Professional Documents
Culture Documents
Economic Policy-1991
Economic Reforms-Meaning
The term economic reform broadly indicates necessary
structural adjustments to external events.
The reforms in India was initiated with the aim of accelerating
the pace of economic growth and eradication of poverty.
Economic Reforms provides a policy regime that facilitates
and fosters growth of Indian industry to let the entrepreneurs
make investment decisions on the basis of their own
commercial judgment.
This requires gradual reduction in import and increase in
export. These adjustments also requires market change in order
to make economy flexible.
The process of economic liberalization in India can be traced
back to the late 1970s. However, the reform process began in
earnest only in July 1991.
The Crisis of June 1991
The present process of economic reforms
was born out of the crisis in the economy,
which climaxed in 1991. The crisis
compelled the government to adopt a new
path-breaking economic policy under
which a series of economic reform
measures were initiated with the objective
to deal with the crisis and to take the
economy on a high-growth path.
Need of Economic Reforms
Increase in Fiscal Deficit
Increase in adverse balance of Payment
Gulf Crisis
Fall in foreign Exchange Reserve
Rise in Prices
Poor Performance of Public Sector
Main Features of Economic
Reforms-1991
PRIVATISATION
LIBERALISATION GLOBALISATION
ECONOMIC
REFORMS
Liberalisation
It means to free the economy from direct or physical
controls imposed by the government.
Prior 1991, government had imposed several types
of controls on Indian economy e.g. industrial
licensing system, price control or financial
control on goods, import license, foreign
exchange control, restriction on investment by
big business houses, etc.
These controls leads to fall in economy growth.
Economic reforms were based on the
assumption that market forces could guide the
economy in a more effective manner than
government control.
Meaning of Liberalisation
Dismantling of industrial licensing system and
dilution of MRTP Act;
Reduction in quantitative restrictions in imports as
well as rate of import duties;
Reductions in control on foreign exchange;
Financial and banking sector reforms;
Reductions in the level of corporate and personal
income taxes;
Reductions in restrictions on Foreign Investments
(Direct as well as Portfolio)
Measures Taken For Liberalisation
Abolition of industrial licensing and Registration :
According to new industrial policy , with the exception
of 6 sectors, industrial licensing has been removed.
Concession from MRTP Act
Freedom from Expansion and Production to Industries
Increase in the Investment Limit of the Small Industries:
It has been raised to Rs 1crore & Investment limit has
been raised to Rs 25 lakh.
Freedom to import capital goods
Freedom to import technology
Action plan for information Technology and software
development.
Privatisation
Privatisation means allowing the private sector to
set up more and more of industries that were
previously reserved for public sector.
It can take in three in forms:
a. Change in ownership: Degree of privatisation
judged by the extent of ownership transferred
from public to private sector. This can have four
forms:
i) Total Nationalisation
ii) Joint Venture
iii) Liquidation
iv) IV) Workers Co-operative
Privatisation-Continue..
b. Organizational Measures: It includes variety
of measures to limit state control.
i) A holding Company Structure
ii) Leasing
c. Operational Measures: Autonomy to the
operators of the enterprise.
Objectives of Privatisation
To increase efficiency & competitive power
of the enterprises
To strengthen industrial management.
To earn more & more Foreign currency.
To make optimum use of resources
To achieve rapid industrial development of
the country.
Advantages of Privatisation
Reduction in economic burden
Increase in efficiency
Reduction in sense of irresponsibility
Scientific Management
Reduction in Political Interference
Encouragement of new Inventions
Disadvantages of Privatisation
Lack of social welfare
Class struggle
Increase in inequality
Increase in unemployment
Exploitation of weaker section
Measures adopted for privatisation
Contraction of Public sector
Disinvestment
Sale of shares of public enterprises
Increase in private sector
Conversion of loans into shares is not
necessary
Sick industries
Memorandum of understanding
Globalisation
1-Trade Reforms
Import liberalisation reduction of import
tariffs, replacing import licenses with import
tariffs, removing quantitative restrictions on
imports
Removing export subsidies, replacing licenses of
exports with export duties, low flat tax on export
income Decanalising oil and agricultural trade.
Measures towards Globalisation-
Cont
2. Financial and Banking Reforms
7. Devaluation of currency
Globalisation of markets
Globalisation of Production
Globalisation of Technology
Globalisation of Investment
Impact of NEP (New Economic Policy) on
Industry
The external policies in 1960s, 1970s and 1980s were
guided by the principle of import substitution, which had
been prompted to some extent because of scarcity of
foreign exchange.
The strategy therefore involved, restricting imports
through quotas and high tariff rates as well as there being
restrictions on FDI, foreign collaborations, import of
technology.
The general trade and industrial policies that India
adopted till mid-80s and till 199os insulated the Indian
industry from competition, domestic as well as foreign.
Impact of NEP on Industry
However, the environment has changed
drastically since New Economic Policies were
initiated in 1990s. Globalisation has led to
opening up of markets leading to intense
competition.
There is greater competition in domestic market
with imports of high quality goods from
developed countries and low priced goods from
developing countries. Competition has further
intensified with the arrival of MNCs as the
restrictions on FDI have been removed.
Impact of NEP on Industry
Thus Indian enterprises, small and large have been
forced to improve their quality and productivity in
order to (i) compete with imported goods or with
goods produced by MNCs; (ii) export successfully
without government support.