LPG.pdf - Liberalization Privatization Globalization LPG...

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LiberalizationPrivatizationGlobalization
LPGThe economy of India had undergonesignificant policy shifts in the beginning ofthe 1990s. This new model of economicreforms is commonly known as the LPG orLiberalization, Privatization andGlobalization model.
Reasons for implementing LPGLarge and growing fiscal imbalances.(Gross fiscaldeficit rose to 12.1% of GDP in 1991)Growing inefficiency in the use of resources.Low foreign exchange reserves.($1.2 billion inJanuary 1991)High inflation rate.(13.87% in year 1990-91)The low annual growth rate of Indian economystagnated around 3.5% from 1950s to 1980s,while per capita income averaged 1.3%.
LiberalizationLiberalization refers to relaxation of governmentrestrictions in areas of economic policies. Thus,when government liberalizes trade it means it hasremoved the tariff, subsidies and other restrictionson the flow of goods and service between countries.
LiberalizationThe fruits of liberalisation reached their peak in2007, when India recorded its highest GDP growthrate of 9%. With this, India became the secondfastest growing major economy in the world, nextonly to China. The growth rate has slowedsignificantly in the first half of 2012. An OECDreport states that the average growth rate 7.5% willdouble in a decade, and more reforms would speedup the pace.
5PrivatisationIt refers to the transfer of assets or servicefunctions from public to private ownership orcontrol and the opening of the closed areas toprivate sector entry. Privatisation can beachieved in many ways-franchising, leasing, contracting, etc. Capitalmarkets should be sufficiently developed to beable to absorb the disinvested public sectorshares.
AdvantagesPrivatisation may help in reviving sick unitswhich have become a liability on the govt.It helps the profit making public sector units tomodernize and diversify their business.It helps in making public sector units morecompetitive. Without government financialbacking, capital market and internationalmarket forces public sector to be efficient.

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