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Discuss briefly any two major steps taken by the Government of India on „Financial Sector‟ front under the Economic Reforms of 1991

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(1) New Industrial Policy

Under Industrial Policy, keeping in view the priorities of the country and its economic development, the roles of the public and private sectors are clearly decided.

(i) Abolition of Licensing: Before the advent of the New Industrial Policy, the Indian industries were operating under strict licensing system. Now, most industries have been freed from licensing and other restrictions. 

(ii) Freedom to Import Technology: The use of latest technology has been given prominence in the New Industrial Policy. Therefore, foreign technological collaboration has been allowed.

(iii) Contraction of Public Sector: A policy of not expanding unprofitable industrial units in the public sector has been adopted. Apart from this, the government is following the course of disinvestment in such public sector undertaking. (Selling some shares of public sector enterprises to private sector entrepreneurs is called disinvestment. This is a medium of privatisation.) 

(2) New Trade Policy 

Trade policy means the policy through which the foreign trade is controlled and regulated. As a result of liberalisation, trade policy has undergone tremendous changes. Especially the foreign trade has been freed from the unnecessary controls.

(i) Reduction in Restrictions of Export-Import: 

Restrictions on the exports-imports have almost disappeared leaving only a few items. 

(ii) Reduction in Export-Import Tax: Export-import tax on some items has been completely abolished and on some other items it has been reduced to the minimum level.

(3) Fiscal Reforms 

The policy of the government connected with the income and expenditure is called fiscal policy. The greatest problem confronting the Indian government is excessive fiscal deficit. In 1990-91, the fiscal deficit was 8% of the GDP. (It is important to understand the meaning of fiscal deficit and GDP.)

(4) Monetary Reforms 

Monetary policy is a sort of control policy through which the central bank controls the supply of money with a view to achieving the objectives of the general economic policy.

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