Maharashtra Board Class 11 Economics Chapter 9 Economic Policy Of India Since 1991 PDF Download

Chapter 9: Economic Policy Of India Since 1991

Introduction

In the beginning of the last decade of the 20th century, Indian economy experienced an economic crisis. At the end of June 1991, foreign currency assets declined to such an extent that it was barely enough to finance two weeks of imports. The annual rate of inflation reached to 16.7% in August 1991.

The government expenditure was greater than its revenue due to defence expenditure, subsidies, interest on loans etc. The positive effects of socialistic pattern of society was on the verge of decline. On this ground, it was necessary to bring new changes in the economy. Hence, Government of India adopted a New Economic Policy (NEP) in 1991.

The process of new economic policy which started in 1985 got a momentum in 1991. The new industrial policy introduced radical changes to unshackle India's industrial economy from the cobweb of unnecessary bureaucratic controls and rigidity in the government procedures. According to the new industrial policy, the state will no longer play the role of a controller and regulator, but it will act as a facilitator, co-ordinator, inspirer and supervisor.

Teacher's Note

In 1991, India was like a patient with no money. The country needed new ideas to earn money and grow. The government opened doors to foreign companies, just like opening a shop window to invite customers.

Exam Trick

Remember: 1991 = Economic Crisis. India had only 2 weeks of money to buy things from other countries. That's why NEP was started. Think: 1991 is the year India said "Yes" to change.

Points to Remember

India faced an economic crisis in 1991 with very low foreign currency reserves.
The annual inflation rate was 16.7% in August 1991.
Government spending was more than government earnings.
NEP changed India from a closed economy to an open economy.
The state became a helper instead of a controller.

Main Objectives Of The Economic Policy Of 1991

To plunge the Indian economy into the arena of Globalisation.

To bring down the rate of inflation.

To correct the disequilibrium in the balance of payments.

To acquire higher economic growth rate.

To build sufficient foreign exchange reserves.

To achieve economic stabilisation and to reduce fiscal deficit.

To establish international trade relations for free flow of goods without any restrictions.

To increase the participation of private sector.

Teacher's Note

These eight goals were like a roadmap for India. Just like you need a plan to do well in school, India needed a plan to do well in business with other countries.

Exam Trick

Remember: The eight objectives all help the economy grow. Think "GIGS BAP" - Growth, Inflation down, Global trade, Stabilisation, Build reserves, Achieve growth, Private sector. Write these words down and remember them.

Points to Remember

The main goal was to make India part of the world economy.
Inflation had to come down from 16.7% to a normal level.
India needed more money from other countries (foreign exchange).
The economy needed to grow faster than before.
More private companies needed to open and do business.

Features Of The Economic Policy Of 1991

1) Delicensing: It means abolition of government licence required to carry on any business or industrial activity. All industries except 18 specified industries of strategic importance required licence. As per the Dept. of Industrial Policy and Promotion, Government of India, only the following four industries require compulsory licensing:

Electronic Aerospace and defence equipment

Industrial Explosives

Hazardous chemicals, drugs and pharmaceuticals.

Cigarettes

2) Abolition of Monopolies and Restrictive Trade Practices (MRTP) Act: According to MRTP Act, it was compulsory for large industrial houses to take the approval of Central government for establishment, expansion, merger etc. This resulted in slow industrial growth. Abolition of MRTP Act has encouraged industrial growth.

3) Encouragement to small sector: The government encouraged small sector units to attain a higher growth rate in output, employment and export sector. Its investment limit was increased from 1 crore to 5 crores.

4) Encouraging foreign investment: Industrial policy of 1991 approved Foreign Direct Investment (FDI) to encourage investment in high priority industries requiring high investment and technology. Initially FDI was permitted upto 51% of total invesment in selected industries. Later this limit was raised to 74% and then 100% for specific industries.

Teacher's Note

Delicensing is like removing a lock from a door. Before 1991, you needed government permission to start a factory. After 1991, you could start freely. In your city, many small shops opened because of this rule.

Exam Trick

Remember: Only 4 industries still need permission - Defence, Explosives, Drugs, and Cigarettes. These are dangerous, so the government watches them. Write "DEDC" - Defence, Explosives, Drugs, Cigarettes.

Points to Remember

Delicensing removed the need for government permission to start most businesses.
Four industries still need special permission from the government.
MRTP Act stopped big companies from growing; it was removed to help growth.
Small businesses got more money to invest and grow bigger.
Foreign companies could now invest up to 100% in some industries.

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