2. NEW ECONOMIC POLICY
Economic policy:
Economic policy refers to the actions that
governments take in the economic field. It covers
the
systems for setting levels of taxation,
government
budgets, the money supply and interest rates as
well
as the labor market, national ownership, and
many
other areas of government interventions into the
economy
3. New Economic Policy of India was launched in the year
1991 under the leadership of P. V. Narasimha Rao....
Narasimha Rao government reduced the import duties,
opened reserved sector for the private players, devalued
the Indian currency to increase the export. This is also
known as the LPG Model of growth,
1.LIBERALIZATION.
2.PRIVATIZATION.
3.GLOBALIZATION.
4. L P G
The economy of India
had undergone significant
Policy shifts in the
beginning of the 1990s.
This new model of economic reforms is commonly
known as the LPG or Liberalization, Privatization
and Globalization model.
5. Reasons for implementing LPG
1. Large And Growing Fiscal Imbalances.
(Gross Fiscal Deficit Rose To 12.1% Of GDP In 1991)
2. Growing Inefficiency In The Use Of Resources.
3. Low Foreign Exchange Reserves.($1.2 Billion In January 1991)
4. High Inflation Rate.(13.87% In Year 1990-91)
5. The Low Annual Growth Rate Of Indian Economy Stagnated Around 3.5%
From 1950s To 1980s, While Per Capita Income Averaged 1.3%.
6. Liberalization refers to relaxation of previous govt.
restrictions in areas of Social & Economic policies.
WHAT MADE INDIA TO LIBERALIZE
1. A balance of payments crisis in 1991 which pushed the
country to near bankruptcy.
2. The rupee devalued and economic reforms were forced
upon India.
3. India central bank had refused new credit and foreign
exchange reserves had reduced to the point that india
could barely finance three weeksβ worth of imports
7. Advantages & Disadvantages
ADVANTAGES
1. Di-licensing of industries.
2. Increase in foreign direct
investment.
3. Liberalization of foreign
technology.
4. Industrial location.
5. Faster growth and poverty
reduction.
6. Increase in employment.
disadvantages
1. Increase Dependence.
2. Loss in domestic unit.
3. Unbalanced economy.
8. Privatization means a transfer of ownership,
management, and control of public sector
enterprises to the private sector.
WHAT MADE INDIA TO PRIVAIZE
The main reason for privatization was in currency of
PSU's are running in losses due to political
interference. The managers cannot work independently.
Production capacity remained under-utilized. To
increase competition and efficiency privatization of
PSUs was inevitable.
9. Advantages & Disadvantages
ADVANTAGES
1. Privatization may help in reviving sick units
which have become a liability on the govt.
2. It helps the profit making public sector units
to modernize and diversify their business.
3. It helps in making public sector units
more competitive. Without government
financial backing, capital market and
international market forces public
sector to be efficient.
4. It reduces political influence on
decision- making of managers.
Disadvantages
1. Privatization encourages monopoly, power
in the hands of big business houses and
thus greater disparities in income and
wealth.
2. Privatization may result in lop-sided
development of industries in the country.
3. The limited resources of the private
individuals cannot meet some of the vital
tasks which alter the very character of the
economy.
4. The private sector may not uphold the
principles of social justice and public
welfare.
10. Globalization means integrating the Indian economy with the
world economy. It is the outcome of the policies of liberalization
and privatization is an outcome of various policies that aim to
transform the world towards greater interdependence &integration.
WHAT MADE INDIA TO GLOBALIZE
Economic policies have had a direct influence in forming the basic
framework of the economy. Economic policies established and administered
by the government also performed an essential role in planning levels of
savings, employment, income and investments in society.
Foreign direct investment (FDI) is a direct investment into production or
business in a country by an individual or company in another country,
either by buying a company in the target country or by expanding
operations of an existing business in that country.
11. Advantages & Disadvantages
ADVANTAGES
1. Resources of different countries are used for
producing goods and services they are able to
do more efficiently.
2. Consumers get the product they want at more
competitive prices.
3. Companies get access to much wider markets.
4. It promotes understanding and goodwill among
different countries.
5. Businesses and investors get much wider
opportunities for investment.
Disadvantages
1. Developed countries can stifle
development of undeveloped and
under-developed countries.
2. Economic depression in one country
can trigger adverse reaction across the
globe.
3. It can increase the spread of
communicable diseases.
4. Companies face much greater
competition. This can put smaller
companies at a disadvantage as they
do not have resources to compete at
global scale.
12. Foreign Direct Investment
Foreign direct investment (FDI) is a direct investment into production or
business in a country by an individual or company in another country, either by
buying a company in the target country or by expanding operations of an
existing business in that country.
FDI caps in various sectors:
1. Defense 26%
2. Insurance 49% (earlier 26%)
3. Telecom 100% (earlier 74%)
4. Single brand retailing 100%
5. Multi brand retailing 51%
6. Civil aviation 49%
13. Conclusio
n
1. There was a major impact of liberalization and globalization.
2. The liberalization improved the processes of import and export
and this time proved to be a transition period for our country.
3. Globalization also opened the market for global players.
4. This made global products available in the Indian market.
5. The LPG model brought many positive impacts on the Textile
Industry in India.
