New Economic Policy
& Reforms
New Economic Policy
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, and
reduction of taxes to expand the
economic wings of the country.
Need of New Economic
Policy
Very low foreign exchange reserves.
Increased borrowings in increased national
debt.
Fiscal deficit of previous years
Excess liquidity leading to price rise.
Iraq war in 1990-91 also led to increase in
prices.
New Economic Policy
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 Indian
Economy for the global exposure for the first
time.
In this New Economic Policy government
reduced the import duties, opened reserved
sector for the private players, devalued the
Indian currency to increase the export.
This is also known as the LPG Model of
growth.
Main Objectives of New
Economic Policy – 1991, July 24
The main objective was to plunge
Indian Economy in to the arena of
‘Globalization and to give it a new thrust on
market orientation.
The NEP intended to bring down the rate of
inflation
It intended to move towards higher
economic growth rate and to build sufficient
foreign exchange reserves.
Main Objectives of New
Economic Policy – 1991, July 24
It wanted to achieve economic stabilization
and to convert the economy into a market
economy by removing all kinds of un-
necessary restrictions.
It wanted to permit the international flow of
goods, services, capital, human resources and
technology, without many restrictions.
Main Objectives of New
Economic Policy – 1991, July 24
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.
NEW ECONOMIC POLICY
Beginning with mid-1991, the govt. has made
some radical changes in its policies related to
foreign trade, Direct Investment, exchange
rate, industry, fiscal discipline etc.
The various elements, when put together,
constitute an economic policy.
NEW ECONOMIC POLICY
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.
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).
Main Measures Adopted in the
New Economic Policy
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.
Features of New Economic
Policy
New Industrial Policy of 1991
New Trade Policy (Globalization)
New Fiscal Policy
New Monetary Policy
Features of New Economic
Policies under Economic Reforms
Liberalisation
Privatization
Globalization of the Economy
New Public Sector Policy
Modernization
Financial Reforms
Fiscal Reforms
Following steps were taken
under the Liberalization measure
Free determination of interest rate by
the commercial Banks
Increase in the investment limit for the
Small Scale Industries (SSIs)
Freedom to import capital goods:
Freedom for expansion and production
to Industries
Abolition of Restrictive Trade Practices:
