LPG Reforms 1991

Economic
Reforms
1991
M AYA N K J A I S WA L
Important Heads 1947-1990
Hindu rate of growth with an average growth of 3.5% per annum which is the lower growth rate
while per capita income averaged 1.3%. It is not related with Hinduism.
To be very clear we have to go a little back in 18th Century i.e., 1700-1947 which was also known
as colonialism.
Britishers says they had industrialized India but stats says otherwise, India’s share of world income
shrank from 22.6% in 1700 to 3.8% in 1952.
Drain of wealth which was introduced by Dada Bhai Naroji who firstly said britishers looted India
by earning some revenue and draining it out of India.
At the time of independence the literacy rate was 16% only.
1950 Planning Commission
1951 (First Five Year Plan)
Based on Harrod Domar Model, fully focused on agriculture and irrigation.
1956 Industrial Policy Resolution

Also known as Economic constitution of India.
Mahalanobis Model (Second Five Year Plan) based on Industrialization for growth which was totally opposite to Harrod
Domar Model.
Beginning of Licence Raj due to govt. control.
Jawar Laal Nehru introduced Modern Temple Policy (i.e. Hydro Electric Dams, IIT’s, Atomic energy plant, Steel plant).
Lal Bahadur Shastri introduced green revolution

 Importance to private enterprises
 Self sufficiency in agriculture
 White revolution (For Nutrition)
Indira Gandhi views were partially loved and hated
Bank Nationalization Rupee devaluation
Higher financial saving Resulted in inflation

Bank in rural areas
Emergency 1975-77
In 1977 Janta Dal came in power.

 Demonetization 1.0 results in 1000, 5000, 10000 bank notes withdrawn. As an report to corruption
 MNC’s asked to move out of India such as Coke, IBM, and more.
1980 Indira Returns

 Step to end licence raj.
 Reduces import duties
 Removing price control
Rajiv Gandhi’s Revolution

 IT revolution.
 Telecom revolution.
 Less direct taxes.
LPG
1. Indian economy had experienced major policy changes in early 1990s. The new economic reform,
popularly known as, Liberalization, Privatization and Globalization (LPG model).
2. It was aimed at making the Indian economy as fastest growing economy and globally competitive.
3. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector
aimed at making the economy more efficient.
Impact on India
1. 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.
 Interest cost of borrowing
 Defence
 Pansions
 Food, fertilizer and fuel subsidy, etc
2. The response was a number of Domestic and external sector policy measures partly prompted by
the immediate needs and partly by the demand of the multilateral organizations.
3. The new policy regime radically pushed forward in favor of a more open and market oriented
economy.
LIBERALIZATION
1. It means the process of opening up of the Indian economy to trade and investment with the rest of
the world.
2. It means that opening the Door for doing Business to all over the world.
3. Till 1991 India had a import protection policy wherein trade with the rest of the world was limited
to exports.
4. Foreign investment was very difficult to come into India due to a bureaucratic framework.
5. After the start of the economic liberalization, India started getting huge capital inflows and it has
emerged as the 2nd fastest growing country in the world.
PRIVATIZATION
1. Privatization means transfer of ownership and/or management of an enterprise from the public
sector to the private sector.
2. Privatization is opening up of an industry that has been reserved for public sector to the private
sector.
3. Privatization means replacing government monopolies with the competitive pressures of the
marketplace to encourage efficiency, quality and innovation in the delivery of goods and services.
Disinvestment
1. Privatization of PSUs by selling off part of the equity (share) to the public is known as
disinvestment.
2. The purpose of Disinvestment is to improve financial discipline and to facilitate modernization.

Private capital and managerial capabilities would improve the efficiency of PSUs.
3. Government adopted following two main methods for disinvestment:

◦ Minority Sale: Equity is offered to investors through domestic public issue. The govt transfers minority share to
private persons. The management control is not transferred.
◦ Strategic Sale: Govt sells majority share above 51% to the
GLOBALIZATION
1. It means that opening up of the economy for foreign direct investment by liberalizing the rules and
regulations and by creating favorable socio-economic and political climate for global business.
2. Opening and planning to expand business throughout the world.
3. Buying and selling goods and services from/to any countries in the world.
Main organizations facilitating
Globalization
Some of the international organizations which facilitate the process of globalization:
International Monetary Fund (IMF)
World Bank
World Trade Organization (WTO)

Conclusion
1. Indian economy has made rapid strides in the process of globalisation.
2. Globalisation is increasing the integration of national markets and the interdependence of countries
world wide for a wide range of goods, services, and commodities.
3. The most important lesson that we must learn from the crisis is that we must be self-reliant.
4. India’s trade reform programme resulted in strong economic growth in the globalization age.
5. In particular, difficult decisions are to redress the fiscal imbalance, by reducing subsidies, completing
the process of tariff and tax reform, and stepping-up privatization of state-owned enterprises.
6. The efforts are needed to balance the trade and consider expansion of trade in other countries of the
world.

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LPG Reforms 1991

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Economic

1956 Industrial Policy Resolution

Lal Bahadur Shastri introduced green revolution

Higher financial saving Resulted in inflation

In 1977 Janta Dal came in power.

1980 Indira Returns

Rajiv Gandhi’s Revolution

2. The purpose of Disinvestment is to improve financial discipline and to facilitate modernization.

3. Government adopted following two main methods for disinvestment:

2. Opening and planning to expand business throughout the world.

International Monetary Fund (IMF)

World Trade Organization (WTO)

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