Economic reforms and the role of government
Objectives :-)
Explain the features of the economic policies before 1991
Highlight the factors that led to the crisis in 1991.
Discuss the salient features of the New Economic Policy-Industrial policy, trade policy and
Financial sector reforms.
Explain how the role of planning has changed in the new economic environment.
What you have learnt :-)
The key features of the economic policies prior to 1991 were as follows:
(1)Priority was given to the public sector to achieve rapid industrialisation.
(2)Industrial licensing was a measure through which the government controlled the functioning
of the private sector.
(3)Foregin investment was restricted as the government did not want control of domestic companies
to go in foreign hands.
(4)Indigenous industry was protected from foreign competition through high custom duties.
(5)Exchange rates of foreign currencies were officially fixed by the government.
The major problems that were being faced by the Indian economy in 1991 were as follows:
(1)Public sector undertakings were performing poorly.
(2)There was high rate of inflation.
(3)The government's debt burden had increased sharply.
(4)There was a severe balance of payments crisis due to:
The black market for foreign currency.
The Gulf Crisis of 1991.
(5) Political instability in the economy.
The main features of the New Economic Policy are:
(1)Liberalization : means the removal or reduction of various types of controls and regulations,
which are in force in the economy to allow trade and industry to function more freely.
(2)Privatization : means opening a larger part of the economy for private sector participation and
thus reducing or removing government control on certain activities.
(3)Globalization : means integrating the domestic economy with economics of other countries through
free trade and free movement of capital.
Main features of the Industrial Policy are :-)
(1)Delicensing of industries.
(2)Restrictions on large scale industries removed
(3)Reducing the number of industries reserved for the public sector.
(4)Encouraging foreign investment and technology.
Main features of the Trae and Investment Policy :-)
(1)Reduction in custom duties.
(2)Reduction in quantitative restrictions.
(3)Liberalisation of imports.
(4)Foreign exchange controls relaxed.
Main features of the Fiscal Policy:-)
(1)Reduction in tax rates
(2)Increase in tax net
(3)Reduction in government expenditure.
(4)Sale of government enterprises.
Main features of financial sector reforms :-)
(1)Freedom to determine interest rates by banks.
(2)Private sector banks permitted.
(3)Foreign investment allowed.
Terminal exercise :-)
(1)Explain the main economic policies that were followed by India prior to 1991.
(2)State the problems that India was facing when it undertook the New Economic Policy in 1991.
(3)Discuss the immediate crisis that India faced in 1991.
(4)How can we say that the individual policy under the New Economic Policy was a step towards
liberalization?
(5)State the main features of the trade policy.
(6)Explain the major financial sector reforms undertaken in the New Economic Policy.
(7)Can we say that with the New Economic Policy the role of the government has reduced? Justify your
answer.
Explain the features of the economic policies before 1991
Highlight the factors that led to the crisis in 1991.
Discuss the salient features of the New Economic Policy-Industrial policy, trade policy and
Financial sector reforms.
Explain how the role of planning has changed in the new economic environment.
What you have learnt :-)
The key features of the economic policies prior to 1991 were as follows:
(1)Priority was given to the public sector to achieve rapid industrialisation.
(2)Industrial licensing was a measure through which the government controlled the functioning
of the private sector.
(3)Foregin investment was restricted as the government did not want control of domestic companies
to go in foreign hands.
(4)Indigenous industry was protected from foreign competition through high custom duties.
(5)Exchange rates of foreign currencies were officially fixed by the government.
The major problems that were being faced by the Indian economy in 1991 were as follows:
(1)Public sector undertakings were performing poorly.
(2)There was high rate of inflation.
(3)The government's debt burden had increased sharply.
(4)There was a severe balance of payments crisis due to:
The black market for foreign currency.
The Gulf Crisis of 1991.
(5) Political instability in the economy.
The main features of the New Economic Policy are:
(1)Liberalization : means the removal or reduction of various types of controls and regulations,
which are in force in the economy to allow trade and industry to function more freely.
(2)Privatization : means opening a larger part of the economy for private sector participation and
thus reducing or removing government control on certain activities.
(3)Globalization : means integrating the domestic economy with economics of other countries through
free trade and free movement of capital.
Main features of the Industrial Policy are :-)
(1)Delicensing of industries.
(2)Restrictions on large scale industries removed
(3)Reducing the number of industries reserved for the public sector.
(4)Encouraging foreign investment and technology.
Main features of the Trae and Investment Policy :-)
(1)Reduction in custom duties.
(2)Reduction in quantitative restrictions.
(3)Liberalisation of imports.
(4)Foreign exchange controls relaxed.
Main features of the Fiscal Policy:-)
(1)Reduction in tax rates
(2)Increase in tax net
(3)Reduction in government expenditure.
(4)Sale of government enterprises.
Main features of financial sector reforms :-)
(1)Freedom to determine interest rates by banks.
(2)Private sector banks permitted.
(3)Foreign investment allowed.
Terminal exercise :-)
(1)Explain the main economic policies that were followed by India prior to 1991.
(2)State the problems that India was facing when it undertook the New Economic Policy in 1991.
(3)Discuss the immediate crisis that India faced in 1991.
(4)How can we say that the individual policy under the New Economic Policy was a step towards
liberalization?
(5)State the main features of the trade policy.
(6)Explain the major financial sector reforms undertaken in the New Economic Policy.
(7)Can we say that with the New Economic Policy the role of the government has reduced? Justify your
answer.
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