Liberalization, Privatization, Globalization (LPG Model) in India

LPG Model in India

After Independent in 1947 Indian government had a main problem to develop economy and to solve this issue it followed LPG Model. The Growth Economics conditions of India in that time were not very good, because we did not have proper resources for the development, not in terms of natural resources but in terms of financial and industrial development. At that time India need the path of economics planning and for that we adopt ‘Five Year Plan’ concept of which we take from Russia and feel that it will provide as fast development like Russia, under the view of the socialistic pattern society. And India had practiced a number of restrictions ever since the introduction of the first industrial policy resolution in 1948.

Liberalization:

As we know that those period were known as License Raj. As a result of the restriction in the past, India’s performance in the global market has been very dismal; we have never reached even the 1% in the global market. We have vast natural resources with high-efficiency labor, but after all this we were still contributing with 0.53% till 1992. There were many problems in liberalization, but before that the definition of liberalization: It is defined as making economics free to enter in the market and establish their venture in the country.

IMPACT BEFORE LIBERLISATION

  • The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% from 1950s to 1980s, while per capita income averaged 1.3%. At the same time, Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in Taiwan by 12%.
  • Only four or five licenses would be given for steel, power and communications. License owners built up huge powerful empires
  • A huge public sector emerged. State-owned enterprises made large losses.
  • Infrastructure investment was poor because of the public sector monopoly.
  • License Raj established the “irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country” and corruption flourished under this system

After liberalization India is in second world of development and become the 7 largest economies which contributed 1.3 trillion in the world’s GDP. Dr. Manmohan Singh our former finance minister open the way of free economy in our country which leads to the great development of our country.

PRIVATIZATION

Privatization is defined as when the control of economic is sifted from public to a private hand then the situation is known as privatization. India is leading towards privatization from government raj. As a result it leads in the development of country 500 faster than previous. Now India is in the situation of world fastest developing economy and may be chance that India will be at top till 2050.

GLOBALIZATION

Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade. The term is sometimes used to refer specifically to economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. However, globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors.

LPG Model of Development.

(a) This has a very narrow focus since it largely concentrates on the corporate sector which accounts for only 10 percent of GDP.

(b) The model bypasses agriculture and agro based industries which are a major source of generation of employment for the masses. It did not delineate a concrete policy to develop infrastructure. Financial and technological support, particularly the infrastructural needs of agro-exports.

(c) By permitting free entry of the multinational corporations in the consumer goods sector, the model has hit the interests of the small and medium sector engaged in the production of consumer goods. There is danger of labor displacement in the small sector if unbridled entry of MNCs is continued.

(d) By facilitating imports, the Government has opened the import window too wide and consequently, the benefits of rising exports are more than offset by much greater rise in imports leading to a larger trade gap.

(e) Finally the model emphasizes a capital-intensive pattern of development and there are serious apprehensions about its employment-potential. It is being made out that it may cause unemployment in the short run but will take care

LPG Model in India

liberalization, Privatization and Globalization” (LPG Model) approach followed by Government of India

For an understanding of liberalisation, privatisation and globalisation or LPG Model in the Indian context, it is important to detail out the eighth five-year plan, since it was the inception of a host of major policies that were instrumental in allowing India to unshackled its economy and engage in global trade and commerce.

Pre liberalisation period

The annual growth rate of the economy of India before 1980 was low.It stagnated around 3.5% from 1950s to 1980s, while per capita income averaged 1.3%. Only four or five licences would be given for steel, electrical power and communications. License owners built up huge powerful empires. A huge public sector emerged. State-owned enterprises made large losses. Income Tax Department and Customs Department manned by IAS officers became efficient in checking tax evasion. Infrastructure investment was poor because of the public sector monopoly.  Licence Raj established the “irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country” and corruption flourished under this system.

Context

The Eighth Five Year Plan (1992-1997) was formulated after a period of political instability which gripped the country for two years after the completion of the Seventh Five Year Plan. In 1991, the country faced a major foreign exchange crisis which made the economic position of the country very vulnerable. As a result of this instability in the country, there were two Annual Plans for 1992 and 1993. The eighth five-year plan is Measures such as privatisation and liberalisation which were to have a far-reaching impact later were introduced during the Eighth Five Year Plan. India also became a member of the World Trade Organisation (WTO) during this Plan period.

Growth

Eighth five-year plan

The main aim of the Eighth Five Year Plan was –

  • To modernise the industrial sector through modern technology.
  • Opening up of the Indian economy to counter the foreign debt burden which was a major threat for the country.
  • Taking major initiatives to increase the rate of employment and reduce poverty.

During this plan focus was on implementing plans and policies which would help in attaining objectives like modernisation of the industrial sector, increase the rate of employment in the country, reduce poverty and improve self-reliance on domestic resources. In addition, the Eighth Five Year Plan also focused on human resource development based on the reasoning that healthy and educated people could contribute more effectively to economic growth. Most important, the Eighth Five Year Plan marked the beginning of privatisation and liberalisation of the economy in the country.

Plan performance

  • The target growth for the Eighth Five Year Plan was taken as 5.6 per cent but by the end of the Plan, they achieved an actual growth rate of 6.78 per cent, higher than that of the target.
  • Increase in the rate of employment.
  • Reduction in the poverty rate.
  • The Gross Domestic Product (GDP) rate increased from 5.7 per cent to 6.5 per cent.
  • The inflation rate rose from 6.7 per cent to 8.7 per cent.
  • The rate of growth in the agriculture sector increased from 3 per cent to 4.8 per cent

Post liberalisation

The economic reforms lead to certain amount of stability in the economy and high growth rate. In the ninth five-year plan it was envisaged to have balanced development and for that focus was on speedy industrialization, human development, full-scale employment, poverty reduction, and self-reliance on domestic resources.

The main objectives directly related to liberalisation and privatisation as a continuation of the previous plan period were

  • to generate adequate employment opportunities and promote poverty reduction
  • to stabilize the prices in order to accelerate the growth rate of the economy
  • to create a liberal market for increase in private investments

Other objectives served the purpose of human development. They were

  • To ensure food and nutritional security.
  • to provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy
  • to check the growing population increase
  • to encourage social issues like women empowerment, conservation of certain benefits for the Special Groups of the society

Conclusion

The fruits of liberalisation reached their peak in 2007, when India recorded its highest GDP growth rate of 9%.With this, India became the second fastest growing major economy in the world, next only to China. There has been significant debate, however, around liberalization as an inclusive economic growth strategy. Since 1992, income inequality has deepened in India with consumption among the poorest staying stable while the wealthiest generate consumption growth.

For 2010, India was ranked 124th among 179 countries in Index of Economic Freedom World Rankings. Hence one hand we have high economic development, infrastructure development and urbanisation and on the other hand we have a widening cleft between the rich and poor and class divide continues to plague the country. Social and human development still remains absurdly low leading to a deeply fragmented country

Read about: Critique on Planning & development in India, Informal Sector in India