NEW ECONOMIC POLICIES

NEW ECONOMIC POLICIES

Under the leadership of Shri. P.V. Narsimha Rao , in the year of 1991 the congress government introduced a new economic policy to overcome the problems such as adverse balance of payments position, low level of foreign exchange reserve, sharp decline in foreign capital inflow large fiscal deficit, low productivity of past investments and temporary loss of export markets . The new policy aimed at achieving three major objectives of : 1. Liberalisation. 2. Globalisation. 3. Privatisation.

CONCEPT OF LIBERALISATION
Liberalisation means withdrawal of various restrictions on industrial and business firms in terms of investment, production, production, import and export.

Important measures in direction of liberalisation:

1. Reduction in nominal tariff rates. 2. Narrowing gap between nominal and effective tariff rates. 3. Real valuation of currency. 4. Adopting uniform exchange rate in place of multiple exchange rate. 5. Removal of imports and exports duties. 6. The removal of subsidies ,tax rebates . 7. Duty free access to foreign goods and services.

Policy decisions in favour of liberalisation

1. Liberal export import policy 2. To bring convertibility of rupee on current account. 3. To bring an end to licensing. 4.To offer an opportunity to foreign investors to enter in Infrastructure and service sectors. 5. Encourage private investment. 6. Allowing foreign equity investment in Indian companies. 7. To adopt policy of foreign exchange transaction. 8. Offering incentive plans

EFFECTS OF LIBERALISATION IN INDIA

Positive effects: 1. FOREX services. 2. Improvement in balance of payments positio. 3. Improvement in the quality of indian product. Negetive effect: Adverse effects on: 1. Balance of trade. 2. Small scale industries. 3. Indian agriculture.

Concept of globalisation
The expansion and extension of economic activities across political boundaries of a country is called globalisation. A process of increasing economic integration.  A process of free movement of commodities, capital, entrepreneurs, professionals and workers across national boundries.  A process of transforming national economies into global economy.


Components of Globalisation
Two components as follows:  Globalisation of markets.  Globalisation of production. As growing independence of countries worldwide through increasing: y Volume and variety of cross border transaction y International capital flow. y Rapid and widespread diffusion of technology.

Characteristics of Globalisation
Operating and planning to expand business.  Indiscriminate policies.  Establishment of manufacturing and distribution facilities.  Product planning and development.  Fast growth of multinational corporation.  Recovery of resources.


Essential conditions of globalisation

Freedom to business.  Availability of infrasructural facilities and other resourcesto business firms.  Creation of competitiveness among the firms.  Orientation of business firms.


Globalisation in India
y y y y y

Process of globalisation was started in India by integrating our economy with world economy. Withdrew of restriction. Multinational corporations was allowed. Foreign exchange regulation act. Adjustment in exchange rate of rupee.

Step towards globalisation in India

a) b) c) d) i. ii. iii.

Delicencing policy (1991). Rupee convertibility. Import liberalisation. Opening up to foreign capital: Permission for foreign direct investment. Equity in other tourist areas. Cent per cent foreign participation for setting up power plants in the coutry.

Effects of globalisation in India

 1. 2. 3. 4. 5. 6.

Effects on External Sector : Increase in foreign exchange reserves. Improvement in balance payments situation. Success in self-reliance through import substitution. Decrease in current account deficit. Decrease in external debt. Control on illegal transactions.

Effect of globalisaton in India

 Effect 1. 2. 3. 4. 5. 6.

on Domestic Economy: Competition in Indian industries and multinational companies. Decline of small scale industries. Increase in unemployment. Rural economy is collapsed. Justice and injustice to certain industries. Increase in inequality in income and wealth.

Privatisation is the process of participation of private sector in ownership and management of public sector. It is also known as the transformation of public sector into private sector either fully or partially. Privatisation is the general process of involving private sector in the ownership or operation of a state-owned enterprises.

Following are made in favour of prvatisation: 1. Improvement in efficiency. 2. Easy fixation of responsibility. 3. Maintenance of capital market discipline. 4. Absence of political interference. 5. Success in planning. 6. Immediate response. 7. Measures in private. 8. Privatisation leads to better services to consumers.

Arguments made against privatisation are: 1. Wrong season. 2. Executed in wrong season. 3. Lack of transparency. 4. Undertaken only to finance budget deficit. 5. Lack of strong financial strategy. 6. Lack of realistic labour strategy. 7. Lack of political consensus.

Number of reserved products for public sector was reduced . Government stopped financial assistance to public sector enterprises. The Government followed disinvestments program for privatisation.

POSITIVE EFFECT : Better service to customers. Control on wastages. Better efficiency and performance. Human touch in customers services. Control in loss.

NEGATIVE EFFECTS : Profit making motive. Problem of unemployment. Fear of foreign direct investment. Problem of underutilisation of the capacity.