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Liberalization, Privatization, Globalization (LPG Model) in India

LPG Model & LPG reforms in India

After Independence in 1947 Indian government faced a significant problem to develop the economy
and to solve the issues. Considering the difficulties pertaining at that time government decided to
follow LPG Model. The Growth Economics conditions of India at that time were not very good. This
was because it did not have proper resources for the development, not regarding natural resources
but financial and industrial development. At that time India needed the path of economic planning
and for that used ‘Five Year Plan’ concept of which was taken from Russia and feet that it will
provide a fast development like that of Russia, under the view of the socialistic pattern society.
India had practiced some restrictions ever since the introduction of the first industrial policy
resolution in 1948.

Liberalization is defined as making economics free to enter the market and establish their venture
in the country. Privatization is defined as when the control of economic is sifted from public to a
private hand. Globalization is described as the process by which regional economies, societies, and
cultures have become integrated through a global network of communication, transportation, and
trade.

Liberalization:

Soon after independence, the period was known as License Raj. As a result of the restriction in the
past, India’s performance in the global market has been very dismal; it never reached even the 1%
in the worldwide market. India has vast natural resources with high-efficiency labor, but after all
this, it was still contributing with 0.53% till 1992.

IMPACT BEFORE LIBERALIZATION

 The low annual growth rate of the economy of India before 1980, which stagnated around
3.5% from the 1950s to 1980s, while per capita income averaged 1.3%. At the same time,
Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in
Taiwan by 12%.
 Only four or five licenses would be given for steel, power, and communications. License
owners built up substantial powerful empires
 A substantial public sector emerged. State-owned enterprises made significant losses.
  Infrastructure investment was weak because of the public sector monopoly.
 License Raj established the “irresponsible, self-perpetuating bureaucracy that still exists
throughout much of the country” and corruption flourished under this system
After liberalization, India became the second world of development and became the 7th largest
economies. It contributed 1.3 trillion in the world’s GDP. Dr. Manmohan Singh, the former finance
minister, opened the way for a free economy in the country which led to the significant
development of the country.

PRIVATIZATION

India is leading towards privatization from government raj. As a result, it led to the development of
country 500 faster than previous. Now India is in the situation of world fastest developing economy
and maybe chance that India will be at the top till 2050.

GLOBALIZATION

The term is sometimes used to refer specifically to economic globalization: the integration of
national economies into the international economy through trade, foreign direct investment, capital
flows, migration, and the spread of technology. However, globalization is usually recognized as
being driven by a combination of economic, technological, sociocultural, political, and biological
factors.

LPG Model of Development & LPG reforms

(a) This has a very narrow focus since it mostly concentrates on the corporate sector which
accounts for only 10 percent of GDP.

(b) The model bypasses agriculture and agro-based industries which are a significant source of
generation of employment for the masses. It did not delineate a concrete policy to develop
infrastructure. Financial and technological support, particularly the infrastructural needs of agro-
exports.

(c) By permitting free entry of the multinational corporations in the consumer goods sector. LPG
model hit the interests of the small and medium sector engaged in the production of consumer
goods. There is a danger of labor displacement in the small industry if the unbridled entry of MNCs
is continued.

(d) By facilitating imports, the Government has opened the import window too wide. Consequently,
the benefits of rising exports are more than offset by the much higher rise in imports leading to a
more significant trade gap.

(e) Finally, the model emphasizes a capital-intensive pattern of development, and there are severe
apprehensions about its employment-potential. It is being made out that it may cause
unemployment in the short run but will take care
“Liberalization, Privatization and Globalization” (LPG Model & LPG Policy) approach followed by
Government of India

For an understanding of liberalization, privatization and globalization or LPG Model in the Indian
context, it is essential to detail out the eighth five-year plan, since it was the inception of a host of
LPG policy that was instrumental in allowing India to unshackled its economy and engage in global
trade and commerce.

The period before liberalization in India

The annual growth rate of the economy of India before 1980 was low. It stagnated around 3.5%
from the 1950s to 1980s, while per capita income averaged 1.3%. Only four or five licenses would
be given for steel, electrical power, and communications. License owners built up substantial,
powerful empires. A vast public sector emerged. State-owned enterprises made large losses.
Income Tax Department and Customs Department manned by IAS officers became efficient in
checking tax evasion. Infrastructure investment was weak because of the public sector monopoly. 
Licence Raj established the “irresponsible, self-perpetuating bureaucracy that still exists
throughout much of the country” and corruption flourished under this system.

The context of Five Year Plans in Liberalization Privatization and Globalization 

The Eighth Five Year Plan (1992-1997) was formulated after a period of political instability which
gripped the country for two years after the completion of the Seventh Five Year Plan. In 1991, the
country faced a major foreign exchange crisis which made the economic position of the country
very vulnerable. As a result of this instability in the country, there were two Annual Plans for 1992
and 1993. The eighth five-year plan measures such as privatization and liberalization which were
to have a far-reaching impact later were introduced during the Eighth Five Year Plan. India also
became a member of the World Trade Organisation (WTO) during this Plan period.

Eighth five-year plan during LPG policy

The main aim of the Eighth Five Year Plan was –

 To modernize the industrial sector through modern technology & help economy grow
 Opening up of the Indian economy to counter the foreign debt burden which was a
significant threat for the country.
 Taking significant initiatives to increase the rate of employment and reduce poverty.
During this plan focus was on implementing plans and policies which would help in attaining
objectives like the modernization of the industrial sector, increase the rate of employment in the
country, reduce poverty and improve self-reliance on domestic resources. Also, the Eighth Five Year
Plan also focused on human resource development based on the reasoning that healthy and
educated people could contribute more effectively to economic growth. Most important, the Eighth
Five Year Plan marked the beginning of privatization and liberalization of the economy in the
country.
Plan performance  

 The target growth for the Eighth Five Year Plan was taken as 5.6 percent but by the end
of the Plan, India achieved an actual growth rate of 6.78 percent, higher than that of the
target
 Increase in the rate of employment
 Reduction in the poverty rate.
 The Gross Domestic Product (GDP) rate increased from 5.7 percent to 6.5 percent.
 The inflation rate rose from 6.7 percent to 8.7 percent.
 The rate of growth in the agriculture sector increased from 3 percent to 4.8 percent
Post liberalization in India
The economic reforms lead to a certain amount of stability in the economy and high growth rate. In
the ninth five-year plan it was envisaged to have balanced development. For this, the focus was on
speedy industrialization, human development, full-scale employment, poverty reduction, and self-
reliance on domestic resources.

The main objectives directly related to liberalization and privatization as a continuation of the
previous plan period were

 to generate adequate employment opportunities and promote poverty reduction

 to stabilize the prices to accelerate the growth rate of the economy
 to create a liberal market for an increase in private investments
Other objectives served the purpose of human development. They were

 To ensure food and nutritional security

 to provide for the necessary infrastructural facilities like education for all, safe drinking
water, primary health care, transport, energy
 to check the growing population increase
 to encourage social issues like women empowerment, conservation of certain benefits for
the Special Groups of the society
Conclusion

The fruits of liberalization reached their peak in 2007 when India recorded its highest GDP growth
rate of 9%. With this,economic reforms helped India became the second fastest growing major
economy in the world, next only to China. There has been a significant debate, however, around
liberalization as an inclusive economic growth strategy. Since 1992, income inequality has
deepened in India. Whereas consumption is among the poorest staying stable while the wealthiest
generate consumption growth.

For 2010, India was ranked 124th among 179 countries in Index of Economic Freedom World
Rankings. Hence, on the one hand, it witnessed high economic development, infrastructure
development, and urbanization and on the other hand had a widening cleft between the rich and
poor and class divide continues to plague the country. Social and human development remains
absurdly low leading to a profoundly fragmented nation.

REFERNCES

https://planningtank.com/development-planning/liberalization-privatization-globalization-lpg-
model-in-indiaX