Geography Reference
In-Depth Information
most substantial and most visible of these are the reforms made to trade and
investment regulations, and financial sector liberalization. For the most part,
reforms have been carried out in an incremental fashion, by a gradual lowering
of rates and barriers rather than any drastic movements.
The government has implemented measures lifting constraints on private
investment, and generally enabling new investments to be determined by market
mechanisms rather than by government discretion through centralized plans.
Industrial licensing requirements were lifted to allow firms to increase capacity
in existing plants and establish new plants without first clearing excessive
bureaucratic hurdles. In addition to changes in the licensing regime, the universe
of industries reserved for the public sector has periodically contracted.
In 1991, at the start of reforms, 18 industries were reserved for the public
sector. The July 1991 industrial policy statement reduced this number to eight,
and a subsequent policy in 1993 further decreased the list of reserved industries
to six, in which the government would retain at least a 51 per cent controlling
stake. The six were coal and lignite; mineral oils; ammunition and defense
equipment; atomic energy; radioactive minerals; and railway transport.
In March 1999, these six were further categorized into strategic and non-
strategic sectors, and only ammunition and defense equipment, atomic energy,
and railway transport were classed in the former category. In these sectors, the
government would retain strategic control. For all other public sector firms, the
decision to decrease government ownership below 51 per cent would be made on
a case-by-case basis.
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Like the reform of investment regulations, changes to the trade regime
proceeded at a measured pace. In 1991, average Indian tariff rates, on a trade-
weighted basis, stood at 87 per cent, a figure that fell gradually over the course
of the decade, and hovered around 25 per cent from 1997 to 2001.
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Similarly,
quantitative restrictions (QRs) were decreased throughout of the decade, and
were entirely eliminated in April 2001. The government continues to employ
other non-tariff barriers as well as tariffs, often at the behest of members of the
business community.
In addition to changing the rules of trade and investment, the successive pro-
reform governments of the 1990s also significantly changed the regulations
governing foreign direct investment, portfolio investment, and the insurance and
banking sectors. In tandem with a diminished regulatory load, the Indian
government also de-emphasized its investment role. Private interests, in turn,
have become far more autonomous in their investment decisions at the same time
that their importance for economic growth and expansion has intensified.
Now, not only does the central government try to enhance its attractiveness as
a site for foreign direct investment, but state and local governments are also in
the business of wooing investment. The stars of Indian politics in this regard
have been entrepreneurial politicians like the Chief Minister of Andhra Pradesh,
