Economic Reforms 1991: New Economic Policy(NEP), Main Economic Reforms, Liberalization, Privatization, Globalization, Merits & Demerits of Economic reforms

2. Introduction:
July 1991,India has taken a series of
measures to structure the economy and
improve the BOP position. The new
economic policy introduced changes in
several areas.
The policy have salient feature which are:
-
1.Liberlisation (internal and external)
2.Extending Privatization
3.Globalisation of the economy
Which are known as “LPG”. (libearlisation,
privatisation, globalisation)
2

4. Meaning of Economic Reform:
 The term economic reform broadly
indicates necessary structural
adjustments to external events. It
include the function of country’s
spending to the level parallel to its
income and thereby reducing fiscal
deficits.
 This requires gradual reduction in
import and increase in export. These
adjustments also requires market
change in order to make economy
flexible.

6. New Economic policy:
 A new plan in action by the government
to influence production and capital
formation of a country is known as
NEP.
 NEP-New economic policy
 It was started in the year 1991.
 Major effects of NEP were done by
P.V.Narasimhan & Manmohan Singh.

7. Reasons for implementing NEP:
 There were poor performance of public
sector.
 The scope for private sector was
limited.
 There were sudden fall in Foreign
Exchange Reserves(FER).
 There were more expenditure than
incoming.
 International investors were not
encouraged by government.
 Tax notes were very high so people

8. Main Features Of Economic Reforms
ECONOMIC
REFORMS
LIBERALISATIO
N
PRIVATISATION
GLOBALISATIO
N

10. Liberalisation:
 Free from direct or physical control
by the government in the way of trade
is known as liberalisation.
 Before 1991 the were some controls
of Govt. they are:
 Industrial licensing system was a rigid
process.
 They were controlling the price.
 Import licensing.
 Restrictions on investment.

11. Economic reforms under Liberalization:
 There were four reforms under
liberalization:
 Industrial reforms
 Financial reforms
 Fiscal reforms
 External reforms

12.  Industrial reforms:
 Abolition of licensing except some products
like cigar etc.
 Contradiction to public sector i.e. number of
items produced by public sector were
reduced.
 Govt. given freedom to import capital.
 Dereservation of production units.
 Producer’s given freedom to what to produce
& how much to produce.

13.  Financial reforms:
 R.B.I was turned into felicilitator.
 Due to this dramatically change the
banking sector of the country had
expanded a lot.
 It also allowed Foreign Institutional
Investors(FII) to invest money in Indian
market.

14.  Fiscal reforms:
 It relates to total revenue and total
expenditure of government.
 Before liberalisation, the taxes were
very high & this encouraged tax evasion
by the people.
 After Liberalisation, taxes were
reduced.
 The procedure for paying taxes was
simplified.
 Non-planned expenditure by the Govt.
was reduced

15.  External reforms:
 Foreign exchange reserves:
 In 1991, Devaluation of rupee so by this
foreign countries can buy Indian good.
 This provided good flow of trade.
 At presently, exchange rate is determined
by supply & demand in international market.
 Foreign trade policy:
 Abolition of import licensing except for some
cases.
 Quantitative restrictions were removed.
 Tariff restrictions were moderated.
 Export duties has withdrawn.

16. Advantages of liberalization
 Industrial licensing
 Increase the foreign investment.
 Increase the foreign exchange
reserve.
 Increase in consumption and Control
over price.
 Check on corruption.
 Reduction in dependence on external
commercial borrowings
16

17. Disadvantages of Liberalization
 Increase in unemployment.
 Loss to domestic units.
 Increase dependence on foreign
nations
 Unbalanced development
17

19. Privatisation:
 Privatisation is defined as the
transfer of function, activity or
organization from the public
sector to private sector.
 Two ways for Privatisation:
1) Sale of public sector units to
private sector.
2) With drawl of public sector
units-joint.

20. Objectives ofPrivatisation
 To increase efficiency & competitive
power of the enterprises
 To strengthen industrial
management.
 To earn more & more Foreign
currency.
 To make optimum use of resources
 To achieve rapid industrial
development of the country.

21. Mesures Adopted For Privatisation
 Contraction of Public sector
 Disinvestment
 Sale of shares of public enterprises
 Increase in private sector
 Conversion of loans into shares is
not necessary
 Sick industries
 Memorandum of understanding

22. Advantages of Privatisation:
 Reduction in economic burden
 Increase in efficiency
 Reduction in sense of
irresponsibility
 Scientific Management
 Reduction in Political Interference
 Encouragement of new Inventions

23. Disadvantages of Privatization
 Industrial sickness.
 Lack of welfare.
 Class struggle.
 Increase in inequality
 Opposition by employees.
 Problem of financing.
 Increase in unemployment.
 Ignores the weaker sections.
 Ignores the national importance

24. Public sector reforms
The reforms introduced to support
public sector units are:
Introduction of some awards like:
 Navaratnas
E.g: BPCL,MTNL,Etc.
 Maharatnas
E.g: CIL, ONGC, Etc.
 Miniratnas
E.g: BSNL, ITDCL, Etc.

25. World Trade Organization:
 The World Trade
Organization (WTO) is a
large international organization to
regulate trade that was established
in 1995.
 As of 15 December, 2005, there
were 153 member countries. In the
WTO, agreements are made on
trade between countries.

26. Established: 1st January 1995.
Created by: Uruguay Round negotiations (1986-
94).
Budget: 185 million Swiss francs for 2008.
Secretariat staff: 625.
Head: Pascal Lamy (Director-General).
Membership: Countries on map. 153 countries (on
23 July 2008).
New member: Ukraine

27.  The primary aim of WTO is to implement the
new world trade agreement.
 To promote multilateral trade .
 To promote free trade by abolishing tariff &
non-tariff barriers.
 To enhance competitiveness among all trading
partners so as to benefit consumers.
 To increase the level of production &
productivity with a view to increase the level of
employment in the world.
 To expand & utilize world resources in the most
optimum manner.
 To improve the level of living for the global
population & speed up economic development of
the member nations.
 To take special steps for the development of

28. •Freer trade cuts the cost of living
•It gives consumers more choice, & a broader range of
qualities to choose from.
•Trade raises incomes.
•Trade stimulates economic growth, & that can be good
news for employment
•The basic principles make the system economically more
efficient, & they cut costs.
•The system allows disputes to be handled
constructively.
•A system based on rules rather than power makes life
easier for all.
Advantages of WTO:

29. Disadvantages of WTO
•The WTO dictates policy
•The WTO is for free trade at any cost
•The WTO destroys jobs, worsens poverty
•Small countries are powerless in the WTO
•Weaker countries are forced to join the WTO
•The WTO is the tool of powerful lobbies
•Non-tariff barriers
•Competition

31. Globalisation:
It is defined as a process associated
with increasing openness, growing
economic independence and Deeping
economic integration in the world
economy.
 Reduction of trade barriers
 Free flow of capital
 Free flow of technology
 Free movement of technology

32. Outsourcing:
 It is a system of hiring business
services from the outside world is
known as Outsourcing.
Advantages of outsourcing:
1) Easy availability of cheap labour
2) Reasonable degree of skill
3) Virgin market
4) Lack of competitive competitors
5) Cheap and abundant availability of raw
material
6) Revolutionary growth of I.T industry
in India

33. Positive Effects of Globalisation:
 Adoption of new & flexible production
methods.
 Reconstruction of production & Trade
patterns.
 Raise of Foreign capital.
 Qualitative improvement in the
country.
 Rise in the generation of employment.
 Rise in Banking and Foreign sector
efficiency.
 Increase in the technology.

34.  Loss of domestic industries
 Exploits Human resource
 Decline in income
 Unemployment
 Transfer of natural resources
 Lead to commercial and
political colonism
 Widening gap between rich
and poor
 Dominance of foreign
institutions 34

35. Positive Effects Of NEP:
 Impressive increase in growth rate of
GDP.
 I.T industry has achieved global
recognition.
 Increase in the Govt. revenue i.e.
increase in national income.
 Increase in foreign exchange reserves.
 Flow of private & foreign investment.
 Recognition of India as an emerging
power.
 Shift from monopoly market to
competitive market.
 Decline in poverty

36. Negative Effects Of NEP:
 Neglect to agriculture.
 Urban concentration of growth was
high but neglected rural.
 Preference for handicraft were low.
 There is cultural erosion in the
country.
 It is like economic colonization.