INTRODUCTION

The year 1991 is an important landmark in the economic history of post-Independent India.
The country went through a severe economic crisis triggered by a serious Balance of Payments
situation. The crisis was converted into an opportunity to introduce some fundamental changes
in the content and approach to economic policy.

Responce to the crisis was to put in place a set of policies aimed at

stabilisation and structural reform. While the stabilisation policies were aimed at correcting the
weaknesses that had developed on the fiscal and the Balance of Payments fronts, the structural
reforms sought to remove the rigidities that had entered into the various segments of the Indian
economy. Former Prime Minister Manmohan Singh is considered to be the father of New
Economic Policy of India.

India's post-independence development strategy showed all the signs of stagnation, but the
economy startedshowing the sign of recovery in the early nineties when the government
adopted the new economic model known as Liberalization, Privatization and Globalization
(LPG) to meet a grave economic crisis; characterizedby unprecedented adverse balance of
payment problem, inflation, decline in the foreign exchange reserve andthe Gross Domestic
Product (GDP) growth rate. The objective of the economic reforms adopted by the Indian
Government was to transform a backward and predominantly agrarian economy, lacking in
basic infrastructure, into a modern developed economy

MAIN OBJECTIVES OF NEW ECONOMIC POLICY – 1991, JULY 24

The main objectives behind the launching of the New Economic policy (NEP) in 1991 by
the union Finance Minister Dr. Manmohan Singh is stated as follows:-
1.) The main objective was to plunge Indian economy in to the arena of ‘Globalization and to
give it a new thrust on market orientation.

2.) The NEP intended to bring down the rate of inflation and to remove imbalances in payment.

3.) It intended to move towards higher economic growth rate and to build sufficient foreign
exchange reserves.
4.) It wanted to achieve economic stabilization and to convert the economic in to a market
economy by removing all kinds of unnecessary restrictions.

5.) It wanted to permit the international flow of goods, services, capital, human resources and
technology, without many restrictions.

6.) It wanted to increase the participation of private players in the all sectors of the economy.
That is why the reserved numbers of sectors for government were reduced to 3 as of now.

Beginning with mid-1991, the govt. has made some radical changes in its policies bearing on
trade, foreign investment exchange rate, industry, fiscal discipline etc. The various elements,
when put together, constitute an economic policy which marks a big departure from what has
gone before.

MAIN MEASURES ADOPTED IN THE NEW ECONOMIC POLICY

Due to various controls, the economy became defective. The entrepreneurs were unwilling to
establish new industries ( because laws like MRTP Act 1969 de-motivated entrepreneurs).
Corruption, undue delays and inefficiency risen due to these controls. Rate of economic growth
of the economy came down. So in such a scenario economic reforms were introduced to reduce
the restrictions imposed on the economy. India opened up the economy in the early nineties
following a major crisis that led by a foreign exchangecrunch that dragged the economy close
to defaulting on loans. The credibility of country's economy reached
the sinking level and no country was willing to advance or lend to India at any cost. The country
ran out offoreign exchange reserves. To face the crisis situation, the government decided to
bring about major economicreforms to revive Indian economy. These reforms were popularly
known as 'structural adjustments' or
'liberalization' or 'globalization'.The government announced a New Economic Policy on July
24, 1991. The new policy deregulates industrialeconomy in a substantial manner.
 BRANCHES OF ECONOMICS

NEW ECONOMIC POLICY ,1991

(1). GLOBALIZATION

(2). PRIVATIZATION

(3). LIBERALIZATION

{1} LIBERALIZATION
Liberalization is understood to be the situation of the political economy where the means of
production will be in the hands of the market and the economic efficiency is measured in terms
of market-defined objectives Major economic activities are opened for private participation
keeping only key issues of welfare and other regulatory mechanism with the state. This opening
up of various sectors for private participation and allowing them to manage the businesses for
maximizing the profits will clearly underline the freedom available for the market to have their
own labour participation practices and deployment of human resources. Liberalisation thus
aims minimizing the labour participation and downsizing the workforce in the industry in the
name of removing the dead wood to maximize efficiency.

FOLLOWING STEPS WERE TAKEN UNDER THE LIBERALISATION MEASURE:

(i) Free determination of interest rate by the commercial Banka:

Under the policy of liberalisation interest rate of the banking system will not be determined by
RBI rather all commercial Banks are independent to determine the rate of interest.

(ii) Increase in the investment limit for the Small Scale Industries (SSIs):
Investment limit of the small scale industries has been raised to Rs. 1 crore. So these companies
can upgrade their machinery and improve their efficiency.

(iii) Freedom to import capital goods:

Indian industries will be free to buy machines and raw materials from foreign countries to do
their holistic development.

(v) Freedom for expansion and production to Industries:

In this new liberalized era now the Industries are free to diversify their production capacities
and reduce the cost of production. Earlier government used to fix the maximum limit of
production capacity. No industry could produce beyond that limit. Now the industries are free
to decide their production by their own on the basis of the requirement of the markets.

(vi) Abolition of Restrictive Trade Practices:

According to Monopolies and Restrictive Trade Practices (MRTP) Act 1969, all those
companies having assets worth Rs. 100 crore or more were called MRTP firms and were
subjected to several restrictions. Now these firms have not to obtain prior appropriation

(1). LIBERALIZATION

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 free from licensing and other restrictions.

Industries licensing is necessary for following industries:

(i) Liquor

(ii) Cigarette

(iii) Defence equipment

(iv) Industrial explosives

(v) Drugs

(vi) Hazardous chemicals.

2. PRIVATISATION:
Simply speaking, privatisation means permitting 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. Literally speaking, privatisation is the process of involving the private sector-in
the ownership of Public Sector UnitsThe main reason for privatisation was in currency of
PSU’s are running in losses due to political interference. The managers cannot work
independently. Production capacity remained under-utilized. To increase competition and
efficiency privatisation of PSUs was inevitable.

Step taken for Privatization:

1. Sale of shares of PSUs:

Indian Govt. started selling shares of PSU’s to public and financial institution e.g. Govt. sold
shares of Maruti Udyog Ltd. Now the private sector will acquire ownership of these PSU’s.
The share of private sector has increased from 45% to 55%.

2. Disinvestment in PSU’s:

The Govt. has started the process of disinvestment in those PSU’s which had been running into
loss. It means that Govt. has been selling out these industries to private sector. Govt. has sold
enterprises worth Rs. 30,000 crores to the private sector.

3. Minimisation of Public Sector:

Previously Public sector was given the importance with a view to help in industrialisation and
removal of poverty. But these PSU’s could not able to achieve this objective and policy of
contraction of PSU’s was followed under new economic reforms. Number of industries
reserved for public sector was reduces from 17 to 3.

(a) Transport and railway

(b) Mining of atomic minerals

(c) Atomic energy.

( 3.) GLOBALIZATION:

Broadly speaking, the term 'globalization' means integration of economies and societies
through cross country flows of information, ideas, technologies, goods, services, capital,
finance and people. Cross border integration can have several dimensions - cultural, social,
political and economic. The Policies and developments in many countries including India are
influenced by the globalization. Globalization is not only a movement of ideas, information,
capitals, people, technologies, goods and services, and labour across the nation-states but has
serious implications on socio-economic and political sphere of life.
Limiting ourselves to economic integration only, one can see the three channels of
globalization (a) trade in goods and services, (b) movement of capital and (c) flow of finance
and (d) movement of people. The globalization through economic integration has been
presented as the best, natural and universal path towards development of mankind.

FOLLOWING STEPS ARE TAKEN FOR GLOBALIZATION

(i) Reduction in tariffs:

Custom duties and tariffs imposed on imports and exports are reduced gradually just to make
India economy attractive to the global investors.

(ii) Long term Trade Policy:

Forcing trade policy was enforced for longer duration.

Main features of the policy are:

(a) Liberal policy

(b) All controls on foreign trade have been removed

(c) Open competition has been encouraged.

(iii) Partial Convertibility of Indian currency:

Partial convertibility can be defined as to convert Indian currency (up to specific extent) in the
currency of other countries. So that the flow of foreign investment in terms of Foreign
Institutional Investment (FII) and foreign Direct Investment (FDI).
This convertibility stood valid for following transaction:

(a) Remittances to meet family expenses

(b) Payment of interest

(c) Import and export of goods and services.

(iv) Increase in Equity Limit of Foreign Investment:

Equity limit of foreign capital investment has been raised from 40% to 100% percent. In 47
high priority industries foreign direct investment (FDI) to the extent of 100% will be allowed
without any restriction. In this regard Foreign Exchange Management Act (FEMA) will be
enforced.If the Indian economy is shining at the world map currently, its sole attribution goes
to the implementation of the new economic policy in 1991.

POSITIVE IMPACT OF GLOBALIZATION

1. Multilateral agreements in trade, taking on such new agendas as environmental and social
conditions.
2. New multilateral agreements for services ,Intellectual properties, communications, and more
binding on
national governments than any previous agreements.
3. Market economic policies spreading around the world, with greater privatization and
liberalization than in
earlier decades.
4. Growing global markets in services. People can now execute trade services globally -- from
medical advice
to software writing to data processing , that could never really be traded before.
5. Physical and geographical boundaries are crumbling and the world is becoming a global
village. Nation states today no longer have to play market-making role, so wool, wine,
perfumes can belong to any marketanywhere in the world.

NEGATIVE IMPACT OF GLOBALIZATION

1. Low Growth of Agriculture Sector

2. Rise in Rural-Urban Divide

3. Adverse Impact on Autonomy of State

4. Adverse Impact on Culture

5. Adverse Impact on Environment

6. Change in Structure of Trade

7. Bankruptcy of many Employment Generating Firms

8. Unemployment

IMPACTS OF LIBERALIZATION

GDP growth rate –

India’s annual average growth rate from 1990 – 2010 has been 6.6 % which isalmost double
than pre reforms era. GDP growth rate surpassed 5% mark in early 1980’s. This made impact
of 1990’s reforms on growth unclear
Industrial Growth Rate –
Barring few years industrial growth rate has been not much impressive. Share of Industry still
remains stagnantly low at 25%. Worst is that India has transitioned to be a service led
economy, directly from an agrarian one. One expiation of this is end of policy of imports
substitution which derived industrial growth upto 1990.

Impact on Small Scale in India

Colonization can be considered as 1st wave of globalization. In pre colonization era, India’s
textiles and handicraft was renowned worldwide and was backbone of Indian economy. This
impact shall be studied right from the beginning of colonization in 18th century

Impact on Agriculture
As already said, share of agriculture in domestic economy has declined to about 15%.
However, people dependent upon agriculture are still around 55%. Cropping patterns has
undergone a huge change, but impact of liberalization can’t be properly assessed. We saw
under series relating to agriculture that there are still all pervasive government controls and
interventions starting from production to distribution (here SPS and here – WTO)

impact on service sector

In this case globalization has been boon for developing countries and bane for developed
ones. Due to historic economic disparity between two groups, human resources have been
much cheaper in developing economies. This was further facilitated by IT revolution and this
all culminated in exodus of numerous jobs from developed countries to developing countries.
Here US have to jealously guard its jobs as we guard our agriculture.

IT industry
Software, BPO, KPO, LPO industry boom in India has helped India to absorb a big chunk of
demographic dividend, which otherwise could have wasted. Best part is that export of
services result in export of high value

NEW ECONOMIC POLICY 1991

Economic reforms- In 1991 after India faced a balance of payments crisis, it had to pledge 20
tons of gold to Union Bank of Switzerland and 47 tons to Bank of England as part of a
bailout deal with the International monetary fund. In addition the IMF required India to
undertake a series of structural economic reforms so. Government had decided to bring about
major economic reforms to revive Indian economy. These reforms were popularly known as
'structural adjustments' or 'liberalization', Privatization and 'globalization' New Economic
Policy 1991 The government announced a New Economic Policy on July 24, 1991.This new
model of economic reforms is commonly known as the LPG or Liberalisation, Privatisation
and Globalisation model Prime Minister of the country, P V Narasimha Rao initiated
economic reforms with the help of Dr Manmohan Singh. The reforms did away with the
License Raj, reduced tariffs and ended many public monopolies, allowing automatic approval
of foreign direct investment in many sectors
What is LPG?
Liberalization- Liberalisation refers to process of making policies less constraining of
economic activity and also reduction of tariff or removal of non-tariff barriers. Privatization-
The term “Privatisation” refers to the transfer of ownership of property or business from a
government to a private owned entity.
Globalization- Globalisation refers to the expansion of economic activities across political
boundaries of nation states. More importantly perhaps it refers economic interdependence
between countries in the world economy.
The major objective of the new policy-
1. Utilizing fully the indigenous capabilities of entrepreneurs.
2. Fostering research and development efforts for the development of indigenous technologies.
3. Raising investments.
4. Removing regulator system and other weaknesses.
5. Improvement in efficiency and productivity.
6. Controlling monopolistic power.
7. Assigning the right areas for the public sector undertakings.
8. Ensuring welfare as also skills and facilities to the workers to enable them to face new
technologies.
9. Retaining the capacity to earn our own foreign exchange through exports.
10. To achieve self-reliance.
Highlights of the LPG Policy-
Following are salient highlights of the Liberalisation, Privatisation and Globalisation Policy in
India:
 Abolition of Industrial licensing / Permit Raj
 Public sector role diluted
 MRTP limit goes
 Beginning of privatisation
 Freer entry to foreign investment and technology
 Industrial location policy liberalized

IMPACT OF LPG ON INDIAN ECONOMY-

1) INCREASE IN GDP GROWTH RATE

India’s GDP growth rate is increased. During 1990-91 India’s GDP growth rate was only 1.1%
but after 1991 reforms due LPG policy India’s GDP growth rate is increased year by year and
in 2015 it was recorded 7.26 and in 2015-16 it is estimated to be 7.5% by IMF .Because of the
Abolition of Industrial licensing, privatisation, advanced foreign technology and Reduction of
taxes India’s GDP is increased after 1991 reforms.
2) INCREASE IN FOREIGN DIRECT INVESTMENT (FDI)-

India has already marked its presence as one of the fastest growing economies of the world. It
has been ranked among the top 3 attractive destinations for inbound investments. Since 1991,
the regulatory environment in terms of foreign investment has been consistently eased to make
it investor-friendly.
3) INCREASE IN PER CAPITA INCOME-

Per capita income or average income measures the average income earned per person in a
given area (city, region, country, etc.). It is calculated by dividing the area's total income by
its total population. In 1991 India’s Per capita Income was Rs. 11235 but in 2014-15 Per
Capita Income is reached to Rs. 85533. Per Capita income is increased due to Increase in
Employment, due to new economy policy of globalization and privatization many job
opportunities are created so, people’s
4)UNEMPLOYMENT RATE IS REDUCED- In 1991 unemployment rate was 4.3% but
after India adopted new LPG policy more employment is generated because of globalisation
many new foreign companies came in India and due to liberalisation many new entrepreneurs
have started new companies because of a abolition of Industrial licensing / Permit Raj so,
employment is generated, and due to which India’s unemployment rate is reduced from 4.3%
in 1991 to 3.6% in 2014

NEGATIVE IMPACT OF NEW ECONOMIC POLICY, 1991

1)LOW GROWTH OF AGRICULTURE SECTOR-

Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role
not only in Providing food and nutrition to the people, but also in the supply of raw material to
industries and to export trade. In 1991, agriculture provided employment to 72 per cent of the
population and contributed 29.02per cent of the gross domestic product. However, in 2014 the
share of agriculture in the GDP went down drastically to17.9 per cent. This has resulted in a
lowering the per capita incomeof the farmers and increasing the rural indebtedness.

2)THREAT FROM FOREIGN COMPETITION-

Due to opening up of the Indian economy to foreign competition through Liberalization and
FDI policy more MNC’s are attracted towards India after 1991 reforms and they are competing
local businesses and companies. Since, these MNC’s have lot of financial capacity or those are
big organizations with advanced foreign technology so, they have large production capacity
and huge money for promotion and other research activities they are easily defeating our Indian
local companies. And they had acquired many Indian companies as well. Because of financial
constraints, lack of advanced technology and production inefficiencies our Indian companies
are facing problem in this globalization

3)ADVERSE IMPACT ON ENVIRONMENT-

Globalization has also contributed to the destruction of the environment through pollution and
clearing ofvegetation cover. With the construction of companies, the emissions from
manufacturing plants are causing environmental pollution which further affects the health of
many peoples. The construction also destroysthe vegetation cover which is important in the
very survival of bothhumans and other animals.
 CONCLUSION

Economic reforms have an important impact on Indian economy. There are many changes in
Indian economy, after adaptation of the policy of LPG i.e. Liberalisation, Privatisation and
Globalisation in 1991. Because of these reforms many good thing are happen like increase in
the India’s GDP growth rate, Foreign direct Investment and Per Capita Income. Policy has
facilitated the flow of foreign capital, technology and managerial expertise thereby
improvingefficiency of industry. Also, unemployment rate is reduced. Though there are certain
negative impacts are also there like low growth of agriculture sector, adverse impact on
environment etc. Lastly we can say that development in India is takes place because of
implementation of this policy.
 SYNOPSIS

1).INTRODUCTION :-

2).NEW EONOMIC POLICY 1991

3).GLOBALIZATION

4). PRIVATIZATION

5).LIBERALIZATION

6).POSSITIVE IMPACT OF LPG

7).NEGATIVE IMPACT OF LPG

8).CONCLUSION

9).BIBLIOGRAPHY
 BIBLIOGRAPHY

1).ECONOMIC TIMES (E-NEWS PORTAL)

2).SLIDESHARE.COM (ONLINE ECONOMICS PORTAL)

3).NCERT 12th & 11th ( BOOK)