Question

Answer in detail.

What are the features of NEP (New Economic Policy) of 1991?

Answer 1

The following are some of the main features of the New Economic Policy of 1991:
a. Encouragement to Small Scale Industries (SSIs)- Under NEP, the investment limit in SSIs was increased from Rs.1 crore to Rs. 5 crores. This was done in order to increase the competitiveness of these industries and to encourage them to use new technologies.
b. Disinvestment- Through disinvestment of public sector enterprises (PSEs), the government reduced its stakes in these PSEs and encourage greater participation of the private sector and the general public.
c. Reduction in the role of the public sector- The number of industries reserved for the public sector fell from 17 to 8. This ended state monopoly and released capital that was stuck in sick PSUs.
d. Encouragement to foreign investment- The NEP aimed at increasing foreign investment in India by permitting FDI up to 51%, 74% and even 100% in certain industries.
e. Abolition of the MRTP Act- The Monopolies and Restrictive Trade Practices Act (MRTP) was abolished to promote industrial growth and development.
f. Promotion of exports- The government enacted the EXIM policy and established Special Economic Zones (SEZs) and Agri Export Zones (AEZs) in order to encourage exports from India.
g. Abolition of licensing: The system of industrial licensing was abolished for most of the industries. Presently, only six industries are under the compulsory licensing system.
h. Allowing foreign technology: The imports of foreign technology were also liberalized in order to help improve the quality as well reduce the cost of goods and services.
i. Entry of foreign bank: Foreign banks were allowed operations in the country. Thus, the number of private foreign banks have increased greatly.
j. Setting up of SEBI: The Securities and Exchange Board of India was set up in 1988 to regulate the operations of stock exchanges and mutual funds.
k. System of online trading: The system of online trading and dematerialized trading was introduced which helped in reducing the risk associated with paper transactions as well as saved time and costs.
l. Insurance sector reforms: The Insurance Regulatory Development Authority (IRDA) Act was passes under which licenses were given to private sector insurance companies fo the insurance business.
m. Import liberalization: Imports were liberalized and such controls as import licensing were abolished (except for consumer goods).
n. Export promotion: Export were encouraged through various incentives as announced under the EXIM policy. In addition, SEZ (Special Economic Zones) have been set up for the promotion of exports. Similarly, Agri export zones have been set up for encouraging agricultural exports.