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  • Nep 20-08

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    SATYABRAT ROUT
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    The document provides information on India's New Economic Policy of 1991 which introduced economic liberalization. It led to opening up of the Indian economy, reducing import tariffs and allowing private sector participation. Key reforms included liberalization, privatization, and globalization. The objectives were to accelerate growth, stabilize inflation, increase foreign investment and participation of private players. Some outcomes were increased GDP growth, budget size, forex reserves and per capita income. It faced challenges but helped integrate India's economy globally.

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    The document provides information on India's New Economic Policy of 1991 which introduced economic liberalization. It led to opening up of the Indian economy, reducing import tariffs and allowing private sector participation. Key reforms included liberalization, privatization, and globalization. The objectives were to accelerate growth, stabilize inflation, increase foreign investment and participation of private players. Some outcomes were increased GDP growth, budget size, forex reserves and per capita income. It faced challenges but helped integrate India's economy globally.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    33 views17 pages

    Nep 20-08

    Uploaded by

    SATYABRAT ROUT
    The document provides information on India's New Economic Policy of 1991 which introduced economic liberalization. It led to opening up of the Indian economy, reducing import tariffs and allowing private sector participation. Key reforms included liberalization, privatization, and globalization. The objectives were to accelerate growth, stabilize inflation, increase foreign investment and participation of private players. Some outcomes were increased GDP growth, budget size, forex reserves and per capita income. It faced challenges but helped integrate India's economy globally.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 17

    NEW ECONOMIC POLICY-1991

    Introduction
    • New Economic Policy of India was launched in the year 1991 under the
    leadership of P. V. Narasimha Rao.

    • This policy opened the door of the India Economy for the global exposure
    for the first time.

    • New Economic Policy refers to economic liberalisation or relaxation in the


    import tariffs, deregulation of markets or opening the markets for private
    and foreign players.

    • The thrust of the New Economic Policy has been towards creating a more
    competitive environment in the economy as a means to improving the
    productivity and efficiency of the system. This was to be achieved by
    removing the barriers to entry and the restrictions on the growth of firms.
    Factors which lead to 1991 economic reforms

    • Rise in Prices: The inflation rate increased from 6.7% to 16.7% due to rapid
    increase in money supply and the country’s economic position became
    worse.
    • Rise in Fiscal Deficit: Due to increase in non-development expenditure
    fiscal deficit of the government increased. Due to rise in fiscal deficit there
    was a rise in public debt and interest. In 1991 interest liability became
    36.4% of total government expenditure.
    • Increase in Adverse Balance of Payments: In 1980-81 it was Rs. 2214 crore
    and rose in 1990- 91 to Rs. 17,367 crores. To cover this deficit large
    amount of foreign loans had to be obtained and the interest payment got
    increased.
    • Gulf war crisis: In 1990-91, war in Iraq broke, which led to a rise in oil
    prices.
    • Disintegration of the Soviet Union led to believe that more socialism
    could not be the solution for India’s ills.
    Objectives of New Economic Policy 1991
    • Integrate the economy with the world.

    • Accelerate the pace of economic growth and create enough foreign


    exchange reserves to withstand any BOP crisis

    • Stabilise the economy and convert the economy into a market driven
    economy by the removal of barriers to trade

    • Facilitate and encourage international flow of goods, capital, services,


    technology, human resources, etc.

    • Increase the participation of private players in all sectors of the economy.


    Liberalization
    Liberalisation-Removal of Industrial Licensing and Registration:

    Previously private sector had to obtain license from Govt. for starting a new
    venture. In this policy private sector has been freed from licensing and other
    restrictions.

    Compulsory Industries licensing is necessary for following industries:


    • (i) Liquor (ii) Cigarette (iii) Defence equipment (iv) Industrial explosives (v)
    Drugs (vi) Hazardous chemicals
    Privatisation

    • Privatization refers to allowing the private sector to set up industries


    which were previously reserved for the public sector.

    • Under this policy many PSU’s were sold to private sector. In other words,
    privatization is the process of involving the private sector-in the ownership
    of Public Sector Units.

    • Presently, Number of industries reserved for public sector is two.


    o Atomic energy & Railway Transport
    Globalization
    • Globalization means integration of the economy with the whole world.
    • It facilitates the interaction of the domestic economy with the rest of the
    world with regard to foreign investment, trade, production and financial
    matters.
    • Globalization is a phenomenon driven by technology and the movement of
    ideas, people, and goods.
    • Globalisation can thus be seen as a phenomenon of transformation of
    economic, technological, socio-cultural and political forces at local or regional
    levels to international scale.
    • Thomas L. Friedman in his book, “The World is Flat” has stressed the role of
    globalisation in terms of trade, outsourcing, supply-chains and political forces
    which have made lasting impacts on the world and have changed it for good
    or bad.

    .
    Outcome of LPG reforms:
    • India’s GDP growth rate increased. During 1990-91 India’s GDP growth rate
    was only 1.1% but after 1991 reforms India achieved 6-7% average GDP
    growth rate and now India is the world’s fastest-growing major economy.
    • Since 1991, Budget size grew 19 times, economy 9 times; Per capita
    income 5.6 times
    • Since 1991, India has firmly established itself as a lucrative foreign
    investment destination and FDI equity inflows in India in 2019-20 stood at
    US$ 19.33 billion.
    • In 1991 the unemployment rate was high but after India adopted new LPG
    policy more employment got generated as new foreign companies came
    to India and due to liberalisation and Privatisation many new industries
    started.
    • Per Capita income increased due to an increase in employment.
    • India's share in world exports has increased from 0.6% in 1991 to 1.7% in
    2018 but remains paltry compared with China's 12.8%.

    • India's CPI inflation rules at 4 per cent. However, this was not the case in
    1990s, when Inflation was in double digits. As suggested above, inflation
    was as high of 16.7 per cent in August 1991.

    • India had forex reserves of Rs 2,500 crore ($1.1 billion) when the then FM
    Manmohan Singh delivered his 1991-92 Budget speech. India’s foreign
    exchange reserves has now crossed the milestone $500 billion mark for
    the first time in country’s history.
    Globalization 4.0

    • Globalization 4.0 was the theme for World Economic Forum Annual
    Meeting 2019 held in Davos, Switzerland in January 2019.

    • Globalization 4.0 is latest stage of globalization which involves cutting-


    edge new technologies like artificial intelligence that powers forward with
    the explosion of information technology.

    • These technologies shrink distances, open up borders and minds and bring
    people all across the globe closer together.
    Challenges of Globalization 4.0

    • Globalization 4.0 is latest stage of globalization which involves cutting-


    edge new technologies like artificial intelligence that powers forward with
    the explosion of information technology
    • Mixed results: Globalization 4.0 could, like preceding waves of
    globalization, have mixed results e.g. even though countries are globally
    connected political crisis and global level conflict have also increased.
    • Income Inequality: Negative effects of globalization have a
    disproportionate impact on already marginalized populations.
    Globalization 4.0 may increase income inequality even if it can create
    more wealth.
    • Demographic disaster: Countries like India, if do not take steps to meet the
    skill requirements of globalisation 4.0, then it may bring demographic
    disaster, given its huge population and low employment generation.
    • Unintended consequences: Globalization 4.0 in conjunction with Industry
    4.0 will produce many unintended consequences which may not be
    foreseeable for now and for which world is vastly unprepared the ethical,
    legal, environmental concerns are yet to be seen for which no framework
    has been laid out.
    • Infrastructural challenges: Apart from skilling, India also needs to set up
    required infrastructure and technology to harness the advantages of
    globalization 4.0.
    Effect of Covid-19 on Globalization
    Economic consequences

    • The 2003 SARS outbreak, which infected about 8,000 people and killed
    774, cost the global economy an estimated US$50 billion. The 2015 MERS
    outbreak in South Korea, meanwhile, infected 200 people and killed 38,
    but led to estimated costs of US$8.5 billion.

    • United Nations Economic and Social Commission for Asia and the
    Pacific (UNESCAP) in its annual Economic and Social Survey, held that the
    Covid-19 crisis is a challenge never seen before and it is going to be a
    bigger shock for the world economy than the Global Financial Crisis.

    • India is among the 15 most affected economies due to the COVID-19


    epidemic and slowdown in production in China, with a trade impact of
    $348 million.
    Problem faced by Emerging and Developing Economies: The United Nations
    Conference on Trade and Development held that emerging and developing
    economies which rely on export-led growth, will now be severely impacted as
    the global economy contracts and the world opts protectionism policies.

    Disruption of Global Value Chain: Covid-19 crisis is having devastating


    repercussions for corporations and businesses that have benefited from
    economic interdependence supported by cross-border supply chains.

    Promote Import Substitution:


    Countries will reconfigure their economies to look at import substitution with
    a greater clarity now, as the perils and pitfalls of overdependence on foreign
    supplies become clear.
    Restriction on People to People Movement:
    National governments will have to weigh the risks of contagious
    diseases against the benefits of ease of travel or may have to consider
    stronger safeguards.
    In the short run, the World’s Tourism industry will get affected even
    after the crisis gets over.
    Also, mobilisation of finance will be indirectly affected as less
    migration and business travel coupled with incentives to invest at
    home will hinder transnational capital flows.
    Suggestions
    • Invest in strengthening grass root democracy & regional economies: We
    should proactively build resilient local and regional systems that can
    participate in the next wave of globalization, making sure regions have the
    right mix of education, employment and infrastructure to create and
    sustain jobs locally.
    • Focus on sustainability and Inclusiveness: The need of the hour is to
    design a blueprint from the ground up that can capitalize on new
    opportunities while prioritizing sustainability and inclusiveness more than
    ever before.
    • Focus on marginalized and vulnerable section: Global and local institutions
    need to advance both universal and targeted strategies to improve
    outcomes for everyone ensuring vulnerable population is not left out.
    Need to promote Innovation in education and enhance skill set of people

    • By 2022, at least 54% of employees globally will require re- and up-skilling.
    • Not only do we need to support people in getting the training they need
    for jobs in the next five years, but we need to prepare young students with
    the skills to adapt to the types of jobs we will need in the next 20 years.
    • New Zealand is implementing a national technology curriculum to teach
    students to be digital creators, as well as consumers.

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