Economic economic reforms 1991 or new economic policy - Indian economy

Economic economic reforms 1991 or new economic policy

● economic reforms refers to set of economic policies directed to accelerate the the path of growth and development

Before 1991 LQP  now LPG. LPG replace LQP

LQP - Licensing,Quota,Permits

LPG - Liberalisation, Privatisation, Globalisation

●Need for new economic policy in India

1. High fiscal deficit

2. BOP crises

3. Fall in foreign exchange reserve

4. Inflationary spiral (rise in price)

5. Failure of public sector


Prime Minister PV Narsimha Rao along with the finance minister Dr Manmohan Singh introduce the new economic policy 1991.

Measures of new economic policy

A. Stabilisation measures

     Short term policy measures which aim at according the deficit in balance of payment and controlling inflation

B. Structural reforms measures

     long-term majors aims at improving the efficiency of economy and increasing the international competitiveness.

● Elements of new economic policy

1. Liberalisation

Removal of entry and growth restriction on Private sector enterprises for the removal of trade barriers is known as liberalisation

2. Privatisation

The transfer of ownership right from public sector undertaking to private sector undertaking is known as privatisation

3. Globalisation

 The integration of domestic economy with the world economy is known as globalisation.

● Economic reforms under the liberalisation

1. Industrial sector reforms

    A. Reducing/abolition of industrial licensing

          • except 5 industries 

 a. Liquor  

 b. Cigarette 

 c. Defence equipments 

 d. Industrial explosive 

 e. Dangerous chemical

    B. Decrease the role of public sector

Public sector has now reduced from 17 to 3 industry

(Railways, Atomic energy, Defence equipments)

    C. Expansion of production capacity

    D. Freedom to import capital goods

2. Financial sector reforms

   a. Establishment of private sector bank

   b. Changing the role of RBI as a facilitator from regulator

   c. Foreign investment limits 51% upto (ownership)

   d. Easy of expansion

3. Fiscal reforms

    a. Reduction in direct taxes

    b. Government regulate and reduce the rate of indirect taxes

    c. Simplified in taxation policy

4 . Foreign exchange reform

    a. Devaluation

    b. Adopting flexible exchange rate system


5. Foreign trade policy reforms

    a. Reduction in quota

    b. Removal of export duty

    c. Reduction of import duty

    d. Import licensing was abolished except in case to inhazardous and environmental sensitive industries

● Economic reform under privatisation

1. Contraction of public sector- the private sector are no longer restricted to entry in any industry 
(except Atomic Power,Railway,defence)

2. Government companies have been sold by central government to private companies which were incurring losses in 1991

3. PSU by selling a part of equity to the public this process is known as disinvestment

4. PSU have given additional power and freedom  to enter joint venture, raise debt eg- (NAVRATNAS)

●Economic reforms under globalisation

1. Increase in equity limit of foreign investment

  (before 40% but now 51% full ownership)

2. Reduction in tariffs

3. Removal of quantitative restrictions (Quota system)

4.  Partial convertibility of rupees through market forces


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