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What do you understand from Liberalization, Privatisation and Globalization (LPG)? Examine the effects of LPG reforms on different sectors of the Indian economy.

Approach:

• Introduce the answer by explaining the LPG reforms.
• In the body of the answer, discuss in detail its effect on specific sectors of the economy.
• In the next part of the body, discuss the general impacts of LPG reforms.
• Conclude the answer by emphasizing the need for bringing equity and sustainability in the reform process.

LPG reforms of 1991 refer to overhaul of Indian economic structure, that reflected a shift towards greater private participation, and a deeper integration with the world economy.

Liberalisation, Privatisation and Globalisation can be understood as:

Liberalisation: opening of various sectors of the economy by easing government rules, restrictions and laws aimed at regulating economic activities.

Privatisation: process of transferring government owned enterprise to private sector, the transfer of ownership from a publicly owned company to a privately owned company.

Globalisation: opening of the economy for world market, increasing economic integration with the world economy.

The LPG reforms have had considerable impact on various sector of the economy, as can be seen from:

Agricultural sector:

• The private investments in farm/agricultural activities failed to match the investments in services or even manufacturing sector.
• The trend of casualisation (erratic, disguised unemployment) and low productivity in agriculture continued.
• The primary sector bore the brunt of negative externalities associated with LPG reforms. E.g., impacts of climate change etc., have affected agricultural productivity.
• Migration from rural to urban areas have had the effect of feminization of the primary sector.
  Manufacturing/industries sector:
• While pockets of industrial hubs have developed, regional balanced development remained elusive. E.g., Eastern India, hilly states, central India etc., regions saw limited growth.
• The jobless growth in the secondary sector failed to provide employment to the rising workforce of the country; it also led to disguised unemployment in the primary sector.
• Coupling of India’s economy with the world economy made the manufacturing more vulnerable to global headwinds. E.g., Asian financial crisis, 1997, negatively affected the growth of Indian industries
• As the value of land sored due to private investments for industrial activities, land grabbing/acquisition from gullible farmers resulted into what is termed as predatory growth. E.g., acquisition of huge lands with little or no industrial output.Services sector:
• There was an increase of both Foreign Direct Investments (FDIs) and Foreign Portfolio Investments (FPIs) in the services sector.
• Services sector became more competitive and visible. It saw the dawn of consumerism culture in the country. E.g., rise of theatres, restaurants, spas, saloons etc.
• The growth in the banking sector made financial services more accessible and affordable to the millions of Indians.
• Services sector saw rapid growth in metropolitan/tier1 cities, giving rise to services agglomerations. E.g., Gurgaon, Bangalore, Chennai etc.

Apart from these sector wise impacts, LPG reforms had certain secular effects on the economy as a whole, such as:

• The economy witnessed a stable economic growth. E.g., between 1992-2017 GDP growth averaged 7%.
• Between 2004-2012, approximately 140 million people were lifted out from poverty, enhancing domestic demand.
• Foreign exchange reserves have seen a healthy growth, thus, averting a BOP crisis.
• Distribution of economic dividends have been uneven, deepening inequalities. E.g., GINI coefficient went from 0.45 in 1990s to greater than 0.5 in recent times.
• Considerable drop in participation of women in the economic activities/quality jobs. E.g., FLFPR fell from 35.5% in 1990 to 20.5% in 2022.

Though the economic reforms have undoubtedly brought prosperity in the country, there is a need to bring equity and sustainability in India’s growth model. Also, there is a need to check excessive trends of hyper nationalism leading to de-globalisation.