NEW ECONOMIC POLICY-1991

Economic Background

 1948 - 1956.
 Public sector dominance.
 Limited private participation.

 1956-1980.
 Industry classification.
 Industrial licensing policy.
 Economic background (cont..)
 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
 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.
 Deregulation of domestic market.
 Components of New Economic
policy

 Short term (immediate stabilization)

 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 capital.
 Depreciation of exchange rate.
 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
 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)
 Increase in GDP growth rate
 Increase in foreign direct investment
 Increase in foreign exchange
 Outsourcing
 Effect of new economic policy
(negative)
 Growing unemployment
 Neglect of agriculture
 Growing personal disparities
 Infrastructural inadequacies
 Wide spread poverty.
 Demonstration effect (luxury goods)