1. New Economic Policy  When India became independent, the Government took conscious decisions to adopt  The system of mixed economy assigning major role to the public sector and exercise strict control over the development of Industries.  With the passage of time, however, it was realized that excessive control had de-accelerated the pace of economic development as it inhibited the investment by private sector and flow of foreign capital.  As a result, the government envisaged a bigger role for the private sector and initiated some economic reforms in 1985 by deregulating the industry. But this also did not led to desired results and the country faced major economic crisis in 1991 which compelled the govt. to go in for drastic changes in economic policies.

2. New Economic Policy These changes are:- 1. The policy of Liberalization (L) in place of licensing the industries & trade. 2. The policy of Privatization (P) in place of quotas / reservation of industries. 3. The policy of Globalization (G) in place of permit for exports and imports. 4. These reforms are often described as New Economic Policy or policy of LPG.

3. Need for New Economic Policy 1. During the 6 decades of developmental planning, Indian economy used the public sector as engine of growth, as a result areas operations of the public and private sector were demarcated in the Industrial policy 1956 and accordingly the industries were classified into those in which the public sector alone could undertake investment and those in which private sectors were allowed. 2. At the initial stages of Indian development, such classification was very useful and public sector undertake investment in capital goods sector and infrastructure industries, at the same time the private sector neither possess adequate resources to undertake such investment nor did it have technical and managerial competence to invest in these areas.

4. Need for New Economic Policy 3. But over the year, the private sector accumulated huge fund for which it was not able to find adequate ventures of investment it was therefore suggested that there is absolutely no logic in restricting investment in the private sector in capital goods sector and infrastructure this required de reservation of the area till now reserved for the public sector. 4. Under MRTP act the govt. prohibited big business to undertaken heavy investment. A business house with assets worth Rs 100 crore had to seek clearance for MRTP commission to start a new undertaking or to make substantial expansion of existing undertaking.

5. Need for New Economic Policy 5. This restriction of 100 crore was considered irrigational by international standards. 6. It was argued that while the government prevented pvt. Sector monopoly, it permitted pub. Sector monopoly in numbers of important areas. 7. Indian industries had failed to imbibe modern technology and thus could not make rapid progress. 8. The world was undergoing a process of integration, popularity referred to as globalisation. 9. Since new technology can be acquired only with the help of MNCs, it was argued that restrictions on MNCs in term of 40% limit in equity participation be relaxed.

6. Liberalization Liberalization of the economy means to free it from direct or physical controls imposed by the government. Liberalization of the economy means to free it from direct or physical controls imposed by the government. Prior to 9191, government had imposed several types of controls on goods, import license, foreign exchange control, restriction on investment by big business houses etc. Prior to 9191, government had imposed several types of controls on goods, import license, foreign exchange control, restriction on investment by big business houses etc. They had dampened the enthusiasm of entrepreneurs to establish new industries. They had dampened the enthusiasm of entrepreneurs to establish new industries. These control had given rise to corruption, undue delays and inefficiency. These control had given rise to corruption, undue delays and inefficiency.

7. Liberalization As a result – Rate of economic growth of economy fell sharply. And at the same time other under developed countries like Korea, Thailand, Singapore, etc. had achieved rapid economic development as a result of liberalization.

8. Measure taken for Liberalization 1. Abolition of Industrial Licensing – In July 1991, a new industrial policy announced. According to it, with the exception of Industries, industrial licensing has been abolished for all other industries except Liquor, Cigarette, Defense Equipment, Industrial explosive, Dangerous chemical. 2. Liberalizing The MRTP – Removing the limit of Rs 100 crore assets. 3. Freedom to import Technology – 1991 Industrial Policy given Annexure – III list 4. Freedom for expansion production 5. Free Determination of Interest Rate 6. Freedom to Import Capital Good

9. Measure taken for Liberalization 7. Freedom to Import Capital Good – Indian industries will be free to buy machines and raw material from abroad in order to expand and modernize themselves. 8. Tax Reforms – Since 1991, there has been continuous reduction in the taxes on individuals incomes as it felt that high rates of income tax were an important reason for tax evasion. It is now widely accepted that moderates rates income tax encourages saving and voluntary disclosure of income. 9. Corporate tax has also been gradually reduced. 10. Efforts are also being done to reform indirect taxes in order to facilitate the establishment of common national market for goods.

10. Privatization Privatization means allowing the private sector to set up more and more of such industries as were previously reserved for the public. Under it, existing enterprises of public sector are either wholly or partly sold to pvt. Sector. “Privatization is general process of invoking the private sector in the ownership or operations of state owned enterprises.”

11. Measures Adopted for Privatization 1.Contraction of Public Sector – As observed by Dr. Manmohan Singh, priority was given to public sector in the hope that it would help capital accumulation, industrialization, development and removal of poverty. But none of these objectives could be realized. Policy of Contraction of public sector was therefore adopted. As a result number of industries exclusively reserved for public sector was reduced from 17 to 2 viz., i) i) Railways ii) ii) Atomic energy.

12. Measures Adopted for Privatization 2. Disinvestment in Existing Public Sector Industries. – Till now the govt. has already sold public sector enterprises more than Rs. 30,000 crore. Still this disinvestment going on…. 3. Sales of shares of Public Enterprises.

13. Globalization Globalization means integrating the economy of a country the economies of other countries under conditions of free trade and capital, and movement of persons across border. Globalization may be defined as process associated with increasing openness, economic interdependence and deepening economic integration in the world economy.

14. Globalization 1.Increase in Equity Limit of Foreign Investment – 40% to 51% to 100%. And also convert FERA into FEMA. 2. Partial convertibility - means to buy or sell foreign currency like dollar, pound sterling, for foreign transaction at price determined by the market. This convertibility was valid for following transactions a.Import export of goods and services b.Payment of Interest and dividend c.Remittance to meet family expenses. It is called partial convertibility because it does not cover capital transaction.

15. Other Economic Reforms 1Fiscal Reforms - means increasing the receipts and reducing the public expenditure of the government in such manner that production and economic welfare are not affected. Its main objective was to reduce fiscal deficit that stood percent of GDP in 1990-91 to 4%. Therefore on the basis of recommendations of Raja J. Chelliah Committee Report, long term fiscal policy was announced. i)Taxation system was made more scientific and rational. The maximum limit of income tax was reduced from 50% to 30% ii)Custom duties were brought down from 250% to 50%. iii) Excise duty on several commodities was reduced. iv) Subsidies were cut down

16. Other Economic Reforms v) Special efforts are being made by the government to cut public expenditure. vi) State govt. will pay special attention to develop their enterprises, by reducing deficits of State Electricity boards and Transport Corporations etc.

17. Other Economic Reforms 2. Financial Sector Reforms – Reducing CRR & SLR (CRR from 15% to 5-8%) (SLR from 38.5% to 25%) Free Determination of Interest Reconstruction of Banking System More freedom to banks

18. Positive Impact of LPG 1.A Variant economy – The growth rate of GDP is estimated to be more than 6% and planners and the politicians are expecting that, in the future it should get closer to 8% 2.A stimulant to Industrial Production – Presently industrial production is hovering around 10% which is big jump from the pre-1991 level. 3.Check on Fiscal Deficit – 1991 it is 8.5% and soon in few years after LPG it come down to 5% 4. Check in inflation – 4-5% 5. Consumer Sovereignty 6. Substantial Increase in FOREX reserve 7. Flow of Foreign Investment 8.Recognition of India as an Emerging Economic Power 9.A drift from Monopoly Market to Competitive Market

19. Negative Impact of LPG 1.Neglect of Agriculture 2.Urban Concentration of Growth process 3.Spread of Consumerism 4.Cultural Erosion 5.Economic Colonialism

20. Performance of Indian Economy During Economic Reforms Economic reforms have completed 19 years, as on 31 st March 2010. The performance can be reviewed as under. i)GDP – The annual growth rate of GDP at factor cost was 5.6% in 1990-91 it fell down to 4.4% in 2000-01 and rose to 9% in 2005- 06, 9.2% in 2007-08, 6.7% in 2008-09 and in 2009-10 it was 7.2%. Growth rate agriculture, during the same period was 4.6%, -0.2%, 5.8% and in 2006-07 was 3.7%, 2007-08 was 4.7%, 2008-09 was 1.6% and 2009-10 was -0.2 Industrial it was 7.4%, 6.4%, 9.6%, 7.7%, 11.6%, 9.2%, 6.7% and in 2009-10 it was 7.2.

21. Performance of Indian Economy During Economic Reforms 2. FDI – (it include FII & FDI both) 1990-91 US $ 100 Million, in 2005-06 US $ 3,358 Million. There has been increase in in FOREX reserve 1990 -91 India have 11,416 Crores as FOREX and in 2005-06 7,50,700 Crores. In 2009-10 US $ 283.5 Billion

22. Performance of Indian Economy During Economic Reforms 3. Impact on Employment – The average daily number of workers daily at work in 1990-91 were 8,431 thousand and this number came down in 2003-04 to 7,870 thousand in selected industries. 4 Impact on Per capita Income – Years Per Capita Income % Growth 2004-0529,745 2005-0632,0127.6 2006-0734,5337.9 2007-0837,3288.1 2008-0938,6953.7 2009-1040,7455.3

23. Performance of Indian Economy During Economic Reforms 5. Impact of Disinvestment

24. Thanks