New Economic Policy of 1991

The new economic policy of India was introduced under the leadership of P.V. Narasimha Rao in 1991. Through this policy, the Indian Economy has opened its door for the first time to step into the global economy. Under the New Economic policies, P. V Narasimha Roa reduced the import duties that were imposed by the government of India. They have also opened a reserved sector for the private players. Meanwhile, the government of India devalued the Indian currency to increase exports.  Altogether, the New Economic Policy of 1991 objectives features and impacts are simply named the LPG Model of growth. As a New Economic Policy Of 1991 Impacts, the government has provided deregulation of markets or opening the markets for private and foreign players, economic relaxation or liberalisation in the import tariffs, and reduction of taxes to expand the economic wings of the country.

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The above image shows the father of the New Economic policy - Manmohan Singh  - A former prime minister and union finance minister. 

Why Did the Government of India Introduce a New Economic Policy? 

Before 1991, the Indian government saw a huge financial crisis in the global market. This turned into the catalyst for making some economic reforms. The main reason for the crisis in the Indian economy is the rise of oil prices due to the gulf war, low remittances from Gulf countries, low foreign reservations with hyperinflation of the Indian economy in global markets. 

All the above-mentioned reasons have pushed the government of India to launch a set of new economic policies to stabilise the country's economy. Meanwhile, the government of India approached the International Monetary Fund and the World Bank for loans to balance it.  All these institutions provided some financial assistance and meanwhile opened up the economy and removed restrictions on the private sector. So, P. V Narasimha Rao government named the measure carried over by them as the New Economic Policy. Former Prime Minister of India, Manmohan Singh, introduced the New Economic Policy on 24th July 1991. Later, Manmohan Singh was considered the father of New Economic Policy. 

The List of Economic Policy of 1991 Objectives Features and Impacts

Dr Manmohan Singh served as the Union Finance Minister of India during the P. V. Narasimha Rao government. So, Dr Manmohan Singh listed some economic policy of 1991 objectives features and impacts. They are listed below:

1. The main objective feature of the new economic policy is to withstand the Indian Economy in the global market. So, this provides the new thrust on market orientation. 

2. The New economic policy is introduced with the aim of bringing down the rate of inflation. 

3. This economic policy helped the Indian economy to have higher growth and to build sufficient foreign exchange reserves.

4. The new economic policy helped to achieve economic stabilisation and introduced the Indian economy into the global market by removing restrictions on Foreign Direct Investment. 

5. They allowed the international flow of goods, capital, services, human resources and technology, without minimum restrictions.

6. Through new economic policy, the government of India increased the private players in all the sectors of the economy and reduced the reserved numbers of sectors for the government.

New Economic Policy of 1991 Impacts in Indian Economy

In the mid-of 1991, the Government of India made many radical changes in the policies related to foreign direct investments,  foreign trade, privatisation, exchange rate, fiscal discipline etc. All these actions created huge changes in India’s economy in the global market. This new economic policy also created a competitive environment in the economy and improved the productivity and efficiency of the system. This was mainly achieved due to minimising the restrictions on the growth of firms.

List of Five Years Plan Introduced in India 

The government of India has taken various measures while adopting the New Economic Policy. Due to various restrictions, many entrepreneurs restricted themselves to establish new industries. So, the government has taken measures to avoid corruption, unwanted delays and raise in inefficiency. Through that, the rate of economic growth increased. In addition, the government of India introduced to reduce the restrictions imposed on the economy.

Steps Taken By Government of India Under Liberalisation:

i) Commercial Banks can Determine Their Own Interest Rates 

Through liberalisation, the government of India allows commercial banks to fix their own interest rates according to the guidelines of RBI. Initially, it was wholly controlled by the RBI. 

ii) Increased the Small Scale Industries Investment Limits

Through increasing the investment limit of Small Scale Industries to Rs. 1 Crore. They provided opportunities for many people to start new industries and to upgrade their existing machinery. This supported improving the efficiency of SSI and productivity from SSI. 

iii) Limited Restrictions to Import Capital Goods

This action allowed many Indian industries to buy machinery and raw materials from foreign countries. This improved the quality of the product and increased the productivity of the company. 

iv) Allowed  for Expansion and Production to Industries

Through new liberalisation policies, Industries in India are allowed to freely diversify their production capacities and decrease the production cost. Before that, the government had set a limit for production. So, no industries were allowed to produce beyond the limit. After liberalisation, the government allowed the companies to freely decide their productivity based on their requirement in the markets. 

v) Abolition of Restrictive Trade Practices

The companies with the asset more than or equal to Rs. 100 crores are called MRTP firms, as per the Monopolies and Restrictive Trade Practices (MRTP) Act 1969. All MRTP firms have several restrictions. So, during liberalization, the government of India cancelled all the restrictions and allowed them to have their own ideas. Later, the MRTP Act was replaced by the Competition Act, 2002.

Liberalisation 

Initially, all the private sectors have to obtain a license from the Government of India. As per the policy of 1991 objectives features and impacts related to the economy, the private sectors are freed from licensing and other restrictions. The government still provides licensing for only the below-mentioned companies. They are liquor and cigarette manufacturing companies, defence equipment manufacturers, Industrial explosives, Drug manufacturers and the companies which are manufacturing Hazardous chemicals are only required for getting a license from the company. 

Privatisation  

Privatisation simply means, allowing the private sector to open new industries. Initially, only the public sector ran some industries. Through the New Economic policy of 1991, the government allowed private owners to start their companies in certain sectors. The government of India allowed this for improving productivity, increasing employment, avoiding corruption in the government sector and managing work apparently. Meanwhile, this increased the competition and efficiency of privatisation of PSUs. Through this policy, many PSUs are sold to the private sector. Through this, private owners are taking care of the process carried over by the PSUs and sharing the ownership with PSUs for a particular period of time. 

List of Steps Taken by Government for Privatisation 

1. Sold the shares on PSUs: The government of India sold the shares of public sector companies to the private sector at a certain ratio. For example, the government of India sold 55% of shares of Maruti Udyog Ltd to private companies and now runs them as a private organization. 

2. Disinvestment in PSUs: From certain companies, the government of India completely withdrew its shares and sold them to private sectors. 

3. Minimisation of Public Sector: In certain sectors, the government of India minimized its branches and ran them in minimum quantity. The main objective behind the minimisation of the private sector is to decrease poverty and boost private sectors in the industries. The best example of this is Railway operations and Atomic energy. 

Globalisation 

Globalisation means taking measures to reach the advantages of the sector globally or worldwide.  This will increase foreign investment, trade, production and GDP of the country.

List of Steps Taken by the Government for Globalization 

1. The government of India has reduced the tariffs that are imposed on imports and exports. This attracted global investors to India. 

2. Long term trade policy also invited foreign investors to India, and this supported the growth of the country’s GDP.  Important features of the globalisation policies are Liberal policy, encouraging open competition and limitations on foreign trades have been removed. 

3. Partial Convertibility of Indian currency, which means the government of India converting the part of Indian currencies and kept as the currency of other countries in resources for facilitating Foreign Institutional Investment (FII) and Foreign Direct Investment (FDI). This is applicable only for remittances to meet family expenses, payment of interest, and import and export of goods and services. 

4. During globalisation, the government of India increased the Equity limit of foreign capital investment from 40% to 100%. So, the people interested in FDI are allowed to invest in India without any restrictions. 

The government of India has taken various measures at various states to stabilise India’s economy in the global market. This supported the development of the country.