Implementation of LPG by Manmohan Singh

During the early 1990s, India’s economy was on the verge of defaulting on its obligations due to a severe foreign exchange crunch. A lack of foreign currency reserves led to the country’s collapse. The government implemented massive economic reforms to save the Indian economy during a crisis. The term “structural adjustments,” “liberalisation,” or “globalisation” were all used to describe these changes. 

On July 24, 1991, the finance minister Manmohan Singh announced a completely new course of action. The LPG or Liberalisation, Privatisation, and Globalisation model are widely referred to as this new paradigm of economic reforms.

LPG Reforms 

Narasimha Rao, a former Prime Minister of India, was a pioneer in reforming the country’s economy. The Finance Minister at the time, Dr Manmohan Singh, worked alongside Narasimha Rao and played an important role in putting these reforms into action. Manmohan Singh brought India out of the 1990-91 Balance of Payments (BoP) crisis and into a new economic age, while Yashwant Sinha’s quick thinking helped India protect itself at first. 

Several public monopolies were abolished, tariffs and interest rates were lowered, and several licensing regimes were abolished in the reforms. This made it possible for FDI to be approved automatically in numerous areas. The fundamental goal of this strategy was to make India’s economy the fastest-growing globally, with the ability to compete with the world’s largest economies.

A new economic policy (NEP) containing a wide range of reforms was launched by the Indian government after it agreed to the terms set forth by lending agencies. Reforms were made to decrease stiffness in many sectors of the Indian economy with a long-term vision and an eye toward improving the economy and strengthening international competitiveness.

Measures to Maintain Stability (LPG)

These steps were taken to address the growing imbalance in the balance of payments and keep inflation under control. Measures were taken in the short term. 

LPG is the abbreviation used to refer to them all. The system by which a country’s economic interactions with the rest of the world are recorded over a year is known as the balance of payments. Inflation is a term used to describe an economy’s general rise in the prices of goods and services. Let’s take a closer look at each of these terms.

There are three main aspects to LPG: liberalisation, privatisation, and globalisation.

Liberalisation

The primary goal of liberalisation was to eliminate the constraints that impeded the nation’s growth and development. A country’s liberalisation can be seen in the easing of government control and allowing private sector enterprises to operate with fewer limitations and the government to expand for the benefit of the country’s growth.

Liberation Policy’s Goals

• To boost domestic industry rivalry.

• To promote international trade by enforcing regulations on imports and exports.

• Foreign investment and technological advancements are bolstered.

• To broaden the country’s reach on the international market.

• To lessen the country’s debt burden.

Privatisation

This is the second of LPG’s three policies. Public sector businesses’ roles have been diminished, and their dominance has increased as a result. For example, there is a decline in government-owned management’s ownership. 

There are many ways in which government corporations can be transformed into private businesses.

• Disinvestment- By removing public sector firms from government control and administration.

• There are a variety of ways to privatise something. It is called denationalisation when the government hands over all of its producing assets to the private sector participants.

• Partial privatisation, also known as partial sale, occurs when the private sector acquires a stake in a formerly public corporation. It previously held less than 50 per cent ownership through the transfer of shares. The private sector owns the majority of shares in this company. As a result, the private sector has considerable influence over the company’s operations and autonomy.

• It’s called deficit privatisation if the government sells off a portion of its share capital to satisfy a budget shortfall of 5-10 per cent.

The Purposes of Privatisation

• Improve the government’s financial status.

• Reduce the burden on the public sector.

• Raise money by selling off your investments.

• Maximise the effectiveness of state agencies.

• Improve the quality of your products and services for your customers.

• Make society more competitive.

• Foreign investment (FDI) in India is encouraged.

Globalisation

It refers to the process of fusing a country’s economy with the global one. Foreign trade and private and institutional foreign investment are the primary focus of globalisation. It is LPG’s final policy to go into effect.

The term “globalisation” is a complicated one, and it has a wide range of meanings. The primary goal is to move the world toward a more independent and integrated world by establishing various strategic strategies. A global economy that spans continents, oceans, and time zones can meet one country’s needs through globalisation.

Outsourcing

Outsourcing is the most crucial result of globalisation. Outsourcing is a business strategy where a firm in one country employs a professional from another country to complete work that was previously completed by an internal resource in the company’s home country.

Working with a cheaper cost and a higher-quality supplier anywhere globally are two of the biggest advantages of outsourcing. Services such as legal guidance, marketing, and technical support are available. The outsourcing of contract labour from one country to another has risen dramatically over the past few years as the use of Information Technology has advanced. All economic operations have extended globally due to the widening of the reach of a means of communication.

Processes in many industries India has seen a rise in outsourcing organisations and contact centres that operate based on a voice-based business process. Developed countries outsource services such as accounting and bookkeeping, clinical advice, banking, and even education to India.

Outsourcing allows large multinational corporations and even small businesses to access high-quality services at a lower cost than would otherwise be possible in their own countries. India has the most dynamic and effective skill set in the world. India’s low wages and high-skilled workers have made it a popular outsourcing destination in the latter stages of reform.

Conclusion 

In July 1991, India implemented a reform plan that combined macroeconomic stabilisation with structural restructuring. Short-term and long-term goals influenced the decision-making process. In the short term, stabilisation was required to repair the balance of payments and rein in inflation. In addition, reforming the institutions themselves was critical from a long-term perspective. The new government immediately stabilised the economy by implementing a fiscal correction programme. In addition, structural reforms in the fields of trade, industry, and the public sector were implemented.