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In 1991 that India met up with economic crises, which occur due to the external debt. Due to the debt, the government was not able to make payments for the borrowings it had made from the foreign countries.
The crisis of 1991 happened lastly due to the inefficient management of the economy of India in the 1980s. The revenue that the government was generating was not enough to meet the ever increasing expenses. Thus the government had to borrow to pay for the tax. Thus the term called Debt Trap.
The Debt Trap is the deficit that occurs due to an increase in governments expenses in comparison to governments revenue.
New Economic Policies (NEP):
1. Liberalization: To do the business licence is not required. For the industrial sector, financial sectors, Tax reforms, Foreign Exchange reforms, and trade & investment policy reforms.
a. To increase competition among domestic industries.
b. To encourage foreign trade with outer countries with regulated imports and exports.
c. Enhancement of foreign capital and technology
d. To expand global market frontiers of the country
e. To diminish the debt burden of the country.
2. Privatization: Government had given rights to the private to do business which was Public Sector Undertaking (PSU) example is the oil sector.
3. Globalization: You can do business anywhere in the world and vice-versa, which is global trade. In simple terms it is outsourcing. In outsourcing, we have favour and against. In favour, company may be in the USA and they can start a business here in India. Against is small scale industries are affected.
New Economic Policies (NEP):
1. Stabilization Methods (Short Term)
2. Structural Reform Methods (Long Term)
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