Economic Reforms 1991 (LPG Policy)

Introduction

• Chapter: Economic Reforms 1991 (LPG Policy)
• Other name: New Economic Policy
• Four main points:
  1. Why were the reforms introduced?
  2. What were the components?
  3. Outcome of the reforms
  4. Key terminology

Need for Reforms

• In 1991, our economy faced several issues:
  • Lack of foreign exchange
  • Increasing fiscal deficit
  • Adverse BOP
  • Rising inflation
  • Gulf crisis
  • Poor performance of the public sector

Main Components of Reforms

1. Liberalization

• Reduction of government licensing obstacles
• Government sector reduced to 17 major sectors (now only in 3 sectors)
• Financial sector reforms - increased autonomy for banks
• Simplification and reduction of the tax system
• Easing of export and import duties

2. Privatization

• Disinvestment of government assets
• Increased role of the private sector

3. Globalization

• Participation in international trade
• Allowing foreign companies to invest in India
• Growing role of outsourcing

Key Terminology

• Minority Sale: Selling up to 49% of government assets
• Strategic Sale: Selling more than 51% of government assets
• Tariff Barrier: Tax on imports
• Non-tariff Barrier: Other restrictions
• Bilateral Trade: Trade between two countries
• Multilateral Trade: Trade among more than two countries

Important Terms

• WTO: World Trade Organization, regulates international trade
• Impact of Liberalization: Mounting fiscal deficit, dwindling forex reserves
• Impact of Globalization: Increase in outsourcing and international trade

Conclusion

• The reforms gave a new direction to the Indian economy
• Liberalization, Privatization, and Globalization played crucial roles
• The objective of these reforms was to improve and stabilize India's economy

Key Points

• Major changes in Liberalization

  • Removal of industrial licensing
  • Reforms in banks
  • Financial reforms
  • Tax reforms
  • Foreign exchange reforms

• Major changes in Privatization

  • Disinvestment of government assets
  • Increased role of the private sector

• Major changes in Globalization

  • Participation in international trade
  • Outsourcing and foreign investment

• Key role played by WTO in international trade

• Increasing importance of Outsourcing

  • Why did India become a preferred choice for it?