Economic reforms since1991 and NEP
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New Economic Policy of India Since 1991 (Reforms)
The following points highlight the four major economic reforms under new economic policy of India since 1991.
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Reform 1# De-Reservation of Industries of the Public Sector:
The new industrial policy 1991 has been adopted under which far-reaching structural reforms have been initiated to lift excess direct controls and regulations on industries and to ensure a free-market oriented economic system.
The list of industries reserved for the public sector has been pruned. Now, only 6 industries remain reserved for the public sector.
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Reform 2# Liberalisation: Abolition of Industrial Licensing System:
Until 1991 the Indian industrial sector had functioned under a system of tight controls and regulations represented by industrial licencing which meant to allocate the scarce resources towards building the industrial base of the economy. By the year 1991 the Indian industrial economy had a quite wide and diversified base, the new policy abolished all industrial licencing irrespective of the level of investment except for 15 industries for which licence was still required.
These industries are those which are essential for security and safety purposes and for protection of environment. For granting of licence for even these 15 industries procedure has been greatly simplified. For getting licences only certain locational guidelines are to be fulfilled so that polluting industries should not cluster around the major urban centres. Besides, restrictions by Monopolistic and Restrictive Act (MRTPA) for expansion of big firms were also relaxed.
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Reform 3# Privatisation of Public Sector Enterprises.
An important aspect of new industrial policy of the Government is that it should not operate commercial enterprises. With that end in view the Government decided to disinvest the public enterprises. The Government can sell its enterprises completely to the private sector or disinvest a part of its equity capital held by it to the private sector companies or in the open market.
Therefore this policy of public sector disinvestment has also been called the policy of privatisation. Through disinvestment or privatisation, the Government can mop up a good amount of resources which can be used for various purposes. The released resources can be used to restructure and strengthen the public sector enterprises which are potentially viable. These resources can also be used to pay back a part of public debt. These resources can also be used to finance budget deficits.
What are the reasons for the policy of privatisation or public sector disinvestment. First, resources available with the Government are scarce. The Government needs resources to reduce its budget deficit. The Government urgently requires resources to make investment in infrastructure, education, public health and for poverty alleviation programmes. Resources released through disinvestment can be used for investment in these crucial sectors. Second, a good number of existing public enterprises are working inefficiently and incurring huge losses.
Accordingly, a part of the economic reforms policy, the Government started reforms in public sector enterprises.
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The main elements of Government policy towards Public Sector Enterprises (PSU) are:
(1) Disinvestment of Government equity in all non-strategic Public Sector Undertakings (PSU) to 26 per cent or lower if necessary.
(2) Those public sector enterprises which are potentially viable have to be restructured and revived.
(3) Those Public Sector Undertakings (PSU) which cannot be revived would be closed down.
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