Economic

Reforms-1991
Liberalisation,Privatisation
and Globalisation

By-Kushank Kirar
2K22/DMBA/67
 The LPG Reforms were a set of
LPG Reforms economic reforms announced by the
Indian government in 1991 in the
form of the New Economic Policy,
which provided measures for
liberalization, privatization, and
globalization.
The Indian economy was facing a
balance of payment crisis. These
reforms were introduced to promote
economic growth and improve
India's foreign exchange situation.
The then presiding Prime Minister
was Shri P V Narasimha Rao, and Dr
Manmohan Singh was the Finance
Minister.
About the LPG Reforms
The LPG Reforms of 1991 provided for a three-fold structure of reforms. This
comprised -

Liberalization- the process of reducing state

control over economic activity and
reducing restrictions such as tariffs.
Privatization- the transfer of ownership of government businesses to private
companies.
Globalization- the expansion of economic activities across the national border,
increasing trade with other countries and increasing connectedness with the
global economy.
 Main Objectives of New
Economic Policy – 1991, July 24
1. The main objective was to plunge Indian Economy in to the arena of
‘Globalization and to give it a new thrust on market orientation.
2. The NEP intended to bring down the rate of inflation
3. It intended to move towards higher economic growth rate and to build sufficient
foreign exchange reserves.
4. It wanted to achieve economic stabilization and to convert the economy into a
market economy by removing all kinds of un-necessary restrictions.
5. It wanted to permit the international flow of goods, services, capital, human
resources and technology, without many restrictions.
6. It wanted to increase the participation of private players in the all sectors of the
economy. That is why the reserved numbers of sectors for government were
reduced. As of now this number is just 2.
LIBERLISATION
Liberalization is the removal of restrictions on something, typically in an
economic context. After Independence, the government decided to take a
protective approach and closed the economy to the outside world. This was
done because the new industries weren’t strong enough to compete with
international companies and would eventually be pushed away by them.The
arrival of liberalization marked the end of this era. India opened its economic
borders to other countries in a gradual manner by reducing restrictions. This
also allowed foreign investors and the private sector to invest in domestic
companies. It led to a free market system where there were reduced
restrictions and interference by the government
Steps Taken under Liberlisation
Free determination of interest rate by the commercial Banks.
Increase in the investment limit for the Small Scale Industries.
Freedom to import capital goods.
Freedom for expansion and production to Industries.
Abolition of Restrictive Trade Practices: According to
Monopolies and Restrictive Trade Practices (MRTP) Act 1969, all
those companies having assets worth Rs. 100 crore or more
were called MRTP firms and were subjected to several
restrictions. Now these firms have not to obtain prior approval
of the Govt. for taking investment decision. Now MRTP Act is
replaced by the competition Act, 2002.
Privatisation
Privatisation means permitting the private sector to set up industries
which were previously reserved for the public sector. Under this policy
many PSU’s were sold to private sector. Literally speaking,
privatisation is the process of involving the private sector-in the
ownership of Public Sector Units (PSU’s).

The main reason for privatisation was in currency of PSU’s are running
in losses due to political interference. The managers cannot work
independently. Production capacity remained under-utilized. To
increase competition and efficiency privatisation of PSUs was
inevitable.Some of the examples of PSUs that were privatized include:
Bharat Aluminium Company Limited (BALCO),
Hindustan Zinc Limited (HZL),
Hotel Corporation of India Limited (HCI).

Steps Taken Under Privatisation

Sale of shares of PSUs.

Disinvestment in PSU’s.
Minimisation of Public Sector.
 Globalisation
Globalization can be defined as the
integration of the national economy
with the world economy. It enables a
free flow of information, technology,
goods and services, capital
investments, and even people across
different countries. It brings the trade,
investments, and markets from
various countries under one umbrella.
It promotes a more lucid economy.
Steps Taken Under Globalisation
Reduction in tariffs: Custom duties and tariffs imposed on
imports and exports are reduced gradually just to make India
economy attractive to the global investors.
Long term Trade Policy: Forcing trade policy was enforced for
longer duration.
Partial Convertibility of Indian currency: Partial convertibility can
be defined as to convert Indian currency (up to specific extent) in
the currency of other countries. So that the flow of foreign
investment in terms of Foreign Institutional Investment (FII) and
foreign Direct Investment (FDI).

Thank You
By -Kushank Kirar
2K22/DMBA/67