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New Economic Policy

Introduction
In 1990s the govt. of India in order to come out of the economic crisis decided to deviate from its previous economic policies and learn towards Privatization. In July 1991 when the devaluation of Indian currency took place the govt. started announcing its new economic polices one after another. Though these polices pertained to different aspects of the economic field they had one thing in common. The economic element was to orient the Indian system towards the world market it is in this context the govt. launched its new economic policy which consisted of among other things three important features. Liberalization, Privatization and Globalization .Liberalization of the economy means to free if from direct or physical control imposed by the govt.economic reforms were based on the assumption that marten forces could guide the economy in a more effective manner than govt.

Main Objectives of New Economic Policy
The main objectives behind the launching of the new –economic policy (NEP) in 1991 by the union finance minister Dr. Manmohan Singh, could be stated as follows:
 * The main objective was to plunge Indian economy in to the arena of ‘Globalization and to give it a new thrust on market orientation.
 * The NEP intended to bring down the rate of inflation and to remove imbalances in payment.
 * It intended to move towards higher economic growth rate and to build sufficient foreign exchange reserves.
 * It wanted to achieve economic stabilization and to convert the economic in to a market economy by removing all kinds of unnecessary restrictions.
 * It wanted to permit the international flow of goods, services, capital, human resources and technology, without many restrictions.

Beginning with mid-1991, the govt. has made some radical changes in its policies bearing on trade, foreign investment exchange rate, industry, fiscal of fairs etc…The various elements,when put together, constitute an economic policy which marks a big departure from what has gone before.

The Features of New Economic Policy 1991
The Features of New Economic Policy 1991 are:
 * Delicencing. Only six industries were kept under Licensing scheme.
 * Entry to Private Sector. The role of public sector was limited only to four industries; rest all the industries were opened for private sector also.
 * Disinvestment. Disinvestment was carried out in many public sector enterprises.
 * Liberalization of Foreign Policy. The limit of foreign equity was raised to 100% in many activities, i.e., NRI and foreign investors were permitted to invest in Indian companies.
 * Liberalization in Technical Area. Automatic permission was given to Indian companies for signing technology agreements with foreign companies.
 * Setting up of Foreign Investment Promotion Board (FIPB). This board was set up to promote and bring foreign investment in India.
 * Setting up of Small Scale Industries. Various benefits were offered to small scale industries.

Three Major Components or Elements of New Economic Policy
There are three major components or elements of new economic policy- Liberalization, Privatization, Globalization.

Liberalization
Liberalization refers to end of license, quota and many more restrictions and controls which were put on industries before 1991. Indian companies got liberalization in the following way:
 * 1) Abolition of license except in few.
 * 2) No restriction on expansion or contraction of business activities.
 * 3) Freedom in fixing prices.
 * 4) Liberalization in import and export.
 * 5) Freedom in movement of goods and services
 * 6) Freedom in fixing the prices of goods and services.

Privatization
Privatization refers to giving greater role to private sector and reducing the role of public sector. To execute policy of privatization government took the following steps:


 * 1) Disinvestment of public sector, i.e., transfer of public sector enterprise to private sector
 * 2) Setting up of Board of Industrial and Financial Reconstruction (BIFR). This board was set  up to revive sick units in public sector enterprises suffering loss.
 * 3) Dilution of Stake of the Government. If in the process of disinvestment private sector acquires more than 51% shares then it results in transfer of ownership and management to the private sector.

Globalization
It refers to integration of various economies of world. Till 1991 Indian government was following strict policy in regard to import and foreign investment in regard to licensing of imports, tariff, restrictions, etc. but after new policy government adopted policy of globalization by taking following measures:


 * 1) Import Liberalization. Government removed many restrictions from import of capital goods.
 * 2) Foreign Exchange Regulation Act (FERA) was replaced by Foreign Exchange Management Act (FEMA)
 * 3) Rationalization of Tariff structure
 * 4) Abolition of Export duty.
 * 5) Reduction of Import duty.

As a result of globalization physical boundaries and political boundaries remained no barriers for business enterprise. Whole world becomes a global village.

Globalization involves greater interaction and interdependence among the various nations of global economy

Impact of Changes in Economic Policy on the Business or Effects of Liberalization and Globalization
The factors and forces of business environment have lot of influence over the business. The common influence and impact of such changes in business and industry are explained below:

After the new policy, Indian companies had to face all round competition which means competition from the internal market and the competition from the MNCs. The companies which could adopt latest technology and which were having large number of resources could only survive and face the competition. Many companies could not face the competition and had to leave the market.
 * Increasing Competition:

For example, Weston Company which was a leader in Т. V. market with more than 38% share in T.V. market lost its control over the market because of all round competition from MNCs. By 1995-96, the company almost became unknown in the T.V market.

Prior to new economic policy there were very few industries or production units. As a result there was shortage of product in every sector. Because of this shortage the market was producer-oriented, i.e., producers became key persons in the market. But after new economic policy many more businessmen joined the production line and various foreign companies also established their production units in India.
 * More Demanding Customers:

As a result there was surplus of products in every sector. This shift from shortage to surplus brought another shift in the market, i.e., producer market to buyer market. The market became customer- oriented and many new schemes were made by companies to attract the customer. Nowadays products are produced/manufactured keeping in mind the demands of the customer.

Before or prior to new economic policy there was a small internal competition only. But after the new economic policy the world class competition started and to stand this global competition the companies need to adopt the world class technology.
 * Rapidly Changing Technological Environment:

To adopt and implement the world class technology the investment in R & D department has to increase. Many pharmaceutical companies increased their investment in R and D department from 2% to 12% and companies started spending a large amount for training the employees.

Prior to 1991 business enterprises could follow stable policies for a long period of time but after 1991 the business enterprises have to modify their policies and operations from time to time.
 * Necessity for Change:

Before 1991 Indian enterprises were managed by inadequately trained personnel’s. New market conditions require people with higher competence skill and training. Hence Indian companies felt the need to develop their human skills.
 * Need for Developing Human Resources:

Earlier firms were following selling concept, i.e., produce first and then go to market but now companies follow marketing concept, i.e., planning production on the basis of market research, need and want of customer.
 * Market Orientation:

Prior to 1991 all the losses of Public sector were used to be made good by government by sanctioning special funds from budgets. But today the public sectors have to survive and grow by utilizing their resources efficiently otherwise these enterprises have to face disinvestment. On the whole the policies of Liberalization, Globalization and Privatization have brought positive impacts on Indian business and industry. They have become more customer focus and have started giving importance to customer satisfaction.
 * Loss of Budgetary Support to Public Sector:

The Indian businessman was facing global competition and the new trade policy made the external trade very liberal. As a result to earn more foreign exchange many Indian companies joined the export business and got lot of success in that. Many companies increased their turnover more than double by starting export division. For example, the Reliance Company, Videocon, MRF, Ceat Tires, etc. got a great hold in the export market.
 * Export a Matter of Survival: