New Economic Policy 1991
The New Economic Policy of India was established in the year 1991 under the supervision of P. V. Narasimha Rao. After the achievement of independence, it was realized that for the accomplishment of growth and a self-productive economy in a few decades, which other countries have achieved over the centuries, it is essential to formulate a strategy for economic development. To achieve this goal, the era of industrialization has started on a large scale in our country, for which proper technology, socio-economic policy, freedom of planning and development programs were started.
Therefore, the role of the public sector was considered necessary. While supporting the liberal policy of trade, India considered the mixed economy, public sector and socialist way of society as a panacea for all economic evils. Simultaneously, economic planning was started to rebuild the economy.
In short, we can say that the five decades of economic planning have seen a mixed form of defeat and success. It was felt that despite great progress in many areas all was not well in terms of the development of the public sector. There was an overload of controls in the sphere of the private sector.
The situation of foreign exchange reserves to provide finance for imports was also not good. Non-residents of India accounts were being withdrawn and new credit facilities were not available. Inflation was taking a terrible form and industrial growth was decelerating.
The first injury to the U.S.S.R. (U.S.S.R.). The euphoria of socialism was changing in favour of a ‘free market economy. Thus, taking into account many factors, such as a considerable fall in exchange rates, a deficit in the balance of payments, rapidly increasing inflationary trend, continuous increase in the deficit finance system, and widespread political instability, have made everyone adopt the policy of new economic reforms. inspired to build.
To free the economy from the clasps of crises and to bring it on the way to rapid development, the Indian government made significant changes in its policy related to trade, foreign investment, industry, exchange rate, fiscal matters, etc. If the varied components are taken together, then such an economic policy is formed which says goodbye to the first policy.
Since July 1991, when the rupee depreciated, the Indian government has announced many new policies in the form of ‘New Economic Reforms’. Although these economic reforms are related to different sectors of the economy, they all share a common sense of prosperity of the economy.
Meaning of New Economic Policy 1991
According to C. Rangarajan, “The New Economic Policy includes diverse policy measures and changes introduced from the year 1991”. All these measures have the same spirit. The purpose is simple and it is to improve the efficiency of the mechanism involving multiple controls, reduce competition in the private sector and improve the scattered capacity.
The new economic policy tried to bring a more competitive environment to the economy so that the efficiency and productivity of the system should be improved. Therefore, to achieve the goals of the new economic policy, necessary reforms were made in trade policy, industrial policy, monetary policy and fiscal policy.
Phases of Economic Reforms
(i) First Phase (1985-90)
The process of privatization was formed in the government of Mr Morarji Desai and started during the government of Mrs Indira Gandhi and continued till the government of Mrs Indira Gandhi. But this process achieved speed during the control of Shri Rajiv Gandhi.
Shri Rajiv Gandhi drafted new trends in the economic policy of the government. It suggested that the incorporation of modern techniques, productivity improvement, and complete utilization of potential must necessarily get the status of a national campaign.
The new economic policy focused more on the role of the private sector. Shri Rajiv Gandhi clearly said, “The public sector has extended in many directions where it should not have spread. We will develop our public sector to do what the private sector is unable to do. But we would like to expand the private sector more so that through its expansion the economy can progress more freely”.
To encourage the private sector, many changes were made in the policy, which is related to the following matters – export-import policy, technological advancement, fiscal policy, industrial license, abolition of controls, and restrictions, capital of foreign share, fiscal and administrative rationalizing and simplifying the system of regulation.
All these changes were aimed toward the private sector deserted environment so that investment in the private sector would increase on a large scale, which would modernize the economy and lead to rapid growth.
KN Raj rightly summed up the goal of economic policy, Although there is general agreement that a special feature of these policy changes was the tightening of monetary policy by raising interest rates, Rs. The exchange rate of K was coordinated by 22 per cent and major liberalization and simplification of trade policy were announced.
More focus was on increasing the efficiency and effectiveness of international competition & industrial production so that foreign technology & investment can be used in greater quantity than ever before, which will enhance the performance of the public sector and rationalize its reform, possibilities, and modernization of the financial sector. It would have been able to meet the needs of the economy more effectively and efficiently.
Similarly, the New Economic Policy introduced the disposal of unnecessary restrictions in the issuance of licenses and MRTP. Focused on not providing industrial licenses to companies. It should try to coordinate production with governed values.
India initiated several measures in the following manner
Cement was fully deregulated and many private companies were given additional licensed capacities.
The percentage of free sales of sugar in the open market was increased.
The asset limit of large business houses was increased from Rs 20 crore to Rs 100 crore.
3. Asset Limit
The asset limit of large business houses was increased from Rs 20 crore to Rs 100 crore.
The scheme of broad banding of licenses was introduced to diversify the production of two-wheelers. This was again expanded to 25 other categories of industries such as four-wheelers.
94 drugs were totally delicensed. Apart from this, MRTP to 27 industries outside the purview of the Act.
With the introduction of the New Textile Policy of 1985, the distinction between power loom, mill, and handloom has been removed and the distinction between synthetic and natural fibres for licensing works has been eliminated.
MRTP to the industry of electrical materials was exempted from the Act, and the entry of FERA businesses into these areas was liberalized.
8. Foreign Trade
The export and import policy was announced in the year 1985, to make imports easy and fast, strengthen the export production base, and facilitate technological progress.
9. The long-term fiscal policy was announced in the year1985 for proper implementation of the Seventh Plan.
(ii) Second Phase (After 1990)
The first stage of economic reforms did not produce the desired results. The deficit in the balance of trade account increased negligibly and thus the average deficit in the balance of trade in the Sixth Plan was Rs 5,935 crore which raised to Rs 10,841 crore during the Seventh Plan.
Receipts in invisible accounts decreased at a substantial rate. Thus the country was captured in a serious crisis of balance of payments. To solve this problem, the Indian government has contacted the World Bank and IMF. To provide a loan of Rs.87 billion.
IMF agreed to provide a loan facility but it expressed its desire that India should bring its economy on the right track. Dr Manmohan expressed his commitment to the Director of the IMF that the Indian government would provide certain macro-economic goals along with policy measures that would bring peace to the structure of the economy.
From the year 1991, the government of Narasimha Rao took many steps to bring the economy on the right track. These measures include – contraction of monetary policy by synchronizing the exchange rate of the rupee to 22 per cent, raising the interest rate, reducing the fiscal deficit, liberalization of foreign trade policy, and bringing other reforms in the policy which will help in the economic growth of the country. It is important to introduce a new element of dynamism in the process.
The then Finance Minister Manmohan Singh said that “Emphasis will be laid on increasing the efficiency of work and increasing the international competition in industrial production so that foreign technology and investment can be used more to improve the performance of the public sector, rationalize, reform and modernize the financial sector to more efficiently meet the needs of the economy”.
Policy Measures of Second Phase
The following are the main macro-economic objectives of economic reforms in India (second position):
(a) achieving a rate of economic growth between 3 per cent and 35 per cent in 1991-92 and 4 per cent in 1992-93,
(b) to reduce the rate of inflation to 9 per cent in the year 1991-92 and to 6 per cent in the year 1992-93,
(c) to take the foreign exchange reserves to $2.2 billion in 1991-92 by improving the grim balance of payments situation,
(d) to reduce the current account deficit to 2.5 per cent of the total domestic product in the budget for 1990-91 and to 20 per cent by 1992-93.
Arguments in favour of New Economic Reforms
From the year 1991, the Indian government started new economic reforms in the country.
The arguments in favour of these reforms were as follows:
(i) The new economic reforms will help in achieving the desired growth rate of 8 per cent which is similar to the growth rates of other Asian countries like Malaysia, Hong Kong, Singapore, South Korea, etc.
(ii) New economic reforms will help achieve increasing competition in its industrial sector.
(iii) Equal distribution of income and wealth will help in reducing the extent of poverty.
(iv) New economic reforms aim to increase the efficiency and profitability of the public sector enterprises.
(v) It will help in the promotion of investment in important sectors.
(vi) It will help increase the development of small-scale industries in the backward areas of the country.
(vii) It will prove beneficial in attracting direct foreign investment into the country.
(viii) New economic reforms will help correct the increasing imbalance in the balance of payments. Apart from this, it is also beneficial for increasing exports and discouraging imports, which will increase the reserves of foreign exchange.
(ix) The use of new economic policy will check the inflationary tendencies by controlling the deficit economy. By controlling public expenditure, better supply management will be made available.
(x) This policy can be used to rectify the faulty coordination in the economy.
(xi) The New Economic Policy keeps several measures to contain the fiscal deficit in the budget.
Arguments against New Economic Reforms
Despite many excellencies in the new economic reforms, some arguments have been given against them as well, which are described below:
(i) The new economic reforms have neglected the agriculture sector.
(ii) New economic reforms permitted the Indian economy to become a part of global institutions such as IMF and then handed it over to World Bank.
(iii) New economic reforms have increased dependency on foreign technology and have failed to produce domestic technologies.
(iv) New economic reforms have increased dependency on foreign aid and investment. This will extremely increase the external debt.
(v) This policy can sell the liberation of the country. With this, all the shares of Indian businesses will be sold to foreign investors.
(vi) New economic reforms will significantly increase the problem of unemployment because there will be a layoff of employees from big industries. In addition, the new economic policy does not provide employment opportunities in the country.
(vii) New economic reforms put more focus on the privatization of public enterprises.
(viii) New economic reforms create a destructive trend of consumerism.
As a result, the production of goods for the use of the elite class gets encouragement and the production of luxury goods.
(ix) It is felt that the new economic policy will not be able to check the rising trend of prices, and will also not be successful in controlling financial aid, reducing the fiscal deficit, and preventing other evils.