New Economic Policy Reform Class XII (Economics)

NEW ECONOMIC POLICY:
A new plan in action by the government to influence production and capital
formation of a country is known as NEP.
NEP-New economic policy
It was started in the year 1991. Major effects of NEP were done by
P.V.Narasimhan& Manmohan Singh.
Kishan Lal sharma(BBA,MBA)MLZS 1

Reasons for implementing NEP
Kishan Lal sharma(BBA,MBA)MLZS
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 There were poor performance of public sector.
 The scope for private sector was limited.
 There were sudden fall in Foreign Exchange Reserves(FER). There were more
expenditure than incoming.
 International investors were not encouraged by government.
 Tax notes were very high so people

Main Features Of Economic Reforms
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PRIVATISATION
LIBERALISATIO N
GLOBALISATION
ECONOMIC REFORMS

Liberalisation:
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 Free from direct or physical control by the government in the way of trade is known as
liberalisation.
 Before 1991 the were some controls of Govt. they are: Industrial licensing system was a
rigid process.
 They were controlling the price. Import licensing.
 Restrictions on investment.

Economic reforms under Liberalization:
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 There were four reforms under liberalization:
 Industrial reforms
 Financial reforms
 Fiscal reforms
 External reforms

Industrial reforms:
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 Abolition of licensing except some products like cigar etc.
 Contradiction to public sector i.e. number of items produced by public sector were
reduced.
 Govt. given freedom to import capital. Dereservation of production units. Producer's given
freedom to what to produce & how much to produce.

Financial reforms:
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 R.B.I was turned into felicilitator.
 Due to this dramatically change the banking sector of the country had expanded a lot.
 It also allowed Foreign Institutional Investors(FII)

Fiscal reforms:
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 It relates to total revenue and total expenditure of government.
 Before liberalisation, the taxes were very high & this encouraged tax evasionby the
people. After Liberalisation, taxes were reduced.
 The procedure for paying taxes was simplified.
 Non-planned expenditure by the Govt. was reduced

External reforms:
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 Foreign exchange reserves:
 In 1991, Devaluation of rupee so by this foreign countries can buy Indian good.
 This provided good flow of trade.
 At presently, exchange rate is determined by supply & demand in international market.
 Foreign trade policy:
 Abolition of import licensing except for some cases.
 Quantitative restrictions were removed. Tariff restrictions were moderated.
 Export duties has withdrawn.

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 Advantages of liberalization
 Industrial licensing
 Increase the foreign investment. Increase the foreign exchange reserve.
 Increase in consumption and Control over price. Check on corruption.
 Reduction in dependence on external commercial borrowings
 Disadvantages of Liberalization
 Increase in unemployment.
 Loss to domestic units.
 Increase dependence on foreign nations
 Unbalanced development


Privatisation:
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Privatisation is defined as the transfer of function, activity or organization from the public
sector to private sector.
 Two ways for Privatisation:
 Sale of public sector units to private sector.
 With drawl of public sector units-joint.
 Objectives of Privatisation
 To increase efficiency & competitive power of the enterprises To strengthen industrial
management.
 To earn more & more Foreign currency.
 To make optimum use of resources To achieve rapid industrial development of the country.

Measures Adopted For Privatisation
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 Contraction of Public sector
 Disinvestment
 Sale of shares of public enterprises Increase in private sector
 Conversion of loans into shares is not necessary
 Sick industries
 Memorandum of understanding

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 Advantages of Privatisation:
 Reduction in economic burden • Increase in efficiency
 Reduction in sense of irresponsibility Scientific Management
 Reduction in Political Interference Encouragement of new Inventions

 Disadvantages of Privatization
 Industrial sickness.
 Lack of welfare.
 Class struggle.
 Increase in inequality
 Opposition by employees.
 Problem of financing.
 Increase in unemployment.
 Ignores the weaker sections.
 Ignores the national importance

Public sector reforms
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The reforms introduced to support public sector units are:
Introduction of some awards like:
 Navaratnas
E.g: BPCL, MTNL, Etc.
 Maharatnas
E.g: CIL, ONGC, Etc.
 Miniratnas
E.g: BSNL, ITDCL, Etc.

World Trade Organization:
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 The World Trade Organization (WTO) is a large international organization to regulate trade
that was established in 1995.
 As of 15 December, 2005, there were 153 member countries. In the WTO, agreements are
made on trade between countries.Established: 1st January 1995.
 Created by: Uruguay Round negotiations (1986 94).
 Budget: 185 million Swiss francs for 2008. Secretariat staff: 625
 Head: Pascal Lamy (Director-General Membership: Countries on map. 153 countries (on
23 July 2008). New member: Ukraine

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 Objectives of WTO:
 The primary aim of WTO is to implement the new world trade agreement.
 To promote multilateral trade
 To promote free trade by abolishing tariff & non-tariff barriers.
 To enhance competitiveness among all trading partners so as to benefit consumers.
 To increase the level of production & productivity with a view to increase the level of
employment in the world.
 To expand & utilize world resources in the most optimum manner.
 To improve the level of living for the global population & speed up economic development
of the member nations.

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 Advantages of WTO:
 Freer trade cuts the cost of living
 It gives consumers more choice, a broader range of qualities to choose from. Trade raises
incomes.
 Trade stimulates economic growth, that can be good news for employment
 The basic principles make the system economically efficient, I they cut costs.
 The system allows disputes to be handled constructively
 A system based on rules rather than power makes life casier for aft

 Disadvantages of WTO
 The WTO dictates policy
 The WTO is for free trade at any cost
 The WTO destroys jobs, worsens poverty
 Small countries are powerless in the WTO
 Weaker countries are forced to join the WTO
 The WTO is the tool of powerful lobbies
 Non-tariff barriers
 Competition

Globalisation:
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 It is defined as a process associated with increasing openness, growing economic
independence and Deeping economic integration in the world
 economy.
 Reduction of trade barriers
 Free flow of capital
 Free flow of technology
 Free movement of technology

Outsourcing:
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It is a system of hiring business services from the outside world is known as Outsourcing.
 Advantages of outsourcing:
 Easy availability of cheap labour
 Reasonable degree of skill Virgin market
 Lack of competitive competitors
 Cheap and abundant availability of raw material
 Revolutionary growth of I. T industry in India

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 Positive Effects of Globalisation:
 Adoption of new & flexible production methods.
 Reconstruction of production & Trade patterns.
 Raise of Foreign capital.
 Qualitative improvement in the country.
 Rise in the generation of employment. Rise in Banking and Foreign sector
 efficiency.
 Increase in the technology.

 Negative Effects of Globalisation
 Loss of domestic industries
 Exploits Human resource Decline in income
 Unemployment Transfer of natural resources
 Lead to commercial and political colonism
 Widening gap between rich and poor
 Dominance of foreignInstitutions

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 Positive Effects Of NEP:
 Impressive increase in growth rate of GDP.
 I. T industry has achieved global recognition.
 Increase in the Govt. revenue i.e. increase in national income.
 Increase in foreign exchange reserves
 Flow of private & foreign investment.
 Recognition of India as an emerging power.
 Shift from monopoly market to competitive market.
 Decline in poverty
 Negative Effects Of NEP:
 Neglect to agriculture.
 Urban concentration of growth was high but neglected rural.
 Preference for handicraft were low.
 There is cultural erosion in the country.
 It is like economic colonization.

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Thank You!

New Economic Policy Reform Class XII (Economics)

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New Economic Policy Reform Class XII (Economics)