economic policy 1991

7/29/2019 Economic Policy 1991

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Presented by:

118905(Ch.Karuna)

118906(D.Meena)


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New economic policy

The process of economic reforms was started by the

government of India in 1991 for taking the country out of

economic difficulty and speeding up the development of the

country. The NEP mainly came up with three major strategies

are:

liberalisation,

privatisationandglobalisation.


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Liberalization:Liberalization means to unshackle the economy

from bureaucratic cobweb to make it morecompetitive.

Following are its chief features: To do away with the necessity of having a license for

most of the industries.

Freedom in determining the scale of business

activities.Removing restrictions for the movement of goods and

services from one place to another .


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Contd..Freedom to fix the price of goods and services.

Reduction in the rate of taxes.

Freedom from unnecessary control over economy.

Simplifying import-export procedure.

Simplifying the process of attracting foreign capitaland technology.


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Privatization: In brief, privatization means such an economic

process through which some public sectorundertaking is brought either partially or completely

under private ownership.

Broadly speaking, establishing in private sectorinstead of a public sector is also privatization earlierreserved for it or transferring its production, withoutdepriving it, to the. Not only this, depriving publicsector of the job of production which was privatesector also amounts to privatization.


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Its chief features are given below:

1-Reducing the role of public sector and increasing therole of private sector.

2-Reducing fiscal burden of the government.

3-Reducing the size of the government machinery.4-Speeding up economic development.

5-Improving management of enterprises.

6-Increase in government treasury.

7-Increasing competition by opening industriesreserved for the public sector to the private sector


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Globalization:Globalization means integrating the economy with

the rest of the world.Following are its chief features:

1-Free flow of goods and services in all the countries.2-Free flow of capital in all the countries.3-Free flow of information and technology in all the

countries.

4-Free movement of people in all the countries.5-The same conflict solving technique in all the

countries.


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Objectives Of Economic Reforms:Following are the objectives of Economic reforms:

1-Modernisation of the industrial system of the country.

2-Encouraging private investment.

3-Attracting foreign investment.

4-Eliminating unproductive controls.

5-Connecting India Economy with the world economy.6-Increasing foreign exchange reserves.

7-Controlling unprofitable industrial units in the publicsector


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Industrial Policy Revolution Industrial Policy Resolution of 1948 Industrial Policy Resolution of 1956 Industrial Policy Resolution of 1973

Industrial Policy Resolution of 1977 Industrial Policy Resolution of 1980 New Economic Policy of 1991

Why NEP 1991??????

To overcome Reservation of Industries To overcome Entry & Growth Restrictions To overcome Restriction on Foreign Capital & Tech.


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New Economic Policy -

1991 Announced by Narasimha Rao in July, 1991

Aim of New Industrial Policy (NIP) of 1991:

Unshackling the Indian Industrial Economy from the cobwebs ofunnecessary bureaucratic control,

Introducing liberalization with a view to integrate the IndianEconomy with the world economy,

Removing restriction on direct foreign investment as also to free thedomestic entrepreneur from the restriction of MRTP Act, and

Shedding the load of Public Enterprises, which have shown a verylow rate of return or were incurring losses over the years.


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Initiatives Taken in New

Economic Policy New Economic Policy (1991)

Industrial Sector Reforms

Public Sector Policy Industrial Licensing PolicyMRTP Act

External Trade Reforms

Foreign Investment Foreign Technology

Agreements


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Public Sector Policy

Public enterprises producing a very low rate of return on thecapital invested resulting in a burden rather than being an assetto the government

NEP 1991 adopted a new approach to public enterprises, with apriority in following areas:

Essential infrastructure goods and services

Exploration and exploitation of oil and mineral resources

Technology development and building of manufacturingcapabilities in areas, which are crucial in the long term

development of the economy and where private sectorinvestment is inadequate

Manufacture of the products where strategicconsiderations predominate such as defence equipment


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Industrial Licensing Policy

Role of the government changed from that of only exercising control toone of providing help and guidance by making essential procedures fullytransparent and by eliminating delays

Industrial licensing to be abolished for all projects except for a short list ofindustries related to securities and strategic concerns

Areas where security and strategic concerns predominate will continue to bereserved for the public sector

In projects where imported capital goods are required, automatic clearancewill be given in cases where foreign exchange availability is ensuredthrough foreign equity

Location other than cities of more than 1 million population, there will beno requirement of obtaining industrial approvals from the central

Government except for industries subject to compulsory licensing


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MRTP ACT Need for achieving economies of scale for ensuring higherproductivity and competitive advantage in the internationalmarket, the interference of the government through the MRTPAct has to be restricted:

Removal of pre-entry scrutinity of investment decisions by so-called MRTP companies

Emphasis to be on controlling and regulating monopolistic,restrictive and unfair trade practices

Thrust of policy to be on controlling unfair or restrictivebusiness practices


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Foreign Investment Aimed at encouraging foreign trading companies to assist

Indian exporters in export activities:

Approval would be given for direct foreign investmentupto 51% foreign equity in high priority industries

Import of the components, raw materials and intermediategoods, and payment of know how fees and royaltieswould be governed by the general policy applicable toother domestic units, the payment of dividends would bemonitored through the Reserve Bank of India

Majority foreign equity holding upto 51% equity would beallowed for trading companies primarily engaged inexport activities

P iti A t


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Positive Aspects:

Fulfilled a long-felt demand of the corporate sector fordeclaring in very clear terms that licensing wasabolished for all industries except 18 industries whichincluded coal, petroleum, sugar, motor cars, cigarettes,hazardous, chemicals, pharmaceuticals and someluxury items

Bottlenecks created by the bureaucracy were struckdown by this singular decision of the Government

NIP unshackled many of the provisions, which acted as

brakes on the growth of large private corporate sector

Overall relief in the dismantling of industrial licensingand regime of controls


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Negative Aspects:

Policy regarding Foreign Capital:

Assertions by critics assert that the welcome foreigncapital may lead us to selling of our sovereignty tomultinationals

Prudence demanded that utmost care to be taken to inviteforeign capital in high priority industries onlyMonitoring of payment of dividends by RBI

Public Sector Policy:

The govt. should concentrate on improving theperformance of the redeemable and surplus generatingpublic sector enterprises which constitute 85% of theinvestment


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Social Security Policy

Industrial Policy sidetracked issues and generated a fear in themind of the workers that the govt. was not sincere inprotecting the interests of the workers

Govt. of India could successfully go in for shedding its load ofloss-making enterprises and help the working class to assumethe ownership role and nurse these enterprises to health

MRTP Policy

Failure of MRTP to break the monopolistic or Oligopolisticcharacter of the Indian market


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THANK YOU


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REFERENCES: Textbook-Indian economy,Author-Ruddardatt & K.P.M

Sundharam.

http://www.authorstream.com/Presentation/sudhanshukhatri-237029-new-economic-policy-1991-business-finance-ppt-powerpoint/
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