Economic Reforms of 1991 can broadly be classified into two groups: stabilisation measures and structural reform measures.
A key element in the stabilisation measures was the effort to restore fiscal discipline. In this regard following measures were adopted:
(i) Devaluation of the rupee,
(ii) Increase in interest rates,
(iii) Reduction in fiscal deficits,
(iv) Exchange rate adjustments,
(v) Partial convertibility of the rupee on the current account,
(vi) A rapid build-up of foreign exchange reserves.
Structural Reform Measures
Major structural reform measures initiated in 1991 are as follows:
1. Industrial Policy Reforms
Objectives. New Industrial Policy was announced on 24th July, 1991. The main objectives of this policy are as under:
(i) To build on the past industrial achievements,
(ii) To maintain sustained growth in productivity and gainful employment,
(iii) To further encourage growth of entrepreneurship and upgrade technology in order to attain international competitiveness,
(iv) To correct the distortions or weaknesses of the industrial sector,
(v) To encourage all industries belonging to public, private and cooperative sectors to grow and improve on their performance.
Main Industrial Reforms
The process of reforms has been continuous. The main reforms are as under
(i) Reduction in Industrial Licensing. Industrial licensing has abolished for all items except a short list of 7 industries related to sec strategic and environmental concerns.
(ii) Removal of Investment Controls on Large Business Monopolies and Restrictive Trade Practice Act (MRTP Act) has been amended to eliminate the need for prior approval by large companies for capacity expansion or diversification.
(iii) De-reservation of Industries for Public Sector Areas reserved for the public sector are narrowed down (to only 4) and greater participation by private sector is permitted.
(iv) Reforms in Regulations Concerning Foreign Investment and Foreign Technology. A number of important steps are taken and concessions are given to facilitate the inflow of foreign direct investment and foreign technology in the Indian industrial sector.
(v) Other Measures.
(a) Government clearance for the location of projects is dispensed with except in the case of cities with a population of more than one million.
(b) The investment ceiling on plant and machinery for small undertakings has been enhanced
Trade Policy Reforms
New initiatives were taken in trade policy to create an environment which would provide a stimulus to export while at the same time reducing the degree of regulation and licensing control on foreign trade. In this regard many barriers to imports have been removed and import duties are curtailed
Public Sector Reforms
To increase the efficiency and accountability of the public sector, its units had been given greater autonomy in their operation and a scheme of disinvestment was initiated.