New Economic Policy /Industrial Policy/LPG Model

New Economic Policy/Industrial Policy/LPG Model 

Why was NEP introduced?
In 1956 the economic policies which were formulated continued for long. Although the country and economic conditions were changing but the policies remained the same. The existing policies failed to fulfill the need of changing global and domestic conditions.

When was new economic policy introduced ?
The East India Company had come to India in order to conduct the business but it ruled the country for long. So the country was a scared. Foreign investment in the country remained restricted under Nehru- Mahalanobis approach. Since India was not self-sufficient, its import
remained higher as compared to the export. For this India had to borrow foreign currencies in order to bridge the gap. In order to repay the loan, the country had to borrow again. It became a situation of debt trap. Because of not having enough foreign currencies, India fell into Balance of Payment Crisis in 1990-91. This situation compelled India to borrow from IMF.
However, when IMF lends to a member country, it imposes a number of conditionalities. These
conditions are imposed so that the country does not face the same problem in future again. Then introduced new economic policy in 1991-1992.

What are the 3 features of new economic policy 1991 ?
Under these conditions Liberalisation, Privatisation and Globalisation are the most important instruments. Hence based on this, India adopted New Industrial Policies in 1991. It was a compulsion as well as a necessity for India. These policies were termed as LPG model of development. It was also termed as Rao- Manmohan model of development.

What are the main features of new economic policy? /
The main objectives of the new policy were as follows:-
1. To prevent Balance of Payment Crisis situation in future.
2. To ensure inflow of foreign investment, so that the foreign exchange reserve remains
healthy.
3. To ensure Ease of Doing Business.
4. To make sure that India's GDP grows.
5. To enhance India's share in world trade.
6. To create more employment opportunities.
7. To make the country as much self dependent, as it is possible.
8. To ensure restriction free flow of goods and services as well as human resource.


What liberalisation means, aims and examples?
Liberalisation refers to easing the rules related to investment and trade. It also refers to get rid of Licence Permit Raj and to bring down Inspector Raj. Under this, gradually the provision of compulsory licensing was eliminated with respect to several businesses. At present only some sectors such as production of hazardous chemicals, explosives, tobacco products etc require compulsory licensing. In order to reduce Inspector Raj, the arbitrary powers given to the government officials have been gradually taken away.


What is meaning of privatisation, aims and examples?
Privatization refers to opening up even those sectors for private investment in which the government had its monopoly. At present only in two sectors, Atomic Mineral and Atomic Energy complete monopoly of the government exists. Privatization also refers to selling of those public sector companies to private parties which are running in losses or which may not be managed by the government. Disinvestment can also be termed as a part of privatisation. It ensures private
investment leading to competition which enhances quality of goods and services.


What do you mean by Globalisation, examples and features?
Globalisation refers to opening of the domestic economy for the entire world. It not only ensures
free flow of investment but also includes free flow of goods, services, technology and human resources.
But due to economic liberalisation domestic producers were affected adversely in the initial stages. They were completely thrown out of the competition. The process of globalisation gives birth to Neo- Colonization. Under this the Multi National Companies of developed countries, make the consumers of developing countries dependent on them. As due to globalisation the exchange of technology became easier, domestic companies of organised sector who had resources were able to get these technologies easily. This led to automation, reducing the employment opportunities in the country. When employment opportunities in organised sector start declining, the dependency on unorganised sector increases. In this process the economytransformers from organised to unorganised sector.

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