Economic Policy and Reforms in India

Economic Policy and Reforms in India

Overview

New Economic Policy is related to economic reforms. It aims to bring about reforms in production patterns, to obtain new technology, and to use full capacity expeditiously and in toto.

History:

• The New Economic Policy was devised and implemented for the first time in 1985 during the period of Prime Minister Rajiv Gandhi.

• The second wave of new economic reforms came in 1991 during the period of the P.V. Narsimha Rao government.

• The main reason to start the New Economic Policy (1991) was the Gulf War and the problem of the balance of payments in India.

Objectives of New Economic Policy:

1. Liberalisation

2. Privatisation

3. Globalisation

Main Sectors of New Economic Reform Policy, 1991:

• Fiscal Policy

• Monetary Policy

• Value Fixation Policy

• Foreign Policy

• Industrial Policy

• Foreign Investment Policy

• Business Policy

• Public Sector Policy

Economic Reforms

Economic Reforms were introduced in 1991 in India.

First Generation Reforms:

• Aimed at the stabilisation of the Indian economy

• Macro level in nature

• Includes liberalisation and deregulation of industry, financial sector reforms, taxation reforms, etc.

Second Generation Reforms:

• Aimed at structural changes

• Micro level in nature

• Includes labour reforms, land reforms, capital market reforms, expenditure reforms, and power sector reforms, etc.

Impact:

• Since economic reforms, poverty has been declining from 36% in 1993 to 26% by the end of the 10th plan.

• But as far as inequality is concerned, it has increased.

• A World Bank Report 1999-2000 confirms this rise in inequality.

Progress:

• The New Economic Reforms Policy, by making progress from 1991 to 2005-06, has become more open, liberal, and global.

Disinvestment:

• Means to decrease the share othe f the government in the industries.

• In 1996, the Disinvestment Commission was constituted to review, give suggestions, and make regulations on the issue of disinvestment.

• Shri G.V. Ramkrishna was the first Chairman of the Disinvestment Commission.

National Renewal Fund (1992):

• Constituted for the rehabilitation of displaced labourers of sick industrial units affected due to industrial modernization, technological development, etc.

Navratna Companies:

• 'Navratna' is a company that is rising at the world level.

• To encourage these companies, the government has given them complete autonomy.

Second Phase of Economic Reforms Programme:

• The main aim is to eradicate poverty from the country and achieve development at a rate of 7 to 8%.

Terminology Relating to New Economic Reforms

Privatisation:

• To increase participation of the private sector in the public sector companies by capital investment or by management or both, or to hand over a public sector unit to a private company, is called Privatisation.

Liberalisation:

• Liberalisation is the process by which government control is relaxed or abolished. In this process, privatisation is also included.

Globalisation:

• The process of amalgamation of an economy with the world economy is called Globalisation.

• It is signified by lower duties on import and export.

• By doing so, that sector will also get private capital and foreign technology.

Disinvestment:

• Reducing the government's share in the public sector is called disinvestment.

Final Thoughts

The New Economic Policy (NEP) and subsequent reforms since 1985 and 1991 have been pivotal in shaping India’s modern economy. By focusing on liberalisation, privatisation, and globalisation, the reforms opened up the market, encouraged foreign investment, and reduced government control over industries.

Disinvestment and the promotion of Navratna companies enhanced efficiency and autonomy in the public sector. The reforms were implemented in phases, starting with macro-level stabilisation and later structural micro-level changes in labour, land, capital, and power sectors.

As a result, India witnessed declining poverty and steady economic growth, though inequality remains a challenge. These reforms remain a foundation for India’s continued economic transformation and global engagement.