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ECONOMIC REFORMS OF 1991

INTRODUCTION
BATTLING THE ECONOMIC CRISIS OF 90'S, THE GOVT. OF INDIA
INITIATED A SERIES OF ECONOMIC REFORMS, WHICH CAME TO
BE KNOWN AS New Economic Policy (NEP) THREE BROAD
COMPONENTS OF NEP ARE:

i) THE POLICY OF LIBERALISATION (L) in place of licensing (L) for


the industries and trade.

ii) THE POLICY OF PRIVATISATION (P) in place of quotas (Q) for the
industrialists, and

iii) THE POLICY OF GLOBALISATION (G) in place of permits (P) for


exports and imports. THUS, LPG WAS SET TO REPLACE LOP IN 1991.

WHAT ARE ECONOMIC REFORMS?


ECONOMIC REFORMS REFER TO A SET OF ECONOMIC
POLICIES DIRECTED TO ACCELERATE THE PACE OF
GROWTH AND DEVELOPMENT.
NEED FOR ECONOMIC REFORMS
• Launching its 1st five-year plan (1st April 1951-56), India started
its journey to economic development treading the path of
socialistic pattern of society.
• So far, India has completed 11 five-year plans and 6 one-year
plans.
• During the period b/w 1st and 6th plans, public sector was
assigned the primary role in the process of growth and
development.
• Private sector was to play only a secondary role.
• Industry and trade were subjected to many restrictions including
quotas of production and permits of export and import.
• The situation was so alarming that our reserves of forex almost
dried up. New loans were not available.
• Large amounts were withdrawn from the accounts of NRI's.

ELEMENTS OF NEW ECONOMIC POLICY (NEP)


i) LIBERALISATION

ii) PRIVATISATION

iii) GLOBALISATION
I) LIBERALISATION: liberalization of the economy means its
freedom from direct or physical controls imposed by the govt. Prior to
1991, govt. Had imposed layers of control son private enterprises in the
domestic economy. These include industrial licensing system, price
control or financial control on goods, import license, forex control,
restrictions on investment by big business houses, etc.

II) ECONOMIC REFORMS (with liberalization as its key component)


were based on the assumption that market forces would steer the
economy towards the path of competitive growth and development.
Examples of other underdeveloped countries like Korea, Thailand
Singapore had achieved rapid economic development as a result of
liberalization.

MERITS OF LPG POLICIES:


A vibrant economy: Indian economy becomes a more vibrant
economy. The growth of GDP shot up to 8% high per annum.

A stimulant to industrial production: LPG policies have worked as a


great stimulant to industrial production in the Indian economy. Its
industry in India achieved global recognition.

A check on fiscal deficit: this has become a serious threat to the


process of investment in Indian economy. It was as high as 8.5% of
GDP prior to 1991. Now fiscal deficit has been around to 4% of GDP, it
is lower than before.

A check on inflation: LPG policies brought a check on the rate of


inflation. Till 2007-08, it ranged b/w 4-5% which is not a serious
threat. But in 2016-17 inflation estimated to 3.39% which is a serious
problem in economy.

Consumer's sovereignty: it is expanded over time to time. Producers


are widely responding to the consumers choice and preference. Overall
level of expenditure of households tends to rise.

A substantial increase in forex reserves: depletion of forex-


reserves was one of the compelling reasons for the govt. Of India.

Flow of private foreign investment: after adoption of LPG policy,


private foreign investment quantity jumped. It is a relief to the govt:

• Domestic economy for reinvestment.


• Development of technology
• Innovative techniques of production.

DEMERITS OF LPG POLICIES


Neglect of agriculture: growth of GDP has primarily triggered
to secondary or tertiary sectors. Agricultural sector has
suffered a serious neglect and reduce the growth rate.

Urban concentration of growth process: LPG policies have


resulted in growth process. MNC play an important role in
urbanization. This has further widened the gap b/w urban-
rural gulf.

Spread of consumerism: spread of MNCs is the result of


LPG policy. A variety of global brands in the market. Indian
society adapted to western culture. This may expand the size
of the market for traders and manufacturers.

Lopsided growth process: LPG has accelerated the growth


process. The growth process does not exist all the sectors.
Its focused growth neglecting the farming sector. LPG
policies are almost neglecting the farming sector of the
economy.

Cultural erosion: globalization also led to cultural erosion in


the society. Economic prosperity has taken a lead in daily life.
Everybody wants to be economically independent towards the
family or the society. Loval tv towards the family and loyalty
towards the society strongly holds Indian culture.

CASE FOR PRIVATISATION


• It is poor performance of plus, then there is a call for
privatization.
• This initiated in 2nd five-year plan assigns a key role in
plus.
• Industrial policy of 1956 clearly stated the importance
of plus in process of growth and development.
• So, people started shifting from agriculture to industrial
for better livelihood.
• In the context of plus in India, Navratan's refer to nine
profit making companies:
➢ IOC
➢ BPCL
➢ ONGC
➢ SAIL
➢ BHEL
➢ IPCL
➢ VSNL
➢ NTPC
➢ HPCL

IN 2009, THE govt. STATED MAHARATNA STATUS


FROM NAVRATNAS

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