In response to the economic crisis, Narasimha Rao’s administration created the New Economic Policy in 1991. The components of NEP reflected a number of worldwide events, including the fall of the communist economy and the rising acceptance of global economic globalization.

The LPG reforms of 1991 altered the nature of Indians in the Indian economy. The Indian economy is currently reliant on this problem. It is vital for Mains in all disciplines to have a full awareness of the changes it has brought to the Indian economy and world events.

This article discusses the features and ramifications of the New Economic Policy of 1991. This is a topic that should be thoroughly studied since questions regarding it may occur on both the CE and Ma exams.

Elements of the New Economic Policy

The three fundamental components or elements of current economic policy are liberalization, privatization, and globalization.

1. Liberalization:

The elimination of licenses, quotas, and other restrictions and regulations placed on industries before 1991 is referred to as liberalization. Liberalization benefitted Indian firms in the following ways:

•  Except in a few situations, licensing is eliminated.

•  There are no constraints on corporate expansion or decline.

•  Price-fixing autonomy.

•  Liberalization of imports and exports.

•  Simplifying and streamlining the process of attracting foreign investments in India.

• There is no restriction on the movement of products and services.

• Commodity and service price setting independence.

2. Privatization:

Privatization means expanding the role of the private sector while restricting the function of the public sector. To carry out its privatization agenda, the government took the following steps:

•  Public-sector disinvestment or the transfer of a publicly-traded company to the private sector.

•  The Industrial and Financial Reconstruction Board (IFRB) was established. This board was designed to assist financially ailing divisions of public-sector companies.

• The government’s interest has been reduced. After disinvestment, ownership, and management are transferred to the private sector if the private sector purchases more than 51 percent of the shares.

3. Globalization:

It refers to the globalization of many economies. Until 1991, the Indian government maintained a severe policy regarding imports and foreign investment, including import licensing, taxes, and other limitations; however, with the new policy, the government adopted a globalization plan, implementing the following steps:

• Import liberalization. The government relaxed several restrictions on capital goods imports.

• The Foreign Exchange Regulation Act (FERA) was abolished, and in its place, the Foreign Exchange Management Act was adopted 

• Rationalization of tariff structures

• The duty on exports has been repealed.

• Duty decreases on imports.

As a result of globalization, physical and political boundaries were no longer an impediment to business activity. The whole globe has been converted into a global community. Globalization increases the interconnectedness and interdependence of the many nations that comprise the global economy.

The Effects of Economic Policy Changes on Business or Liberalization and Globalization:

The causes and factors that form the business environment have a large influence. The following are some instances of how such advancements in business and industry have a common effect and impact:

1. Increased Competition:

Following the implementation of the new strategy, Indian businesses were compelled to fight on all fronts, including competition from inside the country and from foreign organizations. Companies that could accept cutting-edge technology and had a large pool of resources were the only ones that could survive and compete. Many companies were unable to compete and were forced to leave the sector.

2. Difficulty-to-satisfy customers:

Before the new economic strategy, there were few industries or industrial units. As a consequence, there was a product deficit in every industry. Due to shortage, the market became producer-oriented, with producers emerging as key actors. However, as a consequence of the new economic strategy, many more businessmen entered the production line, and several multinational corporations established manufacturing plants in India.

3. A Constantly Changing Technological Environment:

Before the new economic policy, there was just a smidgeon of internal competition. However, as a consequence of the new economic strategy, there is now global competition, and businesses must adopt world-class technology to succeed. To adopt and implement world-class technology, the R&D department’s budget must be increased. Many pharmaceutical companies increased their investment in R&D departments from 2% to 12%, and they started spending much more on employee training.

4. Change Is Necessary:

Firms could follow consistent guidelines for a long period before 1991, however, after 1991, businesses must update their policies and operations frequently.

Conclusion 

During the NEP, economic measures tried to move away from central planning and allow the economy to become more self-sufficient. Labor reforms implemented during the NEP tied workers to productivity, encouraging cost-cutting and increasing labor effort. Labor unions developed into self-governing civic organizations. The main objective of NEP amendments also made it possible for the most qualified workers to seek government employment.