Sunday, July 24, 2011

New Economic Policy in India

New Economic Policy
In 1991 India underwent an economic crisis due to the gulf watr. Petroleum prices rose high. The gulf crisis adversely affected our exports to gulf countries. The ultimate result of this was the declining of our foreign exchange reserve to less than $1billion. International banks refused to give loans to India. The government undertook a two pronged programme.It consisted of structural adjustment programme and stabilization measures. Our industrial sector, taxation, trade, banking etc underwent drastic changes. The main features of these reforms are liberalization, privatization and globalisation.
Liberalisation: By liberalization it is meant liberation of economy from all restrictions. Anew industrial policy was announced in 1991. It removed all restrictions that had been there in the industrial sector. Important features of this new liberal policy are the following.[1] all industries except a few like cigarettes, liquor etc. have been exempted from licensing,[2]in 1991, eighteen industries were reserved for public sector, later reduced to six, [3]MRTP Act was amended to suit the interest of investors, [4]FEMA[Foreign Exchange Management Act] replaced FERA[Foreign Exchange Regulation Act], and [5]labour laws have been amended to make way for easy exit.
Many other areas like financial services, capital market, etc. also had been brought under the purview of liberalization.
Privatisation: It implies complete withdrawal of the government from many areas. To the supporters of privatization the peformance of private sector is much superior to that of the public sector. Those who oppose privatization point out that public sector undertakings worth crores of rupees are selling at very marginal prices. This is a huge loss to national economy.
Globalisation: Amartya Sen, a famous economist, says that globalisation is a phenomenon and not a policy. Liberalisation and privatization are policies and globalisation is a profound inevitable change. As far as a country is concerned, globalisation is integrating its economy with the global economy. This can be done only by opening up our economy. This naturally implies liberalization of trade, foreign investment, flow of technology etc.
Globalisation achieved some progress in cross border investment. In India direct foreign investment shows an upward trend. Globalisation also creating many problems. Opening up of world trade in agriculture has led to crash in the prices of agricultural products. This has badly affected many countries particularly India. Similarly globalisation brings about cultural changes creating many social problems.

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