1991 is a watershed in the history of independent India especially in the economic growth of the country. It is the year the government decided to open up the Indian economy and usher it into a market economy from the previous control economy. The prime minister of the country was P V Narasimha Rao and the finance minister was Dr Manmohan Singh. India was going through an economic crisis because of an issue with the balance of payments. The government brought about some fundamental changes in the economic structure and approach to convert the crisis into an opportunity.
Objectives of New Economic Policy 1991
- Enter into the field of ‘globalisation’ and make the economy more market-oriented.
- Reduce the inflation rate and rectify imbalances in payment.
- Increase the growth rate of the economy and create enough foreign exchange reserves.
- Stabilise the economy and convert the economy into a market economy by the removal of unwanted restrictions.
- Allow the international flow of goods, capital, services, technology, human resources, etc. without too many restrictions.
- Enhance the participation of private players in all sectors of the economy. For this, the reserved sectors for the government was reduced to just 3.
Branches of New Economic Policy 1991:
- All commercial banks were now free to fix their interest rates. This was previously done by the RBI.
- Investment limit for small-scale industries was increased to Rs. 1 Crore.
- Indian industries were given the freedom to import capital goods.
- Companies were given the freedom to expand and diversify their production capacities based on market requirements. Previously, the government used to fix the maximum limit of production capacity.
- Restrictive trade practices were abolished. Licensing was removed in the private sector and only a few industries were required to obtain licenses, namely, liquor, cigarette, industrial explosives, defence equipment, hazardous chemicals and drugs.
- Under this, many public sector undertakings (PSUs) were sold to private players.
- PSU shares were sold to private players.
- PSUs were disinvested.
- The number of industries reserved for the public sector was reduced to 3 (mining of atomic minerals, railway and transport, and atomic energy).
- Tariffs were reduced – reduction of customs duties in import and export to attract global investors.
- Foreign trade policy was for the long-term – Liberal and open policy was enforced.
- The Indian currency was made partially convertible.
- The equity limit of foreign investment was increased.
|Economic Reforms of 1991|
|Syllabus and Strategy for Economics – Prelims, Mains & Optional|