Answer in detail
1) Explain the features of economic policy of 1991.
The following are the features of economic policy in 1991.
1. Delicensing: Delicensing means abolition 0f government licence required to carry on any business or industrial activity. In India, all industries except 18 specified industries of strategic importance required licence. As per the Department of Industrial Policy and Promotion, Government of India, only the following four industries require compulsory licensing: a. Electronic aerospace and defence equipment, b. Industrial explosives, c. Hazardous chemicals, drugs, and pharmaceuticals, d. Cigarettes
2. Abolition of Monopolies and Restrictive Trade Practices (MRTP) Act: According to MRTP Act, it was made compulsory for large industrial units. take the approval of the Central government for their establishment, expansion, merger, etc. This resulted in slow industrial growth. After 1991, the abolition of the MRTP Act has encouraged industrial growth in India.
3. Encouragement to the small sector: The government also encouraged small sector units to attain a higher growth rate in output, employment, and export sector. The small sector unit investment limit was increased from 1 crore to 5 crores.
4. Encouraging foreign investment: New economic policy of 1991 allowed Foreign Direct Investment (FDI) with the aim to encourage investment in high priority industries requiring high investment and technology. Initially, FDI was permitted up to 51% of total investment in selected industries. Later, this limit was raised to 74% and then 100% for specific industries.
5. Reducing the role of the public sector: Under the new economic policy of 1991, many changes were made in the public sector policy to fulfill following objectives: a. Ending state monopoly b. Improving the efficiency of public sector c. Releasing capital blocked in sick public sector enterprises. To encourage the private sector, NEP reduced the number of industries in the public sector from 17 to 8. From 2014, there are only two industries reserved for public sector viz. railways and atomic energy.
6. Trade liberalisation: Under the new economic policy of 1991, the import licensing controls have been abolished. Almost all capital goods, raw materials, intermediate goods, and other components were made freely importable. In India, established exporters are allowed to raise external credit to finance their business and trade. Special Economic Zones (SEZ) are set up to promote exports. The Government has also introduced Agro Export Zones (AEZ) to encourage agricultural exports.
7. Reforms in the insurance sector: Before the new economic policy of 1991, the insurance sector was a monopoly of the government. The new policy passed the Insurance Regulatory and Development Authority Act (IRDA) in 1999 to bring reforms in this sector. The IRDA has given licence to many private companies to run an insurance business. This has resulted at the end of the monopoly of Government in this sector.
8. Reforms in the financial sector: Before the new economic policy of 1991, only cooperative banks and public sector banks were permitted to the banking business in the financial sector. The new economic policy has also permitted the entry of new private banks as well as foreign banks.
2) Explain the measures undertaken for Globalisation.
1. Removal of quantitative restrictions: To promote globalisation, all the quantitative restrictions have removed on imports and exports. Further traffic rates have been brought down considerably. Similarly, the imports duty on industrial goods has been reduced.
2. Encouragement to foreign capital: Government has opened the economy to foreign investments. As a result, foreign capital is attracted to various sectors in India. As its effect, the Indian economy has become a part of the global economy.
3. Convertibility of rupees: To promote globalisation, the exchange rate of rupees has been made flexible. The rupee is made fully convertible to all current account transactions.
4. Foreign collaboration: Indian companies are allowed to enter into important foreign collaboration, For example, Maruti-Suzuki, Hero Honda, Tata-Corus deal of iron and steel in South Africa.
5. Long term trade policy: To ensure a longer duration in foreign trade, changes were made in the foreign trade policy.The main features of this policy included:
a. Liberalised policy.
b. Removal of restrictions on foreign trade.
c. Encouragement to Foreign Collaboration.
6. Encouragement to Exports: Through EXIM policy, various incentives are given to exporters. Special Economic Zones, Agro-Export Zones (AEZ) are created to encourage exports.