LIBERALIZATION the economic policy of 1991 made significant



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2nd Semester BA
Economics, KR’s Sree Narayana college, Thozhuvanoor.



This paper studies the
impact of liberalisation, privatization and globalisation on Indian economy. The
economic reforms that maid by government by the economic policy of 1991 made
significant impact on the Indian economy. In terms of increasing GDP, Per-capita
income, increasing foreign direct investment. Also covers advantages and
disadvantages of LPG policy, its positive impact achievements benefits and
failure. These new economic policies provided many contributions to our
economy. This study is important understand impact of LPG on Indian economy.


Ø  To
understand the importance of the new economic policy of 1991.

Ø  To
provide a basic knowledge about Liberalization, privatisation and Globalisation.

Ø  Evaluate
the advantages and disadvantages achievements and failure of new economic
policy of 1991.



government announced a new economic policy an July 24 ,1991.This new model of
economic reforms is commonly known as the LPG or Liberalisation Privatisation
Globalisation. Liberalisation means liberating the economy by ending license
permit raj thereby reducing the red tapism in a significant way .privatisation
means giving away ownership management of govt enterprises to private companies
. Globalisation means integration of countries of the world . It is the
interaction of the domestic economy with the rest of the world. Prime minister
of the country P.V NARASIMHARAO initiated ground breaking economic reforms DR
MANMOHAN SINGH was the finance minister of the time he assisted NARASIMHARAO
and played a key role in implementing these policy the reforms did away
interest rate tariffs license raj and ended many public monopolies allowing
automatic approval of foreign direct investment in many sectors.






Liberalization means
liberating the economy by ending License permit raj thereby reducing  tarrif 
in a significant way. Simply means one does not have to get a thousand
approvals from various government offices to starting a business.
Liberalization become necessary because the earlier policy of government
intervention became excessive interference

Important Elements

Delicensing: only a few
industries like alcohol, drugs, cigarettes, industrial explosives need
licensing. This means a license is not required for investment in delicensed

Dereservation: The number
of industries reserved for the public sector has been drastically reduced. The
number of goods reserved for the small scale was reduced



Privatisation implies
giving away ownership management of govt enterprises to private companies.
Privatisation is one of the important aspect of this economic reforms


Disinvestment implies
selling govt investment in public sector undertaking

•           Improving the management of PSUs through superior
management techniques

•           Improving the financial performance of PSUs through
financial discipline

•           Enhancing the ability of companies financial resources
from the market

•           Raising revenue for the govt from sale of equity


Globalisation means
integration of countries of the world. It is the interaction of the domestic
economy with the rest of the world with regard to foreign investment trade
production and financial matters. So globalisation means clear integration of
countries, free flow of goods, services, capital, knowledge, people, across the
national border. Extension of markets through reduction of cost of
transportation and communication


•           Increase in foreign investment

•           increase in efficiency and domestic firms

•           control of price

•           Rise in the rate of economic


•           Increase in unemployment

•           Loss to domestic units

•           Increased dependence on foreign nation

•           Unbalanced development of sectors



•           Privatization reduces the government’s political

•           Privatization makes improvements in the company thorugh

•           Improved efficiency due to the perfect incentive.


•           The government loss dividends after privatization

•           Privatization of certain state entities such as wash

Electricity authorities
may just crate single monopolies


The main advantage is
people get more goods and services for a cheaper price


•           Economic depression in one country can trigger adverse
reaction across the globe

•           Companies face much greater competition


Outsourcing means
sourcing form outside.

Developed countries are
out sourcing many services from developing countries like India. Computer
software, ITEs (it enabled services) like medical transcription, accounting,
legal services editing can be done at very low cost in countries like India.















Economic growth rate is
the rate of growth of G.D.P. It is clear from the table that there has been a marked
improvement in GDP.

The tenth five year plan
achieved a record growth rate of 7.9 percent. India has been the second fastest
growing major economy in the world. The growth is mainly driven by the service
and industrial sectors. Growth rate in agriculture is low. The higher GDP
growth is indeed an achievement of reform.


1)         GDP growth rate improved substantially. India is now the
second faster growing major economy in the world.

2)         Savings and investments rates have improved

3)         The growth rates of services and industrial sectors have
been impressive.

4)         Foreign investment and foreign exchange reserves have
improved very much.

5)         The Tax GDP-ratio after declining in the early part of the
reform period has been showing impressive growth in recent years.



•           Reforms and high GDP did not benefit agriculture .

•           Liberalization of trade in agriculture led to decline
prices of agricultural commodities.

•           Highly educated and qualified persons could exploit the
opportunity of globalization persons, like computer software engineers started
getting very high income. This aggravated income inequalities.



1)         Abolition of industrial licensing/permit raj

2)         Public sector role diluted

3)         Beginning of 

4)         Free entry of foreign investment and technology

5)         Industrial location policy liberalized

6)         Deregulation of markets

7)         Reduction of taxes




Economic reforms have an
important on Indian economy. There are many changes in Indian economy, after
adaption of the policy of LPG 
liberalisation ,privatisation and globalisation in 1991 .Because of this
reforms many good things are happen like increase in the Indians GDP growth
rate, foreign direct investment and per capita income policy as facilitated the
flow of foreign ,capital, Technology and managerial expertise thereby improving
efficiency of industry .also unemployment rate is reduced . through these are
certain negative impact are also like low growth agriculture sector, adverse
impact environment. lastly, we can say that development in India is takes place
because of implementation of the policy



Ø  Indian
economics development and statistics for economics written by Dr VIJAYA KUMAR
and Dr pk. Lazar


Ø  Impact
of LPG on Indian economy  by v .Ravan.

Ø  Sure
shot for plus one economics.