See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/299623274

Impact of LPG on Indian Economy

Article · December 2014

CITATIONS READS

0 80,089

1 author:

Sanket Ravan
CHHATRAPATI SHAHU INSTITUTE OF BUSINESS EDUCATION AND RESEARCH
4 PUBLICATIONS   0 CITATIONS   

SEE PROFILE

All content following this page was uploaded by Sanket Ravan on 05 April 2016.

The user has requested enhancement of the downloaded file.

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139

Impact of LPG on Indian Economy

Sanket V. Ravan
Assistant Professor,
Department of Commerce and Management, MBA Unit,
Shivaji University, Kolhapur.

Abstract
This paper studies the Impact of Liberalization, Privatization and Globalization on Indian economy.
The Economic Reforms that made by government by New Economic Policy in 1991made significant
impact on the Indian Economy. In terms of Increasing GDP, per capita Income, Increase in Foreign
Direct Investment etc. also covers some negative impact of LPG policy on Indian Economy like
Increase in Competition, growing personal disparities etc. So, This study is important to understand
impact of LPG on Indian Economy.
Key Words- Impact of LPG, Economic Reforms, Indian Economy.

Introduction
India opened up the economy in the early nineties following a major crisis that led by a foreign
exchange crunch that dragged the economy close to defaulting on loans.The country ran out of foreign
exchange reserves. To face the crisis situation, the government decided to bring about major economic
reforms to revive Indian economy. These reforms were popularly known as 'structural adjustments' or
'liberalization' or 'globalization’. The government announced a New Economic Policy on July 24,
1991.This new model of economic reforms is commonly known as the LPG or Liberalisation,
Privatisation and Globalisation model. Liberalisation refers to process of making policies less
constraining of economic activity and also reduction of tariff or removal of non-tariff barriers. The
term “Privatisation” refers to the transfer of ownership of property or business from a government to a
private owned entity.Globalisation refers to the expansion of economic activities across political
boundaries of nation states. More importantly perhaps it refers economic interdependence between
countries in the world economy. Prime Minister of the country, P V NarasimhaRao initiated ground
breaking economic reforms.Dr.Manmohan Singh was the Finance Minister at that time he assisted
NarasimhaRao and played a key role in implementing these reform policies.The reforms did away with
the License Raj, reduced tariffs and interest rates and ended many public monopolies, allowing

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 21

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139
automatic approval of foreign direct investment in many sectors.The primary objective of this model
was to make the economy of India the fastest developing economy in the globe with capabilities that
help it match up with the biggest economies of the world.

Literature Review

Mukeshkumar(2014) in their paper entitled “ Impact of Economic reforms on India”made study with
objective to find out the impact of Globalization on India and also study Performance of the corporate
sector after 1991. Finding shows that during the 11-year period 1995-2006 India’s merchandise
exports increased at the rate of 13.3 percent per annum and corporate sectors growth rate in sales and
net profits is increased.

Dr.Thakur B., Sharma V K., Som Raj (2012) in their paper entitled“Had Economic Reforms had an
Impact on India’s Industrial Sector?” threw the light on impact of Economic reforms on Industrial
sector. Findings shows that Economic reforms had started showing positive impact on current Indian
industrial performance in the last few years in terms of increase in level of productivity and
reasonable rate of growth of industrial sector because of Liberalisation.

VaghelaDhariniIshvarsinh (2014) in their paper entitled “New Economic Policies: Liberalization,

Privatization, Globalization ” made study on new economic policy of India under this descriptive
study made on basis of secondary data he had given conceptual study of Liberalization, Privatization
and Globalization concepts and advantages and disadvantages of those concepts.

DR.Meenu (2013) in their paper entitled “Impact of Globalisation and Liberalisation on Indian
Administration” study was made with objective to analyse the impact of globalisation and
liberalisation on different aspects of Indian administration and changes introduced at different levels in
Indian administration due to globalisation and liberalisation

In this paper researcher has attempted to analyse the impact of LPG on Indian Economy on various
elements like GDP, Per capita Income, Employment, Foreign Direct Investment etc.

Objectives of the Study..

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 22

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139
1) To understand the impact of LPG policy on Indian Economy.

2) To know the negative effect of LPG policy on Indian Economy after 1991.

Research Methodology

For the completion of research paper has used Descriptive research method.

Data collection:

In this study the data has been collected from secondary sources.

Secondary Data:

Secondary data collected from the Books, Internet, magazines, Journals and different types of research
papers etc.

Limitations of the Study

The study was conducted through secondary data sources only.

Economic reforms- In 1991 after India faced a balance of payments crisis, it had to pledge 20 tons of
gold to Union Bank of Switzerland and 47 tons to Bank of England as part of a bailout deal with the
International monetary fund. In addition the IMF required India to undertake a series of structural
economic reforms so.Government had decided to bring about major economic reforms to revive Indian
economy. These reforms were popularly known as 'structural adjustments' or 'liberalization',
Privatization and 'globalization'

New Economic Policy 1991

The government announced a New Economic Policy on July 24, 1991.This new model of economic
reforms is commonly known as the LPG or Liberalisation, Privatisation and Globalisation
model.Prime Minister of the country, P V NarasimhaRao initiated economic reforms with the help of
Dr Manmohan Singh. The reforms did away with the License Raj, reduced tariffs and interest rates and

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 23

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139
ended many public monopolies, allowing automatic approval of foreign direct investment in many
sectors.

What is LPG?

Liberalization- Liberalisation refers to process of making policies less constraining of economic

activity and also reduction of tariff or removal of non-tariff barriers.
Privatization- The term “Privatisation” refers to the transfer of ownership of property or business
from a government to a private owned entity.
Globalization- Globalisation refers to the expansion of economic activities across political boundaries
of nation states. More importantly perhaps it refers economic interdependence between countries in the
world economy.
The major objective of the new policy-
1. Utilizing fully the indigenous capabilities of entrepreneurs.
2. Fostering research and development efforts for the development of indigenous technologies.
3. Raising investments.
4. Removing regulator system and other weaknesses.
5. Improvement in efficiency and productivity.
6. Controlling monopolistic power.
7. Assigning the right areas for the public sector undertakings.
8. Ensuring welfare as also skills and facilities to the workers to enable them to face new technologies.
9. Retaining the capacity to earn our own foreign exchange through exports.
10. To achieve self-reliance.
Highlights of the LPG Policy-

Following are salient highlights of the Liberalisation, Privatisation and Globalisation Policy in India:

 Abolition of Industrial licensing / Permit Raj

 Public sector role diluted
 MRTP limit goes
 Beginning of privatisation
 Freer entry to foreign investment and technology
 Industrial location policy liberalized

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 24

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139
 Abolition of phased manufacturing programmes for new projects
 Removal of mandatory convertibility cause
 Specific changes include the reduction in import tariffs
 Deregulation of markets
 Reduction of taxes

Positive Impact of LPG on Indian Economy-

1) Increase in GDP growth rate
India’s GDP growth rate is increased. During 1990-91 India’s GDP growth rate was only 1.1% but
after 1991 reforms due LPG policy India’s GDP growth rate is increased year by year and in 2015
it was recorded 7.26 and in 2015-16 it is estimated to be 7.5% by IMF.Because of the Abolition of
Industrial licensing, privatisation, advanced foreign technology and Reduction of taxes India’s
GDP is increased after 1991 reforms.

Source-http://statisticstimes.com/economy/gdp-of-india.php

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 25

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139

Source-http://statisticstimes.com/economy/gdp-of-india.php

2) Increase in Foreign Direct Investment (FDI)-

India has already marked its presence as one of the fastest growing economies of the world. It has
been ranked among the top 3 attractive destinations for inbound investments. Since 1991, the
regulatory environment in terms of foreign investment has been consistently eased to make it
investor-friendly.India has also firmly established itself as a lucrative foreign investment
destination, with foreign capital inflows of over US$ 31 billion in 2015 - surpassing the US and
China. India has allowed 100% FDI in medical services, Telecom sector, and single brand retail
etc.FDI cap increased in insurance & sub-activities from 26% to 49% and also in Private Sector
Banking- Except branches or wholly owned subsidiaries (74%) FDI is allowed and in Public sector
banking 20% FDI is allowed under Make In India scheme. In 1991FDI inflow was 408crores only
but after India has made those reforms of Globalization and Privatization and free entry policy as a
result FDI inflow in India was 106,693 Croresin 2015.

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 26

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139

Source-Dr.MagalmaniS.“Foreign Direct Investment and Indian Economy” Slideshare P- 13

Table No.1 DIPP’s Financial year wise FDI Equity Inflows:

Sr. Financial Year Amount of FDI Inflow (Rs.Crores)

No.
1 2000-2001 10733

2 2001-02 18654

3 2002-03 12871

4 2003-04 10064

5 2004-05 14653

6 2005-06 24584

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 27

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139
7 2006-07 56390

8 2007-08 98642

9 2008-09 142829

10 2009-10 123120

11 2010-11 97320

12 2011-12 165146

13 2012-13 121907

14 2013-14 147518

15 2014-15 189107

16 2015-16 106693

Total 13,40,231
Source-http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx
3) Increase in per capita income-

Per capita income or average income measures the average income earned per person in a given
area (city, region, country, etc.). It is calculated by dividing the area's total income by its total
population.

In 1991 India’s Per capita Income was Rs. 11235 but in 2014-15 Per Capita Income is reached to Rs.
85533. Per Capita income is increased due to Increase in Employment, due to new economy policy of
globalization and privatization many job opportunities are created so, people’s income was increased.

Year Per Capita Income

1991 Rs.11535

2011-12 Rs.64,316

2012-13 Rs.71,593

2013-14 Rs. 80,388

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 28

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139
2014-15 Rs. 88,533

Source-Abhishek Joshi(2014) The 10 years of UPA government (India) (2004-14), SlideShare PP -56

4) Unemployment rate is reduced-

In 1991 unemployment rate was 4.3% but after India adopted new LPG policy more employment is
generated because of globalisation many new foreign companies came in India and due to
liberalisation many new entrepreneurs have started new companies because of a abolition of
Industrial licensing / Permit Raj so, employment is generated, and due to which India’s
unemployment rate is reduced from 4.3% in 1991 to 3.6% in 2014.

Country 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 29

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139
India 4.3 4.2 4.3 3.7 4.0 4.0 4.2 4.1 4.4 4.3 4.0 4.3 3.9 3.9 4.4

Country 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

India 4.3 3.7 4.1 3.9 3.5 3.5 3.6 3.6 3.6

Source : World Development Indicators, World Bank

5) Privatization has resulted into reduction of the government's financial and administrative
burden.

Limitations of LPG policy-

1) Low Growth of Agriculture Sector-

Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role
not only in Providing food and nutrition to the people, but also in the supply of raw material to
industries and to export trade. In 1991, agriculture provided employment to 72 per cent of the
population and contributed 29.02per cent of the gross domestic product. However, in 2014 the
share of agriculture in the GDP went down drastically to17.9 per cent. This has resulted in a
lowering the per capita incomeof the farmers and increasing the rural indebtedness.

GDP compositions in 2014 are as follows: Agriculture (17.9%), Industry (24.2%) and Services
(57.9%).

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 30

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139

Source-http://statisticstimes.com/economy/sectorwise-gdp-contribution-of-india.php

2) Threat from foreign competition-

Due to opening up of the Indian economy to foreign competition through Liberalization and FDI
policy more MNC’s are attracted towards India after 1991 reforms and they are competing local
businesses and companies. Since, these MNC’s have lot of financial capacity or those are big
organizations with advanced foreign technology so, they have large production capacity and huge
money for promotion and other research activities they are easily defeating our Indian local
companies. And they had acquired many Indian companies as well. Because of financial
constraints, lack of advanced technology and production inefficiencies our Indian companies are
facing problem in this globalization period.

3) Adverse Impact on Environment-

Globalization has also contributed to the destruction of the environment through pollution and
clearing ofvegetation cover. With the construction of companies, the emissions from
manufacturing plants are causing environmental pollution which further affects the health of many
peoples. The construction also destroysthe vegetation cover which is important in the very
survival of both humans and other animals.

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 31

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139

4) Increase in Income disparity-

Globalization leads to widening income gaps within the country. Globalization benefits onlyto
those who have the skills and the technology in the country. The higher growth rate achieved by
an economy can be atthe expense of declining incomes of people who may be rendered
redundant.Globalization has widened the gap between the rich and poor, rises inequalities.

Conclusion

Economic reforms have an important impact on Indian economy. There are many changes in Indian
economy, after adaptation of the policy of LPG i.e. Liberalisation, Privatisation and Globalisation in
1991. Because of these reforms many good thing are happen like increase in the India’s GDP growth
rate, Foreign direct Investment and Per Capita Income. Policy has facilitated the flow of foreign
capital, technology and managerial expertise thereby improvingefficiency of industry. Also,
unemployment rate is reduced. Though there are certain negative impacts are also there like low
growth of agriculture sector, adverse impact on environment etc. Lastly we can say that development
in India is takes place because of implementation of this policy.

References

1. Mukesh kumar(2014), “ Impact of Economic reforms on India” IJIFR Volume1 Issue-7.

2. Vaghela Dharini Ishvarsinh (2014), “New Economic Policies: Liberalization, Privatization,

Globalization” Journal of Social Sciences Year-2, Issue-5
3. Dr. Babita Thakur, Vinod Kumar Sharma, Som Raj(2012), “ Had Economic Reforms had an
Impact on India’s Industrial Sector?” IOSR Journal Of Humanities And Social Science (JHSS)
,Volume 4, Issue 2,PP 01-07.
4. Dr.Meenu (2013), “Impact Of Globalisation And Liberalisation On Indian Administration”
International Journal of Marketing, Financial Services & Management Research,Vol.2, No. 9, PP
120-125.
5. Puri.V.K., Misra S.K. “Economic Environment of Business”,2013 Edition ,Himalaya Publishing
House.
6. http://statisticstimes.com

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 32

 Prime International Research Journal
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349-2139
7. http://data.worldbank.org
8. http://dipp.nic.in
9. www.iasscore.in
10. http://www.yourarticlelibrary.com/economics/what-are-the-economic-reforms-in-india-since-
1991/897/

Prime International Research Journal, Vol. I, Issue 4, December, 2014 Page 33

View publication stats