LPG Reforms(Liberalisation, Privatisation, Globalisation)

✅The Indian economy has travelled through an eventful period throughe st three decades.

## Background

✅TheEconomic reforms which changed the path of the economy that the coury witnessed in later years was the LPG reforms(Liberalization, Privatization, Globalization) sometimes also referred to as LPGM where M stands for Marketization introduced in 1991 introduced during the crisis that affected the government.
✅The Indian economy has travelled through an eventful period through the last three decades.
✅ In the post-independence economic history of our country, 1991 stands out as a watershed year.
✅This was the year in which the economy was faced with a severe balance of payments crisis. In response, we launched a wide-ranging economic programme, not just to restore the balance of payments but to reform, restructure and modernise the economy.
✅Thus, the crisis was converted into an opportunity to bring about fundamental changes in the approach and conduct of economic policy.
✅ A near tragedy was averted and a new path was laid out before the country.

## Factors which led to 1991 reforms:

✅Rise in Prices: The inflation rate increased from 6.7% to 16.7% and the country’s economic position became worse.
✅Rise in Fiscal Deficit: Due to increase in non-development expenditure, the fiscal deficit of the government increased. Due to the rise in fiscal deficit there was a rise in public debt and interest. In 1991 interest liability became 36.4% of total government expenditure.
✅Increase in Adverse Balance of Payments: In 1980-81 it was Rs. 2214 crore and rose in 1990- 91 to Rs. 17,367 crores. To cover this deficit a large amount of foreign loans had to be obtained and the interest payment got increased.
✅Iraq War: In 1990-91, war in Iraq broke, which led to a rise in petrol prices. The flow of foreign currency from Gulf countries stopped and this further aggravated the problem.
✅ Dismal Performance of PSUs: These were not performing well due to political interference and became a big liability for the government.
✅Fall in Foreign Exchange Reserves: India’s foreign exchange reserve fell to low ebb in 1990-91 and it was insufficient to pay for an import bill for 2 weeks.

## International events associated with Indian reforms

✅The Soviet Union was collapsing at the time, proving that more socialism could not be the solution for India’s ills.
✅Deng Xiaoping had revolutionized China with market-friendly reforms.
✅The 1990-91 Iraq war led to the stoppage of flow of foreign currency from Gulf countries.
✅To tide over the Balance of Payment (BoP) issues, India borrowed huge amounts from the International Monetary Fund (IMF).
✅The Asian financial crisis of 1997-99 laid India low.
✅The dot-com collapse and global recession of 2001, and the huge global uncertainty created in the run-up to the invasion of Iraq in 2003.
✅The global boom of 2003-08 was spearheaded by China.

## Scope of LPG Reforms

✅ Liberalization. - It refers to the process of making policies less constraining of economic activity and also reduction of tariff or removal of non- tariff barriers.
✅ Privatization - It refers to the transfer of ownership of property or business from a government to a privately owned entity.
✅ Globalization - It refers to the expansion of economic activities across political boundaries of nation states.

▪️ eatures of LPG Policy:

✅Abolition of Industrial licensing/ Permit Raj
✅Public sector role diluted
✅Beginning of privatisation
✅Free entry to foreign investment and technology
✅Industrial location policy liberalized

1. revision\_notes
2. mains
3. prelims
4. economy

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