New Economic Policy and Business

Economic liberalisation or tariff reductions, market deregulation or opening markets to private and foreign actors, and tax reductions are all examples of new economic policies used to spread the country’s economic wings.

  The New Economic Policy (NEP) has the following features-:

1. The main goal was to bring the Indian economy into the ‘Globalization’ arena and give it a new market-oriented thrust.

2. The NEP was created with the goal of lowering inflation.

3. It aimed to achieve a higher rate of economic growth while also accumulating sufficient foreign exchange reserves.

4. It desired economic stabilisation and the transformation of the economy into a market economy by removing all unnecessary restrictions.

5. It desired to allow unrestricted international trade in goods, services, capital, human resources, and technology.

6. It aimed to increase private sector participation in all sectors of the economy. As a result, the number of government-reserved sectors has been reduced. This number is currently only two.

Since mid-1991, the government has implemented significant policy changes in areas such as foreign trade, foreign direct investment, exchange rate, industry, budgetary discipline, and so on. When the various aspects are combined, they form an economic policy that is vastly different from what has come before.

The New Economic Policy has emphasised the importance of creating a more competitive environment in the economy as a means of increasing the system’s production and efficiency. This was to be accomplished by reducing entry obstacles and constraints on business expansion.

The New Economic Policy’s Most Important Measures

The economy has deteriorated as a result of numerous constraints. Entrepreneurs were hesitant to start new businesses ( because laws like MRTP Act 1969 de-motivated entrepreneurs). Due to these controls, there has been an increase in corruption, excessive delays, and inefficiency. The economy’s rate of expansion has slowed. As a result, economic reforms were implemented to alleviate the limits placed on the economy.

Liberalisation

The following actions were made as part of the Liberalization plan:

(I)Commercial banks’ ability to set their own interest rates:

Under the liberalisation policy, the banking system’s interest rate would not be determined by the RBI; instead, all commercial banks will be free to set their own rates.

(ii) Increase in the Small Scale Industries (SSI) investment limit:

The small-scale industry investment limit has been increased to Rs. 1 crore. As a result, these businesses will be able to upgrade their equipment and increase their efficiency.

(iii) Importing capital goods freedom:

To achieve comprehensive growth, Indian firms will be permitted to purchase machines and raw materials from other countries.

(v) Freedom for industries to expand and produce:

Industries are now free to diversify their production capacities and lower production costs in this new liberalised period. Previously, the government would set a maximum manufacturing capacity restriction. No industry could possibly create more than that. Now, industries are free to decide on their own output based on market demand.

(vi) Elimination of Anti-Competitive Trade Practices:

The Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 designated all enterprises with assets of Rs. 100 crore or more as MRTP firms and subjected them to a number of restrictions. These companies no longer need to seek government approval before making investment decisions. The competition Act of 2002 has now replaced the MRTP Act.

Liberalization of the economy

Industrial Licensing and Registration are being phased out. Previously, beginning a new enterprise in the private sector required obtaining a government licence. The private sector has been emancipated from licencing and other limitations as a result of this approach.

The following industries require industry licencing:

(I)Alcoholic beverages

(ii)Cigarette 

(iii) Military hardware

(iv) Explosives for industrial use

(v)Drugs 

(vi) Chemicals that are hazardous

Privatization of services:

Simply put, privatisation entails allowing the private sector to establish enterprises that were previously only available to the public sector. Many PSUs were sold to the private sector as a result of this policy. The process of incorporating the private sector in the ownership of Public Sector Units (PSUs) is known as privatisation.

The fundamental rationale for privatisation was that public sector enterprises were losing money owing to political intervention. Managers are unable to work autonomously. The capability of the factory remained underutilised. Privatization of PSUs was unavoidable in order to increase competition and efficiency.

Steps taken to privatise:

For privatisation, the following steps are taken:

1. Public sector unit (PSU) share sales:

The Indian government began selling PSU shares to the general public and financial institutions, such as the World Bank. Maruti Udyog Ltd was sold by the government. These public utilities will now be sold to the private sector. The private sector’s share has risen from 45 percent to 55 percent.

Public-sector disinvestment:

The government has begun the process of disinvesting in PSUs that have been losing money. This indicates that the government has been selling these sectors to the private sector. The government has sold 30,000 crores worth of businesses to the private sector.

Minimization of the public sector:

Previously, the importance of the public sector was placed on it in order to aid in the industrialization and alleviation of poverty. However, these PSUs were unable to achieve this goal, and under new economic reforms, a policy of PSU contraction was implemented. The number of public-sector industries has been reduced from 17 to 2.

a)Railway operations 

1. b) Atomic power

Globalization 

Globalisation literally means “to make global” or “to make international,” or “to take into account the entire world.” Globalisation, in its broadest sense, refers to the interaction of a country’s economy with the rest of the world in terms of foreign investment, trade, production, and financial matters.

Globalization Initiatives:

For globalisation, the following actions are taken:

(I)Tariff reductions:

Import and export customs charges and tariffs are gradually cut in order to make India’s economy more appealing to foreign investors.

(ii) Trade Policy in the Long Run:

The policy of enforcing trade was in place for a longer period of time.

The following are the policy’s main features:

(a) Liberal government policy

(b) All restrictions on international trade have been lifted.

(c) There has been a push for open competition.

(iii) Indian Currency Partial Convertibility:

Partial convertibility is described as the ability to convert Indian money (to a limited extent) into foreign currency. As a result, the flow of foreign investment in the form of Foreign Institutional Investment (FII) and Foreign Direct Investment (FDI) will be increased (FDI).

This convertibility remained in effect for the following transaction:

(a) Remittances to cover household costs

(b) Interest is paid

(c) Goods and services import and export.

(iv) Increase in Foreign Investment Equity Limit:

The equity threshold for foreign capital investment has been increased from 40% to 100%. Foreign direct investment (FDI) of up to 100 percent in 47 high-priority industries will be permitted without limitation. The Foreign Exchange Management Act (FEMA) will be implemented in this regard.

If the Indian economy is currently shining on the global map, it is entirely due to the introduction of the New Economic Policy in 1991.

Conclusion  

To summarise, the NEP has yet to fully realise its goals, and it has also produced or exacerbated additional issues, the majority of which are related to racial inequality. The NEP had already been implemented, and we cannot deny that it had happened.