what are the steps that government has taken to make Indian economy be adjustable with LPG and how India is affected by LPG

1. -BY: PROF. Rucha
Thadeshwar
SPKM Educational

2. • The economy of India had undergone
significant policy shifts in the beginning of
the 1990s. This new model of economic
reforms is commonly known as the LPG or
Liberalization, Privatization and
Globalization model.

3. • Fiscal deficit was 5.4% of gross domestic
product in 1981-82 which rose up to 8.4% in the
year 1990-01.
• In 1991 amount of interest liabilities rose further
to 36.4% of total government expenditure.
• Country was moving towards debt trap. Mounting
“Adverse balance of payment(BOP)”
• Fall in foreign exchange reserve
• Rise in prices.

4. • Poor performance of public sector undertakings.
• First Gulf war caused spikes in oil prices which
caused a major balance-of –payment crisis for
India.
• India asked for $1.8 billion bailout loan from IMF,
in return demanded reforms.
• This New Economic Policy was inaugurated by
former prime minister P.V. Narasimha Rao under
the guidance his FM Manmohan Singh.

5. • Liberalisation befalls when something which was
forbidden is no longer forbidden or when
government laws are loosened.
• Liberalization refers to relaxation of government
restrictions in areas of economic policies. Thus,
when government liberalizes trade it means it
has removed the tariff, subsidies and other
restrictions on the flow of goods and service
between countries.

6. • Dismantling of industrial licensing system built
over the previous four decades.
• Reduction in physical restrictions on imports and
reduction also in the rate of import duties.
• Reform of the financial system.
• Reduction in the levels of personal and corporate
taxation.
• Reduction in restriction on foreign investment.

7. • Opening up of areas hitherto reserved for public
sector.
• Partial privatization of public sector units.
• Softening of MRTP (monopolies and restrictive
trade practice act) regulations and
• Making various sectors of the Indian economy
competitive on the global economic platform by
making them produce quality goods in a cost
effective manner

8. • Relief for foreign investors
• Devaluation of Indian rupees
• New trade policy
• Removal of import Restrictions
• Liberalization of NRI remittance (payment
/transfer of funds)
• Freedom to import technology
• Encouraging foreign tie-ups
• MRTP relaxation
• Privatization of public sector

10. • 1. Dismal Performance of PSEs:
• PSEs in India are over controlled and
overregulated causing inefficiency to grow
upwards.
• Accountability of PSE enterprises is minimal and
no one is held responsible for the ineffective
functioning of these enterprises.
• Political interference also has a telling effect on
the performance of the PSEs.
• Most PSEs operate with manager having less or
no expertise on the affairs of the concern.
• Decision-making again is a lengthy process. In
fact, managerial inefficiency is one of the
greatest banes of the PSEs.

11. • It is argued governments make poor
economic managers. They are motivated
by political pressures rather than sound
economic and business sense.
• The government may be reluctant to get rid
of the workers because of the negative
publicity involved in job losses. Therefore,
state-owned enterprises often employ too
many workers increasing inefficiency.

12. • Privatisation will usher in an improvement in
efficiency and as improved performance is
concerned with ‘profit-oriented’ decision-making
strategy
• Accountability is strictly ensured in a private
sector enterprises and some people are held
responsible for any failure.
• Accountability and responsibility will definitely
tone up the efficiency and greater output of the
private sector.

13. • Government resources for keeping up
PSEs may be utilised for the purposes of
social sector development as this sector is
starved of financial resources.
• Modern governments should spend more
on this sector as well as economic
infrastructures as these are the two
essential pillars of growth.

14. • Indian private industrialists performed in a
sheltered market and remained insulated from
any kind of external competition. This made
Indian private sector an inefficient one.
• Goods produced by this sector were far below
international standards.
• Privatisation will promote private sector culture
by introducing competition so that Indian
industrialists can compete with their foreign
counterparts and, hence, generate greater output
and improved efficiency. All these trigger a chain
of favourable movements in many direct and
indirect directions.

15. • Indian PSEs are subject to too much
governmental and political interference thereby
making them operationally inefficient. Private
sector is free from such unavoidable
interference.

16. • Over the years, the Indian PSEs have branched
out in all directions, as their operations must not
only consider economic objectives, but also
social welfare objectives.
• In the name of enlarging public sector
enterprises, the government has moved into the
production of many unimportant consumer goods
(producing food products like bread, fruit juice,
entertainment business, and so on).
• No economic logic is forwarded for producing
these commodities.

17. • 1. Private Sector is Inefficient too:
• There are some good number of PSEs that are
not loss-making enterprises; instead, some of
them generate revenues. If PSEs are allowed to
grow in an independent way, managers of these
enterprises are expected to respond according to
the changed requirements.
• Further, there is no evidence that can suggest
that the Indian private sector performs
satisfactorily. Private sector is inefficient too.

18. • During 1950-1990, India’s private industrialists
functioned under the protective umbrella without
putting much effort in increasing factor
productivity. These industrialists felt no urgency
in modernising their industries; they used old and
obsolete technology which made this sector an
inefficient one.
• There is no statistical evidence that can show a
positive relationship between ownership and
performance. In fact, performance is not be
related to the ownership of industries. What is
needed is the competitive environment in which
any sector public sector and private sector can

19. • There are so many private industries that
are lying sick. Sometimes, private
industrialists deliberately make their
organisations ‘sick’—so that they can
receive financial help from public sector
institutions to tide over the crisis.

20. • Economic growth crucially depends on the
growth of infrastructures. Infrastructures both
economic and social and economic growth are
positively linked to each other.
• Since infrastructure investments are lumpy in
character, private capital shies away from such
investments and thrives on state- support
infrastructures.
• Therefore, move towards greater and greater
privatisation means country’s slow and
haphazard growth of infrastructural facilities.

21. • There are many industries which perform
an important public service, e.g., health
care, education and public transport. In
these industries, the profit motive shouldn’t
be the primary objective of firms and the
industry.
• For example, in the case of health care, it
is feared privatising health care would
mean a greater priority is given to profit
rather than patient care.

22. • Privatisation creates private monopolies,
such as the water companies and rail
companies. These need regulating to
prevent abuse of monopoly power.
Therefore, there is still need for
government regulation, similar to under
state ownership.

23. • Private sector is completely guided by the
profit motive. This sector will invest in
those areas that yield quick return the low
priority industries.
• Above all, social responsibility or welfare
objective of business is side-lined by the
private industrialists.

24. • Employment loss seems to be another argument
against privatisation as far as present
employment scenario is concerned.
• In the name of more and more profit, private
industrialists have adopted ‘hire and fire’ policy of
employment as well as labour-saving
technologies.
• Further, private businessmen exploit workers in
many forms (like extending working hours or
increasing work load, sabotaging the power of
the workers to negotiate with the employers,
etc.). All these impact on wages. Income

25. • In 2002,all other industries were allowed to be privatized
except only 3
• In public sector, disinvestment was initiated
Token privatization
some % of shares of public sector is sold to private
sector
Deficit privatization
public sector is sold to reduce fiscal deficit
• From 1991-’92 to 2007-’08 only 8.9%
disinvestment has been done.
• Gov. has privatized 9 profit making private sector
that are:
IOC,ONGC,HPCL,BPCL,IPCL,VSNL,BHEL,SAIL

26. Sr no. Sector 2002-03
Index
2006-07
Index
Increase
1 Manufacturing sector 189 268 79
2 Capital goods 177.4 314.2 136.8
3 Consumer goods 187.5 276.8 87.3
4 Readymade cloths 190.3 285 94.7
5 Chemical and related
products
191.8 283.4 91.6

27. • Sector which is not regulated by rules and regulation of
government.
• It includes hawkers, retail traders, lariwallahs, artisans
and many others who do not have any specific line of
trade.
• Due to liberalization and privatization their activities have
also proliferated.
• They get credit facility easily on a liberal terms due to
this there is a development of unorganized sector

28. • Globalization means the speedup of movements
and exchanges (of human beings, goods, and
services, capital, technologies or cultural
practices) all over the planet. One of the effects
of globalization is that it promotes and increases
interactions between different regions and
populations around the globe.

29. • 1.Reduction of trade barriers to permit free flow
of good and services across national frontiers.
• 2. Creation of an environment in which free flow
of capital can take place.
• 3. Creation of an environment permitting free
flow of technology among the nation states.
• 4.Creation of an environment in which free
movement of labour can take place in different
countries of the world.

30. 1.exchange rate adjustment and rupee
convertibility
• In 1991, India made its currency fully
convertible i.e. allow it to determine its own
exchange rate in international market without
official intervention.
• IMF insisted on 13% ‘real devaluation’
• Government fixed the target rate of inflation
9%
• So, nominal devaluation required was 22%
• FM did this in two phased manner on 1, july
1991 and 3,july 1991
• By this first condition laid down by IMF for
grant was met.

31. • Government of India progressively move forward towards
full convertibility.
• Budget of 1992-93 introduced dual exchange rate system
implying partial convertibility of rupee.
• Budget of 1993-94 introduced full convertibility
• On August,19,1994 india achieved full convertibility
• full convertibility on current account can be defined as
freedom to buy or sell foreign exchange
1. All payments due in connection with foreign trade
2. Payment due as interst on loan
3. Payments of moderate amount of amortization of loan
or for depreciation
4. Moderate remmitances for family living expenses

32. • The world bank had advocated for redesigning of trade
policy so that there is only one negative list for import.
• Lowering of import tariffs n all goods and
free entry to capital goods, intermediate
goods raw materials and consumer goods
into Indian economy
• On remaining item there was a
phased duty reduction from 1993 to 1997
Import duty
255%
150%
110%
85%
65%
50%
40%

33. • Government of India has thrown open doors for FDI to
foreign investors by offering various facility and incentive
to foreign investors and non resident Indian.
• In 1991 government has
announced permission for
automatic route as following
• FII have been allowed to
Invest in Indian capital
market subject to registration with SEBI
No of
companies
Foreign equity
9 74%
3 50%
13 51%
35 51%
48 51%

34. 1. GDP and poverty ratio
2. Impact on external sector
3. Impact on employment
4. Impact on agriculture sector
5. Impact on industrial sector
6. Disadvantage from various agreement
7. Impact on MNCs
8. Increase in economic inequalities
9. Neglect of informal sector.

35. GDP POVERTY
1992-2002 6% 1993-94 36%
10TH PLAN
(2002-07)
7.6% 2004-05 27%
11TH PLAN
(2007-12)
7.9%
12TH PLAN
2012-2017)
8.2%

36. • Our export doesn’t show any significant increase even
after adoption of globalization.
• But due to liberalization and openness of economy , our
import increases.
• One positive side of liberalization and globalization is that
our self reliance has increased and now our export
finance 60% of our import.
INDIA’S SHARE IN WORLD TRADE
1990 0.54%
2004 0.8%
2008 1.68%

37. • Due to globalization, there is structural changes in job
market. Though GDP was more during globalization, the
employment growth rate reduced.
• Another reason for declining growth rate is increasing
population @2.84%.

38. • Employment in organized sector was marginally
increased from 267 lakhs to 287 lakhs.
• Globalization has increased jobs in the sectors where
special skills are required. But it reduced the job into
consumer goods industries( detergent , soap) due to
entry of MNCs.
• So globalization results into jobless growth in India.

39. • Globalization has favorable impact on our
agrarian economy because of removal of
restriction on food import by developed countries
• But due care should be taken in patent right of
our agrarian items like basmati, neem etc

40. • It was assumed that competition with MNCs will
make Indian economy more cost conscious and
quality conscious
• But before globalization Indian companies were
operating in quiet closed and completely
sheltered market and that had not make them
capable to face the competition.
• Positive side is that import gave wide range of
choice to the customer

41. • India has entered into agreement with WTO like
TRIPs ( Trade related intellectual property rights)
and TRIMs ( Trade related investment measure)
• TRIPs result into legalization of monopoly
whereas TRIMs protects rights of foreign investor
in developing country.

42. • Entry of MNC has result into unequal competition
between giant and weak
• Domestic companies feel like target and victim
and expect level playing field.

43. • Fact is out of 185 countries 80countries peer capita
income has declined as compare to their per capita
income decade back.
• Only few sectors are linked to globalization
20%
37.5%
60%
54.8%
20%
7.7%

44. • Informal sector provides GDP
60%employment 93%
• But globalization has focused mainly on
organized sector.