Economic Policy

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New Economic Policy


When India became independent, the Government took conscious decisions to adopt

The system of mixed economy assigning major role to the public sector and exercise strict control over the development of Industries.

With the passage of time, however, it was realized that excessive control had de-accelerated the pace of economic development as it inhibited the investment by private sector and flow of foreign capital.

As a result, the government envisaged a bigger role for the private sector and initiated some economic reforms in 1985 by deregulating the industry. But this also did not led to desired results and the country faced major economic crisis in 1991 which compelled the govt. to go in for drastic changes in economic policies.

New Economic Policy

These changes are:-
The policy of Liberalization (L) in place of licensing the industries & trade.
The policy of Privatization (P) in place of quotas / reservation of industries.
The policy of Globalization (G) in place of permit for exports and imports.
These reforms are often described as New Economic Policy or policy of LPG.

Need for New Economic Policy

But over the year, the private sector accumulated huge fund for which it was not able to find adequate ventures of investment it was therefore suggested that there is absolutely no logic in restricting investment in the private sector in capital goods sector and infrastructure this required de reservation of the area till now reserved for the public sector.

Under MRTP act the govt. prohibited big business to undertaken heavy investment. A business house with assets worth Rs 100 crore had to seek clearance for MRTP commission to start a new undertaking or to make substantial expansion of existing undertaking.

Liberalization

Liberalization of the economy means to free it from direct or physical controls imposed by the government.

Prior to 9191, government had imposed several types of controls on goods, import license, foreign exchange control, restriction on investment by big business houses etc.

They had dampened the enthusiasm of entrepreneurs to establish new industries.

These control had given rise to corruption, undue delays and inefficiency.