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The New Economic Policy (NEP) of 1991 marked a historic turning point in India's economic development. Before 1991, the Indian economy followed a mixed economic model with a dominant role of the public sector, extensive government control over industries, high import tariffs, industrial licensing, and strict foreign exchange regulations. Although this model helped establish a strong industrial base after independence, by the late 1980s the economy suffered from low productivity, high fiscal deficits, increasing external debt, declining foreign exchange reserves, and slow economic growth. In 1991, India faced a severe balance of payments crisis, with foreign exchange reserves falling to levels sufficient to finance only a few weeks of imports. Under these circumstances, the Government of India, led by Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh, introduced the New Economic Policy to stabilize the economy and initiate structural reforms. The New Economic Policy was based on three major pillars: Liberalization, Privatization, and Globalization (LPG). These reforms aimed to increase economic efficiency, encourage private enterprise, attract foreign investment, and integrate India with the global economy. Liberalization referred to the removal or relaxation of government controls over economic activities. Before 1991, industrial licensing was compulsory for most industries, making it difficult for entrepreneurs to establish or expand businesses. The NEP abolished industrial licensing for most sectors, thereby reducing bureaucratic hurdles and encouraging private investment. Restrictions on capacity expansion were removed, and businesses were given greater operational freedom. Price controls on many products were also relaxed, allowing market forces to determine prices. Financial sector __________ __________ ___ _____ _________ _________.
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