THE NEW ECONOMIC POLICY
In recent years, there has been a marked tendency towards the liberalization of the economic policies of the Government. The need for liberalization measures was first reflected in the New Twenty-Point Programmed, 1986, announced by the Government of the late Mr. Rajiv Gandhi, which obviously aimed at rectifying lacunae in the economic policies being followed since Independence.
The gradual liberalization then introduced resulted in a rapid expansion of the industrial sector, and encouraging results began to appear on the Indian economic horizon. Inspired by this growth and in order to sustain it, further policy changes were needed. These measures have now been initiated by the Congress (I) Government, headed by Mr. P.V. Narasimha Rao.
Through new Economic Policy, Government has introduced such’ daring policy reforms, as the devaluation of Indian Rupee, resorting to privatization or partial privatization, deregulation, disinvestment, delicencing, etc., that the Indian economy is already looking up.
Encouragement of Non-resident Indians (NRIs) through various attractive schemes like Development Bonds, allowing the Multi-National Companies (MNCs) into India, letting in foreign investment up to 51%, thereby stepping from protectionism to freedom, and several other schemes and other steps have paid rich dividends. Foreign Exchange reserves have increased many times.
Now the question is why did liberalization become necessary? What prompted the government to liberalize the economy? Was everything wrong in our economic structure including our trade and industrial policy? There are a number of reasons responsible for this.
The fact is that in the early years of independence, due to the euphoria created by the transfer of power, the over-enthusiastic Indian leadership having been influenced by the Russian propaganda, was eager to derive maximum benefit from the Soviet experiment with planning and State control of the means of production, within the shortest time.
It was with this end in view that Planning Commission was constituted and Five-Year Plans were launched, the principles of mixed economy and socialistic pattern of society were adopted, and later even the adjective, ‘socialist’ was inserted in the Preamble to our Constitution. To usher in the socialistic pattern of society, huge Public Sector Undertakings were set up, so much so that the Indian administration began to be called Permit, Quota Raj. Industries, with the exception of the white elephants called Public Sector Undertakings, were strangulated.
Private enterprise was almost snuffed out of existence. Non ¬Resident Indians, who were eager to make an investment in their mother country, were disillusioned with the experience of endless red-tapism. The nation was virtually on the brink of economic bankruptcy. The public sector units devoured almost all our financial resources. Most of these units, in spite of their monopolistic nature, began to incur heavy losses. The only way to stem this rot was to give up the ideological hang-ups and liberate the economy.
Even Mrs. Thatcher had denationalized a number of industries in England. The socialistic experiment failed every-where. It could not go on indefinitely in India. So the attempt in India to liberalize the economy is in keeping with the trends prevailing everywhere else in the world. India Had to open its Gate for the world. Even then it is good that the Goat. of India has, even at this belated stage, retraced its, etc; from the mixed economy, public sector, and quota-control regime, which had created more problems than it claimed to solve.
The need for liberalization became imperative because of a very serious crisis in our adverse balance of payments position and back-breaking inflation. Foreign Exchange Reserves had declined to Rs. 2383 crore at the end of June 1991 which was barely sufficient to meet our two weeks’ requirements of Imports. The rate of Inflation had reached 16.7 percent in August 1991.
The Gulf War added fuel to the fire. The mounting oil bill increased the trade deficit from an average of Rs. 619 crore per month to Rs. 1229 crore per month after Aug 1990. The country had been pushed to the doors of bankruptcy. It was compelled to raise debts of foreign exchange by depositing gold with foreign banks to meet our day-to-day foreign exchange needs. All this had considerably lowered the prestige of the country.
Industrial production was adversely affected. In June 1991 it looked as if the government would not be able to pay off its debts. The shortage of imported raw materials resulted in all-round shortages. Prices of essential goods touched a new high. The economists knew where the root of the trouble lay, but it required some political will and moral courage to break with the past and to do what was right in the interest of the nation’s economy.
The measures now adopted by the government would go a long way towards deregulating the economy, which is necessary to provide the competition stimulus for accelerating industrial growth. These policies would help integrate the Indian economy with the rest of the world economy and play a greater role in both domestic and external economic activities.