In 1980s Indian economy handled by government. Government used to manage almost all sectors. Government use to collect fund for managing public sector. Unemployment, poverty and population explosion are also mange from the funds collected. Funds collected through taxation, earn revenue from public sector and many more. Government also use these revenue for expenditure in those sector which can’t yield profit immediately. But when government expenditure exceed the revenue collected government has to borrow funds. These funds borrowed from banks, people of the country or international financial institutions. With the time government expenditure exceeded that can’t be meet by the funds collected.
In the late 1980s Government Expenditure exceeded revenue. Also government did not have fund to pay the interest to international lenders. No country was ready to give more loan to India.
At that time India approached World Bank and International Monetary Fund for loan. They were ready to pay loan of $7 billion. But they put a condition before India. The condition was to open the economy for international trade and to give private players market. This means to remove trade barriers for foreign trade. And second was to allow privatization. India agreed to the conditions. This give rise to NEW ECONOMIC POLICY.
This NEP has remove all barriers and given rise to Liberalisation, privatization, globalization.