Introduction
The Liberalisation, Privatisation, and Globalisation (LPG) reforms introduced in India in 1991 marked a major shift in the country’s economic policy. Faced with a balance of payments crisis, the government adopted these reforms under the guidance of international institutions like the International Monetary Fund (IMF) and World Bank. These policies transformed India from a closed, state-led economy to a more market-oriented, globally integrated one. This answer elaborates on the concepts of liberalisation, privatisation, and globalisation, their objectives, implementation, and their impact on the Indian economy and society.
1. Liberalisation
Liberalisation refers to the process of removing government restrictions and control over economic activities. The goal was to increase efficiency, competition, and investment by reducing bureaucratic hurdles.
Key Features
- Abolition of industrial licensing (except in a few sectors)
- Reduction in tariffs, taxes, and import duties
- Deregulation of markets and prices
- Decontrol of foreign trade and investment
- Encouragement of private sector participation
These measures helped reduce the role of the state in the economy and allowed industries to grow more freely.
2. Privatisation
Privatisation involves transferring ownership and management of public sector enterprises (PSEs) to the private sector. The aim was to improve efficiency, reduce fiscal burden, and encourage competition.
Forms of Privatisation
- Disinvestment: Selling shares of government companies to private investors.
- Strategic Sale: Selling majority stakes with management control to private players.
- Public-Private Partnership (PPP): Collaborative investment in infrastructure and services.
Examples include disinvestment in companies like BALCO, Air India, and LIC’s IPO. PPPs have been widely used in roadways, airports, and metro projects.
3. Globalisation
Globalisation refers to the process of integrating domestic economies with the world economy through trade, investment, technology, and cultural exchange. It allows free movement of goods, services, capital, and knowledge across borders.
Key Measures
- Opening Indian markets to foreign direct investment (FDI)
- Encouraging Indian companies to invest abroad
- Joining global institutions like WTO
- Technology transfer and international collaborations
Objectives of LPG Reforms
- Stabilize the economy and overcome financial crisis
- Improve industrial productivity and global competitiveness
- Attract foreign capital and technology
- Create employment opportunities
- Modernize financial and capital markets
Impact of LPG Policies
Positive Effects
- Economic Growth: GDP growth accelerated, especially in the service sector.
- Foreign Investment: Substantial increase in FDI and FII inflows.
- Exports: India diversified and increased its exports, especially IT and pharmaceuticals.
- Consumer Choices: Increased availability of products and improved quality.
- Infrastructure Development: Growth in telecom, roads, ports, and aviation sectors.
Negative Effects
- Widening Inequality: Growth was uneven, with rural and agricultural sectors lagging behind.
- Jobless Growth: Industrial and service sectors became more capital-intensive, creating fewer jobs.
- Neglect of Agriculture: The reforms focused on industry and services, neglecting farmers and rural areas.
- Loss of Small-Scale Industries: Global competition led to closure of many small and cottage industries.
- Cultural Impact: Westernization and consumerism impacted traditional values and lifestyles.
Criticism of LPG Model
- Too much reliance on market forces
- Displacement due to land acquisition for private and foreign projects
- Neglect of public health and education services
- Environmental degradation due to rapid industrialisation
Recent Trends and Reforms
- Make in India: Focus on boosting domestic manufacturing
- Start-Up India: Encouraging entrepreneurship and innovation
- Atmanirbhar Bharat: Aiming for self-reliance post-COVID-19, while balancing global engagement
Conclusion
The LPG reforms of 1991 were a turning point in India’s economic journey. They enabled the country to integrate into the global economy, attract foreign investment, and boost industrial and service sector growth. However, the uneven distribution of benefits, rising inequality, and socio-environmental costs show the need for inclusive and sustainable development. A balanced approach that promotes growth while protecting the vulnerable and the environment is the way forward for India.