New
Economic Policy
1991 is very important in the history of modern India. After the 10th General Elections, P. V. Narasimha Rao became the Prime Minister of India. With Dr Manmohan Singh as Finance Minister, he adopted the new economic policy of linking India’s economy with the global economy. For this, fundamental changes were brought about in the Indian economy. Indian economy was brought in tune with the global mainstream. During this period, Indian economy was in a crisis situation. Before the P. V. Narasimha Rao government took charge, Chandra Shekhar was the Prime Minister. During his tenure the rate of inflation was 17%. Economic growth rate had gone down by 1.1%. India had foreign exchange reserves only enough to last for imports for a week. It had become difficult to pay back its loan and even give the interest on it. In May 1991, the government had tried to control the situation by selling some of its gold reserves and by mortgaging some.
Before the Chandra Shekhar government, the V. P. Singh government had incurred a liability of over 10 thousand crore rupees on the economy by waiving off the loans of all farmers. The Proportion of internal loans of central and state governments together to the gross Domestic Product was 55%. In 1980-81 foreign loan was 2350 crore dollars. It increased to 8380 crore dollars in 1990-91. At this time, India had foreign
exchange reserves of only 100 crore dollars. This also had the background of the increased oil prices due to the invasion of Kuwait by Iraq. It became difficult for India to raise a loan. Even the nonresident Indians started withdrawing their deposits in foreign currency from India. Remedies : P. V. Narasimha Rao appointed Dr Manmohan Singh as Finance Minister in order to find a way out of this situation. Dr Singh undertook many corrective measures.
The situation began to change. He removed the restrictions on foreign investments. He restricted the licence system to 18 industries. In view of the increasing losses in the public sector industries, he opened up the public sector for investment by private industries.
In order to bring the share market under control, he established the Securities and Exchange Board of India (SEBI) in 1988. National Stock Exchange was computerised. He gave priority to remove the spectre of recession. Foreign Investment in India grew during the first tenure of Dr Manmohan Singh as Finance Minister. India could recover the gold mortgaged with the Bank of England. The government got the support of the capitalist class as well as the middle class.
As the government opened up the telecom sector, mobile phone services started all over the country. Dr Manmohan Singh signed the agreement with the World Trade Organisation and launched the policy of privatisation, liberalisation and globalisation.
World Trade Organisation : In 1995, India became a member of
the World Trade Organisation (WTO). The organisation had the following
objectives: to free trade between countries, to put to an end all those
discriminatory laws, restrictions, rules and policies that are hurdles in the
way of international free trade, and to regulate global trade with the help of
a formal multi party mechanism. General Agreement on Tariffs and Trade (GATT)
existed at the international level before the World Trade Organisation came
into being. It regulated commerce. In India there were opposed, extreme views
about the World Trade Organisation. Yet India decided to take its membership.
The provisions of the World Trade Organisation are regarding grants,
import-export, foreign investment, agriculture, technology and services. The
sectors of electricity, water transportation, education and health rapidly
commercialised since India became a member of the World Trade Organisation. As
per the various reports of the World Trade Organisation, India has made a
considerable improvement in different areas like reduction in the below poverty
line (BPL) population, decline in infant mortality, availability of facilities
regarding drinking water and waste water management. India signed the South
Asian Preferential Trade Arrangement (SAPTA) along the lines of the World Trade
Organisation. India removed the import restrictions on several commodities for
SAARC countries. India also gave discounts on import duties. India opened up
the insurance sector to private and foreign investment. In this way, we have
learnt about the journey of India’s economy. We have come a long way from mixed
economy to globalisation. In the next chapter, we are going to study India’s
progress in other fields.
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