NEW ECONOMIC POLICY 1991

NEW ECONOMIC POLICY 1991PROF.V.R.KISHORE KUMARM.A., MPhil(Int. Eco.)

1NEW ECONOMIC POLICY1991OBJECTIVESTO pull the country out of economic crisisAccelerating the rate of growth

2Reasons for NEPFiscal deficit was 5.4% of GDP in 1981-82 which rose up to 8.4% in the year 1990-91.In 1991,amount of interest liabilities rose further to 36.4% of total governmental expenditure.Country was moving towards debt trap.Mounting adverse BOP3Fall in foreign exchange reservesRaise in pricesPoor performance of public sector undertakingsFirst Gulf war caused spike in oil prices which caused a major balance of payment crisis for India.4Fiscal ImbalanceFiscal situation has detoriated due to growing burden of non-development expenditure. Indicators of fiscal imbalance reflect that throughout the eighties it was on the rise. Indicators like budgetary deficit, revenue deficit and gross fiscal deficit.

Fiscal imbalance in % share of GDP1981-821990-91Budgetary deficit0.92.1Gross Fiscal Deficit5.46.6Revenue Deficit0.23.3Internal Debt of Government3549.8Interests payments as % share of GDP1980-811990-91Interests Payments23.8Central Government Expenditure1022Frigile Balance of PaymentsThe BOP situation was highly precarious in 1991. But this was not unexpected.The balance of payment was on the brink of disaster as in mid-January 1991 and again in late June 1991.

The level of foreign exchange reserves dropped to levels which are not sufficient to finance imports of even ten days.

1980-811990-91BOPAmount in$ Billion% GDPAmount in$ Billion% GDPThe Current account Deficit2.11.359.73.69External Debt1223India asked for $1.8 Billion bailout loan from IMF, in return IMF instead reformsThis New Economic Policy was inaugurated by

SAILENT FEATURES LIBERALIZATION PRIVATIZATON GLOBALIZATION

12LIBERALIZATIONLiberalization means minimizing the government role and giving freedom to the industries.In pre-reform period there are number of restrictions and controls on industry. In the new economic policy , several types of controls like licensing, price controls and financial controls have been removed.13The controls on economic activity lead to corruption, undue delays and inefficiency of public sector organizations.New economic policy made a bid to reduce restrictions on economy (based on market economy).

14Abolition of licensing, Dereservation of production areas, expansion of production quantity, freedom to import capital goodsEx : MRTP Act1969, competition Act 2002,2007)

Industrial SectorEconomic reforms under15Financial Sector Role of RBI shifted from a regulator to a facilitator, FII (Foreign Institutional Investments) allowed to invest in India, domestic and international banks emerged.

16Fiscal Reforms

Tax reforms like lowering tax revenueBroadening of the tax base Reducing the loopholes with expected rise tax ratioDeliberate reduction in customs duties etc.,Efforts to ensure VAT

17Foreign exchange reforms(viz., Rupee convertibility). Foreign trade policy reforms like free exports and imports, rationalisation of tariff structures, decentralization, convertibility of rupee on current account ,trading houses and SEZs etc.

External Sector18

PRIVATIZATION19PRIVATIZATION is the general process of involving the private sector in the ownership, operations of state owned enterprise.Privatization is having two dimensions like Outright sale of government enterprise,Withdrawal of govt., ownership and management from mixed enterprise.

Why Privatization ?Statement In New Industrial Policy 1991: After initial exuberance of the public sector entering new areas of industrial and technical competence, a number of problems have begun to manifest themselves in many of the public enterprise . Serious problems are observed in the insufficient growth in productivity, poor project managementover manning, lack of continuous technological up gradation, and inadequate attention to R&D and human resource development. In addition, public enterprises have shown a very low rate of return on the capital investments. This has inhibited their ability to regenerate themselves in terms of new investments as well as in technology development. The result is that many of the public enterprises have become a burden rather than being an asset to govt..For purpose of privatization government has adopted the route of disinvestment which involves the sale of the public sector equity to the private sector and the public at large

The ownership of public sector units(PSU) is being gradually sold off to private entrepreneurs.

Gains from privatization :

2324Losses due to privatizationSelf interest supersede social interestCorruptionProfit oriented Weaker section suffersUnemploymentPublic sector monopoly was replaced by private monopoly25GLOBALIZATIONGLOBALIZATION process associated with increasing openness growing economic interdependence and deepening integration in the world economy.Unrestricted flow of goods and services, technology and enterprise among different countries in the world.

26 POLICY STRATAGIES PROMOTING GLOBALIZATIONIncrease in equity limit of foreign investmentPartial convertibility and full convertibility of rupeeLong term trade policy( new trade policy1991)Reduction in tariffs (export import tariffs and restrictions)

27Positive impact of New Economic PolicyEconomic activities has picked up and the growth rate of GDP has shown an impressive increase.Stimulated industrial productionSignificant increase in govt., revenues and subsequent decrease in fiscal deficit

28Greater flow of goods and services checked inflation rate.Consumers sovereignty has widened.Substantial increase in forex reserves.Flow of pvt., foreign investment increased.India has been recognized as emerging super power.Monopoly markets has been converted in to competitive markets.

29NEGATIVE IMPACT OF NEPAgriculture is totally neglected Concentration of growth process in urban areasResulting in to economic colonismConsumerism has been increasedLopsided growth processCultural erosion

30REFERENCESINDIAN ECONOMY --- DUTT AND SUNDARAMINDIAN ECONOMY --- MISHRA AND PURIECONOMIC ENVIORNMENT OF BUSINESS MISHRA AND PURI

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