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    Nep 1991

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    Ayushi Mishra
    The New Economic Policy of 1991 was introduced in India to liberalize, privatize, and globalize the economy after a foreign exchange crisis. It opened the Indian economy to global trade and investment while reducing licensing requirements and privatizing state-run industries. The goals were to accelerate economic growth, reduce inflation and deficits, and overcome the crisis by integrating India into the global economy through trade reforms and foreign investment.

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    Nep 1991

    Uploaded by

    Ayushi Mishra
    41 views3 pages
    The New Economic Policy of 1991 was introduced in India to liberalize, privatize, and globalize the economy after a foreign exchange crisis. It opened the Indian economy to global trade and investment while reducing licensing requirements and privatizing state-run industries. The goals were to accelerate economic growth, reduce inflation and deficits, and overcome the crisis by integrating India into the global economy through trade reforms and foreign investment.

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    NEP 1991

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    The New Economic Policy of 1991 was introduced in India to liberalize, privatize, and globalize the economy after a foreign exchange crisis. It opened the Indian economy to global trade and investment while reducing licensing requirements and privatizing state-run industries. The goals were to accelerate economic growth, reduce inflation and deficits, and overcome the crisis by integrating India into the global economy through trade reforms and foreign investment.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    41 views3 pages

    Nep 1991

    Uploaded by

    Ayushi Mishra
    The New Economic Policy of 1991 was introduced in India to liberalize, privatize, and globalize the economy after a foreign exchange crisis. It opened the Indian economy to global trade and investment while reducing licensing requirements and privatizing state-run industries. The goals were to accelerate economic growth, reduce inflation and deficits, and overcome the crisis by integrating India into the global economy through trade reforms and foreign investment.

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    New Economic Policy, 1991

    In the early 1990s, India faced a major crisis followed by a foreign exchange deficit, resulting in its
    economic downfall. To overcome the crisis, the government came up with adjustments to the economy
    by bringing new reforms. The reforms introduced were called ‘structural reforms’ and launched under
    the ‘New Economic Policy (NEP)’. The New Economic Policy was introduced in 1991 under the
    leadership of P. V. Narasimha Rao. It refers to the economic activities of the government and includes
    various policy and structural preform methods like stabilisation measures to control inflation and correct
    BoP (Balance of Payment), improving the efficiency of the economy, and increasing international
    competitiveness.

    Objectives of the New Economic Policy, 1991


    1. The main objective of the NEP was to open the Indian economy into the Globalisation arena and
    provide a new direction to the Indian market. 

    2. The NEP focused on reducing the rate of inflation and building up foreign exchange reserves to
    accelerate the economic growth of the country.

    3. The NEP aimed at increasing the participation of the private sector in economic growth by
    reducing the number of sectors reserved for the government.

    4. The NEP was intended at permitting a global movement of goods and services, capital, human
    resources, and technology by reducing trade restrictions.

    5. The NEP aimed at attaining economic stability and an economic market by eliminating all the
    unessential trade and tariff restrictions.

    Components of the New Economic Policy, 1991


    The New Economic Policy has been divided into three broad concepts that are: Liberalisation,
    Privatisation, and Globalisation, or the LPG Model. The LPG Model was introduced to replace the LQP
    Model, i.e., Licensing, Quotas, and Permits. The main aim of introducing the reforms was to attain a high
    rate of economic growth, reduce the rate of inflation, reduce the fiscal deficit, and overcome the BoP
    (Balance of Payment) crisis.

    Liberalisation
    Liberalisation of the economy is considered a key component of NEP. Before the New Economic Policy of
    1991, the private sector was in control of the government. Because of this, the domestic industries were
    not allowed to take any decisions regarding the industry's work without the government's interference.
    This resulted in a fall in professionalism and inefficiency of work within the industry. With the
    introduction of the liberalisation policy, this sector gained the freedom of decision-making without any
    interference from the government.

    The government also decided to abolish the licensing system. Before 1991, a business needed to get a
    license from the government to start any industrial activity. This resulted in a delay in getting a license,
    as there was a long queue of people before the window of the government department, seeking
    authorisation to get a license. This also resulted in corruption as the officers started taking bribes to
    make the process faster. To end this, the government abolished the licensing system and permitted
    individuals to start their industrial activities without any permission (however permission is still required
    in industries, such as medicine, defense equipment, etc.).

    Privatisation
    Privatisation refers to the partial or full ownership and operation of the public sector enterprises by the
    private sector. It implies the withdrawal of government ownership from the public sector. It can be done
    in two ways:

    i) Outright sale of part of the equity of Public Sector Undertakings (PSUs) to private entrepreneurs (also
    known as Disinvestment), or
    ii) Withdrawal of ownership and management of the public sector companies from the government to
    the private sector.

    The need for privatisation was felt mainly because of the poor performance of the Public Sector
    Undertakings, and PSUs. As a result, the consumers were facing a major loss, as they did not receive
    quality products, and other services, such as the delivery system were also very poor. With the
    introduction of the privatisation policy, this factor was eliminated.

    Globalisation
    Globalisation refers to the integration of the economy of a country with the economies of other
    countries. The process of globalisation is associated with the free flow of trade, capital across borders,
    increasing openness, growing economic independence, and deepening economic integration in the
    world. The main aim of globalisation was to integrate the Indian economy with the global economy. As a
    result, there will be an unrestricted flow of information, goods and services, technologies, and even
    people across countries, which will eventually enhance the development of the country. The
    government allowed foreign companies to hold 51 percent or more shares of the Indian companies in
    the case of collaboration so that they can function freely and as the owner. This also promoted the
    transfer of the latest technologies into Indian territory due to collaboration with MNCs. The reduction of
    the tariff and non-tariff barriers, adoption of policies to promote exports, increase in Foreign
    Investments, increase of foreign currency in the country (Forex), growth of the IT industry in India, and
    several other features came under the globalisation policy.

    Measures of the LPG Policy


    1. Due to the Liberalisation of the economy, the market got opened up to more foreign
    investments and import and export of goods.

    2. The Liberalisation Policy helped in reducing the dependence on foreign loans and expand the
    banking sectors and capital markets.

    3. Privatisation Policy helped in opening up the industries, that were reserved for the public sector,
    to the private sector. 
    4. The Privatisation Policy helped in reducing the monopolies of the government by increasing
    competition. 

    5. The Privatisation of PSUs resulted in the promotion of efficient and improved quality of goods
    and services for the consumers.

    6. The Globalisation Policy helped in opening the local market to the global market which helped
    India in connecting with the global financial markets.

    7. It helped in opening up the economy to foreign direct investment and reducing international
    trade restrictions.

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