Major Elements of New Economic Policy 1991
The New Economic Policy 1991 was initiated by Prime Minister Rajiv Gandhi, in 1985. In 1991, P.V. Narshimahrao, the then prime minister of the country pushed the policy to level of globalization and liberalization. The New Economic Policy is recognized to have three Major elements:
Steps Taken with Respect to Globalization.
Portfolios of PSUs were reviewed with emphasis on adoption of high technology, strategic planning and essential infrastructure to attain global standards as a long term approach.
Business restructuring to identifying the core competencies of a business unit and improving upon the underlying processes with change in business environment.
Technical restructuring helps in improving existing technology or adoption of new technology to improve competitive position of business.
Government has reduced trade barriers to enable free flow of goods and services.
Investment norms (by private and foreign players) have been reworked to enable increased capital flow.
Globalization aims to create an environment in which free flow of labor (human talent) to can take place.
Steps Taken with Respect to Liberalization.
The licensing-permit system which prevailed in the country during first three decades of development was abolished (expect for a list of 18 industries).
Considering rise in demand due to growth of middle class, white goods, cars, raw hides, skins and washing machines were removed from the list of reserved items.
Earlier, large business houses and industrial units were refrained from venturing into big projects due to Monopolistic and Restrictive Trade Practices (MRTP) Act, 1970. The policy was abolished to encourage private investment in core industries like iron & steel, petrochemicals, infrastructure etc must be promoted.
The certain economic sectors were largely reserved for the public sector. These sectors enjoyed monopoly and were immune from competitive environment. Thus government introduced policy changes to enable increased private participation in this sector.
Steps Taken with. Respect to Privatization.
Government has been increasingly dis-investing in PSUs. Some of the areas have been restricted for public sector like high-end technology, strategic and essential infrastructure (transport and communication). Sensitive sectors like defense have been also reserved for public sector.
The management in public enterprises are given more autonomy for taking decisions. Management is also made more professional to handle changes in business environment in a more competent manner.
Public sector management will be allowed to raise funds from mutual fund and other banking and non-banking financial companies to meet their fund requirement.
Public sector units were made to enter in a MOU with government to make them accountable, while being autonomous. Public private partnership models of business venture are being increasingly popularized.