Economic reforms in India began after Rajiv Gandhi became Prime Minister in 1985. But, these reforms proved to be futile. This was because the attempts to remove control of the public areas in different economic strata were not strategically planned. India faced an unparalleled balance of payment crisis brought about by the crisis in liquidity in the economy. India saw a steep rise in the current account deficit. It went from 2.3 billion dollars to about 5.5 billion dollars. For the first time in its history, India had seen itself defaulting on external commitments. 

P.V. Narasimha Rao became President in 1991 and introduced new industrial policies. In late 1991 he pushed for different policy measures that made the development strategies take a different direction.

Libéralisation, Privatisation, Globalization (LPG)

The structural reform policies aim to improve the economy to stand out in the international competition. These reforms can be categorised under three heads -Liberalisation, privatisation, and globalisation (LPG).

Liberalisation

There were many hindrances in the way of the country’s economic growth. Liberalisation aimed to remove these hindrances. This economic reform helped loosen the government’s control in various sectors. Several restrictions were imposed on the private sectors, making them difficult to operate. Liberalisation allowed them to get the ease of expanding their sectors in the country.

Objectives of liberalisation – 

• To increase competition between the domestic industries
• To regulate imports and exports that can encourage foreign trade with different countries
• Foreign capital and technology enhancement
• Expanding the global market frontiers of the country
• To rid the country of debts

Privatisation

Privatisation is the reduction in the domination of the public sectors. These economic reform policies make it easier for the private sector companies to increase their control. 

The government-owned companies are transformed into private sector companies through this reform. This is done by disinvesting or by withdrawing government ownership. There are three forms of privatisation discussed as follows – 

1. Strategic sale or Denationalisation – In this form of privatisation, the government hands over 100% of the productive assets to the private sector.
2. The partial sale or Partial privatisation – This form of privatisation helps the private sector companies partially take ownership of the government sector company. The percentage of ownership can go above 50% but never 100%.
3. Token or Deficit privatisation – Sometimes, the government disinvests to as little as 5 to10 percent to meet the deficit in the budget. This is called token or deficit privatisation.

Objectives of privatisation

• Improve the government’s financial condition
• Lessen the work pressure on the public sector companies 
• Increase the orderliness of the government organisations
• Provision of improved goods and better services to the consumer
• Creation of healthy competition in the society
• Encourage foreign direct investments (FDI)

Globalisation

Globalisation is the economic reform that ties the country’s economy with that of the world. The main focus of this reform is on foreign trade. Various strategic policies are set up that aim to integrate the world as a whole. This reform increases the cross-border exchange of social, cultural, and technological knowledge. There are several measures to pursue globalisation. 

In Information Technology, much contractual work is being outsourced, leading to its development. This has given many opportunities to the private sector. Moreover, in the global market, Indian skills are considered skilled and effective. This is one of the best outcomes of globalisation.

Objectives of globalisation

• Reducing import duties
• Encouraging foreign investments
• Encouragement to the agreement in foreign technology

Impact of Liberalisation, Privatisation, Globalisation (LPG) on Industrial Development

There are both positive and negative impacts of India’s three economic reform policies, namely Liberalisation, Privatisation, Globalisation (LPG), on industrial development.

Positive impact 

1. The encouragement of the FDI has made the industries get better infrastructure and technical knowledge of operations. This has increased the efficiency of these industries and their growth as well.
2. The reduction in taxes and the abolition of Industrial licensing has helped increase the GDP after the reforms were introduced in 1991. From a GDP rate as low as 1.1%, these reforms have increased to 7.5 %.
3. With the expansion of the industrial belt brought by the economic reforms, employment increased.

Negative impact 

• The decline of growth in the agricultural sector
• The stress of foreign competition
• Income disparity
• Increase in pollution

Conclusion

The economic reforms were important and have played a vital role in the industrial development of our country. Before its adoption, India was under severe financial crisis and in debt. However, Liberalisation, Privatisation, Globalisation (LPG) brought about a revolution. The fruitful outcome of these reforms reached its peak in 2007. India became the second-fastest growing economy in the world. The same year a GDP rate of 7% was recorded, the highest in the history of India. There are many shortcomings of these economic reforms. But, it cannot be denied that adopting these reforms was a necessary step taken. It has led India to be recognized as a major economy globally.