New Economic Policy

Economic Background 1948 - 1956. Public sector dominance Limited private participation. 1956-1980. Industry classification.

Industrial licensing policy

Conti
Economic background (cont..) 1980 1991

Limited liberalization measures were initiated.. Steps were taken to modernize some of the most important industries,

such as cement, steel, aluminum and power generation equipment.

 Cause of the Crisis-1990 From 1950 to 1980, the India economy grew at a slow rate of

3.6 percent..

This gave rise to foreign borrowing on a small scale.

The result was increase in foreign debt and repayment liability.

 Cause of the Crisis-1990(cont..)(cont..) Foreign debt increased from US$23.5billion in 1980 to $63.40

billion in1991.
nearly 28% of total export revenue went to service the debt Lead to Fiscal deficit (expenditure exceeds the revenue)

 Cause of the Crisis-1990(cont..) Reasons of fiscal deficit exorbitant expenditures were

incurred by the central government's.

The inefficient functioning of many of the central and

state public sector enterprises.

 Cause of the Crisis-1990(cont..)

The multilateral agencies such as IMF and the World Bank insisted that the policymakers undertake structural reforms.

Internal debt liability increased to 53% of GDP.

 Features of the new policy

Liberalization. Integration with world economy with dismantling tariff wall. Protection of foreign direct investment. upgrading the technology of production. Financial stability.

Outward looking policies.

 Components of New Economic policy: Short term (immediate stabilization) Correcting the disequilibrium in foreign exchange market through

demand reduction.
Reform in trade policy Reduction in fiscal deficit Dismantling of barrier to free flow of capital

 Components of New Economic policy (cont..) Exchange rate .

Trade and industrial policy. .

Policies concerning the public sector. financial sector.

 Outcome of New Economic policy Liberalization Privatization Globalization

 Changes in liberalization; Industrial licensing

Public sector policy

MRTP Act Foreign investment

Foreign technology agreements

 Changes in privatization:

Liberalization approach Relative share in production Share in management Transfer of minority ownership Transfer of complete ownership

 Benefits and disadvantages of privatization; Methods of privatization:

Disinvestment Leasing/contract

 GLOBALIZATION;

Spreading the economic activities across political boundaries. Integration of economy with world economy 3 dimensions are;

International trade International investment migration

 Factors contributing to globalization;

Advancements in communication Improvements in transport Raising education levels

 Benefits of globalization; Increase productivity and higher standard of living Increase in trade in goods & services New opportunities for growth Flow of capital Impact on poverty Increase in level of interdependence and competitiveness Domestic firms to Improve their technology

 Disadvantages:

Takeover of national firms ruin of traditional crafts and industries Brings instability Widens the disparity

 Effect of new economic policy (positive) Increase in GDP growth rate Increase in foreign direct investment Increase in foreign exchange

 Effect of new economic policy (negative) Growing unemployment Neglect of agriculture Growing disparities Infrastructural inadequacies

Wide spread poverty..

Demonstration effect (luxury goods)