The document discusses the rationale for India's economic reforms in 1991 that introduced Liberalization, Privatization, and Globalization (LPG model). It provides background on the economic crisis India was facing in 1991 with high inflation, large fiscal deficit, and foreign exchange crisis. This led India to take loans from IMF and World Bank who mandated reforms like liberalizing and opening the economy. The 1991 New Economic Policy introduced reforms across industries, finance, trade, and more to boost growth. Key aspects of the reforms included liberalizing licenses, privatizing public sector units, and integrating India more into the global economy.

1. LPG

3. Liberalisation ,
Privataisation
and
Globalisation

4. Rationale of economic reforms-crisis of
1991
• NI was growing at the rate of 0.8%
• Inflation reached the height of 16.8%
• Balance of payment crisis was to the extent
of10,000 crores.
• India was highly indebted country. It ws paying
30,000 crores interest charges per year.
• Foreign exchange reserves were only 1.8 billion
dollars which were sufficient for three weeks.

5. • India sold large amount of gold to Bank of England.
• India applied for the loan from World Bank and IMF
to the extent of 7 billion dollars.
• Fiscal deficit was more than 7.5%.
• Deficit financing was around 3%.
• Trade relation with Soviet block had broken down.
• Remittances from non-residence Indians stopped
due to war un Arab countries.
• Prices of petroleum products was very high.

6. For Availing loan , IMF and World Bank
expected India to:
• Liberalise and open up the economy by removing
restrictions on the private sector,
• Reduce the role of the government in many areas
• Remove trade restrictions.
India agreed to the conditionalities of World Bank
and IMF.

7. Economic Reforms Since
1991- New Economic Policy

8. • ECONOMIC REFORMS:
Economic reforms or structural adjustment is a
long-term multi-dimensional package of various
policies and programmes for further economic
development.
NEP1991:
In July 1991, Prime Minister Narasimha Rao along with his
Finance Minister Manmohan Sigh initiated the
economic liberalisation of 1991, to remove the
inefficiencies in the economic system.

9. OBJECTIVES OF NEP1991:
• To reduce fiscal deficit and to have relative price
stability.
• To reduce the area of operation of the public sector
and to open up more areas for the private sector.
• To liberalise industrial policy and abolish industrial
licensing for most of the private sector industries.
• To encourage inflow of foreign capital by granting
more concessions to foreign direct investment.
• To liberalise foreign trade by reducing tariff duties
and abolishing quota restrictions in case of many
imports.

10. Components of NEP 1991
1. MACROECONOMIC STABILISATION- demand side
management:
This is a short-run measures to return to low and stable
inflation and a sustainable fiscal and balance of
payments position.
o Control of inflation
o Fiscal correction
o Improvement in a balance of payment s situation

11. Structural adjustment –supply side
management
This is a long run measures to remove the
bottlenecks and obstacles in the growth path of an
economy. These policies includes :
Trade and capital flow reforms
Industrial deregulation
Public sector reforms and disinvestment
Financial sector reforms
The goals is to abolish controls, eliminate bureaucratic
hurdles and redtapism and make the decision
making process efficient and transparent.

12. NEP –Policy of Liberalisation, Privatisation
And Globalisation(LPG)
Structural reforms can be seen with
respect to:
• Liberalisation
• Privatisation
• globalisation

13. LIBERALISATION
Liberalisation means removing all unnecessary
controls and restrictions like permits, licenses,
protectionist duties, quotas, etc. imposed by the
government.
In 1991, government was enforcing regulation in
many ways.
o Industrial licensing
o Private sector was not allowed in many industries.
o Some goods only produced in small scale industries.
o Price controls and control on distribution of
selected industrial products.

14. • Import licence.
• Foreign exchange control
• Restrictions on investment by big business house etc.
These controls resulted in:
a) Consumption delays
b) Inefficiency
c) Losses
d) High cost economy

15. Objectives of liberalisation
• To raise internal competitiveness of industrial
production.
• To raise foreign investment and technology.
• To reduce debt burden of the country.
• To get an opportunity to export to developed
countries and to import capital goods and
machinery from them.

16. Liberalisation Measures
Industrial
sector
reforms.
Financial
sector
reforms.
Tax
reforms.
Foreign
Exchange
reforms.
Trade
policy
reforms

17. Industrial sector reforms
• Except for 6 industries related
to security and strategic
concerns:
a) Liquor
b) Cigarettes
c) Industrial explosives
d) Defence equipments
e) Drugs and pharmaceuticals
f) Dangerous chemicals
Abolition of
Industrial Licensing.
Contraction of public
sector.
Reforms in small
scale sector
Concessions in the
MRTP Act.

18. PRIVATISATION

19. PRIVATISATION
Improving govt: financial
composition
• Raising funds from the sales
Improving the performance of
an enterprise
• Increasing efficiency
• Requiring enterprises to meet
performance objectives
• Relief from public sector
financial constraints.
It is defined as the
transfer of a
function, activity
or organisation
from the public to
the private sector.
Objectives :

20. Privatisation measures
means sale of a part of
equity holdings held by the
government in any public
sector undertaking to
private investor.
Two methods:
 Minority sale
 Strategic sale
The govt: has decided to give
special treatment to some
of the important profit
making PSUs and they were
given the status of
Navratnas.
1. Disinvestment
2.Policy for
Navratnas.

22. GLOBALISATION
• It refers to growing economic
interdependence among countries in the
world with regard to technology, capital,
information, goods and services etc:

23. FEATURES
Opening and planning to expand business
throughout the world.
Erasing the difference between domestic
and foreign market
Buying and selling goods and services
from / to any countries in the world.
Locating the production and other physical
facilities on a considerations of the global
business dynamics, irrespective of
national considerations

24. Global sourcing of factors of production i.e.
raw material, components ,machinery,
technology, finance etc. are obtained from the
best source anywhere in the world
Global orientation of organizational structure
and management culture

25. FACTORS
• Technological Advances in communication
• Improvements in transportation and
Technology
• other Factors:

26. ADVANTAGE
• Increase in Trade in Goods and Services
• Free flow of technology
• Increase in industrialization
• Increase in production and higher standard of
living.
• Commodities at lower price with high quality
• Increase in jobs and incomes
• Balanced human development

27. DISADVANTAGE
• Loss of domestic industries
• Exploits human resources
• Decline in income
o Transfer of natural resources
• Widening gap between rich and poor
• Dominance of foreign institute

28. Out sourcing
• Means obtaining goods and services by contract
from an outside source.
• The main services which are being outsourced from
India by developed countries are:
1. Voice-based business processes
2. Banking
3. Railway inquiry
4. Record keeping
5. Accountancy etc:

29. Main Organisations for Facilitating
Globalisation
• IMF
• WORLD BANK
• WTO

30. IMF
• Came to exist on dec.27,1945 with the signing of its Articles
of Agreement.
• It commenced operations on March 1,1947
Objectives:
1. Promoting international monetary cooperation.
2. Helps in facilitating the expansion and balanced growth of
international trade.’
3. Promoting exchange stability.
4. Helps in expanding international liquidity (convertability to
cash )
5. Expand capital investment in underdeveloped countries
6. Remove disequilibrium in the balance of payments
7. Establish multilateral trade and payments.
8. Helps to generate higher employment and income.

31. World Bank(IBRD)
• Affilited with united Nations a