NEW ECONOMIC POLICY-1991

Prepared by:

Supreti Tyagi

Economic Background
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1948 - 1956. Public sector dominance. Limited private participation. 1956-1980. Industry classification. Industrial licensing policy.

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Economic background (cont..)
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1980 – 1991. Growth rate of 5.4 percent per annum. Limited liberalization measures were initiated. Steps were taken to modernize some of the most important industries, such as cement, steel, aluminum and power generation equipment.

Cause of the Crisis-1990

From 1950 to 1980, the Indian economy grew at a slow rate of 3.6 percent. This gave rise to foreign borrowing on a small scale. The result was increase in foreign debt and repayment liability.

Cause of the Crisis-1990 (cont..)

Foreign debt increased from US$23.5 billion in 1980 to $63.40 billion in 1991. Nearly 28% of total export revenue went to service the debt. Lead to Fiscal deficit (expenditure exceeds the revenue)

Cause of the Crisis-1990 (cont..)

Reasons of fiscal deficit Exorbitant expenditures were incurred by the central government's subsidies. The inefficient functioning of many of the central and state public sector enterprises.

Cause of the Crisis-1990 (cont..)

The multilateral agencies such as IMF and the World Bank insisted that the policymakers undertake structural reforms. Internal debt liability increased to 53% of GDP.

Features of the new policy
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Liberalization. Integration with world economy with. dismantling of tariff wall. Protection of foreign direct investment. upgrading the technology of production. Financial stability. Outward looking policies.

Components of New Economic policy

Short term (immediate stabilization)

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Correcting the disequilibrium in foreign exchange market through demand reduction. Reform in trade policy Reduction in fiscal deficit Dismantling of barrier to free flow of

Components of New Economic policy (cont..)

Medium term structural adjustment:
Exchange rate.  Trade and industrial policy.  Policies concerning the public sector.  financial sector.  Capital market. (deregulation of prices and investment, change in structure of taxation & public expenditure, privatization of public enterprise).

Outcome of New Economic policy

Liberalization Privatization Globalization

Liberalization

Except the six industries , all other kinds of industrial license have been abolished. Amendment in MRTP act.

Privatization
Disinvestment  selling of govt. equity, partially or wholly, to private parties.  Mergers  acquisition

Globalization
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Free flow of technology Free movement of labor capital among different countries. Reduction in trade barriers. Outsourcing

Impact on industrial sector

Multinational products was dominating local industrial production. Shortage of electricity and other essential raw materials adversely affect the quality of goods. India lifted all control & quota restriction on export but America is not ready to except the import.

Effect of new economic policy (positive)
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Increase in GDP growth rate Increase in foreign direct investment Increase in foreign exchange Outsourcing

Effect of new economic policy (negative)
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Growing unemployment Neglect of agriculture Growing personal disparities Infrastructural inadequacies Wide spread poverty. Demonstration effect (luxury goods)

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