The LPG was part of the stabilization measures taken by the government under the new economic policy (Representational Image/PTI)
Modern India is the product of certain decisions taken to deal with the economic crisis of the 1990s. Let’s understand one of the major reforms of LPG in Classes with News18
LPG or Liberalization, Privatization and Globalization are the three elements of the new economic model of the country. Economic liberalization refers to the reduction or elimination of government regulations or restrictions on private business and trade. Privatization means transfer of ownership, management and control of public sector enterprises to the private sector. Globalization refers to the integration of a nation’s economy with the world economy.
The objective of LPG is to accelerate the growth of the country’s economy so that it can compete with and complement the world economy. Let us understand how the Indian economy has changed after the 1990s in News18’s class.
What is the need of LPG?
In the 1980s, India was facing an economic crisis. In 1990, BOP (Balance of Payment) crisis hit India. The growing fiscal deficit and rising inflation gave rise to this anarchy. In addition, the uncertain political situation in the country only added fuel to the fire. Due to this India approached IMF (International Monetary Fund) and World Bank for giving emergency loan. But for this to happen, certain conditions were placed before the government which had to be fulfilled. Structural reforms had to be done to revive the economy.
The then Finance Minister, Dr. Manmohan Singh, along with Prime Minister PV Narasimha Rao, unveiled the Liberalisation, Privatization and Globalization (LPG) Bill which removed the restrictions that were hindering the industries. The LPG was part of the stabilization measures taken by the government under the New Economic Policy. Let us look at these in detail.
liberalization
Liberalization of the economy means its freedom from direct or physical control imposed by the government. After independence, the government decided to adopt a protective approach and closed the economy to the outside world. This was done because the new industries were not strong enough to compete with international companies and would eventually be pushed away by them. The objective of liberalization was to remove the rigidities and restrictions which were acting as a hindrance in the development of the country. India gradually opened its economic borders to other countries by reducing restrictions. It allowed foreign investors and the private sector to invest in domestic companies. This led to a free market system where restrictions and interference by the government were reduced.
privatization
Privatization is the general process of involving the private sector in the ownership or operation of a state-owned enterprise. Earlier, the companies were all state-owned because the leaders at that time thought of India as a socialist country, working for social welfare. The government controlled prices and controlled everything. This had to change to open up the economy. Government companies can be converted into private sector companies in two ways. These approaches are by withdrawal of government control in the public sector company and by disinvestment. Therefore, the objective of this policy is to improve the financial condition in the country and reduce the work pressure on public sector companies.
globalization
Globalization is a process associated with increasing openness, increasing economic interdependence and deeper economic integration in the world economy. The effort here is to create a borderless world in which goods, services and people move freely across borders. This includes opening up borders for multinational companies to start manufacturing and retailing in the country. It also allows domestic companies to grow and reach internationally in terms of business. The focus was on foreign trade and investment. One of the major consequences of globalization is outsourcing. Outsourcing means that an enterprise can hire professionals from other countries to reach a particular goal.
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