2. Economic policy 1991
Reason to Reform in 1991:
1. Slow and unsatisfactory Economic growth.
2. Inefficiency inn Public Enterprises.
3. Continued Inflationary pressure.
4. Internal debt liability increased to 53% of GDP.
5. Experience of other Countries.
Note:
When the India was facing economics crises------
Narshima Rao Gov. came in power on June 1991 and at the same time Dr.
Manmohan Singh was the Union Finance Minister, and they had initiated the
Liberalisation process. Some people call it as Manmohanomics or Raonomics
3. WHAT IS NEW ECONOMIC POLICY ?
• It refers to ongoing economic liberalisation or relaxation started in
1991 of the countries economic policies
• It was introduced with the goal of making the economy more market
oriented and expanding the role of the private and foreign investment.
Specific changes include the reduction in import tariffs, deregulation of
markets, reduction of taxes, and greater foreign investment.
4. Features:
• Structural Reform
• Financial Stability
• Upgrading the technology of production
• Protection of foreign direct Investment.
• Reduced role of public sector.
• Liberalised policy towards Foreign Investment.
• Reformation bought Privatisation, Liberalisation and Globalisation.
5. Components of New Economic Policy
1. Reform in Fiscal Policy- This include reforms in taxation structure
and expenditure pattern of the govt. to reduce the large fiscal
deficit.
2. Reform in Industrial policy- These reforms include reduction in the
role of public sector, deregulation and de licencing of the private
sector industries, liberalized policy towards foreign trade etc.
3. Reform in Trade Policy: Reduction in import duties.
4. Financial sector reform- These reform include SLR, CRR. All banking
sector.
5. Capital Market revolution to strengthen the economy.
6. Effect of New economic policy 1991
Positive impact Negative impact
1. Increase in GDP Growth rate
2. Increase in FDI
3. Extension of Privatisation
4. Increase in Foreign Exchange
5. Increase in per capita Income
6. Increase in mobility of factor of
production
7. Restrictive attitude
1. Neglect of Agriculture
2. No relief of poverty
3. No success of removing
unemployment
4. Adverse effect on saving
5. Competition from MNCs
6. Indian small scale industries
badly effected.
8. Globalisation
It is the sharing of resources
• In simple, can say it implies worldly amalgamation of various
cultures, styles economic policies, ideas etc.
• It refers to the rapid increase in the share of economic activity taking
place across national boundaries.
• It’s a consequences of increase trade across nations in --------
Environment Culture
Politics Society
Economy
Globalisation
9. Features of Globalisation
• Conglomeration of multiple units.
• Units respond to a common strategy.
• Growing world wide interconnections.
• Movement of people and capital.
• Improved technology in transportation & Telecommunication.
Note:
Conglomeration: A group of diverse companies under common
ownership.
10. Need/ Objectives
• The developing of all nations.
• The need for education
• The need for equal human rights
• The need for justice and world peace.
• To facilitate free flow of capital
11. Impact Factors/Drivers for development.
1. Globalisation help to minimise labour cost: In some labour intensive
industries ( clothing, toy making etc. ) wages represent the largest
input for businesses.
2. Globalisation increases access to natural resources: some countries
have limited access to cheap resources , firms therefore relocate to
make advantage of production abroad.
3. Globalisation increases flexibility in decision making: It can improve
flexibility or choice they have in decision making.
4. Corporate expansion: MNCs and TNCs have wider scope to trade.
5. Increase in Global Competition.
12. Globalisation
Advantages Disadvantages
1. It help to improve in communication
for better healthy relation or for
trade.
2. It facilitate Transport.
3. Free trade agreement.
4. Global banking facility.
5. The growth of MNCs.
6. It increase flow of International
capital.
7. Generate healthy competition.
1.Damage to the environment.
2. Exploitation of labour
3. Economic degradation
4.Less job security
5. Damages to culture
6. Risks and uncertainty.
13. Privatisation
• It is a transfer of ownership management of an enterprise from the
public to private sector.
• It is also a withdraw of power partially or fully.
• In other words, it is the withdrawal of Government from industry
sector , partially or fully.
14. Nature:
1. Transfer of Technology
2. Increased Competition
3. Increased Efficiency
4. Increased Opportunities
5. Transfer of Ownership
15. Objectives
• To improve the efficiency or preformation of PSUs
• To increase the size of Private sector
• To promote creativity
• To generate revenue for the government to be spent on social causes
• To reduce deficit financing and public deficit.
• To strengthen and deepen the capitalism by sharing ownership.
16. Types /Mode
• Micro Privatisation – Transfer of ownership to public asset or public to
private asset.
• Macro Privatisation – Transfer of ideology or policy framework(
Reducing role and in full acquiring process)
• Mega Privatisation – It also called “roll-back state power” (It reduces
power for the sate in all its dimension)
• Disinvestment: Sale of property partially or fully of a govt. owned
enterprises.
17. Privatisation
Advantages Disadvantages
1. Clarity of objectives
2. Creation of more jobs
3. Less Political Intervention
4. Possibility of Immediate decisions
5. Rise in GNP
1. Natural Monopoly
2. Hamper Public Interest
3. Exploitation of Workers
4. Exploitation of consumers
5. Loosing power.
18. Liberalisation The removal of control
and not of regulation to encourage economic development.
Reason to Liberalise:
1. Facing Grave economic crisis
2. Several Liquidity crises(cash, stock)
3. For the recovery of the ailing monetary system.
4. To attract Foreign exchange
5. India was almost on the brick of defaulting on international
Payments which would have furnished our images in the
international markets.
19. Features
• Reforms of the Banking system.
• Increase of Foreign Investment.
• Reduction in Restriction
• Increase Competiveness.
• Reforms of the Financial System.
• Simplified policies to attract foreign capital and technology in India.
20. Liberalisation Strategy
• Relief to Foreign investors.
• New Industrial policy
• New trade policy
• Budgetary Policy
• Removal of import restrictions
• Encouraging foreign ties-ups
• Narasimhan Committee report.
• Devaluation of Indian rupees
• Re-defining SEBI’s role
• Privatisation of public sector.
21. Reforms taken during Liberalisation
• Abolition of Industrial licensing and regulation
• Liberalisation the MRTP act.
• Freedom for expansion and production
• Increase in the investment limit of the small industries
• Freedom to import capital goods
• Freedom to import technology.
• Partial privatisation of public sector units ( Disinvestment)
22. Liberalisation
Advantages Disadvantages
1. Increase in rate of economic growth
2. Reduction in poverty and inequality
3. Fall in fiscal deficit
4. Flexible decision
5. Increased FDI
6. Reduction in excise and custom
duties.
7. Control on prices.
1. Dependence on Foreign
technology
2. Pressure by IMF and World
Bank
3. Misuse of our resources
4. Exploitation of work
5. More depending on foreign
debt.
