New

Economic
Reforms
Economic reforms refers to a set of economic
policies directed to accelerate the pace of
'growth and development'.
In 1991 the Government of India initiated a
series of economic reforms to pull the
economy out of the crisis of 90's. These reform
came to be known as New Economic Policy.
(NEP)
Three broad component of NEP are:
(i) Policy of liberalisation(L) in place of
licensing (L) for industries and trade.

(ii) Policy of privatisation (P) in place of quotas

(Q)for the industrialist.

(iii) Policy of globalisation (G) in place of

permits (P) for export and import.
Thus, LPG was set to replace LQP in 1991.
Need for Economic Reforms

(i) Failure of Public Sector

(ii) Budgetary Deficit
(iii) Balance of Payment Deficit
(iv) Foreign Exchange Crisis
(v) Inflation
Elements of NEP:-
(a) Liberalisation
(b) Privatisation
(c) Globalisation
(A) Liberalisation:
Liberalisation of the economy means freedom
of the producing units from direct or physical
controls imposed by the government.
Economic reforms under liberalisation.
(1) Industrial sector reforms:
(a) Abolition of industrial licensing
(b) Contraction of public sector.
(c) De- reservation of production areas.
(d)Expansion of production capacity.
(e) Freedom to import capital goods.
(2) Financial sector reforms
(a) Banking and non banking financial
institutions.
(b) Stock exchange market.
(c) Foreign exchange market.
(3) Fiscal Reforms.
It related to revenue and expenditure of the
government. Tax reforms are the principal
component of fiscal reforms.
Broadleaf taxes are classified as
(a) Direct taxes: direct taxes are not shifted
into others .example income tax, wealth tax.
One who pay such a tax himself bear the
burden of it.
(b) Indirect taxes: indirect taxes are those
taxes which can be shifted into others for
example GST and custom duty. One who pays
such a tax can shift the burden of this text onto
the final buyer of the goods by adding the text
amount to the basic price of the goods sold.
(4) External sector reforms-
(a) foreign exchange reforms
(b) foreign trade policy reforms
Privatisation-
It is the process of involving the private sector
in the ownership or operation of a state owned
enterprises.
It implies gradual withdrawal of government
ownership/management from the public sector
enterprise.

Disinvestment
It is a policy instrument to promote
privatization. It occurs when the government
sells off its share capital of PSUs to the private
investors.
It is also used as a means to manage fiscal
deficit by the government.
 NAVRATNAS
i) IOC ( Indian Oil Corporation)
ii) BPCL ( Bharat Petroleum
Corporation Limited)
iii) ONGC (Oil and Natural Gas
Corporation
iv) SAIL ( Steel Authority of
India Ltd.)
v) BHEL (Bharat Heavy
Electricals Ltd.)
vi) IPCL ( Indian Petrochemicals
Corporation Ltd.)
Vii) VSNL ( Videsh Sanchar
Nigam Ltd.)
viii) NTPC ( National Thermal
Power Corporation)
ix) HPCL (Hindustan
Petroleum Corporation Ltd.)
Globalisation :
It means integrating the
economy of a country with the
economy is of other countries
under conditions of free flow of
trade and capital across borders.
Globalisation may be defined as
a process associated with
increasing openness, growing
economic interdependence and
deepening economic integration
in the world economy.
Policy strategies promoting
globalisation of the Indian
economy
i) Increase in equity limit of
foreign investment
ii) Partial convertibility
iii) Long term trade policy
iv) Reduction in tariffs
v) Withdrawal of quantitative
restrictions
Outsourcing :
This is an important outcome
of the process of globalisation.
It refers to a system of hiring
business services from the
outside world. These services
include call centres,
transcriptions, clinical advice,
teaching / coaching.
 Merits of LPG Policy
(i) Vibrant Economy
(ii) Stimulant to industrial production
(iii) A check on Fiscal Deficit
(iv) A check on Inflation
(v) Consumer’s Sovereignty
(vi) Increase in Foreign Exchange
Reserve
(vii) Flow of private Foreign Investment
(viii) A shift from Monopoly Market to
Competitive Market
(ix) Recognition of India as an
Economic Power
 Demerits of LPG Policies
(i) Neglect of Agriculture
(ii)Urban Concentration of growth
process
(iii) Economic Colonialism
(iv) Spread of Consumerism
(v) Lopsided growth process
(vi) Cultural Erosion