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Economic Reforms in India

Indian economy is a rapidly growing economy if we consider its position for the last 4-5 years, but if we go back to the time when the country became independent, the story was totally different. In fact, due to economic reforms that took place in 1990- 1991, the state of the economy started changing in a positive direction. Especially 1991 as sometimes referred to as the backbone year of the Indian economy. At that time, the LPG model was adopted by India. Rather say, the model of Liberalization, Privatization, and Globalization was made effective. This meant that our country also linked its economy with that of the world with the least restrictions related to free trade. So, let us discuss these reforms.

Let's start from the beginning,

A crisis took place in 1991. The crisis of 1991 happened largely due to inefficient management of the economy of India in the 1980s. The revenues that the government was generating were not enough to meet the ever-increasing expenses. Thus, the government had to borrow to pay for the debts and thus was caught in a term called debt-trap. Debt-trap is the deficit that occurs due to an increase in government expenses in comparison to the government’s revenue. Due to the failure of earlier economic policies until 1990 there was a need for new economic policies. The situation was worsening as India had foreign reserves which could last only for the next two weeks. There was a shortage of new loans and Indian people living abroad (NRIs) were withdrawing money in large amounts.

As a result, the Indian government approached the World Bank and the International Monetary Fund for aid, to resolve this financial crisis. World Bank and IMF granted aid on the promise that India will be opening the economy for free trade amongst other countries. India accepted the terms and conditions and the result was the reforms of LPG.


Liberalization was brought up with the fact that any restrictions which became a hindrance to development and growth will be put to an end. Largely, these reforms made government regulations and policies lose. It allowed for the opening up of economic borders for foreign investment as well as multinationals. There were many economic reforms introduced under liberalization. These included expansions of production capacity, abolishing industrial licensing by the government, de-reserving producing areas, and freedom to import goods.


The privatization largely refers to giving more opportunities to the private sector, such that the role of the public sector is reduced. The main objectives of privatization are reducing the workload of the public sector, providing better goods and services to the end-users, improving the government’s financial condition, and many more. Privatization is a way to allow the entry of foreign direct investments and bringing healthy competition into the economy.


Globalization in simpler terms is to connect with the world. In this context, globalization means the integration of the economy of India with that of the world. Thus, it encourages private and foreign investment and also foreign trade. Globalization attempts to establish the links in such a way that the Indian happenings can be met by the world or vice versa.

We shall look at the two sides of these reforms-

The positive side:-

· During the reform period, the growth in service was increasing, while the agriculture sector saw a decline, and the industrial sector was fluctuating.

· The opening up of the Indian economy led to a sharp increase in the FDIs and foreign exchange reserves.

· This foreign investment includes foreign institutional investment and direct investment.

· India is one of the successful exporters of engineering goods, auto parts, IT software, textiles during the time of the reforms.

· The price rise during the reforms was also kept under control.

The negative one:-

· The agriculture sector was neglected and the public investment in this sector was reduced and hence the infrastructure areas were affected.

· The subsidies on the fertilizers were removed and hence it led to an increase in the cost of production which affected many marginal and small farmers.

· Further, many policies were introduced which reduce the import duties on agriculture products, reduce the minimum support price increased the threat of international organizations competing with th3 the local farmers.

· The industrial sector saw uneven growth.

· The imports were made cheaper as a result of which the demand for industrial goods reduced.

I am sure after reading the above content, you can relate the economic model of LPG with the economy. This model has proved fruitful for us. Some countries like Russia were against this model, which led to disastrous consequences in their country like high inflation, garage sales, etc. Hence, it can be said that this was the need of the hour. Trade-in this sense has allowed culture and traditions to move from one corner to the other. For example- when we celebrate Diwali or Holi, seasonal items like crackers, idols, colours, etc are also made outside India and then imported to India. In this way, it is a blend of soft power as well. These reforms led to modern India.

Do you think the government could have done something else? Or was it actually a consequence of the bad policy decision made and left us with no choice?

Leave your thoughts in the comment section below.

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