Discuss the 1991 economic reforms as a complete structural transformation of the Indian economy. (200 words)

Due to the policies followed till 1991, India’s fiscal and revenue deficit increased. Import dependency and lack of export created a balance of payment crisis followed by stagnation and high inflation. Simultaneous consequences of the Gulf crisis and reduced forex reserves caused a critical situation for the economy.

• India adopted a New Economic Policy (NEP) by bringing in LPG (Liberalization, Privatization, Globalisation) reforms to overcome this condition.

1. Liberalization

Delicencing

Enabled entrepreneurs to enter any industry except 18 industries – electronic aerospace and defence-tech, specified hazardous chemicals, distillation and brewing of alcohol, tobacco, atomic energy, etc.

Amendment of MRTP Act

Firms with assets above a certain limit were no longer required to get pre-approval to invest in de-licensed industries.

Capital Market Liberalization

SEBI was established (1992) to regulate the capital market. It is entrusted with regulation of stock exchanges and their efficient functioning.

Flexible Exchange Rate

India moved to a market-determined exchange rate system where the value of rupee was decided by demand-supply in the forex market.

2. Privatization

It implied transfer of public sector enterprises (PSE) to the private sector. Policy of Miniratna & Navaratna was adopted to grant more financial autonomy to PSEs. Sick PSEs were brought within the purview of BIFR for revival.

3. Globalisation

It implied opening up of Indian economy to the world economy by offering import liberalization, channelizing FDI and foreign technology inflow, allowing convertibility of Indian rupee on current account of BOP in 1994.

Thus, NEP shifted the Indian economy by a complete structural change by facilitating free market play. It successfully corrected the distortion and weaknesses of the industrial structure of the country with significant GDP growth.