Liberalisation, Privatisation and Globalisation

(LPG) Model of Development

• The LPG model of development was introduced in 1991 by Dr. Manmohan Singh.
• Highlights of the LPG Policy
i) Foreign technology agreement
ii) Foreign Investment
iii) MRTP Act, 1969 (Amended)
iv) Industrial Licensing
v) Deregulation
vi) Beginning of Privatization
vii) Opportunities for overseas trade
viii) Tax reforms
ix) Abolition of Licence
Liberalisation
• Objectives
i) To boost competition between domestic businesses
ii) To promote foreign trade and regulate imports and exports
iii) Improvement of technology and foreign capital
iv) To develop a global market of a country
v) To reduce the debt burden of a country
vi) To unlock the economic potential of the country by encouraging the private sector and
multinational corporations to invest and expand.
vii) To encourage the private sector to take an active part in the development process.
viii) To reduce the role of the public sector in future industrial development.
ix) To introduce more competition into the economy with the aim of increasing efficiency
Impacts of Liberalisation in India
• Positive impacts of liberalisation in India
i) Free flow of capital
ii) Stock Market Performance
iii) Political Risks Reduced
iv) Diversification for Investors
v) Impact on Agriculture
Negative Impact of Liberalization
1) Destabilization of the economy
2) Technological Impact
3) Mergers and Acquisitions
Privatisation
• Objectives
i) Privatisation aims at providing a strong base to the inflow of FDI.
ii) Increased inflow of FDI improves the financial strength of the economy
-----Ways of Privatisation:
Transfer of Ownership: Government companies can be converted into
private companies in two ways.
a) By withdrawal of the government from ownership and management of
public sector companies.
b) By outright sale of public sector companies.
Impact of Privatisation
• Positive Impact
1) Improved efficiency
2) Lack of political interference
3) Increased competition

. Negative Impact
4) Natural monopoly
5) Public interest
Globalization
• Advantages of Globalisation in India
1) Increase in Employment
2) High Standard of Living
3) Extension of Market
4) Development of Infrastructure
• Disadvantages of Globalisation in India
1)Inequality
2) Inflation
3)Vulnerability to external economic shock
4) Trade Imbalance
5) Threat to small scale industries
Effect of Globalisation
• Substantial rose in foreign currency reserve
• Export grew by over 17 percent in the first 10th month of 1994-95
• Export finances over 90 percent of imports
• The current account deficit was over 3 percent of GDP in 1990-91. It is
expected to be less than 0.5 percent in 1994-95
• External debt was reduced to $ 1 billion
• International confidence in India has been restored. As a result, FDI
has increased rapidly in 3-4 years.
Critics of LPG Model
• This has a very narrow focus since it largely concentrates on the
corporate sector which accounts for only 10 percent of GDP
• The model bypasses agriculture and agro based industries which are a
major source of generation of employment for the masses.
• Small and Medium sector industries were hampered
• The large gap between export and import (import being more)
• Focused on capital intensive pattern of development.
Failure of Planning commission
• Abject poverty
• High rate of inflation
• Unemployment crises
• Failure to Check the growth of Black Money.
• Inadequate infrastructure
• Skewed Distribution
• Failure to Reduce Concentration of Economic power
• Failure to implement Land Reforms
• Less growth in agriculture sector
Introduction to co-operative federalism: NITI
AAYOG
• Government of India established the NITI Aayog as replacement for
the planning commission on January 1, 2015 with Arvind Panagariya
as its Vice Chairperson.
• Prime Minister will be the chairperson as was in the case of the
Planning commission.
• NITI Aayog is a policy think tank of the government of India and aims
to involve the states in Policy making in India.
• NITI Aayog followed bottom approach rather than traditional top-
down approach of the planning commission
Structure of NITI AAYOG
• Chairperson: Prime Minister of India
• Vice-Chairperson: To be appointed by Prime Minister
• Government council: Chief Minister of all the states and LT. governors
of all the Union Territories
• Regional Council: To address specific regions issues, comprising chief
minister and L.T governors chaired by prime minister or his nominee
Objectives of NITI Aayog
• An administrative paradigm in which the government is an enabler rather than a provider of first
and last resort.
• Progress from ‘food security’ to focus on mix of agricultural production as well as actual returns
that farmers get from their produce.
• Ensure that India is an active player in the debates and deliberations on the global common
• Ensure that the economically vibrant middle-class remains engaged, and its potential is fully
realized
• Leverage India’s pool of entrepreneurial, scientific and intellectual human capital
• Incorporate the significant geo-economic and geo-political strength of the non-resident Indian
community.
• Use technology to reduce opacity and potential for misadventures in governance.
• Elimination of Poverty, and the chance for every Indian to live a life of dignity and self-respect
• Safe-gaurding of our environmental and ecological assets.