Since the initiation of Liberalization, Privatization, and Globalization (LPG) in 1991, the Indian governmental system has undergone significant transformations, attempting to adapt to the demands of an increasingly interconnected global economy. While strides have been made in liberalizing economic policies and fostering private sector growth, there are lingering questions about the adequacy of the government’s response. The liberalization process opened up avenues for foreign investment, reduced trade barriers, and encouraged private enterprise. However, challenges such as bureaucratic hurdles, regulatory complexities, and uneven distribution of benefits persist. The privatization drive, although introducing efficiency in certain sectors, has faced resistance and criticisms over issues of transparency and equity. Furthermore, globalization has exposed the nation to both opportunities and vulnerabilities. To enhance its responsiveness, the government needs to address these issues by streamlining bureaucratic processes, ensuring transparent and fair privatization practices, and implementing policies that mitigate the adverse effects of globalization on vulnerable sections of society. Additionally, there is a pressing need for ongoing policy reviews and adaptability to changing global dynamics to ensure that India maximizes the benefits of LPG while minimizing potential pitfalls. Ultimately, a balanced approach that fosters economic growth, social equity, and global competitiveness should guide the government’s actions in this era of rapid transformation.
Tag: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
Decoding the Question:
- In the Introduction, try to briefly describe the 1991 economic crisis and LPG reforms.
- In Body,
- Write various reforms taken by the government in response to the growing demand for Liberalization, Privatisation, and Globalization in 1991.
- Mention various issues with the LPG reforms.
- Suggest some measures to address the issues.
- In Conclusion, try to link with the recent government approach towards the reform.
Answer:
In 1991, India met with an economic crisis relating to its external debt; the government was not able to make repayments on its borrowings from abroad; foreign exchange reserves dropped to levels that were not sufficient for even a fortnight. The 1991 Liberalisation, Privatisation, and Globalisation reforms were a watershed moment in the history of the country. The reforms were calculated, deliberative, and piecemeal instead of being knee-jerk. This allowed the progress of the reforms to be modified as per the needs of the economy. This facilitated competition and at the same time allowed domestic industries to grow and mature.
Government’s Response to Demands of Liberalization, Privatization, and Globalization:
- India liberalized and opened up the economy by removing restrictions on the private sector, reducing the role of the government in many areas, and removing trade restrictions between India and other countries.
- The policy provided thrust towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms.
- The government removed Industrial Licensing and Registration for the growth of industries. The number of industries reserved for Public sector units (PSUs) also decreased.
- It also streamlined and simplified labor laws, environmental laws, and compliance rules to meet the demands of LPG.
- The disinvestment of PSUs and the sale of their share was done to encourage professional functioning and facilitate private investors and companies.
- The government started acting as a regulator and facilitator rather than the controller or provider of goods and services.
- The government also reduced tariff barriers, facilitated long-term trade policy, allowed convertibility of Indian currency & adopted a floating exchange rate system, and increased the limit of Foreign Investment to integrate the Indian market with the Global economy.
Issues with the LPG Reforms:
- The reforms initially faced opposition and resistance cutting across party lines. India therefore had to enforce these reforms within the contours of democracy by accommodating diverse interests. As a result, the pace of the reforms was slow.
- This is in contrast to China which being a communist country performed much better within the same period. But as and when there was favorable political mandate and support, the reforms were carried forward.
- At the same time, the reforms were criticized as being biased towards the rich, reducing employment opportunities in the organized sector, benefitting only a few sectors, especially services, and therefore resulting in skewed development.
- The manufacturing and agricultural sectors did not reap much benefit and this continues even till today.
Measures the Government can bring for Responsive Change:
- The focus should be shifted towards the social sector like irrigation, rural electrification, and better communication facilities in villages.
- For the government to be responsive to this important change, it needs to focus on inclusive growth and development. This can be facilitated by carrying out second-generation reforms which will be much deeper and all-pervasive.
- The impediments to a speedy enforcement of GST tax reforms like Direct Tax Code and land reforms etc. should be removed at the earliest.
- More focus on agro-based industries and labor reform is required for the growth of the agriculture and manufacturing sectors.
The process of economic reform is continuous; the government is taking various steps like Make in India, Skill India Mission, Startup India, Stand up India, etc. are the right steps in the direction of faster and more inclusive growth.
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