Economic Reforms Since 1991 test - 6

Fiscal policy is the expenditure and revenue policy of the government. Reduction of quantitative restrictions on imports and exports led to the fall in taxes that the government used to collect and so it is a change in the fiscal policy.

Under the New Economic Policy (NEP), all of these changes were made to the monetary policy and the monetary policy was also disassociated from the fiscal policy.

Tariff barriers lead to a rise in the price of the imported commodities while non tariff barriers restrict the quantity that can be imported. Minority sale involves the sale of less than 49% stake of a PSU to the private sector.

For availing the loan, IMF and World Bank expected India to liberalise and open up the economy by removing restrictions on the private sector, reduce the role of the government in many areas and remove trade restrictions between India and other countries.

 Exports lead to inflow of foreign exchange while imports lead to its outflow. When imports are more than exports, outflows of foreign exchange exceed its inflow resulting in the decline in Foreign Exchange Reserves.

The New Economic Policy seeks to replace licence, quota, permit (LQP) raj by liberalisation, privatisation and globalisation (LPG).

Delicensing of industries was one of the steps taken under the deregulation of industrial sector.

Under the trade and investment policy reforms, import licensing was abolished except in case of hazardous and environmentally sensitive industries.

 The reforms under the New Economic Policy have been widely criticized for not being able to address some of the basic problems facing our economy, especially in the areas of employment, agriculture, industry, infrastructure development and fiscal management.

Removal of quantitative restrictions on import and export, transition from a fixed exchange rate to a market determined exchange rate, reduction of restrictions on the use of foreign exchange were some of the main changes in the foreign trade policy.