LPG Reforms

Notes

LPG stands for Liberalisation, Privatisation and Globalisation, the package of economic reforms launched in July 1991 after the balance-of-payments crisis (Prime Minister P.V. Narasimha Rao, Finance Minister Manmohan Singh). They replaced the earlier licence-permit raj and were influenced by IMF and World Bank structural adjustment conditions.

Pillar	Main measures
Liberalisation	Industrial licensing abolished for all but a few industries (now about five: alcohol, tobacco, defence aerospace, industrial explosives, hazardous chemicals); MRTP Act limits removed (replaced by the Competition Act, 2002); industries reserved for the public sector cut from 17 to 8 and later to 2 (atomic energy and railways); peak customs duty cut from over 300% to about 150% in 1992 and below 50% by the mid-1990s; financial sector reform (Narasimham Committee 1991: lower CRR/SLR, interest deregulation, private banks); tax reform (Chelliah Committee); SEBI made statutory (1992); telecom, insurance (IRDA Act 1999) and aviation opened up
Privatisation	Disinvestment of PSUs began in 1991-92; Disinvestment Commission (1996); autonomy for PSUs (Navratna and Maharatna status); later strategic sales (e.g., BALCO 2001, VSNL 2002, Air India 2021)
Globalisation	Rupee devalued (July 1991), LERMS (1992), market-determined rate (1993), current account convertibility (1994); FDI automatic approval (51% in 34 priority industries); FERA (1973) replaced by FEMA (1999); import licensing abolished; WTO membership (1995)

Impact

Growth accelerated from about 3.5% (the "Hindu rate of growth") to 6-7% and above; an IT and services boom; higher forex reserves, FDI and exports; reduced poverty; growth of a larger middle class.
Criticisms: jobless growth; widening inequality and regional disparities; neglect of agriculture and farm distress; a decline in the public sector's role in some areas; exposure to external shocks.

Second-generation reforms: the FRBM Act (2003), GST (2017), IBC (2016), labour and land reform debates, power sector, and the reform of subsidies.

Key Points

LPG launched in July 1991 by Narasimha Rao and Manmohan Singh.
Licensing abolished; public sector reservation cut; MRTP replaced by the Competition Act.
Globalisation: devaluation, convertibility on current account (1994), FEMA (1999), WTO (1995).
Privatisation began with disinvestment.
Impact: high growth, services boom; but jobless growth and inequality.

MCQs

Q2. The MRTP Act was replaced by the: (a) FEMA (b) Competition Act, 2002 (c) SEBI Act (d) IBC Ans: (b).