Introduction

Since 1991, Government of India has introduced diverse economic reforms to pull the country out of economic crisis and to accelerate the rate of growth. These reforms hinge upon: (i) The policy of liberalisation (L) in place of Licensing (L) for the industries and trade. (ii) The policy of privatisation (P) in place of quotas (Q) for the industrialists. (iii) The policy of globalisation (G) in place of ‘Permits’ (P) for exports and imports. These reforms are often described as the New Economic Policy or the policy of LPG in place of the policy of LQP.

1. Need for Economic Reforms
Launching its First Five Year Plan (April 1, 1951), India had commenced upon its journey to economic development on the path of socialistic pattern of society and mixed economy. By far, India has completed ten five-year plans and five one-year plans. There is no denying the fact that in these five decades, Indian economy has achieved many successes but the number of failures is by no means small. During the period of planning public sector was given the utmost importance. Private sector was largely kept under government control. Trade and industry were subjected to many restrictions. Bureaucratic delays and red tapism have been the normal features of work culture. The cumulative effect of all these factors was that in the end of June 1991, our country was faced with an unprecedented economic crisis, Reserves of foreign exchange were merely enough to pay for two weeks’ imports. New loans were not available. Large amounts were being withdrawn from the account of non-resident Indians (NRIs). Faith of international community in Indian economy was shaken. Industrial progress was very slow and prices were touching the sky. In order to pull the economy out of economic crisis and to put it o the path to rapid and steady economic growth, it was most essential to correct financial disequilibrium, check rising prices, correct adverse balance of payments and replenish foreign exchange reserves. To achieve all these objectives, introduction of economic reforms or an appropriate economic policy was considered inevitable. Need for economic reforms or the new economic policy was felt mainly because of the following reasons:

(i)

Increase in Fiscal Deficit
Prior to 1991, fiscal deficit of the government had been mounting year after year on account of continuous increase in its non-development expenditure. Fiscal deficit means difference between the total expenditure and total receipts minus loans. It is equivalent to total expenditure and total receipts minus loans. It is equivalent to total borrowings by the government. In 1981-82, it was 5.4 per cent of gross domestic product. In 199091, it rose to 8.4 per cent of GDP. With a view to meeting fiscal deficit, the government was obliged to borrow and pay interest thereon. Thus, due to persistent rise in fiscal deficit there was corresponding rise in public debt and interest payment liability. In 1980;81, interest payment on public debt amounted to 19 per cent of total government expenditure. In 1991, amount of interest liability rose further to 36.4 per cent of total

17. It was mainly due to the fact that in international market our exports could not compete in price and quality. in the fiscal state of the government had been shaken. foreign debt service constituted 15% of our export earning while in 1990-91 it rose to 30 per cent.367/. All this was the direct result of the policy of protection so liberally pursued by the government and for so long. etc. (ii) Mounting Adverse Balance of Payments (BOP) Balance of payments is the difference between total exports and total imports of a country.151 crore in 1986-87.. Thus. To meet this deficit large amount of foreign loans had to be obtained. Gulf crisis thus further accentuated the already adverse balance of payments position. When total imports exceed total exports.government expenditure. balance of payment deficit increased tremendously. became inevitable for the government to substantially reduce its non – developmental expenditure so as to bring down fiscal deficit. declined sharply to Rs.252 crore in 1989-90. the burden of foreign debt service. (iii) Gulf Crisis On account of Iraq war in 1990-91. foreign loans that amounted in 198081 to 23 per cent of gross domestic product. in 1980-81. It. 6. 8. As a result. the problem of adverse balance of payments arises. Another source of foreign exchange is the remittances by Non-resident Indians (NRIs). For instance. Faith of international financial institutions like World Bank. 2. In such a predicament . In 1980-81. As against slow growth of exports there was rapid increase in imports. Foreign exchange reserves that were Rs. balance of payments on current account was adverse to the tune of Rs. therefore.. The required foreign exchange is earned by exporting goods and services. Although government granted diverse kinds of incentives and concessions to the exporters under export promotion programme. India used to receive huge amount of remittance s from gulf countries in foreign exchange. Deficit of balance of payments had been rising continuously since 198081.. the export did not rise to the desired extent. All this led to Further deterioration of balance of payments position. repayment of loan instalments and payment of interest increased tremendously. the situation grew so acute that Chandrashekhar government had to mortgage country’s gold to discharge its foreign debt servicing obligation. Accordingly. all that stopped totally. When receipts of foreign exchange fall short of their payments or when the value of total imports is greater than the value of total exports. (iv) Fall in Foreign Exchange Reserves In 1990-91 India’s foreign exchange reserves fell to such a low level that the same were not enough to pay for an import bill for even 10 days.214 crore and it rose in 1990-91 to Rs.e. There was serious apprehension that the government was fast moving towards debt trap. Our country needs foreign exchange to pay for the import of goods and services . the balance of payment becomes adverse. prices of petrol shot up. i.

privatisation and globalisation are the three main elements of NEP. It adversely affects domestic and foreign demand for our products. Liberalisation. To manage the crises. was due to excessive resort to deficit financing. their functioning was quite satisfactory but thereafter most of these suffered losses. despite good monsoon for three consecutive years. 2. Elements of NEP (New Economic Policy) Liberalisation.7 per cent. In the initial 15 years. Our government was left with no options but to approach World Bank and IMF (International Monetary Fund) for economic asylum. (vi) Poor Performance of Public Sector Undertakings (PSUs) In 1951 there were just 5 enterprises in public sector in India but in March 2006 their number rose to 239. but it was a tied loan – tied to set of reform policies. Deficit financing refers to borrowing from Reserve Bank of India by the government to meet its deficit. Prior to 1991. public sector undertakings degenerated into a liability. Cost of production goes up due to high rate of inflation. in order to secure loans from them. in turn. Average annual rate of inflation increased from 6. Because of increasing pressure of inflation. Reserve Bank offered this loan by printing new currency notes. country’s economic position deteriorated further. it became inevitable for the government to adopt new Economic Policy or initiate Reform Policies.7 per cent to 16. Privatisation and Globalisation were the three basic elements of the new reform policy. Three Main Elements of NEP Liberalisation Privatisation Globalisation Liberalisation . On account of these factors. Several thousand crores of public funds were invested therein. (v) Rise in Prices In India prices continued to rise rapidly.government felt compelled to adopt the policy of liberalisation as proposed by international financial institutions. prices of food grains rose substantially. This. Min reason for inflation or annual rate of increase in prices was rapid increase in the supply of money. India was granted an loan of $7 billion. Because of their poor performance.

and (vi) drugs and pharmaceuticals. undue delays and inefficiency. (ii) cigarette.g. etc. De-reservation of Production Areas: Many production areas which earlier were reserved for SSI (small scale industries) have now been de-reserved. (iii) defence equipment. Expansion of Production Capacity: Earlier production capacity was linked with licensing. (v) dangerous chemicals. that had achieved rapid economic development as a result of liberalisation were worthy of emulation. These control had given rise to corruption. Economic reforms (with liberalisation as its epicentre) were based on the assumption that market forces would guide the economy in a more effective manner that government control. Prior to 1991. . Following observations highlight how it happened: Abolition of Industrial Licensing: In July 1991. International agreements on the import of technology no longer required permission from the government. Economic reforms therefore made a bid to reduce restrictions imposed on the economy. Economic Reforms under Liberalisation Important economic reforms under liberalisation are as under: (i) Industrial Sector Reforms Liberalisation virtually implied de-regulation of industrial sector of the economy. etc. It was experienced by the government that several shortcomings had crept into the economy on account of these controls. e. abolishing the requirement of licensing except for the following six industries: (i) liquor. Examples of other underdeveloped countries like Korea. Freedom to Import Capital Goods: Liberalisation also implied freedom for the industrialists to import capital goods with a view to updating their technology. (iv) industrial explosives. restrictions on investment by big business houses. freedom from licensing implied freedom from capacity constraints ‘what to produce and how much to produce’ was now a matter of producer’s choice depending on market conditions. Rate of economic growth of the economy fell sharply and high-cost economic system came into being..Liberalisation of the economy means its freedom from direct or physical controls imposed by the government. a new industrial policy was announced. industrial licensing system. They had dampened the enthusiasm of the entrepreneurs to establish new industries. Economic reforms (with liberalisation as its epicentre) were based on the assumption that market forces would guide the economy in a more effective manner that government control. Singapore. government had imposed several types of controls on Indian economy. foreign exchange control. Forces of the market are allowed to determine allocation of resources to different uses rather that the directive policy of the government. Now. price control or financial control on goods. Thailand. import licence.

people would often evade the payment of taxes. Now competition prevails rather that controls. Broadly taxes are classified as (a) direct taxes and (b) indirect taxes Direct taxes are those taxes.(ii) Financial Sector Reforms Financial sector includes (i) banking and non-banking financial institutions (ii) stock exchange market and (iii) foreign exchange market. Liberalisation has also allowed FII (Foreign Institutional Investors) to invest in Indian financial markets. (iii) Fiscal Reforms Fiscal reforms relate to revenue and expenditure of the government. Free play of the market forces has led to the emergence of private bankers – both domestic as well as international – in the Indian banking industry. it will go a long way in establishing a common national market in the country. Consequent upon these changes. Consequent upon the policy of Liberalisation. there has been a substantial shift in role of the RBI from ‘a regulator’ to ‘a facilitator’ of the financial sector. Example: As a regulator. Now. This has raised tax compliance and therefore tax revenue of the government. Efforts are being made to ensure uniform application of VAT (value added tax) in all states of the country. the RBI (prior to liberalisation) would itself fix interest rate structure for the commercial banks. Implying a balanced regional growth (iv) External Sector Reforms . mutual funds and pension funds). In India financial sector is regulated and controlled by the RBI (Reserve Bank of India). (Examples: sales tax on goods. (Examples of FII: merchant bankers. tax structure in the country has been highly complicated and evasive. Tax reforms are the principal component of fiscal reforms. But as a facilitator (after liberalisation) the RBI would only facilitate the free play of the market forces and leave it to the commercial banks to decide their interest rate structure. Fearing a heavy burden of taxation. Now tax structure has been fairly simplified and moderated. Prior to liberalisation. It is a widely recognized fact that a simple and moderate tax structure raises tax compliance and therefore tax revenue of the government. Once this is achieved. competition prevails rather that controls. the burdent of which cannot be shifted onto others. One who pays such a tax (Example: a shopkeeper paying sales tax to the government) can shift the burden of this tax on to the final buyers of the goods by adding the tax amount to the basic price of the goods sold. Liberalisation implied a substantial shift in role of the RBI from ‘a regulator’ to ‘a facilitator’ of the financial sector. service tax). financial sector in India has shown a multi – dimensional growth and is serving as a life-line of economic activity in the economy.

Salient Features of Trade policy After Liberalisation (i) abolition of import quotas (ii) abolition of import licensing (except in case of goods which are not environment-friendly and are hazardous) (iii) moderation / reduction of import duty to enhance competitiveness in the domestic market (iv) withdrawal of export-duty to enhance competitiveness of Indian goods in the international market. It is expected to decelerate the flow of foreign exchange into the Indian economy. Briefly. This accelerated the flow of foreign currency into the Indian economy. Devaluation Devaluation implies lowering the value of our currency in relation to other currencies of the world. Consequently. trade policy after liberalisation is to facilitate integration of the Indian markets with rest of the world with a view to enhancing economic growth through global competition rather than non-competitive controls and protection. Or. rather withdrawn from many items of export and imports. Followed by devaluation in 1991. Efficiency is the benchmark of growth. a US dollar or an English pound can be exchanged for more rupees than before. This is what we desperately desired to solve the foreign exchange crises. not merely expansion. implying that a US $ can buy more goods in the Indian markets. Devaluation implies a fall in the value of repee vis-àvis (say) US dollar or English pound. Tariff restrictions have been considerably moderated. Presently. Implying that a US dollar or an English pound can buy more goods in the Indian markets. Instead of policy of protection to the domestic industry now there is the policy of ‘survival of the fittest’. it is the competition that prevails and not the quotas and tariffs. Foreign Trade Policy underwent a comprehensive change in the wake of liberalisation. Privatisation . Presently.External sector reforms include: (a) foreign exchange reforms and (b) foreign trade policy reforms Foreign exchange reforms were triggered in 1991 with the devaluation of the Indian rupee against foreign currencies. Implying a US $ can be exchanged for more rupees than before. the exchange value of the Indian rupee in the international money market (or foreign exchange market) was left to the free play of the market forces. exchange rate is determined by the forces of supply and demand in the international exchange market.

But. and there was a gradual increase in the per cent contribution of industry to GDP. the government seemed to have finally realised that the PSUs were more of a social burden and less of a social gain. Disinvestment Disinvestment is a variant of privatisation. The Industrial Policy Resolution (1956) clearly and categorically stated the significance of PSUs in the process of growth and development. It was on account of the spread of PSUs that the Indian economy underwent a structural transformation: people started shifting from agriculture to industry as their source of livelihood. And. The process of industrialisation was embarked upon during second Five Year Plan with an all round dependence and reliance on PSUs. It may happen in two ways: (i) outright sale of the government enterprises to the private entrepreneurs or (ii) withdrawal of the government ownership and management from the mixed enterprises (the enterprises jointly owned and managed by the government and the private entrepreneurs). It is taken as a remedial measure to improve production and managerial efficiency. as well as to facilitate modernisation. Case for Privatisation Case for privatisation is based on an inefficient performance of PSUs. It refers to a situation when the government sells off a part of its share capital of PSUs (public sector undertakings) to the public. Obvious Gains and Imperative Losses of Privatisation . pilferage.” It implies parting with government ownership or management of the public sector enterprises.“ Privatization “ is the general process of involving the private sector in the ownership or operation of a state owned enterprise. barring ‘navratanas’. Thus. towards the close of 1990s. Argument in favour of disinvestment is the same as in favour of privatisation. Leakage. besides a host of mini ratanas). the ownership of PSUs is being gradually sold off to the private entrepreneurs. inefficiency and corruption had become so rampant in PSUs that their privatisation was considered as the only alternative. PSUs gave us “navratanas” (nine jewels of the Indian industry. (Where the government is enhancing functional freedom with a view to upgrading their performance). it is beyond doubt that it was through the spread of PSUs that India could diversify its industrial base between the period 1951-1991. Mounting losses of PSUs became unsustainable.

Privatisation expects private enterprises to work in a competitive environment – both domestic as well as international. Capital and technology will flow from the developed countries of the world towards India. and movement of persons across borders. Economic Reforms assume that Indian economy should be integrated with world economy. Privatisation promotes consumers’ sovereignty Production is undertaken to the satisfaction of consumer wants. goods are produced only for those who have the means to buy them. MNCs (Multinational Corporations) are a testimony to the fact that private sector enterprises are capable of redefining the benchmark of growth. Outsourcing . the entrepreneurs work with 100 per cent commitment. Privatisation promotes diversification of production: Unlike PSUs. These are used for expansion and diversification of production.Obvious Gains (1) privatisation implies supremacy of ‘self-interest’ over ‘social interest’. private enterprises invariably generate high profits. When ‘self-interest’ prevails. Globalisation may be defined as a process associated with increasing openness. Higher degree of consumers’ sovereignty implies better quality of life. When prices rise (which is an obvious tendency in a system driven by the free play of market forces) weaker sections of the society suffer deprivation. Globalisation Globalisation means integrating the economy of a country with the economics of other countries under conditions of free flow of trade and capital. growing economic interdependence and deepening economic integration in the world economy. (ii) Privatization encourages the free play of market forces. and ‘ Efficiency’ becomes the condition of survival for the workers. As a result. It loses its practical validity once PSUs are sold off to the private players. These are the essential conditions of growth and development. Competition induces up gradation and modernisation. High productivity is the obvious result. technology and expertise among different countries of the world. there will be unrestricted flow of goods and services. But in the process. (2) (3) (4) Imperative Losses (i) Socialistic pattern of the society (in which ‘social interest’ is upheld as a supreme interest) is left to survive only as an academic concept.

all restrictions and controls on foreign trade have been removed. foreign trade policy was enforced for long duration. raw materials and technical know-how. In 47 high priority industries foreign direct investment to the extent of 100 per cent will be allowed without any restriction and red-tapism. Policy Strategies Promoting Globalisation of the Indian Economy Following are some important policy strategies that have influenced the process of globalisation of the Indian economy: (i) Increase in Equity Limit of Foreign Investment: Equity limit of foreign capital investment has been raised from 40 per cent to 51 to 100 per cent. In matters of import of spare parts. and the like. also called call centres). viz. BPO (business process outsourcing. these foreign capital investment units will be subject to normal rules. India is emerging as an important destination of outsourcing particularly.This is an important outcome of the process of globalisation. Export trading houses will also be allowed foreign capital investment up to 100 per cent. Main characteristics of this policy is that it is a liberal policy. partial convertibility of Indian rupee was allowed. Under this policy. (c) Remittances to meet family expenses. (ii) (iii) (iv) Two Parameters of Economic Reforms: Macroeconomic Stabilisation and Microeconomic Structural Adjustments . In this regard Foreign Exchange Management Act (FEMA) will be enforced. any other good can be imported or exported.. custom duties and tariffs imposed on imports and exports are being reduced gradually. and (ii) a revolutionary growth of IT industry in India. These services include: call centres. five years. for foreign transactions at a price determined by the market. Open competition has been encouraged and all facilities are being provided to this end. teaching/coaching. (b) payment of interest or dividend on investment. This is because of two important reasons: (i) availability of cheap labour in India. Reduction in Tariffs: In order render Indian economy beneficial internationally. It is called partial convertibility because it does not cover capital transactions. or relatively low wage rte for the skilled workers. Barring some specific goods. Long-Term trade Policy: In conformity with economic reforms. This convertibility was valid for the following transactions: (a) Import and export of goods and services. Partial convertibility means to buy or sell foreign currency like dollar or pound sterling. It refers to a system of hiring business services from the outside world. Partial Convertibility : To achieve the objective of globalisation. It was in conformity with economic reforms. clinical advice. transcription.

It may be noted that while Macroeconomic Stabilisers are short-team measures to correct overall imbalances in the system. appraisal of LPG or NEP requires that the reader appreaciates or understands the merits and demerits of this policy on the Indian economy or that he analyses the positive and negative impact of this policy on the Indian economy. The focus of these measures was to cope with the crises of confidence relating to ability of the government to manage the country’s dwindling BOP status. These reforms just cannot be carried out through the existing administrative and executive setup of the government. Privatisation (P) and globalisation (G). an appraisal of LPG policies implies and appraisal of NEP (New Economic Policy) or an appraisal of Economic Reforms initiated since 1991. (b) fiscal policy and (c) exchange rate policy. Second Generation Reforms on the other hand are those which require legislative action. particularly its ability to repay the loans taken from the rest of the world. These reforms can be carried out simply through the executive and administrative machinery of the government. (c) public sector policy. (d0 price policy. etc.(i) Macroeconomic Stabilisation Macroeconomic stabilisation measures refer to those set of measures which affect the entire economy and are therefore pervasive in nature (spreading across all sectors of the economy). The measures included reforms in (a) industrial policy. Accordingly. An Appraisal of LPG Policies Briefly referred to as LPG policies. Positive Impact of the LPG Policies . First Generation Reforms are those which do not require any legislative action. the term implies policies related to liberalisation (L). 3. Microeconomic adjustments are long-team measures aiming at improving the level of efficiency and productivity in different sectors of the economy. Second Generation Reforms are often delayed. (e) tariff policy. These measures included review of: (a) monetary policy. (ii) Microeconomic Structural Adjustments These refer to those measures by the government which focused on structural changes in the economy and which bad specific bearing on different sectors of the economy. First Generation Reforms and Second Generation Reforms Distinction is sometimes drawn between First Generation Reforms and Second Generation Reforms. (b) trade policy.

Consequently. A Check on Inflation: Owing to a greater flow of goods and services in the economy. privatisation and globalisation.Following observations highlight the positive impact of LPG policies on the Indian economy: (i) A Vibrant Economy: Indian economy has definitely become a more vibrant economy. Currently. there has been a check on the rate of inflation. It is only after LPG policies. Good amount of forex reserves reflects robustness of the economy and enhances economic confidence of the global investors in the Indian markets. and (ii) indigenous technology was getting obsolete. Thanks to the LPG policies. Results are evident in terms of an impressive increase in the growth rate of GDP. A Check on Fiscal Deficit: Mounting fiscal deficit has been a serious threat to the process of investment in the Indian economy. Consumer’s Sovereignty: Consumers sovereignty has definitely widened over time. (i) domestic economy was not generating enough of surplus for reinvestment. Consequently. It was as high as 8. Overall level of economic activity has definitely picked up after the introduction of the policies of liberalisation. Till 2007-08. in the near future. that IT industry in India has become the point of discussion throughout the world. A Substantial Increase in Foreign Exchange Reserves: Depletion of forex-reserves was one of the compulsions of the Government to introduce LPG policies. Presently. even though it is very significantly low. industrial production is hovering around 10 per cent which is a big jump from the pre-1991 level. fiscal deficit has been contained to around 5 percent of GDP. and the planners and the politicians are expecting that. overall level of expenditure of the households has tended to rise. Thanks to these policies. the growth rate of GDP is estimated to be more that 8 per cent. Producers are widely responding to the consumers choice and preference. it should get close to 9 per cent per annum. This is not sufficiently low yet significantly lower than before. (ii) A stimulant to Industrial Production: LPG policies have worked as a great stimulant to industrial production in the Indian economy. This has been a great relief to the Indian planner and the politicians in view of the facts that. It is significant to note (iii) (iv) (v) (vi) (vii) . there has been a significant increase in Government Revenue. forex reserves of the country are now placed at a comfortable level. it ranged between 4-5 per cent which is not seriously threatening. Flow of Private Foreign Investment: Private foreign investment has taken a quantum jump after the adoption of LPG policies. This is evident from the fact that a large variety of goods and services from the diverse global markets are now within the easy reach of the buyers.5 per cent prior to 1991. Implying and overall rise in the welfare status of the people.

it also implies influx of technology. Here is a definite change in welfare level of the people. the rate of inflation being more that 6 per cent. Recognition of the Indian economy as an emerging economic power in the world is of crucial significance. rise in prices of agricultural goods has triggered a rise in general price line. (ii) agricultural sector is the principal source of labour supply to the industrial sector. And it is pertinent to note that slow growth of agriculture sector (which presently is just about 2 per cent) must ultimately hinder the process of growth of the industrial sector as well. but has also become more diversified. owing to LPG policies the Indian economy has definitely got a long awaited kick-start. For instance. Consequently.that private foreign investment not only implies influex of capital in the domestic economy. Negative Impact of LPG Policies All the glitters is not gold. focus shifted from agriculture to industry. Presently. Indeed neglect of agriculture implies spread of poverty. As noted earlier. (viii) Recognition of India as an Emerging Economic Power: It is owing to LPG policies that the consequent rise in the overall level of economic activity. there is a serious threat to inducement to . and (iii) agricultural sector offers a huge demand base for the industrial products like tractors and thrashers. Indian markets are now increasingly shedding its monopolistic character. Set-back to agricultural sector. This recognition (particularly by developed nations of the world) not only raises India’s economic ranking in the world. (ix) Briefly. implies a set-back to the principal source of livelihood of the masses in India. Now a variety of these products are available at competitive rates. but also impacts psychology of the global investors to choose India as their preferred destination. ACs and PCs were the monopoly markets of select brands only. There is a negative side of the story as well. Following observations highlight negative impact of LPG policies in India: (i) Neglect of Agriculture: Growth of GDP has primarily been owing to a substantial growth of industrial sector. growth rate in agriculture suffered a set-back. and interest rates tending to rise. a couple of decades back. A Drift from Monopoly Market to Competitive Market: Launch of LPG policies has caused a significant shift in the structure of the Indian markets. that India is now being recognised as an emerging economic power in the world. products like cars. refrigerators. In the wake LPG policies. and becoming more and more competitive in nature. This because: (i) agricultural sector is an important source of raw material for the industrial sector. The process of growth has not only accelerated.

even beyond their means the Indian society is fast adapting itself to the western culture. It is not an Inclusive Growth Process. A variety of global brands in the market has lured the masses to become spend thrift. Everybody wants to be economically independent and well-off regardless of his responsibility towards the family or the society. where they find conducive infrastructural facilities. Any such economic dualism deepens social dualism as well. that of agriculture is becoming negative. Spread of Consumerism: Spread of MNCs is the country as a consequence of LPG policies has resulted in a large-scale spread of consumerism. Cultural Erosion: Globalisation has also caused cultural erosion of the Indian society. Economic prosperity has taken a lead over all other parameters of life. Rather. Loyalty towards the family and loyalty towards the society which. used to be the strongholds of the Indian social culture are being surrendered as useless virtues in the wake of materialism. Consequently ‘rural-urban gulf’ is widening. Think of any MNC. This may expand size of the market for the traders and the manufactures but certainly enhances vulnerability of the households as consumers. If the existing trends continue. of spending through borrowing. It is alarming to note that. the Indian farmer is shifting to production of cash crops for the foreign markets. It is just and ‘IT-based’ growth process. owing to liberalisation and globalisation. Lopsided Growth Process: LPG has accelerated the growth process of the Indian economy. Implying a situation where MNCs are exploiting the Indian markets to sell their products. (iii) (iv) (v) (vi) Which Way to Go? . All MNCs are focusing only on urban areas. causing a shortfall of domestic supplies of foodgrains. while MNCs are dominating the Indian economy. (ii) Urban Concentration of Growth Process: LPG policies have resulted in the concentration of growth process in urban areas. Alas! We are forced to import foodgrains despite Green Revolution. They become the victim of demonstration effect which enhances materialism but robs the peace of mind. GDP growth rate may fall short of expectations.invest. domestic producers are being marginalised owing to their poor competitive strength. Any social dualism ultimately threatens the process of growth. Economic Colonialism: India suffered nearly 200 year of political colonialism during the British rule. we might suffer a sort of economic colonialism. It is a growth process that does not include balanced growth across all sectors of the economy. and in the process. While industrial growth is retarding. but it is lopsided. you will hardly find its trace in the rural areas of the country. it is a growth process that centres around service sector of the economy. Now.

a compulsion should never mean a complete surrender.Should we or should we not subscribe to the LPG policies? It is a debatable issue. It is strongly recommended that LPG policies are pursued with guarded precautions. However. Indeed pursual of LPG policies was to a great extent a matter of economic compulsion rather that a matter of choice for the politicians of the country. . But avoiding the intricacies of the debate. We must see to it that we do not compromise with economic interest of our domestic producers. while holding negotiations in the areas of international trade and tariffs. We must remain in the commanding position to direct foreign investment in the areas of infrastructure rather that consumer goods offered by KFC or Dominos. Also we must see to it that we do not become economically subservient to the multinational corporations. the students of economics at the senior secondary level can definitely make on concrete observation: The LPG policies are the only way out to economic growth and development.