What Is The New Economic Policy 1991?

The Indian government introduced the new economic policy in 1991 as a major step toward economic reforms. The policy was designed to reduce restrictions on the economy and strengthen India’s position in the global economic scenario. The new economic policy was launched formally by finance minister Dr Manmohan Singh under the leadership of P.V. Narsimha Rao, the Prime Minister of India. It enacted the steps to increase the economic credibility of India in the global arena. The new economic policy of 1991 India focuses on building foreign exchange reserves, removing market restrictions, and increasing the exchange of goods, services, capital, human resources, and technology worldwide, thus encouraging the economy’s growth.

 The New Economic Policy 

The most significant aspect of this policy is the global exposure of India to the outer world, which was the most unique and effective step taken. New Economic Policy 1991 India brought economic liberalization to the country by opening the markets for private and foreign investors, encouraging imports, and reducing taxes to boost commercial activities with profitability. The new economic policy focused on removing obstacles in the path of economic growth and creating a more competitive environment with exposure to the global market. New Economic Policy 1991 India introduced changes related to foreign trade and investments, privatization in industry, and fiscal discipline. The various reforms constitute an economic policy in India that was a major departure from previous measures taken by the government.

The Main Features of New Economic Policy 

Before 1991, India observed limited economic growth due to various controls and restrictions on new ventures and the inflow of foreign goods and services. So an economic policy in India was necessary to bring major reforms that would remove the barriers to growth and boost the economy. The key features of the New Economic Policy 1991 India are mentioned as follows: 

• The policy emphasized liberalization and privatization, allowing global exposure.
• The new economic policy recommended structural reforms and measures to control inflation. 
• The policy focused on increasing international market competitiveness by allowing the entry of foreign companies. 
• The policy reduced control and reservation by the government in different sectors and allowed more participation of private companies to help in growth and profitability.

Steps Taken in the New Economic Policy 

The main outcome of the measures taken in this policy can be observed in achieving three major milestones: privatization, liberalization, and globalization. These are discussed as follows:

Privatisation:

A major step was to allow private enterprises to set up industries and businesses in previously reserved sectors and controlled by the government as the public sector. The main objective was to improve the efficiency of public sector companies that were suffering losses and stagnation due to the under-utilization of capacity and resources. 

The measures taken under the process of privatization are as follows:

• Selling shares of public sector units to allow more involvement of private companies.
• Disinvestment in public sector units that suffer losses and s8ell out to the private sector.
• Replacing most of the public sector ownership with private companies to help in industrial development and economic stability.

 Liberalisation

As a liberalization measure, the new economic policy abolished the practice of getting licenses by the private sector for starting a new venture in India. This allows more private companies to come forward to invest in the industrial sector.

The steps are taken in the New Economic Policy 1991 India that led to liberalizations of the economy is mentioned as follows:

• Free determination of interest rate by all commercial banks.
• Increase in the investment limit for the small-scale industries for the necessary upgrade.
• Freedom to import raw materials and capital goods by Indian industries.
• Diversification and increase in production capacity by private companies without any government restrictions.

Globalisation

Globalization refers to conscious moves towards establishing better interactions with other countries of the world, thus making a presence in the global scenario. Globalization means the exposure and involvement in the world’s economic landscape through contribution to trade, investment, production, technology, and financial matters with other countries.

The measures taken with the aim of globalization of the Indian economy are as follows:

• Reduction in import and export duties to attract more international investors and suppliers to the Indian market.
• Implementation of a long-term trade policy with reduced foreign trade restrictions that encourage healthy competition between domestic and foreign products with competitive pricing.
• Partial convertibility of the Indian currency to the currency of other countries to increase the extent of foreign investment.

Conclusion

The New Economic Policy 1991 India was envisioned with a long-term goal of controlling corruption, inefficiency, and stagnation in growth. The economy was in turmoil under the excessive regulations and controls by the government and inefficient functioning of public sector units. In such a situation, the new economic policy introduced various reforms that brought new and innovative ideas toward building a base for the Indian economy to stand strong in the global forum. The new economic policy aims to boost the economy growth with major developments and making India one of the leading economic powers in the world.

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