The LPG strategy ie, liberalization, privatisation and globalization strategy was implemented in the year 1991 by the Prime Minister of India Narasimha Rao.
Firstly, liberalization means relaxing restrictions of the government where economic policies were needed. It was under the New Economic Policy that this strategy was developed and implemented. It was called the New Economic Policy of 1991.
The measures implemented in liberalization policy was to boost competition, to promote foreign trade, to reduce import tariffs, to develop a global market of the country, to encourage private sector to take part in the process of development,to bring in more competition in the economy. Certain other measures which were implemented in the liberalization policy of 1991 was the deregulation of the industrial sector, revamp of the financial and tax reforms, foreign exchange policy reforms, etc. It also wanted to achieve economic stabilization and permit international flow of goods and services along with capital, human resources and other technology without any restrictions. It wanted private sectors to increase their participation to develop the economy. The impact of liberalization was that it improved capital inflow and there was free flow of capital in the country, it led to decline in government stakes in banks and the stock market rose. The governemnt also attracted foreign investors as it brought about decrease in the restrictions.There was also the freedom of expansion of industries. There were negative impacts of liberalization too, it closed down many small sectors of the economy because of which many people lost their jobs. Due to many multinational companies getting introduced in India, it led to increase competition which the home country could not manage to cope up with it. There were a lot of mergers and acquisitions post the liberalization whoch brought about unemployement for a limited period of time, as these employees were to be taught the skills of performing the job.
Privatization refers to the transfer of ownership of public sector enterprises into private sector enterprises and increase in the participation of private sectors in any business or service. It had objectives of increase in FDI and improve financial strength of the country. Disinvestment and transfer of ownership were 2 ways in which privatization was divided into.
The various impact of privatization involved the fact that it improved efficiency of operations in the company, and thus, the economy. A private company would want to cut costs and be efficient and profitable. It brought about ease of doing business as there was very little inteference by the government. The privatization strategy also brought about infrastructure improvements and increasing confidence among shareholders for development of the economy. The pressure to perform efficiently also brought about increased competition in the market and so also was the reason that there was ease of doing business. It also brought about privatization of industries, so much, so that the public sector enterprises reduced to 2 from 17. Certain negative impacts of privatization policies was that it had led to natural monopoly of certain products and services such as the monopoly of tap water, and they would set the prices higher for the consumers. Other impacts included certain sector which only perform public service, for example, hospitals. These hospitals and other health care sectors cannot think about profits and that they should think about serving their patients. Other problems included are the regulation of certain private sectors such as water companies and rail companies. These sectors require privatization to reduce the abuse of monopoly power.
Globalization refers to the integration of the national economy with the world economy. It ensures free flow of goods, services and information and increases connectivity and other activities such as trade, investments and foreign currency exchanges. Certain advantages which globalization strategy brought about in 1991 were increase in employment, higher standard of living, extension of the market size in operations and customers in the market, development of infrastructure and healthy competition. Certain negative impacts of globalization was that it created rural-urban divide and led to income inequalities. It caused a huge amount of inflation ie, rise in prices of goods and services, damages caused to nature such as land degradation, deforestation, loss of bio-diversity. A huge amount of capital investment brought in huge machinery and this brought unemployment of people as most of the jobs started becoming automated. Globalization also brought about many new cultures in the work sector as well as amongst individuals. Spread of education improved the lifestyle of people. Globalization also brought about great inventions in trades, communication and interaction to a new different level and increased globalization.
LPG POLICY OF INDIA AND ITS EFFECTS – Magadh University