Liberalisation, Privatisation, Globalisation

For those reading this article, the snap of a finger is all it takes to call for a bottle of iced Coke, but 30 years ago, this was a distant dream even for the most affluent. With barely enough reserves to sustain imports for a week, a burgeoning balance of payments crisis, and the refusal of the central bank to allow credit, the Indian economy, under the care of Prime Minister P. V. Narasimha Rao and Finance Minister Manmohan Singh, went through the most significant transformation ever.

Liberalisation, privatisation, and globalisation created a monumental alteration in the state of our economy and the fact that Samsung, Tommy Hilfiger, and Pepsi are household names today is a testament to the success of the reforms of 1991. Much like other economic policies, liberalisation, privatisation and globalisation, or LPG as it is commonly known, received its fair share of criticism however, it paved the way for economic prosperity in India.

Perhaps the most crucial, contribution of LPG came in the form of the collapse of the ‘Licence Raj’. For over four decades, the economic landscape of India was governed by a complex bureaucracy, taxing red tapism and excessive industrial licencing. Although the intention behind such regulations was to enable the government to maintain a grasp over the economy of our nation, the desired result was not achieved and the iron fist stalled economic growth, caused high unemployment levels and led to extreme poverty across the country. However, with liberalisation came a reduction in the number of industries requiring licencing, a number which, today, is down to five. This vastly improved the flexibility of existing businesses and incentivised new businesses to be established thus generating employment and creating a self -reliance in the nation.

Privatisation, quite simply, was the transferring of public sector ownership to the private sector. Joint ventures or businesses which included elements of state-owned enterprise as well as private enterprise was established with the private sector ownership ranging anywhere from 25% to 50%. This resulted in higher efficiency levels driven by increased competition in the market and a long-term perspective on running businesses. Although many argue that joint ownership had adverse impacts on the economy as it led to a decrease in government revenue, the Indian GDP grew from $266 billion in 1991 to $1.2 trillion by 2007.

Globalisation proved to be the most instrumental reform in, quite literally, saving our economy, which was on the verge of collapse. A country that was once shrouded by protectionism was opened to the rest of the world. Custom duties and quotas were reduced which allowed goods to move freely across borders. Foreign investment, encouraged by the Indian government, increased from $132 million in 1991 to $5.3 billion within four years. In addition to goods, human resources became easy to share between countries and globalisation, as a policy, created an atmosphere of development in India. Although 30 years have passed since these reforms were first implemented, the year 1991 continues to be a defining moment in the economic history of our nation solely on account of these reforms. The free-market economy on which India prides itself would never have materialised and the prosperity which we enjoy today would have remained confined to our imaginations had it not been for the reforms of 1991.