Background
- In 1991, India faced a severe economic crisis primarily due to its dependency on crude oil imports from Gulf countries.
- The Gulf crisis led to increased oil prices, significantly draining India’s foreign exchange reserves.
IMF Involvement
- To address this critical situation, India approached the International Monetary Fund (IMF), which suggested implementing liberalized economic policies as a precondition for financial assistance.
Implementation of New Economic Policies (NEP)
- The Indian government, under Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh, introduced the New Economic Reforms (NEP) in 1991, focusing on:
- Liberalization: Reducing government interference in the economic and social sectors and easing international trade restrictions.
- Privatization: Encouraging the transfer of ownership from the public sector to the private sector.
- Globalization: Integrating the Indian economy with the global economy, facilitating foreign investment and operations.
State-Level Reforms in Andhra Pradesh
- Following the central government’s lead, Andhra Pradesh, under Chief Minister N. Chandrababu Naidu (from 1995), sought to implement its own economic reforms.
- The state government approached the World Bank for a loan, leading to the formulation of the A.P. Agenda for Economic Reforms, which included:
- Reducing subsidies.
- Decreasing the state’s involvement in welfare schemes.
- Promoting private investments.
- To facilitate these reforms, various committees were established, and the strategic document “Vision 2020” was prepared by McKinsey & Company, outlining a 25-year development plan for Andhra Pradesh.
World Bank’s Role
- The World Bank’s involvement led to the Andhra Pradesh Economic Restructuring Project (APERP), valued at Rs. 3,300 crores.
- World Bank Loan: Rs. 2,200 crores.
- State & Central Government Contribution: Rs. 1,100 crores.
Key Reforms under APERP (1999-2004)
| Sector | Fund Allocation (%) |
| District Primary Education | 20.3% |
| Primary Health | 8.5% |
| Integrated Child Development | 12.4% |
| Rural Road Upgrading & Maintenance | 21.6% |
| Irrigation Rehabilitation & Maintenance | 12.3% |
| Public Enterprise Reforms | 3.2% |
Committees Appointed by Chandrababu Naidu for Economic Reforms
| Sector | Committee Name |
| Electricity Reforms | Hiten Bhayya Committee |
| State Administration & Finances | Gangopadhyay Committee |
| Higher Education | Koneru Ramakrishna Rao Committee |
| Government Sector Industries | Subramaniyam Committee |
Hiten Bhayya Committee (Electricity Reforms)
- Led to the Andhra Pradesh Electricity Reforms Act, 1998.
- Established the Andhra Pradesh Electricity Regulatory Commission (APERC) in March 1999.
- Split the Andhra Pradesh State Electricity Board (APSEB) into:
- AP Genco – Responsible for electricity generation.
- AP Transco – Handles electricity transmission.
- Allowed private investments, leading to higher electricity purchase prices and increased charges, which negatively impacted Telangana farmers relying on bore-well irrigation, unlike Andhra farmers who used canal irrigation.
Gangopadhyay Committee (State Administration & Finances)
- Recommended removal of 0.9% of government employees annually from 1996-97 due to overstaffing.
- Identified Water Department as having 40% excess employees.
Koneru Ramakrishna Rao Committee (Higher Education)
- Suggested reducing government involvement in higher education.
- Recommended that private institutions take over the majority of higher education services.
Subramaniyam Committee (Government Sector Industries)
- Recommended privatizing loss-making government companies.
- In alignment with World Bank suggestions, Chandrababu Naidu either privatized or shut down several government industries, offering voluntary retirement (VRS) to employees.
Implementation Phases of Privatization
Phase 1 (1998–2001)
- 5 mills privatized.
- 3 companies restructured.
- 3 companies closed.
- 13,321 employees took voluntary retirement.
Phase 2 (2002–2005)
- From a pool of 58 companies, some were privatized, and others were shut down.
Phase 3 (Proposed for 2006, Not Implemented by Y.S.R.)
- July 2006: Government issued G.O. 5, targeting privatization of APSRTC & Singareni Collieries (64,000 employees).
- August 2006: Due to protests, Y.S.R. issued G.O. 7, halting the privatization process.
Impact of the 1991 Industrial Policy
- Corporate Benefits: Abolition of the industrial licensing system favored corporate expansion.
- Increased Foreign Investment: Raised foreign investment caps to 51%, attracting multinational corporations.
- Decline in Public Sector Profits: Government-run industries, contributing only 3% to the industrial sector, faced heavy losses.
- Job Losses: Workforce reductions due to privatization led to widespread protests.
- Amendment to FERA (1973): Replaced by the Foreign Exchange Management Act (FEMA) in 1998, easing foreign exchange regulations and boosting capital inflows.
