Effects of Liberalization On The Indian Economy

Impact of LPG on Indian Economy
Abstract
This paper studies the Impact of Liberalization, Privatization and Globalization on
Indian economy. The Economic Reforms that made by government by New Economic
Policy in 1991made significant impact on the Indian Economy. In terms of Increasing
GDP, per capita Income, Increase in Foreign Direct Investment etc. also covers
some negative impact of LPG policy on Indian Economy like Increase in
Competition, growing personal disparities etc. So, This study is important to
understand impact of LPG on Indian Economy.
Key Words- Impact of LPG, Economic Reforms, Indian Economy.
Introduction
India opened up the economy in the early nineties following a major crisis that
led by a foreign exchange crunch that dragged the economy close to defaulting on
loans. The country ran out of foreign exchange reserves. To face the crisis situation,
the government decided to bring about major economic reforms to revive Indian
economy. These reforms were popularly known as 'structural adjustments' or
'liberalization' or 'globalization’. The government announced a New Economic
Policy on July 24, 1991.This new model of economic reforms is commonly
known as the LPG or Liberalisation, Privatisation and Globalisation model.
Liberalisation refers to process of making policies less constraining of economic
activity and also reduction of tariff or removal of non-tariff barriers. The term
“Privatisation” refers to the transfer of ownership of property or business from a
government to a private owned entity. Globalisation refers to the expansion of
economic activities across political boundaries of nation states. More importantly
perhaps it refers economic interdependence between countries in the world
economy. Prime Minister of the country, P V Narasimha Rao initiated ground
breaking economic reforms. Dr. Manmohan Singh was the Finance Minister at
that time he assisted Narasimha Rao and played a key role in implementing these
reform policies. The reforms did away with the License Raj, reduced tariffs and
interest rates and ended many public monopoly allowing automatic approval of
foreign direct investment in many sectors.The primary objective of this model was to
make the economy of India the fastest developing economy in the globe with
capabilities that help it match up with the biggest economies of the world.
Literature Review
Mukeshkumar(2014) in their paper entitled “ Impact of Economic reforms on
India”made study withobjective to find out the impact of Globalization on India and
also study Performance of the corporate sector after 1991. Finding shows that
during the 11-year period 1995-2006 India’s merchandise exports increased at the
rate of 13.3 percent per annum and corporate sectors growth rate in sales and net
profits is increased.
Dr. Thakur B., Sharma V K., Som Raj (2012) in their paper entitled“Had Economic
Reforms had an Impact on India’s Industrial Sector?” threw the light on impact of
Economic reforms on Industrial sector. Findings shows that Economic reforms had
started showing positive impact on current Indian industrial performance in the last
few years in terms of increase in level of productivity and reasonable rate of
growth of industrial sector because of Liberalisation.
Vaghela Dharini Ishvarsinh (2014) in their paper entitled “New Economic

Policies: Liberalization, Privatization, Globalization ” made study on new
economic policy of India under this descriptive study made on basis of secondary
data he had given conceptual study of Liberalization, Privatization and Globalization
concepts and advantages and disadvantages of those concepts.
DR. Meenu (2013) in their paper entitled “Impact of Globalisation and

Liberalisation on Indian Administration” study was made with objective to
analyse the impact of globalisation and liberalisation on different aspects of Indian
administration and changes introduced at different levels in Indian administration due
to globalisation and liberalisation
In this paper researcher has attempted to analyse the impact of LPG on Indian
Economy on various elements like GDP, Per capita Income, Employment, Foreign
Direct Investment etc
Objectives of the Study..

1)To understand the impact of LPG policy on Indian Economy.
2)To know the negative effect of LPG policy on Indian Economy after 1991.
Research Methodology
For the completion of research paper has used Descriptive research method.
Data collection: In this study the data has been collected from secondary sources.
Secondary Data:
Secondary data collected from the Books, Internet, magazines, Journals and different
types of research
papers etc.
Limitations of the Study:

The study was conducted through secondary data sources only.
Economic reforms- In 1991 after India faced a balance of payments crisis, it had to
pledge 20 tons of gold to Union Bank of Switzerland and 47 tons to Bank of England
as part of a bailout deal with the International monetary fund. In addition the IMF
required India to undertake a series of structural economic reforms so.Government
had decided to bring about major economic reforms to revive Indian economy. These
reforms were popularly known as 'structural adjustments' or 'liberalization',
Privatization and 'globalization
New Economic Policy 1991

The government announced a New Economic Policy on July 24, 1991.This new model
of economic reforms is commonly known as the LPG or Liberalisation,
Privatisation and Globalisation model. Prime Minister of the country, P V Narasimha
Rao initiated economic reforms with the help of Dr Manmohan Singh. The reforms
did away with the License Raj, reduced tariffs and interest rates and ended many
public monopolies, allowing automatic approval of foreign direct investment in
many sectors.
What is LPG?
Liberalization- Liberalisation refers to process of making policies less
constraining of economic activity and also reduction of tariff or removal of non-tariff
barriers.
Privatization- The term “Privatisation” refers to the transfer of ownership of
property or business from a government to a private owned entity.
Globalization- Globalisation refers to the expansion of economic activities across
political boundaries of nation states. More importantly perhaps it refers economic
interdependence between countries in the world economy.
The major objective of the new policy-
1. Utilizing fully the indigenous capabilities of entrepreneurs.
2. Fostering research and development efforts for the development of indigenous
technologies.
3. Raising investments.
4. Removing regulator system and other weaknesses.
5. Improvement in efficiency and productivity.
6. Controlling monopolistic power.
7. Assigning the right areas for the public sector undertakings.
8. Ensuring welfare as also skills and facilities to the workers to enable them to face
new technologies.
9. Retaining the capacity to earn our own foreign exchange through exports.
10. To achieve self-reliance.
Highlights of the LPG Policy-

Following are salient highlights of the Liberalisation, Privatisation and Globalisation
Policy in India
Abolition of phased manufacturing programmes for new projects

 Removal of mandatory convertibility cause
 Specific changes include the reduction in import tariffs
 Deregulation of markets
Abolition of Industrial licensing / Permit Raj
 Public sector role diluted
 MRTP limit goes
 Beginning of privatisation
 Freer entry to foreign investment and technology
 Industrial location policy liberalized
Abolition of phased manufacturing programmes for new projects
 Removal of mandatory convertibility cause
 Specific changes include the reduction in import tariffs
 Deregulation of markets
 Reduction of taxes
Positive Impact of LPG on Indian Economy-
1) Increase in GDP growth rate
India’s GDP growth rate is increased. During 1990-91 India’s GDP growth rate was
only 1.1% but after 1991 reforms due LPG policy India’s GDP growth rate is
increased year by year and in 2015 it was recorded 7.26 and in 2015-16 it is estimated
to be 7.5% by IMF.Because of the Abolition of Industrial licensing, privatisation,
advanced foreign technology and Reduction of taxes India’s GDP is increased
after 1991 reforms.
2) Increase in Foreign Direct Investment (FDI)-
India has already marked its presence as one of the fastest growing economies of the
world. It has been ranked among the top 3 attractive destinations for inbound
investments. Since 1991, the regulatory environment in terms of foreign
investment has been consistently eased to make it investor-friendly.India has also
firmly established itself as a lucrative foreign investment destination, with foreign
capital inflows of over US$ 31 billion in 2015 - surpassing the US and China. India
has allowed 100% FDI in medical services, Telecom sector, and single brand retail
etc. FDI cap increased in insurance & sub-activities from 26% to 49% and also in
Private Sector Banking- Except branches or wholly owned subsidiaries (74%) FDI is
allowed and in Public sector banking 20% FDI is allowed under Make In India
scheme. In 1991FDI inflow was 408crores only but after India has made those reforms
of Globalization and Privatization and free entry policy as a result FDI inflow in India
was 106,693 Croresin 2015.
3) Increase in per capita income-
Per capita income or average income measures the average income earned per person
in a given area (city, region, country, etc.). It is calculated by dividing the area's total
income by its total
population. In 1991 India’s Per capita Income was Rs. 11235 but in 2014-15 Per
Capita Income is reached to Rs. 85533. Per Capita income is increased due to Increase
in Employment, due to new economy policy of globalization and privatization many
job opportunities are created so, people’s income was increased.
4) Unemployment rate is reduced-
In 1991 unemployment rate was 4.3% but after India adopted new LPG policy more
employment is generated because of globalisation many new foreign companies
came in India and due to
liberalisation many new entrepreneurs have started new companies because of a
abolition of Industrial licensing / Permit Raj so, employment is generated, and
due to which India’s
unemployment rate is reduced from 4.3% in 1991 to 3.6% in 2014.
Limitations of LPG policy-

1) Low Growth of Agriculture Sector-
Agriculture has been and still remains the backbone of the Indian economy. It plays a
vital role not only in Providing food and nutrition to the people, but also in the supply
of raw material to
industries and to export trade. In 1991, agriculture provided employment to 72 per
cent of the population and contributed 29.02per cent of the gross domestic product.
However, in 2014 the
share of agriculture in the GDP went down drastically to17.9 per cent. This has
resulted in a lowering the per capita incomeof the farmers and increasing the rural
indebtedness.
) Threat from foreign competition-

Due to opening up of the Indian economy to foreign competition through
Liberalization and FDI policy more MNC’s are attracted towards India after 1991
reforms and they are competing local businesses and companies. Since, these
MNC’s have lot of financial capacity or those are big organizations with advanced
foreign technology so, they have large production capacity and huge money for
promotion and other research activities they are easily defeating our Indian
local companies. And they had acquired many Indian companies as well.
Because of financial constraints, lack of advanced technology and production
inefficiencies our Indian companies are facing problem in this globalization period.
3) Adverse Impact on Environment-

Globalization has also contributed to the destruction of the environment through
pollution and clearing ofvegetation cover. With the construction of companies,
the emissions from manufacturing plants are causing environmental pollution which
further affects the health of many peoples. The construction also destroysthe
vegetation cover which is important in the very survival of both humans and other
animals.
Conclusion
Economic reforms have an important impact on Indian economy. There are many
changes in Indian
economy, after adaptation of the policy of LPG i.e. Liberalisation, Privatisation and
Globalisation in
1991. Because of these reforms many good thing are happen like increase in the
India’s GDP growth
rate, Foreign direct Investment and Per Capita Income. Policy has facilitated the
flow of foreign
capital, technology and managerial expertise thereby improvingefficiency of
industry. Also,
unemployment rate is reduced. Though there are certain negative impacts are also
there like low
growth of agriculture sector, adverse impact on environment etc. Lastly we can say
that development
in India is takes place because of implementation of this policy.
References
1. Mukesh kumar(2014), “ Impact of Economic reforms on India” IJIFR

Volume1 Issue-7.
2. Vaghela Dharini Ishvarsinh (2014), “New Economic Policies:

Liberalization, Privatization,
Globalization” Journal of Social Sciences Year-2, Issue-5
3. Dr. Babita Thakur, Vinod Kumar Sharma, Som Raj(2012), “ Had
Economic Reforms had an
Impact on India’s Industrial Sector?” IOSR Journal Of Humanities And Social
Science (JHSS)
,Volume 4, Issue 2,PP 01-07.
Abolition of Industrial licensing / Permit Raj

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Effects of Liberalization On The Indian Economy

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Effects of Liberalization On The Indian Economy

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Impact of LPG on Indian Economy

Vaghela Dharini Ishvarsinh (2014) in their paper entitled “New Economic

DR. Meenu (2013) in their paper entitled “Impact of Globalisation and

Objectives of the Study..

Limitations of the Study:

New Economic Policy 1991

Highlights of the LPG Policy-

Abolition of phased manufacturing programmes for new projects

Limitations of LPG policy-

) Threat from foreign competition-

3) Adverse Impact on Environment-

1. Mukesh kumar(2014), “ Impact of Economic reforms on India” IJIFR

2. Vaghela Dharini Ishvarsinh (2014), “New Economic Policies:

Abolition of Industrial licensing / Permit Raj

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