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What are the Features of the New Economic Policy of India?

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Before 1991, the Indian economy was strictly under the control of the government. It was the public companies that ruled the roost. The very few private companies that operated those days had to follow myriad government-sanctioned dos and don'ts. However, as 1991 was approaching, the Indian economy was on the brink of collapse. The government had to take the help of the IMF and it secured a bailout package from it.


As per the terms and conditions of the bail-out package from the IMF, the Indian government had to deregulate the domestic market, reduce the import tax and other kinds of taxes. Further, it had to open its market for foreign players. This policy of opening the market and liberalising it is known as the New Economic policy, 1991. The Prime Minister, P.V Narsimha Rao, the then Finance Minister Manmohan Singh and the minister P. Chidambaram were the key players in making this policy see the light of the day.


The Features of the New Economic Policy

The new economic policy of 1991 brought a sea change in the Indian market and economy. The government, with this policy, did many reforms and went ahead with radical policy changes. The basic idea that India was a socialist country was challenged by the New Economic Policy, 1991.

  1. The Government Gave Up Monopolistic Control Over Many Industrial Sector

In the pre-1991 era, the key industrial sectors, namely - the iron and steel industry, heavy machinery industry, air travel sector, shipbuilding sector, telecommunications and the general communications sector etc. The private players, after the policy, could enter these industries without many obstacles. The Indian Railways, the army equipment industry, the nuclear energy industry etc still remained under the control of the government.

  1. The End of License Raj

Previously, the private players had to obtain licenses from the government in order to start a business in any industrial sector. After 1991, the practice of obtaining a license for starting a business was largely done away with. The sectors where licensing still remained were the Alcohol sector, dangerous chemicals sector, cigarette sector, drugs and medicines sector, explosives sector etc. 

  1. The Government Transferred Its Equity In Public Sector Enterprises To Private Player

As part of the New Economic Policy, it was mandated that the government would have to give up control over the commercial enterprises. This led the government to transfer its equities held in the public sector enterprises to private players. As a result of this privatisation, the government achieved significant monetary gains which helped it to fill the deficits and clear debts.

  1. The Financial Sector Reforms 

Just like the industrial sector, in the financial sector too, the central bank - the RBI - ceded much of the power it held in the financial sector. Private Banks could now operate in the country. However certain key aspects of the financial sector were kept under the control of RBI to prevent any unfortunate financial incident happening to the account holders.

  1. FDI

The foreign direct investment policy in India also became mature after the NEP. Now, foreign players could easily enter the Indian Market. It was allowed to buy a 51% stake in a domestic company.

  1. Reforms In Taxation

The NEP reformed the prevailing tax policy. On one hand, it benefited the citizens by lowering the tax rate and on the other, it benefited the government by bringing many previously non-taxable sectors under the purview of taxation.

  1. Import-Export Reforms

After 1991, the companies were allowed to import a wider range of products. The outward-looking approach to trade offered the citizens to enjoy high-quality overseas products. The monopoly of the domestic businesses was over and the price of the commodities went down. The import taxes were lowered.

  1. Globalisation

Because of the opening up of the Indian market to foreign players and products, the Indian society tasted the advantages of globalisation. More and more Indian businessmen, students and politicians came in contact with global powerhouses and the exchange of ideas proved valuable.

  1. Privatisation

Due to the disinvestments of the government from many public sector enterprises, the private players cropped up to gain control of these enterprises. The private players made these hitherto government-controlled companies disciplined. The common people benefited from the high-quality service that they got from these private companies.


The preamble to the constitution of India says that India is a socialist country. Yet socialism failed to lead India towards the light. As a result, the Narasimha Rao government had to go against the preamble and open up the economy. This led to private companies getting richer and the government enterprises moving towards the brink of extinction. Many poor people in the country were not able to get benefited from the NEP. Yet, without NEP, India would have been just another African country with no power and no say in international politics.

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