LPG Reforms (1991) – Liberalization, Privatization, Globalization Explained with Impact & Examples
Liberalization, Privatization, and Globalization (LPG Reforms)
🔁 Background
➤ In 1991, India faced a major economic crisis due to foreign exchange deficit
➤ To solve this, the New Economic Policy (NEP) was introduced, focusing on:
🔓 Liberalization
🏭 Privatization
🌐 Globalization
🎯 Goals of NEP:
➤ Solve Balance of Payments crisis
➤ Reduce fiscal deficit & inflation
➤ Boost economic growth
📌 Key Components of LPG
1️⃣ Liberalization 🔓
What it means: Reducing government control over economy and promoting private participation
➤ Removed licensing system (except key areas like defence, pharma)
➤ Allowed businesses more freedom in decisions
➤ Promoted competition, efficiency, and private sector growth
2️⃣ Privatization 🏭
What it means: Transfer of public sector units (PSUs) to private hands
➤ Done through:
✔️ Disinvestment (partial sale)
✔️ Full management transfer
🎯 Aim: Improve quality, profitability, and customer satisfaction in services
3️⃣ Globalization 🌐
What it means: Connecting India’s economy with the global market
➤ Encouraged free flow of trade, technology, and capital
➤ Allowed FDI and majority ownership by MNCs
➤ Boosted IT sector, exports, and foreign reserves
✅ Positive Impacts of LPG Reforms
| Aspect | Change |
|---|---|
| 📈 GDP Growth | From 1.1% (1991) ➤ 7.5% (2015-16) |
| 👷 Employment | Increased via MNCs, new businesses, and startups |
| 💰 Per Capita Income | From ₹11,235 (1991) ➤ ₹85,533 (2014-15) |
| 🌍 FDI Inflow | From ₹408 Cr (1991) ➤ ₹1,06,693 Cr (2015) |
| 📉 Fiscal Deficit | Reduced from 8.5% ➤ 4% of GNP |
❌ Negative Impacts of LPG Reforms
| Area | Issue |
|---|---|
| 🌾 Agriculture | Contribution to GDP fell from 29% ➤ 17.9% (2014) |
| 🚶 Employment | Declined in some areas due to automation |
| 🏪 Local Businesses | Faced tough competition from MNCs |
| 🌳 Environment | Pollution, deforestation, and industrial waste increased |
| 🏙️ Uneven Growth | Urban areas advanced faster; rural areas lagged behind |
🏢 Impact on Indian Businesses
✅ Increased Efficiency & Innovation ➤ Due to open competition
✅ Expansion Opportunities ➤ Both domestic & global reach
✅ Global Standards ➤ Improved quality & benchmarking
✅ Foreign Investment ➤ Easy access to capital, tech & expertise
⚠️ Challenges
➤ Rising income inequality
➤ Environmental concerns