INTRODUCTION 

In the begining of the last decade of 20th century, India faced an economic crisis. Coming into the decade of 1990s, Indian economy faced a severe Balance of Payment Crisis. BOP Crisis occurs when a country spends more on imports of foreign goods and services than it earns from its exports. Several global events such as the "Gulf War" when Iraq invaded Kuwait also trigerred the BOP Crisis in India due to a sharp rise in the prices of crude oil which eventually led to a rise in the price of imports for India. At the end of June 1991, foreign currency assets declined to such an extent that it was barely enough to finance two weeks of imports. The annual rate of Inflation reached to 16.7% in August 1991. 

This is when the then Prime Minister P. V. Narsimha Rao and our former Finance Minister, Prime Minister and the Governor of RBI Dr Manmohan Singh formally launched the New Economic Policy of 1991. This policy commenced with the Indian government asking for a bailout package from international financial institutions such as International Monetary Fund, Union Bank of Switzerland and Bank of England. The bailout package was taken with an intention of investment into the Indian economy to bring it out of a slump and start the process of production and generation of money through income.  The crux of the New Economic Policy was to open the Indian economy to the world by reducing government controls, allowing more private sector participation, opening the Indian economy to international trade by easing restrictions on foreign companies entering the country. An LPG Model promoting "Liberalisation", "Privatisation" and "Globalisation" was adopted. 

                  LIBERALISATION

Meaning: Liberalisation refers to "economic freedom".  It means producers, consumers and owners of factors of production are free to take decision to promote their self-interest. Adam Smith in his book "Wealth of Nations" suggested that economic liberalisation is the best economic policy to promote economic growth and well-being of the people. 

          Measures Taken For Liberalisation

1) Flexibility of Interest Rate : Under the policy of liberalisation, commercial banks have the freedom to determine the rate of interest depending upon the market forces of demand and supply. 

2) Freedom for expansion of Industries : In the new liberalised era, the industries are free to diversify their production capacity and reduce the cost of production. Earlier government used to fix the maximum limit of production capacity. No industry could produce beyond that limit. Now industries are free to decide their own production limit. on the basis of market requirements.

3) Abolition of Monopolies and Restrictive Trade Practices Act : According to MRTP Act of 1969, all the companies having assets worth rupees 100 crores and more were classified as MRTP firms and subjected to several restrictions. Companies like Tata Group, Reliance Industries and other large houses were often categorized as MRTP Firms due to their substantial market share. 

4) Reforms in FERA: To bring about flexibility in laws relating to foreign exchange, Foreign Exchange Regulation Act was replaced by Foreign Exchange Management Act.  Some of the key points of difference between FERA and FEMA were:  a) Violation of FERA rules was considered as a Criminal Offence, Violation of FEMA rules is considered as a Civil Offence

b) There was no provision for Tribunals, the appeals were sent to High Courts under FERA however there is a provision Special Director (Appeals)  and Special Tribunal. 

5) Investments in Infrastructure : Infrastructure was open to domestic as well as foreign investors. They could invest in rail, road and power projects. For Example, The Public Private Partnerships between Government of Maharashtra and Reliance Industries along with several other Private Companies in making The Mumbai Metro. 

6) Encouragement to Foreign Technology : Liberalisation has allowed the use of foreign technology in high priority industries. This has helped reduce cost and make the industries competitive. For Example,  the Mumbai Ahemdabad High Speed Rail Corridor is an example of Indian Government bringing in the advanced Japanese "Shinkansen" (Bullet Train) Technology in India. 

7) SEBI : The Securities and Exchange Board of India was constituted as a non-statutory body on April 12, 1988 through a resolution of the Government of India. The Securities and Exchange Board of India was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992.

Some of the functions of SEBI are as follows; 

Protective Function: The protective function implies the role that SEBI plays in protecting the investor interest and also that of other financial participants. 

Regulatory Function: Regulatory functions involve establishment of rules and regulations for the financial intermediaries along with corporates that helps in efficient management of the market.

 Developmental Function: Developmental function refers to the steps taken by SEBI in order to provide the investors with a knowledge of the trading and market function.

                       Privatisation

Meaning: Privatisation means transfer of ownership from public to private sector. In the broader sense, it means introduction of private management and control with or without change in ownership of public enterprise. In simple words, privatisation refers to a process that reduces involvement of the public sector and increases that of the private sector in economic activities. For Example: The Tata Group taking over Air India from the Government of India in 2022. 

            Measures taken for Privatisation

1) Disinvestment : It is the act of selling shares of sick public sector units to the private sector. For Example, Disinvestment of Maruti Udyog. 

The Government of India established Maruti Udyog Limited in February 1981 as a joint venture with Suzuki Motor Corporation, Japan. It was joint venture to make affordable cars for the middle class. It was the first major foreign automaker to invest in India. This joint-venture played a huge role in increasing the employment in India. As a part of its privatisation policy given the then economic conditions the government of India gradually relinquished control and sold its stake from ths joint venture and completely exited Maruti Suzuki in 2007 giving space for privatisation.  

                                           Image by Telegraph India

2) Dereservation Policy : The industrial policy of 1956 reserved 17 industries for the public sector. The New Economic Policy reduced this number to 8, gradually to 3 then to 2. At present only railway transport and atomic energy are reserved for the public sector.

3) Estabilishment of BIFR (Board of Industrial and Financial Reconstruction) : The BIFR was a development finance institution that was set up in 1987 by the Rajiv Gandhi government. By the end of 1996, 88 cases of sick public sector units were referred to BIFR. However, with time due to challenges, such as lack of resources to deal with complex cases, resistance from stakeholders and lack of compliance BIFR was replaced by Insolvency and Bankruptcy Code in 2016 and all its cases were transferred to National Company Law Tribunal and National Company Law Appellate Tribunal. 

4) Creation of National Renewal Board : When the loss making public sector units are closed, the workers have to face the problem of unemployment and poverty. To solve this problem, government had created National Renewal Board which was a part of National Renewal Fund. The NRB takes the responsibility of providing compensation to the retrenched workers as well as those seeking voluntary retirement.

5) The Case of Navratnas : A Navratna company in India is a public sector enterprise with special status due to its strong performance. These companies are important to the economy and are recognized both in India and abroad. Once given Navratna status, they gain more independence in areas like spending, investments, and managing staff. The Indian government classifies public sector enterprises into three groups, and Navratna companies are the top tier. The other two groups are Maharatna and Miniratna

Navratna Companies, classified as Central Public Sector Enterprises in India, enjoy several key advantages:

Increased Financial Freedom: Unlike Miniratna companies, Navratna Companies have greater financial and operational autonomy. They can invest up to Rs. 1,000 crore or 15% of their net worth in a single project without needing government approval.

Flexible Investment Limits: They can invest up to 30% of their net worth within a year, provided the total investment remains under Rs. 1,000 crore.

Global Operations: Navratna Companies have the flexibility to enter joint ventures, form alliances, and set up subsidiaries abroad, enhancing their operational scope and opportunities