state two factors that led the government to frame the new economic policy in 1991
Answers
The year 1991 is an important landmark in the economic history of post-Independent India. The country went through a severe economic crisis triggered by a serious Balance of Payments situation. The crisis was converted into an opportunity to introduce some fundamental changes in the content and approach to economic policy
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Main Objectives of New Economic Policy – 1991, July 24
The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the union Finance Minister Dr. Manmohan Singh are stated as follows:
1. The main objective was to plunge Indian economy in to the arena of ‘Globalization and to give it a new thrust on market orientation.
2. The NEP intended to bring down the rate of inflation and to remove imbalances in payment.
3. It intended to move towards higher economic growth rate and to build sufficient foreign exchange reserves.
4. It wanted to achieve economic stabilization and to convert the economic in to a market economy by removing all kinds of unnecessary restrictions.
5. It wanted to permit the international flow of goods, services, capital, human resources and technology, without many restrictions.
6. It wanted to increase the participation of private players in the all sectors of the economy. That is why the reserved numbers of sectors for government were reduced to 3 as of now.
Father of new economic policy
Beginning with mid-1991, the govt. has made some radical changes in its policies bearing on trade, foreign investment exchange rate, industry, fiscal discipline etc. The various elements, when put together, constitute an economic policy which marks a big departure from what has gone before.
new economic policy
Following steps were taken under the Liberaliation measure:
(i) Free determination of interest rate by the commercial Banka:
Under the policy of liberalisation interest rate of the banking system will not be determined by RBI rather all commercial Banks are independent to determine the rate of interest.
(ii) Increase in the investment limit for the Small Scale Industries (SSIs):
Investment limit of the small scale industries has been raised to Rs. 1 crore. So these companies can upgrade their machinery and improve their efficiency.
(iii) Freedom to import capital goods:
Indian industries will be free to buy machines and raw materials from foreign countries to do their holistic development.
(v) Freedom for expansion and production to Industries:
In this new liberalized era now the Industries are free to diversify their production capacities and reduce the cost of production. Earlier government used to fix the maximum limit of production capacity. No industry could produce beyond that limit. Now the industries are free to decide their production by their own on the basis of the requirement of the markets.
(vi) Abolition of Restrictive Trade Practices:
According to Monopolies and Restrictive Trade Practices (MRTP) Act 1969, all those companies having assets worth Rs. 100 crore or more were called MRTP firms and were subjected to several restrictions. Now these firms have not to obtain prior approval of the Govt. for taking investment decision.