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MANUFACTURING
SECTOR POST LIBERALISATION

INTRODUCTION

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To  lead to an increasingly diversified economy and to give rise to institutional
changes, manufacturing sector is a principal indicator of economic development
of a nation. A well-developed manufacturing sector needs to provide the basic
needs of the population of a particular country. In 1951 India’s Prime Minister
Jawaharlal Nehru affirmed that India had to industrialise at the earliest
possible to build a well-developed industrial sector. We shall hence focus
on the manufacturing sector.

INTRODUCTION OF LIBERALISATION IN INDIA

While the policy makers strived to improve the state of the manufacturing
sector in India, however major policies that were formulated to industrialise
the country was not successful. India failed to become a manufacturing
powerhouse. In 1991, India faced a “Balance Of Payment Crisis”,
putting the government to default and the central bank had refused new credit.
This lead the Indian government to pledge its gold to the Foreign countries, a
deal with the IMF(International Monetary Fund) in exchange for a loan to settle
the payment debts. The then Prime Minister of India realized that the country
is in need of a reform.

In July 1991, new economic policies were introduced changing the economic
structure of India. The Indian government ushered in several reforms namely
Liberalization, extending Privatisation and Globalization of the economy known
as LPG(Liberalization, Privatisation, Globalization) or collectively termed as
liberalisation. These reforms initially faced significant opposition.

There are two phases in the liberalisation of India:

Ø
Pre-Liberalisation
Era: (Prior to 1991)

Post 1980 the key strategy for improving/ developing the manufacturing
sector in India was to develop large and heavy industries through central
planning. The strategy also included features like import substitution i.e.
import protection policy wherein trade with rest of the world was limited to
exports, price controls and restrictions on private sector through severe
licensing. The bureaucratic framework made foreign investments difficult to
come to India, leading to limited growth of the manufacturing sector in India.
Rigid controls led to widespread incompetence in resource utilization, as
reflected in the poor growth rate of the manufacturing sector. The not-so-good
state of the manufacturing sector was further aggravated by the Gulf oil crisis
and agriculture supply shocks in the late 1970s’ together with political
uncertainty which plagued the Indian economy throughout its development
process.

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