New Economic

8/2/2019 New Economic

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NEW ECONOMIC POLICIES


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NEW ECONOMIC POLICIES

Under the leadership of Shri. P.V. Narsimha Rao ,in the year of 1991 the congress government introduceda new economic policy to overcome the problems suchas adverse balance of payments position, low level of

foreign exchange reserve, sharp decline in foreign capitalinflow large fiscal deficit, low productivity of pastinvestments and temporary loss of export markets .

The new policy aimed at achieving three majorobjectives of :

1. Liberalisation.

2. Globalisation.

3. Privatisation.


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CONCEPT OF

LIBERALISATION

Liberalisation means withdrawal of

various restrictions on industrial and

business firms in terms of investment,

production, production, import and export.


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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.


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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


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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.B

alance of trade.2. Small scale industries.

3. Indian agriculture.


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Concept ofConcept of globalisationglobalisation

The expansion and extension of economic activities across

political boundaries of a country is called

g loba l i s a t i on .

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.


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Components ofComponents of GlobalisationGlobalisation

Two components as follows:

Globalisation of markets.

Globalisation of production.

As growing independence of countries worldwidethrough increasing:

y Volume and variety of cross border transaction

y International capital flow.

y Rapid and widespread diffusion of technology.


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Characteristics ofCharacteristics of

GlobalisationGlobalisationOperating 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.


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Essential conditions ofEssential conditions of

globalisationglobalisation

Freedom to business.

Availability of infrasructural facilities and other

resourcesto business firms.

Creation of competitiveness among the firms.

Orientation of business firms.


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GlobalisationGlobalisation in Indiain India

y Process of globalisation was started in India by

integrating our economy with world economy.

y Withdrew of restriction.

y Multinational corporations was allowed.

y Foreign exchange regulation act.

y Adjustment in exchange rate of rupee.


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Step towardsStep towards globalisationglobalisation

inin IIndiandiaa) Delicencing policy (1991).

b) Rupee convertibility.

c) Import liberalisation.

d) Opening up to foreign capital:i. Permission for foreign direct investment.

ii. Equity in other tourist areas.

iii. Cent per cent foreign participation for setting up

power plants in the coutry.


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Effects ofEffects of globalisationglobalisation in Indiain India

Effects on External Sector :

1. Increase in foreign exchange reserves.

2. Improvement in balance payments situation.

3. Success in self-reliance through importsubstitution.

4. Decrease in current account deficit.

5. Decrease in external debt.

6. Control on illegal transactions.


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Effect ofEffect of globalisatonglobalisaton in Indiain India

Effect on Domestic Economy:

1. Competition in Indian industries and multinational

companies.

2. Decline of small scale industries.

3. Increase in unemployment.

4. Rural economy is collapsed.

5. Justice and injustice to certain industries.

6. Increase in inequality in income and wealth.


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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 involvingprivate sector in the ownership or operation of a

state-owned enterprises.


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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.


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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.


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Number of reserved products for public sector

was reduced .

Government stopped financial assistance to publicsector enterprises.

The Government followed disinvestments program

for privatisation.


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POSITIVE EFFECT :

Better service to customers.

Control on wastages.

Better efficiency and performance.

Human touch in customers services.

Control in loss.


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NEGATIVEEFFECTS :

Profit making motive.

Problem of unemployment.

Fear of foreign direct investment.

Problem of underutilisation of the capacity.

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