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India faced a financial crisis in 1991, which worked as a motivator for economic reforms. The crisis was caused by a number of circumstances, including the Gulf War, which drove up oil costs and reduced remittances from the Gulf, low foreign reserves, and simultaneous hyperinflation.
To fight this, the government was forced to implement a new set of economic policy measures. The government applied for a loan from the International Bank for Reconstruction and Development (IBRD), sometimes known as the World Bank, and the International Monetary Fund (IMF). The financial support came with a stipulation that the economy be opened up and private sector limitations be lifted. The New Economic Policy was introduced in 1991 as a collection of policies
POSITIVES REFORMS
Some of the postive reform of new economic policy are given below-:
- India overcome its worst economic crisis in a remarkable two-year span through change.
- The BoP crisis was over by the end of March 1994, thanks to smart macroeconomic stabilisation policies such as rupee depreciation and other structural changes, and foreign exchange reserves had risen to USD 15.7 billion. Both FDI and FII inflows into India have surged dramatically.
- India’s economy is likewise becoming more connected with the global economy. India’s overall exports of products and services as a percentage of GDP increased from 7.3 percent in 1990 to 14 percent in 2000. The increase in imports was less dramatic, but still large, rising from 9.9% in 1990 to 16.6% in 2000. The ratio of total goods and services trade to GDP increased from 17.2 percent to 30.6 percent in ten years.
- Increased competition in areas such as banking has resulted in more customer choice and increased efficiency as a result of reforms. It has also resulted in a rise in private sector investment and growth.
- Inflation rates fell as reforms increased output of goods and services, causing prices to either fall or remain constant. Inflation was also kept under control because to competition.
From in 1950 to in 2000, there was a huge increase in GDP.
Impact of Reforms Post 1992
1.Poverty fell from 36% in 1993-1994 to 26.1 percent in 1999-2000. In both rural and urban areas, the poverty rate has decreased.
2.Reforms resulted in an increase in air travel and expansion in the civil aviation sector. In 1991, the government enacted the Open Skies Policy (which enabled private players enter the aviation sector) in order to increase competition. Private companies in both the domestic and international aviation industries are reaping the benefits of this approach today.
3.International technology was easier to obtain as a result of the reforms that opened the borders to foreign goods. Cell phone technology is a wonderful example of this.In the post-1991 era, the automobile industry expanded, making automobiles more readily available, increasing competition, and lowering automobile prices.
4.As India’s reputation grew in the international marketplace, so did the number of foreign visitors.
5.In a number of sectors, such as auto components, telecommunications, software, pharmaceuticals, biotechnology, research and development, and professional services provided by scientists, technologists, doctors, nurses, teachers, management professionals, and similar professions, reforms resulted in measurable increases in international competitiveness.
6.The telecommunications industry has grown dramatically. In fact, this industry has reaped the benefits of economic reforms to a large extent. 7.The sector, which was once severely regulated and monopolised by the government, now has multiple competing service providers. The telecom policy grew out of the National Telecom Policy of 1994, which sought to open up all sectors to private operators.
Negative Impact of New Economic Policy
1.The reforms mostly affected the formal economy; agriculture, the urban informal sector, and forest-dependent populations did not see significant changes. As a result, growth was uneven and economic freedom was distributed unequally.
2.Economic liberalisation in the organised manufacturing sector (which is governed by strict labour laws) has resulted in little job creation.Market-based economic changes frequently increase inequities between the rich and the poor, as well as between developing and developing countries.
3.Health and education are two social sectors that have been neglected. These sectors, despite their importance, were not prioritised, as evidenced by today’s alarmingly low levels of education and health indicators.
4.Economic reforms have sped up development but have failed to create enough jobs. For example, after falling to 5.61 percent in 1993-94, the rural unemployment rate rebounded to 7.21 percent in 1999-2000, as did the overall unemployment rate (urban and rural).
Conclusion
We conclude that agricultural production expanded dramatically once the New Economic Policy was implemented. Farmers were offered the option of selling sections of their crops to the government in exchange for monetary compensation in order to boost economic growth.
