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Economic Reforms:
Economic reforms or structural adjustment is a long term
multi dimensional package of various policies and programme
for the speedy growth, efficiency in production and make a
competitive environment. Economic reforms were adopted by
Indian Govt. in 1991.
Factor’s responsible for Economic reforms.
1. Fall in foreign exchange reserve : as imports grew faster than
exports
2. Adverse balance of payments resulted repayment crisis
3. Mounting fiscal deficit as govt. expenditure grew faster than
revenue
4. Rise in prices, which has the negative impact on Investment.
5. Failure of public enterprises:- very low return on high Investment
6. Gulf crisis increases crude oil prices which negatively affected
BOP.
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 New Economic Policy of India was launched in the year
1991 under the leadership of P. V. Narasimha Rao. This
policy opened the door of the India Economy for the global
exposure for the first time.
In this New Economic Policy P. V. Narasimha Rao
government reduced the import duties, opened reserved
sector for the private players, devalued the Indian currency
to increase the export. This is also known as the LPG
Model of growth.
New Economic Policy refers to economic liberalisation or
relaxation in the import tariffs, deregulation of markets or
opening the markets for private and foreign players, and
reduction of taxes to expand the economic wings of the
country.
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 Former Prime Minister Manmohan Singh is considered to be
the father of New Economic Policy (NEP) of
India. Manmohan Singh introduced the NEP on July
24,1991.

Main Objectives of New Economic Policy – 1991, July 24

1. The main objective was to plunge Indian Economy in to the

arena of ‘Globalization and to give it a new thrust on market
orientation.
2. The NEP intended to bring down the rate of inflation
3. It intended to move towards higher economic growth rate
and to build sufficient foreign exchange reserves.

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Main Objectives of New Economic Policy – 1991, July 24:
4. It wanted to achieve economic stabilization and to convert
the economy into a market economy by removing all kinds of
un-necessary restrictions.
5. It wanted to permit the international flow of goods, services,
capital, human resources and technology, without many
restrictions.
6. It wanted to increase the participation of private players in
the all sectors of the economy. That is why the reserved
numbers of sectors for government were reduced. As of now
this number is just 2.

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 Due to various controls, the economy became defective. The
entrepreneurs were unwilling to establish new industries (
because laws like MRTP Act 1969 de-motivated entrepreneurs).
Corruption, undue delays and inefficiency risen due to these
controls. Rate of economic growth of the economy came down.
So in such a scenario economic reforms were introduced to
reduce the restrictions imposed on the economy.

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 Liberalisation means removing all unnecessary control and
restrictions like permits licences, protectionist duties quotas etc.

To expand size of the market

To increase competition among domestic industries
To encourage export and import of goods and services.
To decrease debt burden of the country

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 Economic reforms under Liberalisation
1. Industrial sector reforms:
Abolition of Industrial Licensing
Contraction off Public Sector
Freedom to Import capital goods
2. Financial sector reforms:
Reducing various Ratios(SLR, CRR)
Change in role of RBI from regulator to facilitator
De-regulation of interest rates
3. Fiscal reforms/Tax reforms
4. Foreign exchange reforms
Devaluation of rupee
5. Trade and investment reforms.

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 Economic reforms under Liberalisation
1. Industrial sector reforms:
Abolition of Industrial Licensing
Contraction off Public Sector
Freedom to Import capital goods
2. Financial sector reforms:
Reducing various Ratios(SLR, CRR)
Change in role of RBI from regulator to facilitator
De-regulation of interest rates
3. Fiscal reforms/Tax reforms
4. Foreign exchange reforms
Devaluation of rupee
5. Trade and investment reforms.

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 Privatisation is the general process of involving the private
sector in the ownership or operation of a state owned
enterprises. Policies adopted for privatization
1. Contraction of public sector.
2. Abolish the ownership of Govt. in the management of public
enterprises.
3. Sale of shares of public enterprises.

Objectives of Privatisation:-
1. Raising funds from Disinvestment
2. Improving the financial condition of the govt.
3. Bringing healthy competition within an economy
4. Making Way for Foreign Direct Investment

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 Globalisation may be defined as a process associated with
increasing openness, growing economic interdependence and
deepening economic integration in the world economy.

Policy promoting Globalisation.

1. Increase in equity limit of foreign investment.
2. Partial convertibility.
3. Long term trade policy.
4. Reduction in tariff.

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 1. Increase in foreign investment.
2. Increase in foreign exchange reserves.
3. A check of inflation.
4. Increase in national income.
5. Increase in exports.
6. Consumer independence.

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