New Industrial Policy. ... It Is An Encompassing Policy Containing 50

New Industrial Policy. ...
It is an encompassing policy containing 50
integrated policy actions, that focuses on industrial transformation, especially
towards more sustainable production, and on fostering economic and social
transformations in order to remain (or become more) competitive in the future.
There are three major components or elements of new economic policy-
 Liberalisation,
 Privatisation,
 Globalisation
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.
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
The main objectives behind the launching of the New Economic policy (NEP)
in 1991 by the union Finance Minister Dr. Manmohan Singh are stated as
follows:
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.
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.
Beginning with mid-1991, the govt. has made some radical changes in its policies
related to foreign trade, Foreign Direct Investment, exchange rate, industry, fiscal
discipline etc. The various elements, when put together, constitute an economic
policy which marks a big departure from what has gone before.
The thrust of the New Economic Policy has been towards creating a more

competitive environment in the economy as a means to improving the
productivity and efficiency of the system. This was to be achieved by removing
the barriers to entry and the restrictions on the growth of firms.
List of all Five Year Plans of India
Main Measures Adopted in the New Economic Policy
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.
Following steps were taken under the Liberaliation

measure:
(i) Free determination of interest rate by the commercial Banks:
Under the policy of liberalisation interest rate of the banking system will not be
determined by RBI rather all commercial Banks are independent to determine the
rate of interest.
(ii) Increase in the investment limit for the Small Scale Industries (SSIs):
Investment limit of the small scale industries has been raised to Rs. 1 crore. So
these companies can upgrade their machinery and improve their efficiency.
(iii) Freedom to import capital goods:

Indian industries will be free to buy machines and raw materials from foreign
countries to do their holistic development.
(v) Freedom for expansion and production to Industries:

In this new liberalized era now the Industries are free to diversify their production
capacities and reduce the cost of production. Earlier government used to fix the
maximum limit of production capacity. No industry could produce beyond that
limit. Now the industries are free to decide their production by their own on the
basis of the requirement of the markets.
(vi) Abolition of Restrictive Trade Practices:
According to Monopolies and Restrictive Trade Practices (MRTP) Act
1969, all those companies having assets worth Rs. 100 crore or more were called
MRTP firms and were subjected to several restrictions. Now these firms have not
to obtain prior approval of the Govt. for taking investment decision. Now MRTP
Act is replaced by the competition Act, 2002.
Cess: Meaning and Types in India

1. Liberalisation
Removal of Industrial Licensing and Registration:
Previously private sector had to obtain license from Govt. for starting a new
venture. In this policy private sector has been freed from licensing and other
restrictions.
Industries licensing is necessary for following industries:

(i) Liquor
(ii) Cigarette
(iii) Defence equipment
(iv) Industrial explosives
(v) Drugs
(vi) Hazardous chemicals
2. Privatisation:
Simply speaking, privatisation means permitting the private sector to set up
industries which were previously reserved for the public sector. Under this policy
many PSU’s were sold to private sector. Literally speaking, privatisation is the
process of involving the private sector-in the ownership of Public Sector Units
(PSU’s).
The main reason for privatisation was in currency of PSU’s are running in losses
due to political interference. The managers cannot work independently. Production
capacity remained under-utilized. To increase competition and efficiency
privatisation of PSUs was inevitable.
Step taken for Privatisation:
The following steps are taken for privatisation:
1. Sale of shares of PSUs:
Indian Govt. started selling shares of PSU’s to public and financial institution e.g.
Govt. sold shares of Maruti Udyog Ltd. Now the private sector will acquire
ownership of these PSU’s. The share of private sector has increased from 45% to
55%.
2. Disinvestment in PSU’s:
The Govt. has started the process of disinvestment in those PSU’s which had been
running into loss. It means that Govt. has been selling out these industries to
private sector. Govt. has sold enterprises worth Rs. 30,000 crores to the private
sector.
3. Minimisation of Public Sector:

Previously Public sector was given the importance with a view to help in
industralisation and removal of poverty. But these PSU’s could not able to achieve
this objective and policy of contraction of PSU’s was followed under new
economic reforms. Number of industries reserved for public sector was reduces
from 17 to 2.
(a) Railway operations
(b) Atomic energy
Indian Economy: A Complete Study Material

4. Globalization:
Literally speaking Globalisation means to make Global or worldwide, otherwise
taking into consideration the whole world. Broadly speaking, Globalisation means
the interaction of the domestic economy with the rest of the world with regard to
foreign investment, trade, production and financial matters.
Steps taken for Globalisation:
Following steps are taken for Globalisation:
(i) Reduction in tariffs:

Custom duties and tariffs imposed on imports and exports are reduced gradually
just to make India economy attractive to the global investors.
(ii) Long term Trade Policy:

Forcing trade policy was enforced for longer duration.
Main features of the policy are:

(a) Liberal policy
(b) All controls on foreign trade have been removed
(c) Open competition has been encouraged.
(iii) Partial Convertibility of Indian currency:

Partial convertibility can be defined as to convert Indian currency (up to specific
extent) in the currency of other countries. So that the flow of foreign investment in
terms of Foreign Institutional Investment (FII) and foreign Direct Investment
(FDI).
This convertibility stood valid for following
transaction:
(a) Remittances to meet family expenses
(b) Payment of interest
(c) Import and export of goods and services.
(iv) Increase in Equity Limit of Foreign Investment:

Equity limit of foreign capital investment has been raised from 40% to 100%
percent. In 47 high priority industries foreign direct investment (FDI) to the extent
of 100% will be allowed without any restriction. In this regard Foreign Exchange
Management Act (FEMA) will be enforced.
If the Indian economy is shining at the world map currently, its sole attribution
goes to the implementation of the New Economic Policy in 1991.
Abolition of phased manufacturing programs

The government abolished the phased manufacturing programs and devalued
currency to increase the foreign direct investment. The government liberalised the
local content requirement for the indigenous industries.

New Industrial Policy. ... It Is An Encompassing Policy Containing 50

Uploaded by

Copyright:

Available Formats

New Industrial Policy. ... It Is An Encompassing Policy Containing 50

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

New Industrial Policy. ... It Is An Encompassing Policy Containing 50

Uploaded by

Copyright:

Available Formats

New Industrial Policy. ...

New Economic Policy refers to economic liberalisation or relaxation in the import

Main Objectives of New Economic Policy – 1991, July

The thrust of the New Economic Policy has been towards creating a more

Following steps were taken under the Liberaliation

(iii) Freedom to import capital goods:

(v) Freedom for expansion and production to Industries:

Cess: Meaning and Types in India

Industries licensing is necessary for following industries:

3. Minimisation of Public Sector:

Indian Economy: A Complete Study Material

(i) Reduction in tariffs:

(ii) Long term Trade Policy:

Main features of the policy are:

(iii) Partial Convertibility of Indian currency:

(iv) Increase in Equity Limit of Foreign Investment:

Abolition of phased manufacturing programs

You might also like