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Class Notes
Class: XII Topic: Appraisal of LPG policy
Subject: Economics
Arguments in favour of Economic reforms

1 A Vibrant Economy : Indian economy has definitely become a more vibrant economy.Overall
level of economic activity has trended up as indicated by GDP.
2 Stimulant to Industrial Production : LPG policies have worked as a great stimulant to industrial
production in the Indian economy. It is owing to these policies that IT industry in India has achieved
global recognition
3. Curb on Fiscal Deficit : Fiscal Deficit was as high as 8.5 per cent of GDP prior to 1991. Thanks to
the LPG policies, there has been a significant increase in government revenue. Consequently, fiscal
deficit has been contained to around 4 per cent of GDP.
4 A Check on Inflation: Owing to a greater flow of goods and services in the economy,tax reforms
and other reforms ,the LPG policies brought a check on the rate of inflation. It may be noted that high
inflation triggers a rise in interest rate, implying a rise in the cost of investment. Accordingly,
growth rate is adversely impacted.
5 A Substantial Increase in Foreign Exchange Reserves: Depletion of forex-reserves was one of
the compelling reasons for the government to shift to LPG policies. Thanks to these policies, Forex
reserves of the country have now reached a comfortable level. Good amount of forex reserves
enhances economic confidence of the global investors in the Indian markets.
6. Flow of Private Foreign Investment :The opening up of the economy has led to the rapid increase
in foreign direct investment.With the launch of ‘Make In India’ initiative in September 2014
FDI policy was further liberalized.
7. Increase in role of private sector: Abolition of licensing system and removal of restrictions on
entry of the private sector ,in areas earlier reserved for the public sector,have enlarged the area of
operations of the private sector.
8. Rise in exports: During the reform period,India experienced considerable increase in exports of
auto parts, engineering goods ,IT software and textiles.
Criticism of Economic reforms

1.Neglect of Agriculture : Growth of GDP has primarily been triggered by the growth of secondary
and tertiary sectors. Agricultural sector has suffered a serious neglect and its growth rate has depleted
to a miserably low level (2-3 per cent per annum). Accordingly, India is witnessing a widening gulf
between the rural and urban economies.
a) Public investment in agriculture sector especially in infrastructure, has fallen in the reform period
b) Removal of fertiliser subsidy has led to increase in the cost of production, which severely
affected the small and marginal farmers.
c) Reduction in import duties on agricultural products, removal of minimum support price and lifting
of quantitative restrictions on agricultural products have adversely affected Indian farmers as they
now have to face increased international competition.
d) There was a shift from production for the domestic market towards production for the export market
focusing on cash crops in lieu of production of food grains. This puts pressure on prices of food
grains.
2.Lopsided Growth Process: LPG has accelerated the growth process of the Indian economy
but it is lopsided. It is not an inclusive growth process. It is a growth process that does not
embrace all the sectors of the economy. Rather, it is a growth process which is increasingly
relying on ‘service sector’ of the economy.
3.Spread of Consumerism A variety of global brands in the market has lured the masses to become
Spendthrift, going beyond their means.
4. Ineffective disinvestment policy :Disinvestment policy of government was not successful
because firstly the assets of PSUs were under-valued and sold to the private sector.And secondly
proceeds from disinvestment were used to compensate shortage of government revenues rather than
using it for the development of the PSUs and building social infrastructure in the country.
5 Ineffective tax policy : The tax reductions in the reform period, aimed at yielding larger revenue
and curb tax evasion, have not resulted in increase in tax revenue for the government. Also, the reform
policies, involving tariff reduction, have curtailed the scope for raising revenue through custom
duties. In order to attract foreign investment, tax incentives were provided to foreign investors which
further reduced the scope for raising tax revenues. This has a negative impact on developmental and
welfare expenditures.
6.Low level of Industrial growth : This is because of decreasing demand of industrial products due
to various reasons such as cheaper imports, inadequate investment in infrastructure etc. A developing
country like India still does not have the access to developed countries’ markets because of high non-
tariff barriers.
7. Growing unemployment: Though the GDP growth rate has increased in the reform period,
scholars point out that the reform-led growth has not generated sufficient employment opportunities in
the country.
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Class Notes

Class: XII Topic: Appraisal of LPG policy

Arguments in favour of Economic reforms

Criticism of Economic reforms

Content prepared absolutely from home -PS

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