LPG-1991

WHAT WE WILL DISCUSS IN THIS PRESENTATION
1.REASONS FOR IMPLEMENTING LPG.
2.BACKGROUND BEFORE LPG.
3.NEW ECONOMIC POLICY(NEW).
4.LIBERALIZATION.
5.IMPACT OF LIBERALIZATION
6.PRIVATIZATION,MAJOURS,CAUSES,DISADVANTAGES AND OBJECTIVES
7.GLOBALIZATION,ELEMENTS,CAUSES AND EFFECTS AFTER
GLOBALIZATION

LPG-1991
INTRODUCED BY
P V Narsimha Rao and Dr. Manmohan Singh

Reasons for implementing LPG
• Large and growing fiscal imbalance.(gross fiscal deficit
rose to 12.1% of GDP in 1991)
• Low foreign exchange reserve.($1.2 billion in January
1991)
• High inflation rate.(13.87% in 1990-91)
• India faced a “Balance of payment crisis”
• Burden of national debt.

BACKGROUND OF
LPG
INTERNAL
FACTOR
EXTERNAL
FACTOR

INDIA
ANNOUNCE NEW
ECONOMIC
POLICIES
STABILISATION
POLICY
STRUCTURAL
POLICY

LIBERALIZATION

Introduction
Liberalization of the economy means to free it from direct or physical controls
imposed by the government.
Economic reforms were based on the assumption that market forces could guide the
economy in a more effective manner than government control.
Now policies are liberal and rules are also liberal. opening up the various sector
Of economy for private and foreign sector.

Financial sector reforms
•New private banks and
foreign banks were
opened.
•RBI role is change to
‘FACILITATOR’ from
‘REGULATOR’

INDUSTRIAL SECTOR REFORM
BEFORE LIBERALIZATION
• Private sector can not invest in the
economy.
• Licensing is compulsory.
• Price and distribution are decide by
government.
• Small sector industry has
reservation.

Tax reforms
Impact after liberalization
• Reduction in tax rates
Then tax payment is increase
This will increase the revenue of
government.
Then the fiscal deficit is decrease
• Increase in saving.

Impact of liberalization
• Annual growth in GDP.
• A rate of growth that will double average income in a decade
• Rapid growth in all the sectors.
• Increment in foreign investor.
• Increase consumption and adaptation of new lifestyle.
• Identity at world level.

Among The Top-15 Countries In Terms Of Gdp At Constant
Prices

SURGING EXPORTS

PRIVATIZATION
It refers to mode of working by
being outside the control of the
government.
The transfer of ownership,
property or business from the
government to the private
sector is termed as privatization

PRIVATIZATION IN INDIA
In 1991, New Economic Policy
Finance minister Dr. Manmohan Singh under the guidance of
Prime Minister P.V.Narasimha Rao

Major causes of
privatization:
 To reduce the burden on government.
 To improve public finance.
 To solve financial crisis of government.
 To reduce unnecessary interference.
 Increase the foreign investment.
 Utilisation of resources.
 To fund infrastructure growth

METHOD OF
PRIVATIZATION
FRANCHISING
LEASING
CONTRACTING
 Public offering of shares.
 Sale of shares to private individual.
 New private investment in a state owned enterprise.
 Entry of private sector into public sector.
 Sale of government or state enterprises.
 Contracting out the services and utilities to
private operaters or contractors.

PUBLIC SECTOR
INDUSTRIES WHICH ARE NOT RESERVED FOR PRIVATE SECTOR::::

Advantages of Privatization
 Privatization helps to reduce the burden on Govt.
 It will help profitmaking public sector
unit to modernize and diversify their
business.
 It will help in making public sector unit
more competitive.
 Efficient use of resources.
 Privatization may help in reviving sick
units which are the liability of the
public sector.
 Industrial growth.
 Increase the foreign investment.
 Increase in efficiency.

EFFICIENT USE OF RESOURCES DOMESTIC INVESTMENT VARIETY AND SELECTION
COMMERCIALIZATION RELIEVES GOVERNMENT’S BURDEN SOCIO-ECONOMIC DEVELOPMENT
FINANCIAL SUPPORT

DISADVANTAGES OF
PRIVATISATION
• Industrial sickness.
• Lack of welfare.
• Class struggle.
• Increase in inequality
• Opposition by employees.
• Problem of financing.
• Increase in unemployment.
• Ignores the weaker sections.
• Ignores the national importance

INEQUALITY EARNING CAPABILITIES
COSTLY
INCREASED COMPETITION

Major impact of Privatization on Indian
Economy
It frees the resources
for a more productive
utilisation.
Development
of the general
budget
resources.
Effectively
minimise
corruption and
optimise output
and functions.
Permit the
private sector to
contribute to
economic
development.
Lessen the
government's
financial and
administrative
load.

Globalisation

According to International Monetary Fund
“Globalisation means growing economic interdependence of
different countries through increasing cross-border transactions in
goods and services and of international capital flows , and also
through widespread diffusion of technology.”

FEATURES
– Integration of capital economy with world economy
– Opening up of the economy to foreign capital ,foreign technology and foreign
competitors
– Free world trade with liberalised approach towards exports and imports
.Elimination of tariff and quotas
– Expansion of MNC
– Free flow of Foreign Capital

Main organization facilitating globalisation

Measures Adopted For Globalisation In India
Allowing Indian corporate sector to raise fund in foreign
markets
Setting up joint ventures
Increase in foreign investment
Export promotion measures
Increase in foreign technology agreements
Freedom to repatriate
Long term foreign trade policy
Partial convertibility of Indian rupees
Privatisation
liberalisation
Financial market reforms
Reduction in tariff
Setting up foreign investment promotion board
Export
promotion
schemes
Vishesh krishi
Gram udyog yojana
Focus market
scheme
Focus product
scheme
Served from India
Merchandise export
from india scheme

Effect of
globalisation
on Indian
economy
• Increase in foreign trade
• Increase in foreign investment
• Increase in foreign collaboration
• Increase in foreign exchange reserves
• Expansion of market
• Technology development
• Brand development
• Development of capital market
• Development of service sector
• Increase in employment
• Reduction in brain drain
• Improvement in standard of living

India’s share in world trade
YEAR India’s percentage share in world trade
1990-91 0.53
1995-96 0.60
2005-06 1.00
2010-11 1.96
2012-13 2.20
2013-14 2.26
2014-15 2.28

Increase in foreign investment:
FDI: The main characteristics of FDI is that native companies are managed by foreign companies or new
companies are set up in host nation by foreign companies. In April 2013,indain government has clarified
the meaning of FDI. Now, if foreign investors have stake of more than 10% in the equity capital, in any
business unit, then it will be treated as FDI . In this type of investment ,it is the foreign investor who
takes the risk and is solely responsible for profit/loss of such companies
Portfolio investment: under this type of investment ,foreign companies/foreign institutional
investors(FIIs) buy shares /debentures of native companies, however management and control remain
vested with the native/domestic companies themselves.
There is a significant increase in foreign investment in India.
In 1990-91, total foreign investment (FDI and portfolio investment)was us $103 million.
In 2009-10 us $70,139 million
2014-15 us $86,071million
FDI equity flows in India in 2018-19 stood at 3.034 billion in may 2019 and us $7 billion in June 2019

• Increase in foreign exchange reserve
In 1991 foreign exchange reserve of India amounted to Rs.4,388 crore ,
which on 22 April 2016 increased to 23,93,220 crore
On Aug 19 it was 4,30,570 USD million
Average from 1998 to 2019 of foreign exchange reserve are
2,25,980.96 USD million

Conclusion
As a result of LPG reforms, Indian economy has definitely
become a more vibrant economy. Overall level of economic
activity has trended up as indicated by GDP growth. Post LPG
policies, the growth of GDP shot up to as high as 8% per annum.