New Economic Policy. Introduction : Before 1991, economic development of the country was due to the public sector. But it is realized that public sector was insufficient due to red- tapism , bureaucratic, lack of initiative etc. which result into economic crises.
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Before 1991, economic development of the country was due to the public sector. But it is realized that public sector was insufficient due to red- tapism, bureaucratic, lack of initiative etc. which result into economic crises.
In July 1991, New economic policy was announced to get the country out of the crises. In this policy main emphasis was on the liberalization, privatization & globalization.
New economic policy refers to various policy measures & changes undertaken since 1991 to increase productivity & growth of economy.
Privatization means allowing private sector to set up industry in the sector which are earlier reserved for public sector. The existing enterprises of private sector are partially or fully sold to private sector. Following measure are adopted through privatization :
Globalization means linking the economy of the country with the global economy by free trade, free mobility of capital & goods etc. it also means inviting multinational corporation to invest in India. Measure adopted through globalization are as follows:
Fiscal reforms means increasing the revenue receipts & reducing the public expenditure of the govt. the main aim was to reduce the fiscal deficit which stood at 8.5% of GDP in 1991. Measure adopted are as follows:-
Financial reforms relate to reform in country’s monetary & banking system. Following reforms were introduced :
New industrial policy of 1991
New foreign trade policy
New fiscal policy
New monetary policy
The objective of this policy is to liberalize the foreign trade from various restrictions. Following provision has been taken
Investment limit for foreign investment has been increased.
Procedure for foreign trade are simplified.
Special economic zones are set up to promote export.
Custom duties & traffic are lowered.
Import of technology is increased.
New Economic policy has introduced various fiscal reforms to control inflation & public expenditure etc. following are taken :
Reduction of subsidies.
Reduction in dependence on external borrowing.
To decrease non plan expenditure.
To improve the basis infrastructure in economy.
To disinvest in loss making public sector undertaking.
To increase the tax revenue of the govt.
Monetary policy refers to steps taken to regulate the cost & supply of money & credit to achieve socio economy objective of the economy. Monetary policy influence the supply of money, cost of the money & availability of money. Following measure has been taken
Reduction in SLR & CRR.
Reconstruction of banking system.
Liberal treatment to foreign banks.