal Reforms
• Foreign Exchange Reforms / External Sector Reforms
• Industrial Sector Reforms
Privatization:
Privatization occurs when a government-owned business, operation, or property becomes
owned by a private, non-government party. Privatization may also describe a transition that
takes a company from being publicly traded to becoming privately held. This is referred to as
corporate privatization. Privatization describes the process by which a piece of property or
business goes from being owned by the government to being privately owned. It generally
helps governments save money and increase efficiency, where private companies can move
goods quicker and more efficiently. Privatization has a very broad meaning in economics.
Everything that ranges from the introduction of private capital to selling government-owned
assets to transitioning to a private economy. As the definition of privatization is so very diverse
let us take a look at the three main features of privatization.
1. Ownership Measures: The ownership of all public enterprises ultimately shifts to
private owners. The denationalization can be complete or partial.
2. Organizational Measures: This is where we limit the control of the state in public
companies. Some methods include holding company structuring, leasing. restructuring
of the enterprises etc.
3. Operational Measures: Public organizations and companies were running into huge
losses. So the efficiency of these companies was to be increased.
Conceptualization of Privatization in India
1] Delegation: Here via a contract or franchise or lease or grant etc. the government keeps the
ownership and the responsibility of an enterprise.
But the private company will handle the daily activities and deliver the product or service. The
state will remain an active participant in this process.
2] Divestment: The government will sell a majority stake of the enterprise to one or more
private companies. It may keep some ownership but will be a minority stakeholder in the
enterprise.
3] Displacement: The first step here will be deregulation. This will allow private players to
enter the market. And slowly and gradually the private company will displace the public
enterprise. Here the private sector will compete with public companies and ultimately
outperform them, causing the public enterprise to be displaced.
4] Disinvestment: Directly selling a portion or whole of a public enterprise to private parties.
Advantages of Privatization
• Private companies always have a better incentive than public companies. The managers
and officials of a private company have skin in the game, i.e. their income is related to
the performance of the company. In public companies, such an incentive is not present.
So privatization usually leads to higher efficiency in the company.
• In a public company, there is a lot of political interference. This may dissuade the
company from taking economically beneficial decisions. However, a private company
will not let political factors affect their performance.
• In public companies, at times the government can only think about the upcoming
elections. So all their goals may be short-term in the process of trying to gain favours
of the voting public. But a private company does not have such restrictions. They have
long-term goals and ambitions and steer the company in the right direction.
• Privatization will also increase competition in the market. Consequently, this has
proved to be very beneficial to consumers. Healthy competitiveness in an economy will
push efficiency and performances.
Positive Impact on Economy
The role of entrepreneurs is encouraged in the private sector industries since they have the
liberty to make their own decisions for the enterprises. They are not under any pressure from
the government. Before 1991 when privatisation had not come up in the economy, the
government sector industries had a hard time sanctioning funds for the economy. The
Government usually delays the sanctioning of the funds. This is because the government
manages its administrative very intricately and with great complexity, and so the inflow of
money is delayed. Before 1991, the expenditure of the government was more than what it was
earning. As a result of this, the government was facing a budget deficit. This further resulted
in an increased financial burden on the government. Private companies lead to the inflow of
Foreign Direct Investment in the country. Because India has a wide market and a broad
consumer base, foreign products are wanted by more and more consumers today. With more
and more companies being privatised, people from all over the world come to invest their
money in these companies. The regular supply of funds has increased with the coming up of
the privatisation of the companies. This is because private companies do not require any
permission in order to decide the financial status of the economy. When privatisation happened
in the country, this financial burden of the government was significantly reduced. Private sector
companies do not spend a huge amount of money on the non-development sectors, unlike the
government sector companies. By earning more, the private companies helped the government
in paying the taxes as well. With systematic and structured management, private sector
companies are known to satisfying the never-ending wants of the consumers. Hence
diversification of products takes place. Buyers are given ample of options to choose from in
the market. Private companies are more focussed on increasing their managerial efficiencies
so that they meet their goals in time or at times before the deadline. This allows them to avoid
any unnecessary formalities.
Negative Impact on the Economy
Private sector companies can heavily influence the market in the economy. They can increase
or decrease the price of a product solely on the basis of their preference. This results in a
monopolistic control of the private companies in the market. With the coming up of more and
more private sector companies, the social interest has been persistently neglected. The main
objective of every private sector industry is to earn a profit. In this process of earning more and
more profit, society is ignored by those industries. The term ‘full employment’ refers to a
situation in which everybody who is in the working-age group and wants to work has
employment. Privatisation can result in the non-achievement of a full-employment situation in
the country. As mentioned earlier, the private companies are majorly concerned with profit
maximisation instead of providing full employment to the citizens of the country. The term
‘voluntary retirement’ refers to a situation in which the employee quits voluntarily from his/her
job and goes into retirement. When the Public Sector Units were sold to private investors, many
people found it difficult to work under the conditions laid off by the private investors. As a
result, most of them chose voluntary retirement. At times when private companies find
themselves spending more on the inputs and the production process, in order to cut the cost,
they may remove one or more than one employees causing unemployment in the
economy. When private sector companies enter the market of the economy, they can
significantly increase the price of a product. The consumer might or might not have the
purchasing power to consume that product. The demand for that particular product then
significantly decreases. And if this case continues, the economy goes in a state of inflation.
Globalization
Globalization is the integration of a national economy and culture with that of the global
economy. Metaphorically, a country throws open its gates, welcoming in communication,
international trade, capital, technology and cultural practices from foreign countries. Globalism
increases international economic interdependence due to the increasing scale of cross-border
trade of capital, commodities, services and technologies. In doing so, this incentivizes foreign
businesses to invest and expand globally into the newly opened country.
Impacts of Globalization
Globalization has had a significant and nearly instantaneous impact on India as a whole. The
reduction of export subsidies and import barriers enabled free trade that made the untapped
Indian market incredibly attractive to the international community. And nowhere were these
reforms more consequential than the significant changes made to its industrial, financial and
agricultural sectors:
• Industrial – There has been a massive influx of both foreign capital investment and
companies expanding to and offshoring in India, particularly in the pharmaceutical
manufacturing, chemical and petroleum industries. They brought with them advanced
technologies and processes that have helped modernize the Indian industrial sector.
• Financial – Prior to globalization and privatization, India’s financial sector had been
mismanaged by a combination of corrupt and inept government officials—many of
whom were risk-averse and reluctant to embrace change. By taking control of the
financial sector out of the hands of the bureaucracy, market competition spurred on
innovation, creating a much more dynamic financial services sector.
• Agricultural – India used to be a largely an agrarian society, with a significant majority
of the country’s population depending on this sector either directly or indirectly for their
livelihood. Thanks to India opening its doors, the technological capabilities of farmers
have increased—helping drive global exports of Indian products such as tea, coffee and
sugar. The by-product of these sectors has brought about an increase in national income,
employment, exports and GDP growth.
Advantages of Globalization
For international companies, the globalization of India presented an unprecedented opportunity
for growth and expansion. Suddenly, the world’s second-most populous country was open for
business. And this development still has advantageous ripple effects to this day, including:
1. Access to untapped markets
The increasing globalization of India has opened up the country to eager foreign companies
seeking to invest and operate within the massive Indian market.
• For the country and its citizenry, this boosted foreign capital inflows both from portfolio
investment and foreign direct investment. As a result, the import-export sector
experienced explosive growth.
• For international companies, it expanded their capabilities and market share—they
gained instant access to hundreds of millions of new consumers and potential workers.
2. A surplus of employment opportunities
The revitalization and expansion of the Indian economy helped lift hundreds of millions out of
extreme poverty, while also improving the employee benefits offered. This was due to two
primary factors:
• Export growth thanks to comparative cost advantage created countless new jobs across
the country.
• The lifting of restrictions on capital inflows and outflows increased employment
opportunities.
Initially, globalization gave foreigners access to an inexpensive, robust labor force. And, as the
country has progressed, that labor force has grown more skilled and educated over time. Along
these lines, India has the largest diaspora living abroad. These expatriates work and attend
school in foreign countries. This helps facilitate the transfer of skills, knowledge and
technology back to the Indian economy, seeing as a significant minority of Indians living
abroad eventually return home. For product-based businesses and multinational corporations,
labor costs are often the largest expenditure. Offshoring in and outsourcing to a place like India
enables companies to reduce their labor costs. This results in a freeing up of capital for strategic
reinvestment while also driving specialization. However, businesses can’t seize on the hiring
opportunities in India without a legal entity, which can be a costly and timely process. However,
an employer of record like Global Employment Outsourcing (GEO) enables businesses to hire
employees in India quickly and compliantly without the need for an entity.
3. Reduced risk profile
For companies considering global expansion to the Indian market, especially for manufacturing
purposes, doing so can help reduce your overall risk profile. Having multiple locations around
the globe helps prevent supply chain issues. If one location is held up, it won’t negatively
impact the entire supply chain. And for foreign investors considering the economy as a whole,
India offers a well-diversified export basket. According to OECD’s 2019 Economic Survey of
India: “India has succeeded in increasing the number of goods exported and in serving new
markets/countries. Its export basket is highly diversified and exports to emerging markets are
growing fast. Such a diversification reveals the high potential of the Indian economy to adjust
to new demands. It also reduces exposure to risks such as lower demand in one country or for
one specific product.”
NITI Aayog Structure, Objectives and Functions: I had given the notes
Foreign Direct Investment:
Foreign direct investment (FDI) is when a company takes controlling ownership in a business
entity in another country. With FDI, foreign companies are directly involved with day-to-day
operations in the other country. This means they aren’t just bringing money with them, but also
knowledge, skills and technology. Generally, FDI takes place when an investor establishes
foreign business operations or acquires foreign business assets, including establishing
ownership or controlling interest in a foreign company.
Types of Foreign Direct Investment
1. Horizontal FDI

The most common type of FDI is Horizontal FDI, which primarily revolves around investing
funds in a foreign company belonging to the same industry as that owned or operated by the
FDI investor. Here, a company invests in another company located in a different country,
wherein both the companies are producing similar goods. For example, the Spain-based
company Zara may invest in or purchase the Indian company Fab India, which also produces
similar products as Zara does. Since both the companies belong to the same industry of
merchandise and apparel, the FDI is classified as horizontal FDI.

2. Vertical FDI

Vertical FDI is another type of foreign investment. A vertical FDI occurs when an investment
is made within a typical supply chain in a company, which may or may not necessarily belong
to the same industry. As such, when vertical FDI happens, a business invests in an overseas
firm which may supply or sell products. Vertical FDIs are further categorised as backward
vertical integrations and forward vertical integrations. For instance, the Swiss Coffee producer
Nescafe may invest in coffee plantations in countries such as Brazil, Columbia, Vietnam, etc.
Since the investing firm purchases, a supplier in the supply chain, this type of FDI is known as
backward vertical integration. Conversely, forward vertical integration is said to occur when a
company invests in another foreign company which is ranked higher in the supply chain, for
instance, a coffee company in India may wish to invest in a French grocery brand.
3. Conglomerate FDI
When investments are made in two completely different companies of entirely different
industries, the transaction is known as conglomerate FDI. As such, the FDI is not linked directly
to the investors business. For instance, the US retailer Walmart may invest in TATA Motors,
the Indian automobile manufacturer.
4. Platform FDI
The last types of foreign direct investment is platform FDI. In the case of platform FDI, a
business expands into a foreign country, but the products manufactured are exported to another,
third country. For instance, the French perfume brand Chanel set up a manufacturing plant in
the USA and export products to other countries in America, Asia, and other parts of Europe.

Impact of Foreign Direct Investment

There are different school of thoughts are proving FDI is bane for economy, some
school of thoughts are proving FDI is boon for the economy. The economic policy of
government of India takes place in 1991.In 1991 LPG polices were takes place. The
LPG polices in India had moved our economy in positive direction. By analyzing
some school of thoughts FDI inflows in India moves economy in positive direction.
The investments made from past 10 decades the economy is moving in positive
direction due to investments through FDI. Foreign Direct Investments are essential
for the progress for every nation. The investments should be in a systematic manner.
In India there are three sectors like Agricultural sector, Industrial sector, service sector
etc.., India is majorly Agricultural dependent country, majority of the people are
depending on agricultural sector, the investment made through FDI, it should be
beneficial when invested on Agricultural sector. In India major investments are
happening in Service sector, this explains about investments are happening via FDI,
on priority basis. Investments in retail sector, there are single branded retail and multi
branded retail sector the investments should be happen which does not harm on
Indian economy. Through this FDI there are many advantages like Technology
transformation, skill transformation, knowledge transformation, finance inflow,
labour transformation is possible from one country to another country.
Gross Domestic Product
The Gross Domestic Product of the country would gradually increase
because, investments made through FDI, which facilitates to start new
organizations, industries, enterprises, will increase income for a nation.

Per capita Income

The number of industries are gradually increased, the employment
opportunities gradually increase, which leads to earning would gradually
increase, consequently the standard of living would gradually increase, which
leads to per capita income of the country would gradually increase.
Exchange Rate
The appreciation and/or depreciation of the currency are depending on
imports and exports of the country. An exchange value sometimes host
currency value might increase, sometimes home currency value might
increase, this depends on market forces.

Technology
The Western and Japanese technologies can be possible where investments
can be made in the form of FDI. Not only investments but also technology
can be transformed from one nation to another nation. This facilitates a nation
to become technologically strong. Because in this competitive world the
companies should stand in the international competition, for that there should
be technological up-gradations should happen in every country.

Exports
Every country should increase exports, for this country should be strong enough
in technology wise, skill wise, knowledge wise, these things can be possible
where investments can be made in the form of FDI.

Human Capital
The labour transformations also possible through FDI, where very skilled
labour can move from one nation to another nation, in the collaborative
business world. This human Capital Transformation from country to another
country, facilitates business stronger because skill, knowledge transformation
from one nation to another nation. Because, different country people are
strong enough in different skills, knowledge’s, talents, and these things can
 be shared globally.
Recent Trends of Foreign Direct Investment
Foreign Direct Investment (FDI) flows to India in 2021 were 26 per cent lower, mainly because
large M&A deals recorded in 2020 were not repeated, the UN trade body has said. The UN
Conference on Trade and Development (UNCTAD) Investment Trends Monitor published on
Wednesday said global foreign direct investment flows showed a strong rebound in 2021,
growing 77 per cent to an estimated USD 1.65 trillion, from USD 929 billion in 2020,
surpassing their pre-COVID-19 level. "Recovery of investment flows to developing countries
is encouraging, but the stagnation of new investment in the least developed countries in
industries important for productive capacities, and key Sustainable Development Goals (SDG)
sectors - such as electricity, food or health - is a major cause for concern," said UNCTAD
Secretary-General Rebeca Grynspan. FDI reaching an estimated USD 777 billion in 2021 -
three times the exceptionally low level in 2020. FDI flows in developing economies increased
by 30 per cent to nearly USD 870 billion, with a growth acceleration in East and South-East
Asia (+20 per cent), a recovery to near pre-pandemic levels in Latin America and the
Caribbean, and an uptick in West Asia. FDI flows to South Asia decreased 24 per cent to USD
54 billion in 2021 from USD 71 billion in 2020.
FDI in the United States - the largest host economy - increased by 114 per cent to USD 323
billion, and cross-border M&As almost tripled in value to USD 285 billion. "Flows to India
were 26 per cent lower, mainly because large M&A deals recorded in 2020 were not repeated,".
China saw a record USD 179 billion of inflows - a 20 per cent increase - driven by strong
services FDI. Of the total increase in global FDI flows in 2021 (USD 718 billion), more than
USD 500 billion, or almost three quarters, was recorded in developed economies. Developing
economies, especially least developed countries (LDCs), saw more modest recovery growth.
The World Investment Report by UNCTAD released in June last year had said that amid the
pandemic, India received USD 64 billion in foreign direct investment in 2020, the fifth-largest
recipient of inflows in the world. FDI to India increased 27 per cent to USD 64 billion in 2020
from USD 51 billion in 2019, pushed up by acquisitions in the information and communication
technology (ICT) industry. The pandemic boosted demand for digital infrastructure and
services globally. This had led to higher values of greenfield FDI project announcements,
targeting the ICT industry, rising by more than 22 per cent to USD 81 billion. The second wave
of the COVID-19 outbreak in India weighed heavily on the country's overall economic
activities. Announced greenfield projects in India had contracted by 19 per cent to USD 24
billion, and the second wave in April 2021 affected economic activities, "which could lead to
a larger contraction in 2021". The latest Investment Trends Monitor said investor confidence is
strong in infrastructure sectors, supported by favourable long-term financing conditions,
recovery stimulus packages and overseas investment programmes. In contrast, investor
confidence in the industry and global value chains remains weak. Greenfield investment project
announcements were practically flat, and the number of new projects in global value chains
(GVCs)-intensive industries, such as electronics, fell further. The underlying trend - net of
conduit flows, one-off transactions and intra-firm financial flows - will remain relatively
muted, as in 2021. International project finance in infrastructure sectors will continue to
provide growth momentum. "New investment in manufacturing and GVCs remains at a low
level, partly because the world has been in waves of the COVID-19 pandemic and due to the
escalation of geopolitical tensions," said James Zhan, director of investment and enterprise at
UNCTAD.