NEW ECONOMIC POLICY-1991

 Prepared by:

Supreti Tyagi
 Economic Background
 1948 - 1956.
 Public sector dominance.
 Limited private participation.

 1956-1980.
 Industry classification.
 Industrial licensing policy.
 Economic background
(cont..)
 1980 – 1991.
 Growth rate of 5.4 percent per
annum.
 Limited liberalization measures were
initiated.
 Steps were taken to modernize some
of the most important industries,
such as cement, steel, aluminum and
power generation equipment.
 Cause of the Crisis-1990

 From 1950 to 1980, the Indian

economy grew at a slow rate of 3.6
percent.

 This gave rise to foreign borrowing

on a small scale.

 The result was increase in foreign

debt and repayment liability.
 Cause of the Crisis-1990
(cont..)
 Foreign debt increased from US$23.5
billion in 1980 to $63.40 billion in
1991.

 Nearly 28% of total export revenue

went to service the debt.

 Lead to Fiscal deficit (expenditure

exceeds the revenue)
 Cause of the Crisis-1990
(cont..)

 Reasons of fiscal deficit

Exorbitant expenditures were
incurred by the central government's
subsidies.
The inefficient functioning of many of
the central and state public sector
enterprises.
 Cause of the Crisis-1990
(cont..)

 The multilateral agencies such as IMF

and the World Bank insisted that the
policymakers undertake structural
reforms.

 Internal debt liability increased to

53% of GDP.
 Features of the new policy
 Liberalization.
 Integration with world economy with.
dismantling of tariff wall.
 Protection of foreign direct
investment.
 upgrading the technology of
production.
 Financial stability.
 Outward looking policies.

Components of New Economic
policy

 Short term (immediate stabilization)

 Correcting the disequilibrium in foreign

exchange market through demand
reduction.
 Reform in trade policy
 Reduction in fiscal deficit
 Dismantling of barrier to free flow of
Components of New Economic
policy (cont..)
 Medium term structural adjustment:
 Exchange rate.
 Trade and industrial policy.

 Policies concerning the public sector.

 financial sector.

 Capital market.

(deregulation of prices and investment,

change in structure of taxation & public
expenditure, privatization of public
enterprise).
 Outcome of New Economic
policy

 Liberalization

 Privatization

 Globalization
 Liberalization
 Except the six industries , all other kinds
of industrial license have been
abolished.

 Amendment in MRTP act.

 Privatization
 Disinvestment
 selling of govt. equity, partially or

wholly, to private parties.

 Mergers

 acquisition
 Globalization
 Free flow of technology
 Free movement of labor capital among
different countries.
 Reduction in trade barriers.
 Outsourcing
Impact on industrial sector
 Multinational products was
dominating local industrial
production.
 Shortage of electricity and other
essential raw materials adversely
affect the quality of goods.
 India lifted all control & quota
restriction on export but America is
not ready to except the import.
 Effect of new economic policy
(positive)
 Increase in GDP growth rate
 Increase in foreign direct investment
 Increase in foreign exchange
 Outsourcing
 Effect of new economic policy
(negative)
 Growing unemployment
 Neglect of agriculture
 Growing personal disparities
 Infrastructural inadequacies
 Wide spread poverty.
 Demonstration effect (luxury goods)