New

economic policy

1991

By: mrityunjay kumar

Meaning of new economic policyThe new economic policy comprises of

various policy measures and changes introduced since 1991. the thrust of new economic policy is towards creating more competitive environment as a means to improve the productivity and efficiency in the economy.

The main objective of new economic policy is to promote competition and efficiency.

introductionEconomic reform were introduced in the year

1991. before 1991 public sector has been assigned important role in the economic development. It was realised that public sector was inefficient because of red – tapism, over staffing, lack of initiative, etc..

Net result of all this was the acute economic crisis in india. Fresh loan were not available and non – resident funds were being withdrawn.

Since july 1991The government of india has taken many policy

measures with the objective of pulling the country out of economic crisis and accelerating the rate of economic growth.

Main among them are:-1. Promoting liberalisation.2. Encouraging private sector3. Promoting foreign direct investment4. Modernisatinon of agriculture5. Changes in trade policy & fiscal policy6. Introducing improved technology7. Keeping fiscal deficit under controlThese policies are called new economic policy.

Features of old economic policy

1. Mixed economy2. More importance to public sector3. Protection against foreign

competition4. Restrictions on foreign capital5. Fixed rate of exchange6. Fixed policy7. Promotion of exports and

substitution of imports

Need for

new economic policy1. Fiscal deficit2. Increase in unfavorable balance of

payments3. Gulf crisis4. Fall in foreign exchange reserves5. Rise in price6. Poor performance of public sector

undertaking

Main divisions of new economic policy1.Structural policya)Industrial policyb)Foreign trade policyc)Foreign industrial policy2.stabilisation policya)Monetary policyb)Fiscal policy

Features of

new economic policy

1.Liberalisation2.Privatisation3.Globalisation4.Other economic

reforms

liberalisationLiberalisation means to reduce

unnecessary restrictions and controls on business units imposed by government.

measures taken for liberalisation:-

1. Liberalisation of Industrial licensing2. Freedom for expansion and production to

industries3. Increase in the investment limit of small

industries4. Freedom to import capital goods and raw

materials5. Freedom to import technology6. Liberalisation in taxation policy

Advantages of

liberalisation1.Increase in foreign

investment2.Increase in foreign exchange

reserves3.Increase in industrial

production4.Increase in competition 5.Control over price

Disadvantages of

liberalisation1.Increase in unemployment2.Loss to domestic units3.Increased dependence on

foreign nations4.Unbalanced development5.Increase in regional imbalance

Privatisation Privatisation means allowing the private

sector to set up more and more as such industries as were previously reserved for private sector.

Measures of privatisation :- 1. Contraction of public sector 2. Sales of shares of public sector to the

private sector3. Sick public sector industries4. Memorandum of understanding5. National renewal fund

Advantages

privatisation1.Increase in efficiency2.Professional management3.Increase in competition4.In line with international trends5.Reduction in economic burden of

government

Disadvantages of

privatisation

1.Industrial sickness 2.Lack of social welfare3.Class struggle 4.Increase in inequality5.Political pressure

Globalisation Globalisation means linking the economy of

a country with the economies of other countries by means of free trade, free mobility of capital and labor, etc

Measures of globalisation:-

1. Increase in foreign investment 2. Partial convertibility of indian rupee3. Foreign trade policy4. Reduction in tariffs5. Export promotion

Advantages of

globalisation1.Increase in foreign trade 2.Increase in foreign investment3.Increase in foreign collaboration 4.Increase I foreign exchange 5.Expansion of market6.Increase in employment

Disadvantages of

globalisation1.Loss to domestic

industries2.Unemployment3.Exploitation of labor4.Demonstration effect5.Increase in inequalities

Main component of

new economic policy1.New industrial policy2.New foreign trade

policy 3.New fiscal policy 4.New monitory policy

New industrial policyOn 24th july 1991. government of india

announced its new industrial policy. It is a policy of liberalisation as against regulation and privatisation as against nationalisation.

Features of new industrial policy:-

1. Contraction of public sector2. Expansion of private sector3. Concessions from monopolies act4. Foreign direct investment5. Foreign technology agreement

New foreign trade policy1. The foreigners can invest up to 100% of

paid up capital2. Rupee is fully convertible in foreign

currency3. Liberalisation4. Custom duties and tariffs are being

gradually lowered5. Foreign technology have encouraged6. Exports have been encouraged

New fiscal policy 1. Reduction in tax – rates2. Reduction in non – development

expenditure3. Reduction in subsidies4. Reducing dependence on external

borrowings5. To discourage deficit financing6. Better collection of indirect tax

New monitory policy1. Reduction in bank rate, statutory liquidity

ratio and cash reserve - ratio so as to increase the availability of credit in the economy

2. Reduction in interest rates so as to make domestic investment rate in line with international trends

3. To discourage unproductive – loans so that more funds are available for productive loans

4. Uniform system of accounting

Arguments in favor of

new economic policy1. Increase in rate of economic growth2. Availability of modern technology3. Improvement in balance of payment4. Control on prices5. Reduction in fiscal deficit6. Increase in capital formation 7. Increase in industralisation8. Increase in efficiency of public sector

units9. Improvement in tax collection10.Increase in employment

Arguments against

new economic policy1. Pressure from imf & world bank2. Less importance to agriculture 3. More dependence on foreign debt4. Dependence on foreign technology5. Promotion of consumption6. More importance to privatisation7. Problem of unemployment8. Loss to domestic industrial units9. Ignores social welfare10.Promotes consumption of economic

power

Achievements of

new economic policy Increase in national income Increase in industrial production Control over inflection Increase in exports Increase in foreign currency reserves Increase in foreign direct investment Reduction in fiscal deficit

Shortcomings of

new economic policyLess increase in agricultural production

Increase in importsFailure in poverty allocation

Increase in unemployment

Thank youPrime minister

Finance minister