Introduction to LPG
Liberalisation, Privatisation, and Globalisation are the three elements of the new economic model of the country. Liberalisation ensures a relaxation from severely strict laws and opinions which may include certain rules and regulations of the government. Privatisation is the complete transfer of roles and operations of publicly owned means to private ownership. This means a property or business of the government being taken by a private owner with an aim to function and discipline well. Globalisation is the next step forward to increase the network of trade and culture interconnecting the whole of the world. It ensures no trade, services or technology are bounded by borders thus connecting and integrating the whole world together. They are often togetherly referred to as LPG. They aim to develop the economy of the country fast so that it can compete and complement the world’s economy.
What is LPG?
LPG refers to Liberalisation, Privatisation, and Globalisation. When India under its New Economic Policy approached the International Banks for developing the country, they suggested that the government should open towards restrictions on trade which is mostly done by the private sectors in between India and other countries. After the suggestion put forward by the International Banks, the Indian Government announced New Economic Policy or NEP. This policy consisted of an extensive range of reforms. These measures are broadly classified into two groups- structural reforms and stabilisation measures.
The objective of structural measures was to develop international competitiveness. Moreover, the measures aimed to eliminate the rigidity in various sections of the country's economy. In stabilisation measures, the aim was to rectify and correct the existing weakness developed in controlling the inflation and balance of payments. Both sets of measures were taken for a short-term period.
The stabilisation measure included Liberalisation, Privatisation, and Globalisation. Under this measure, the balance of payment was enabled to record all forms of economic transactions of a country with the rest of the world in a year. In such a scenario, inflation refers to the growth of prices in goods and services over a particular period.
Liberalisation
The objective of liberalisation was to put an end to those rigidities and restrictions that were acting as a hindrance to the growth of the country. Further, in this approach, the Government was expected to be flexible with its regulation in the nation.
The objectives of this policy were to enhance the competition among the domestic industries and encourage international trade with planned imports and exports. Moreover, it aimed at increasing international technology and capital. Also, this policy was expected to expand the international market frontier of the nation and reduce the burden of debt in the country.
Privatisation
The second policy of the stabilisation measure is privatisation. This policy aims to expand the domination of private sector companies and reduce the control of the public sectors. Thus, the Government-owned enterprise will have less ownership. Besides these Government companies can be converted into private sector companies with two approaches. These approaches are by withdrawing the control of the Government in the public sector company and by disinvesting. There are three forms of Privatisation which are a strategic sale, partial sale, and token privatisation. In the strategic sale or denationalisation, the Government needs to deliver 100% of productive resources ownership to the owners of the private companies.
The Partial Sale or Partial privatization owns a minimum of 50% ownership with the help of the transfer of shares. They would, therefore, own the majority of the shares and would have control of the autonomy and functioning of the company. In the token or the deficit privatisation, the Government would have to disinvest the share capital by up to 5-10% in order to meet the shortage in the budget. This policy, therefore, aims to improve the financial situation in the country and reduce the work pressure of the public sector companies. Moreover, funds could be raised from the disinvestment. With the reduced work pressure the efficiency of the public sector would automatically increase and yield better quality of goods and services for the use of consumers.
Globalisation
In this policy, the country's economy is expected to grow with the help of the global economy. This means that the primary focus would be on foreign trade and institutional and private investments. It is the third and the last policy that is to be implemented. The objective of this phenomenon is to develop and independent the world with the implication of suitable strategies. It is the attempt to create a world where the requirements of one country can be driven and turned into one large economy. One of the major outcomes of Globalisation is outsourcing.
Outsourcing means an enterprise can employ professionals from other countries to reach a particular goal. There is a lot of contractual work that is being outsourced in the field of Information Technology leading to its development. This has opened new avenues for a lot of private sectors and Indian skills are regarded as the most effective and vibrant across the globe. The low wage rate and dedicated employees have made India one of the constructive nations suitable for international outsourcing.
FAQs on Liberalization, Privatization, and Globalization (LPG)
1. What is meant by LPG in the context of the Indian economy?
In the context of the Indian economy, LPG stands for Liberalisation, Privatisation, and Globalisation. This term refers to the set of economic reforms introduced in India under the New Economic Policy (NEP) of 1991. These policies were designed to open up the economy, increase its competitiveness, and integrate it with the global market to overcome a severe balance of payments crisis.
2. Who introduced the LPG reforms in India and why were they necessary?
The LPG reforms were introduced in 1991 by the government led by Prime Minister P.V. Narasimha Rao, with Dr. Manmohan Singh as the Finance Minister. They were necessary because India was facing a major economic crisis characterized by a critically low level of foreign exchange reserves, high fiscal deficit, and rising inflation. The reforms were a condition for receiving a bailout loan from the International Monetary Fund (IMF) and the World Bank, aimed at making the economy more efficient and globally competitive.
3. What is the core difference between Liberalisation, Privatisation, and Globalisation?
The core difference lies in their primary focus:
- Liberalisation is about reducing government control and regulations within the domestic economy. It involves removing industrial licensing, ending price controls, and simplifying trade policies to promote competition.
- Privatisation involves transferring the ownership and management of public sector enterprises (PSUs) to the private sector. This is done through methods like disinvestment or strategic sale.
- Globalisation refers to the integration of a country's economy with the world economy. It focuses on removing barriers to international trade and investment, allowing the free flow of capital, technology, goods, and services across borders.
4. What were the main objectives of the Liberalisation policy in India?
The main objectives of the Liberalisation policy in India were to:
- Unshackle the Indian industry from the rigid system of licensing and controls, often referred to as the 'License Raj'.
- Encourage competition among domestic industries to improve efficiency and quality.
- Promote foreign trade and attract foreign capital and technology.
- Expand the market size for Indian goods and services.
- Reduce the country's debt burden by stimulating economic growth.
5. What are the different forms of Privatisation seen in India?
Privatisation in India primarily takes two forms:
- Disinvestment: This involves the government selling a part of its equity (shares) in a Public Sector Undertaking (PSU) to the private sector or the public, while still retaining majority ownership and management control.
- Strategic Sale (or Denationalisation): This is a more complete form of privatisation where the government sells more than 51% of its stake in a PSU to a private entity, thereby transferring both ownership and management control to the private buyer.
6. How is outsourcing considered a direct outcome of Globalisation?
Outsourcing is a direct outcome of Globalisation because it involves a company hiring business services from another country. Globalisation facilitated this by removing trade barriers, improving communication technology (especially the internet), and allowing capital to flow freely across borders. This enabled companies in developed nations to leverage the low-cost, skilled labour available in countries like India for services such as IT support, call centres, and business process outsourcing (BPO), a phenomenon made possible only by an integrated global economy.
7. Critically evaluate the overall impact of the LPG policies on the Indian economy.
The LPG policies have had a mixed impact on the Indian economy.
Positive Impacts:
- A significant increase in India's GDP growth rate.
- A substantial rise in foreign direct investment (FDI) and foreign exchange reserves.
- Increased competition, leading to more choices and better quality goods for consumers.
- Growth of the service sector, especially IT and BPO, creating new employment opportunities.
- Neglect of the agricultural sector, which still employs a large portion of the population.
- Increased competition has been a challenge for small-scale and cottage industries.
- Jobless growth in some sectors, where economic growth did not translate into proportional employment generation.
- Growing income inequality between the rich and the poor.
8. Did Liberalisation benefit all sectors of the Indian economy equally? Explain briefly.
No, the benefits of Liberalisation were not distributed equally across all sectors. The service sector, particularly IT, telecommunications, and finance, was the biggest beneficiary, experiencing explosive growth. The industrial sector also grew, but it faced stiff competition from foreign imports, impacting smaller domestic players negatively. The agricultural sector, however, received the least benefit. Public investment in agriculture declined, and the sector's growth rate remained low compared to the industrial and service sectors, leading to agrarian distress in many parts of the country.
