LPG Reforms of 1991 (New Economic Policy)
1 Quick Explanation 1–3 min
The 1991 New Economic Policy brought Liberalisation, Privatisation and Globalisation (LPG).
It ended the licence raj, opened the economy to private & foreign capital.
2 Detailed Notes
Key idea
Why reforms?
- BOP crisis 1991 — foreign exchange reserves fell to ~2 weeks of imports.
- High fiscal deficit and internal debt.
- Inefficiency of protected public/private sector — low growth and high inflation.
- Pressure to restructure (IMF/World Bank conditionalities).
Definition
Liberalisation
Removal of government controls over the economy — freeing industry, trade and finance from licences, quotas and price controls. Includes financial sector & tax reforms (simpler, wider GST later).
Definition
Privatisation
Transfer of ownership and/or management of public-sector enterprises to private hands — via disinvestment (selling equity), and opening reserved sectors to private firms.
Definition
Globalisation
Greater integration of the Indian economy with the world — through trade, capital flows, technology and financial linkages.
Comparison
Key 1991 policy steps
| Policy | Change |
|---|---|
| Industrial Policy 1991 | Licence raj abolished; only a few industries under licence |
| Trade | Import liberalisation, tariff cuts, export promotion |
| Financial | Banks' CRR/SLR eased, private banks allowed |
| Fiscal | Fiscal correction, disinvestment drive |
| Foreign investment | FDI/FPI doors opened, rupee devalued twice (July 1991) |
In One Minute
1991 NEP = Liberalisation (deregulation) + Privatisation (disinvestment, private entry) + Globalisation (open to world). Triggered by the 1991 BOP crisis.
Important for Exam
- ⭐ 1-mark: expand LPG.
- ⭐ 6-marks: liberalisation & its effects.
- ⭐ Reasons for 1991 reforms (3–4 marks).
- ⭐ Disinvestment & privatisation distinction.
- ⭐ 1991 BOP crisis background.
Watch & Learn
Watch on YouTubeEconomic Reforms since 1991 - One Shot - Chapter 3 - Best Explanation - Class 12
by Rajat Arora
Why watch? Every aspect with reasons and effects.
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by Rajat Arora
Why watch? Reasons and aftermath clearly organised.
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