LPG REFORMS:

LIBERALIZATION, PRIVATISATION
GLOBALISATION
A journey through the Indian Economy
Presented by Sanchi Magan, Mahak, Khushi Jain, Kumkum Singh
LPG Reforms, or Liberalization, Privatization, and Globalization reforms, refer to a set of
economic reforms introduced by the Indian government in 1991. These reforms were a part
of India’s New Economic Policy, which aimed to uplift the country economically. The LPG
Reforms contributed greatly to making India a globally integrated economy.

LPG Reforms in India were introduced at a time when the Indian market was struggling to
balance its payment deficit.
The reforms focused on changing the Indian economy from the Soviet model to a market
economy with less government control and more economic activity.
The LPG Reforms 1991 aimed to resolve the balance of payments crisis and increase
India's foreign exchange reserves.
The policy encouraged economic growth and economic expansion into the global trade
markets.
The LPG Policy in India allowed the international flow of goods, services, and capital.
It encouraged increased participation of private entities in various sectors of the
economy.
Prior to 1991, India operated under a mixed economy with heavy government regulation
and control over various sectors. The country faced economic stagnation, high fiscal
deficits, and a balance of payments crisis. In response to these challenges, the then-Finance
Minister, Dr. Manmohan Singh, introduced a series of reforms aimed at liberalizing the
economy.
The LPG reforms led to significant changes in various sectors of the Indian economy.
Industries such as telecommunications, aviation, and information technology witnessed
rapid growth and development. Foreign investment inflows increased, contributing to the
modernization of infrastructure and the expansion of manufacturing and services sectors.

However, the reforms also brought about challenges, including disparities in income
distribution, displacement of workers in certain sectors, and environmental concerns. The
government had to navigate these challenges while ensuring that the benefits of
liberalization reached all sections of society.

Overall, the LPG reforms of 1991 laid the foundation for India's emergence as a global
economic powerhouse in the 21st century.
LIBERALISATION
Liberalisation is the process or means of the elimination of
control of the state over economic activities. It provides a
greater autonomy to the business enterprises in decision-
making and eliminates government interference.
Liberalisation was begun to put an end to the limitations,
and open multiple areas of the economy.

Since the adoption of the New Economic Strategy in 1991,

there has been a drastic change in the Indian economy. With
the arrival of liberalisation, the government has regulated
the private sector organisations to conduct business
transactions with fewer restrictions.
For the developing countries, liberalisation has opened
economic borders to foreign companies and investments.
Earlier, the investors had to encounter difficulties to enter
countries with many barriers.
 Reforms under Liberalisation

Deregulation of the Industrial Sector

Financial Sector Reforms
Tax Reforms
Foreign Exchange Reforms
Trade and Investment Policy Reforms
External Sector Reforms
Foreign Exchange Reforms
Foreign Trade Policy Reforms
 SIGNIFICANCE
Economic Growth: One of the most significant benefits of
liberalization was the acceleration of economic growth. By opening up
the economy to international trade and investment, India experienced
higher levels of productivity, increased efficiency, and greater
competitiveness, leading to a surge in overall economic output.

Increased Foreign Investment: Liberalization attracted foreign

investment into the Indian economy, providing much-needed capital
for infrastructure development, technology transfer, and industrial
expansion. Foreign direct investment (FDI) inflows surged, contributing
to the modernization and growth of various sectors.

Diversification of Industries: Liberalization encouraged diversification

of industries, with sectors such as information technology,
telecommunications, and services experiencing rapid growth. This
diversification reduced dependence on traditional sectors and helped
create new opportunities for employment and innovation.

Export Growth: Trade liberalization enabled Indian businesses to

access global markets more easily, leading to an expansion of exports.
Increased export earnings provided foreign exchange inflows,
strengthened the balance of payments, and contributed to overall
economic stability.
PRIVATISATION
The transfer of ownership, property or business from the
government to the private sector is termed privatization. The
government ceases to be the owner of the entity or business.
Privatization is considered to bring more efficiency and
objectivity to the company, something that a government
company is not concerned about. India went for privatization
in the historic reforms budget of 1991, also known as 'New
Economic Policy or LPG policy'.

WAYS OF PRIVATISATION
Public sale of shares
Public auction
Public tender
Direct negotiations
Transfer of control of enterprises that were controlled by
the state or by municipalities
Lease with a right to purchase
 Reforms under Privatisation

Asset sales
Equity privatization
Strategic disinvestment
Public-Private Partnerships (PPPs)
Contracting out: Outsource
government functions to private
companies.
Liberalization of entry and exit
 SIGNIFICANCE
Promoting Efficiency and Competition: Privatization aims to
introduce market forces and competition into industries that were
previously monopolized by the government.

Enhancing Economic Growth and Investment: Privatization seeks

to attract private investment and stimulate economic growth. It is
believed that private companies, with their access to capital and
expertise, can bring in new investments, technologies, and
management practices.

Reducing Government Intervention and Fiscal Burden: By

transferring ownership to the private sector, governments can
reduce their financial burden, free up resources for other priority
areas, and focus on core functions, such as regulation and policy-
making.

Improving Service Quality and Customer Satisfaction:

Privatization is expected to enhance service quality by
introducing competition and market-driven incentives for
companies to meet customer demands.
GLOBALISATION
Globalization is the process of increasing economic and social
integration between countries. It's a result of human
innovation and technological progress.

Globalization has several dimensions, including:

Economic: The movement of capital, goods, and services
across borders
Trade: The expansion of world trade through the
elimination or reduction of trade barriers
Financial: The increase in global capital flows

Globalization involves greater cooperation between people,

governments, and companies to make international trade
easier. For businesses, globalization can mean moving
production or service facilities to countries with lower labor
costs.

Globalisation has helped nations integrate their economy

with the rest of the world, and it has reduced barriers to
trade and increased economic activity manifold. It has also
led to cultural, social and technological exchanges that have
helped governments tackle internal and external challenges
with greater efficiency.
 Reforms under Globalisation

Trade liberalization & Financial

liberalization
Cross-border investment
Migration policies
International cooperation
Market-oriented reforms
Harmonization of regulations
 SIGNIFICANCE
Market expansion: Globalization helps businesses use their
resources more effectively. It also gives people more
options for goods and services.
Foreign exchange: Globalization can help increase a
country's foreign exchange reserves.
Employment: Globalization can create jobs for many
people. It also makes it easier for companies to hire
overseas workers.
Knowledge and technology: Globalization makes it easier
for countries to access foreign knowledge. It also
encourages companies to innovate and adopt foreign
technologies.
Access to new cultures: Globalization makes it easier to
access foreign cultures, including art, music, movies, and
food.
Lower costs: Globalization allows companies to find
cheaper ways to produce their products.
Higher standards of living: Globalization can improve the
standard of living in developing nations.
In conclusion, the LPG reforms of liberalization, privatization, and
globalization have been instrumental in shaping India's economic trajectory
over the past few decades. These reforms, initiated in 1991, have
unleashed the country's potential, fostering economic growth, innovation,
and integration into the global economy.

As India continues its journey of economic reform, it is crucial to address

these challenges while building on the successes of liberalization,
privatization, and globalization. By fostering inclusive growth, sustainable
development, and social cohesion, India can harness the full potential of
the LPG reforms to create a brighter and more prosperous future for all its
citizens.
THANK YOU!