Since the adoption of IPR 1948 significant developments took place in India. It marked the dawn of a mixed economy in India.
26th November 1949 – The constitution of India adopted with its “directive principles” of state policy by the Constituent Assembly.
26th January 1950 – Indian constitution came into effect.
1951 – Planning adopted on an organized basis.
1951 to 1956 – First five year plan.
1954 December – Parliament accepted the socialist pattern of society as a basic aim of social and economic policy and therefore the Government announced the second industrial policy resolution in April 1956 replacing the resolution of 1948.
The industrial policy resolution of 1956 was described as the economic constitution of India based on its political counterpart the constitution of India. The objective of a socialist pattern and mixed economy was given expression terms of industrial development through this resolution.
Economic development in India since Independence was unique in many ways. India adopted a mixed economy and economic planning. It assigned an important role to the public sector by adopting the policy of “socialistic pattern of society” based on equality. Therefore the government had to put several controls and regulations on each and every economic activity.
In 1969 to control private monopoly, Monopoly and Restrictive Trade Practices Act (MRTPA) was passed.
In 1969 in order to expand “social banking”, 14 major banks in India were nationalized.
In 1973 Foreign Exchange Regulation Act (FERA) was introduced in order to restrict the flow of scarce foreign exchange.
The economic development during 1950 to 1980 was characterized by centralized planning, government ownership of basic and key industries, and dominant role of the public sector, control of private investment, import substitution and trade protection through high tariffs and non-tariff barriers and license system. This period of 1950 to 1980 is known as the “License Raj.”
Gradually the positive effects of this policy started disappearing and the problems of stagnation, inflation, imbalances, delay in decision making, waste of resources, bureaucracy and red-tapism, less flow of foreign capital, inefficient corrupt and low profit making public sector, government borrowings and therefore heavy interest payments, fiscal deficit, adverse balance of payments etc emerged This hindered the rate of growth of output and employment.. A very high fiscal deficit, adverse balance of payments, poor credibility in the international market and dwindling foreign exchange reserves were the main reasons of a major economic crises in 1991.
To save the situation government of India pledged some stock of gold to the Bank of England and some stock of gold was sold to the Bank of England. It was a dishonor to our country.
The Government of India approached the International monetary fund (IMF) and the world bank for short term loans. Both the institutions granted loans with a condition to make structural changes in the Indian economy ie remove restrictions and to open up the economy.
Therefore a need was seriously felt to free the economy from unwanted controls and restrictions. This led to the process of economic reforms. In 1991 the government decided to undertake economic reforms so as to improve the functioning of the economy, bring down fiscal deficit, reduce the role of the government give more importance to the private sector encourage foreign investment and globalise the Indian economy.
All these factors forced the Indian government to introduce reforms which came to be known as the New Economic Policy.
Economic policies adopted by the Government of India since July 1991 to overcome the economic crises and accelerate the pace of economic growth is termed as New Economic Policy or Economic Reforms.
Economic reforms refer to various policy changes which are initiated by the Government in different segments of the economy like agriculture, industry, trade, finance, foreign exchange, banking, money, education and health etc. to alter the basic character of the economy from a regulated one to a liberal one, so that the functioning of the economy can improve and bring about positive results.