LPG REFORMS:

Meaning of Liberalization, Privatization and Globalization (LPG)

The triple pillars of New Economic Policy are Liberalization, Privatization and Globalization (LPG)

Liberalization: Liberalization refers to removal of relaxation of governmental restrictions in all stages in industry. Delicensing, decontrol, deregulation, subsidies (incentives) and greater role for financial institutions are the various facets of liberalization.

Privatization: Privatization means transfer of ownership and management of enterprises from public sector to private sector. Denationalization, disinvestment and opening exclusive public sector enterprises to private sector are the gateways to privatization.

Globalization: Globalization refers to the integration of the domestic (Indian) economy with the rest of the world. Import liberalization through reduction of tariff and non-tariff barriers, opening the doors to Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) are some of the measures towards globalization.

The following are the major changes after 1991:

• Foreign exchange reserves started rising there was a rapid industrialization. The pattern of consumption started improving (or deteriorating).
• Infrastructure facilities such as express highways, metro rails, flyovers
  and airports started expanding (but the local people were thrown away).
• The benefits of this growth in some sectors have not reached the marginalized sections of the community. Moreover, the process of development has generated serious social, economic, political, demographic and ecological issues and challenges.
• Development brings benefits, but which section gets this benefit depends on socioeconomic structure of the society. Despite all these initiatives in the Indian economy, a large section of the people of India continue to face basic economic problems such as poverty, unemployment, discrimination, social exclusion, deprivation, poor healthcare, rising inflation, agricultural stagnation, food insecurity and labour migration.
• However, for these problems, Government policies alone cannot be blamed. As new institutional economists suggest, the values, believes, norms etc. of the individuals also matter.

Industrial Sector Reforms

The new industrial policy was announced on July 24, 1991. The new policy radically liberalized the industrial policy itself and de-regulated the industrial sector substantially.

The primary objectives of the industrial policy were:

• To promote major industries from the clutches of bureaucrats.
• To abolish restrictions on foreign direct investment.
• To liberate the indigenous enterprise from the restrictions of MRTP Act.
• To maintain a sustained growth in productivity and employment and also to achieve international competitiveness.

Important Initiatives by the Government towards Industrial Policy

The policy has brought changes in the following aspects of industrial regulation:

1. Industrial de-licensing
2. De-reservation of the industrial sector
3. Public sector policy (de-reservation and reform of PSEs)
4. Abolition of MRTP Act
5. Foreign investment policy and foreign technology policy

Industrial de-licensing policy: The most important objective of the new industrial policy of 1991 was the end of the industrial licensing or the license raj or red tapism. Under the industrial licensing policies, private sector firms had to secure licenses to start an industry.

De-reservation of the industrial sector: Previously, the public sector was given reservation especially in the capital goods and key industries. Under industrial deregulation, most of the industrial sectors were opened to the private sector as well. Under the new industrial policy, only three sectors viz., atomic energy, mining and railways will continue as reserved for public sector. All other sectors have been opened for private sector participation.

Reforms related to the Public sector enterprises: Reforms in the public sector were aimed at enhancing efficiency and competitiveness of the sector. The government identified strategic and priority areas for the public sector to concentrate. Loss making PSUs were sold to the private sector.

Abolition of MRTP Act: The New Industrial Policy of 1991 has abolished the Monopoly and Restrictive Trade Practices Act 1969. In 2010, the Competition Commission has emerged as the watchdog in monitoring competitive practices in the economy. The policy caused big changes including emergence of a strong and competitive private sector and a sizable number of foreign companies in India.

Foreign investment policy: Another major feature of the economic reform was red carpet welcome to foreign investment and foreign technology. This measure has enhanced the industrial competition and improved business environment in the country. Foreign investment including FDI and FPI were allowed. In 1991, the government announced a specified list of high-technology and high investment priority industries wherein automatic permission was granted for foreign direct investment (FDI) up to 51 percent foreign equity.

The limit was raised to 74 percent and subsequently to 100 percent for many of these industries. Moreover, many new industries have been added to the list over the years. Foreign Investment Promotion Board (FIPB) has been set up to negotiate with international firms and approve foreign direct investment in select areas.

Impact of LPG on Agricultural Reforms

Since the inception of economic reforms, Indian economy has achieved a remarkable rate of growth in industry and service sector. However, this growth process bypassed the agricultural sector, which showed sharp deceleration in the growth rate (3.62 percent during 1984/85 – 1995/96 to 1.97 percent in 1995/96 – 2004/05).

The sector has recorded wide variations in yield and productivity and there was a shift towards cash crop cultivation. Moreover, agricultural indebtedness pushed several farming households into poverty and some of them resorted to extreme measures like suicides.