Question

Give reasons for the following:

1. Privatisation was encouraged in the New Economic Policy.

2. Under the New Economic Policy, inflow of foreign capital was encouraged.

3. Indian farmers are shifting cultivation from food grains to non-food grains.

Answer 1

1. Prior to the reforms the public sector was accorded priority in the industrial development while the private sector played only a secondary role. However, such a policy did not yield positive effects and problems such as stagnation, inflation and imbalance grew immensely. The rate of growth of the economy was quite low. It was realized that to overcome the situation the role of public sector must be curtailed while the private sector must be encouraged. Accordingly, in the economic reforms of 1991, privatisaition formed an important component. For this measures that were taken were dereservation policy, establishment of BIFR (Board of Industrial and Financial Reconstruction), creation of NRB (National Renewal Board), disinvestment policy.

2. Prior to the reforms the foreign investment was highly restricted in India. In the post reform period, foreign capital was encouraged in India with the basic objective of pushing up the growth process. In this regard various measures were taken such increasing the equity limit of foreign capital, setting up special economic zones (SEZ) and passing the Foreign Exchange Management Act (FEMA).

3. As a result of the economic reform process, the agriculture sector in India benefitted in the form of diversification of cropping pattern. While earlier the farmers primarily grew food and staple crops as per the domestic demand, with the opening up of the economy, demand for non-food items such as horticulture, medicinal plants, etc. have also increased. Accordingly, the farmers have also switched towards the production of such crops.