The
main characteristics of new Economic Policy 1991 are:
1. Delicencing.
Only six industries were kept under Licensing scheme.
2.
Entry to Private Sector. The role of public sector was limited only
to four industries; rest all the industries were opened for private
sector also.
4.
Liberalisation of Foreign Policy. The limit of foreign equity was
raised to 100% in many activities, i.e., NRI and foreign investors
were permitted to invest in Indian companies.
5.
Liberalisation in Technical Area. Automatic permission was given to
Indian companies for signing technology agreements with foreign
companies.
6.
Setting up of Foreign Investment Promotion Board (FIPB). This board
was set up to promote and bring foreign investment in India.
7.
Setting up of Small Scale Industries. Various benefits were offered
to small scale industries.
Three
Major Components or Elements of New Economic Policy:
There
are three major components or elements of new economic policy-
Liberalisation, Privatisation, Globalisation.
1.
Liberalisation:
Liberalisation
refers to end of licence, quota and many more restrictions and
controls which were put on industries before 1991. Indian companies
got liberalisation in the following way:
(a)
Abolition of licence except in few.
(b)
No restriction on expansion or contraction of business activities.
(c)
Freedom in fixing prices.
(d)
Liberalisation in import and export.
(e)
Easy and simplifying the procedure to attract foreign capital in
India.
(f)
Freedom in movement of goods and services
(g)
Freedom in fixing the prices of goods and services.
2.
Privatisation:
Privatisation
refers to giving greater role to private sector and reducing the role
of public sector. To execute policy of privatisation government took
the following steps:
(a)
Disinvestment of public sector, i.e., transfer of public sector
enterprise to private sector
(b)
Setting up of Board of Industrial and Financial Reconstruction
(BIFR). This board was set up to revive sick units in public sector
enterprises suffering loss.
(c)
Dilution of Stake of the Government. If in the process of
disinvestments private sector acquires more than 51% shares then it
results in transfer of ownership and management to the private
sector.
3.
Globalisation:
It
refers to integration of various economies of world. Till 1991 Indian
government was following strict policy in regard to import and
foreign investment in regard to licensing of imports, tariff,
restrictions, etc. but after new policy government adopted policy of
globalisation by taking following measures:
(i)
Import Liberalisation. Government removed many restrictions from
import of capital goods.
(ii)
Foreign Exchange Regulation Act (FERA) was replaced by Foreign
Exchange Management Act (FEMA)
(iii)
Rationalisation of Tariff structure
(iv)
Abolition of Export duty.
(v)
Reduction of Import duty.
As
a result of globalisation physical boundaries and political
boundaries remained no barriers for business enterprise. Whole world
becomes a global village.
Globalisation
involves greater interaction and interdependence among the various
nations of global economy.
Impact
of Changes in Economic Policy on the Business or Effects
ofLiberalisation and Globalisation:
The
factors and forces of business environment have lot of influence over
the business. The common influence and impact of such changes in
business and industry are explained below:
1.
Increasing Competition:
After
the new policy, Indian companies had to face all round competition
which means competition from the internal market and the competition
from the MNCs. The companies which could adopt latest technology and
which were having large number of resources could only survive and
face the competition. Many companies could not face the competition
and had to leave the market.
For
example, Weston Company which was a leader in ΠΆ. V. market with more
than 38% share in T.V. market lost its control over the market
because of all round competition from MNCs. By 1995-96, the company
almost became unknown in the T.V market.
2.
More Demanding Customers:
Prior
to new economic policy there were very few industries or production
units. As a result there was shortage of product in every sector.
Because of this shortage the market was producer-oriented, i.e.,
producers became key persons in the market. But after new economic
policy many more businessmen joined the production line and various
foreign companies also established their production units in India.
As
a result there was surplus of products in every sector. This shift
from shortage to surplus brought another shift in the market, i.e.,
producer market to buyer market. The market became customer- oriented
and many new schemes were made by companies to attract the customer.
Nowadays products are produced/manufactured keeping in mind the
demands of the customer.
3.
Rapidly Changing Technological Environment:
Before
or prior to new economic policy there was a small internal
competition only. But after the new economic policy the world class
competition started and to stand this global competition the
companies need to adopt the world class technology.
To
adopt and implement the world class technology the investment in R &
D department has to increase. Many pharmaceutical companies increased
their investment in R and D department from 2% to 12% and companies
started spending a large amount for training the employees.
4.
Necessity for Change:
Prior
to 1991 business enterprises could follow stable policies for a long
period of time but after 1991 the business enterprises have to modify
their policies and operations from time to time.
5.
Need for Developing Human Resources:
Before
1991 Indian enterprises were managed by inadequately trained
personnel’s. New market conditions require people with higher
competence skill and training. Hence Indian companies felt the need
to develop their human skills.
6.
Market Orientation:
Earlier
firms were following selling concept, i.e., produce first and then go
to market but now companies follow marketing concept, i.e., planning
production on the basis of market research, need and want of
customer.
7.
Loss of Budgetary Support to Public Sector:
Prior
to 1991 all the losses of Public sector were used to be made good by
government by sanctioning special funds from budgets. But today the
public sectors have to survive and grow by utilising their resources
efficiently otherwise these enterprises have to face disinvestment.
On the whole the policies of Liberalisation, Globalisation and
Privatisation have brought positive impacts on Indian business and
industry. They have become more customer focus and have started
giving importance to customer satisfaction.
8.Export
a Matter of Survival:
The Indian businessman was facing global competition and the new trade policy made the external trade very liberal. As a result to earn more foreign exchange many Indian companies joined the export business and got lot of success in that. Many companies increased their turnover more than double by starting export division. For example, the Reliance Company, Videocon, MRF, Ceat Tires, etc. got a great hold in the export market.
