New Economic Policy of 1991:
The New Economic Policy (NEP) consisted of wide ranging economic reforms. The thrust of the policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. This set of policies can broadly be classified into two groups: the stabilization measures and the structural reform measures. Stabilization measures are short term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control. On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy.
Impact of New Economic Policy:
The NEP was announced in year 1991. In this policy liberalization, privatization and globalization were mainly emphasized. The first two are policy strategies and the last one is the outcome of these strategies. The main emphasis under these three aspects were; i) replacing controlled economy by liberal one i.e. reducing controls and promoting liberalization, ii) encouraging private sector, iii) promoting foreign direct investment, iv) introducing improved technology, v) encouraging modernization of agriculture, vi) introducing extensive changes in trade policy, monetary policy and fiscal policy, vii) keeping fiscal deficit under control. All these measures are called New Economic Policy.
The economic reforms introduced in India since 1991 has already created mixed reaction. R. Nagraj, has conclude that these economic reforms have only been partially successful in putting the economy on the path of rapid economic growth.
The growth of GDP increased from 5.6 per cent during 1980-91 to 6.4 per cent during 1992-2001. This shows that there has been an increase in the overall GDP growth in the reform period. This upward trend has sustained even to the current period as well. Currently for 2012/2013 fiscal the target was 7.3 % but due to draught-like situation in some states of India, it is lowered to 6.5% by RBI. The opening up of the economy has led to rapid increase in foreign direct investment (FDI) and foreign exchange reserves. The major aim of economic reform is to improve the public sector sot that the rate of return on investment improves. The public sector is now considerably contracted. The sick PSEs are now being closed. The reserved lists have been reduced from 17 to 3. MoU has been signed for improving the efficiency of PSEs. Licensing procedures have been considerably relaxed to boost private sector. Disinvestment has been carried out in PSEs. India is seen as a successful exporter of auto parts, engineering goods, IT software and textiles in the reform period. Rising prices have also been kept under control.
On the other hand, the reform process has been widely criticized for not being able to address some of the basic problems facing our economy especially in the areas of employment, agriculture, industry, infrastructure development and fiscal management. Growth and Employment: Though the GDP growth rate has increased in the reform period, scholars point out that the reform-led growth has not generated sufficient employment opportunities in the country. Industrial growth has also recorded a slowdown. This is because of decreasing demand of industrial products due to various reasons such as cheaper imports, inadequate investment in infrastructure etc. Still a large percent of population is below poverty line.
The economic reform initiated in 1991 under the policies...