Liberalisation, Privatisation and Globalisation (LPG) Model of Development

You must be aware that the LPG Model of development which was launched in 1991 by the then Finance Minister Dr Man Mohan Singh with a big bang was proposed to charter a new strategy with focus on Liberalisation, Privatisation and Globalisation (LPG). Various major changes at the domestic level were introduced.




1. Areas hitherto reserved for the public sector were opened to private sector. The Government proposed to transfer the loss-making units to the private sector, but it was unsuccessful because there were no takers for them. Rather, the Government initiated disinvestment of the highly profit-making PSUs and the openings were used to reduce fiscal deficits. Therefore, you need to understand that due to several social constraints the Government could not carry forward its programme of privatisation, though it did prosper in liberalising the economy to the private sector both domestic and foreign.

2. By allowing the private sector to set up industrial units without taking a licence, the Government removed certain shackles which were holding back or postponing the process of private investment.

3. By abolishing the threshold limit of assets with respect of MRTP companies and dominant undertakings, the Government freed the business houses to commence investment without any ceiling being prescribed by the MRTP Commission. Apparently, considerations of encouraging growth were more dominant with the Government and such issues as concentration of economic power were assigned a back seat.

4. With a perspective to facilitate direct foreign investment, the Government decided to grant approval for direct foreign investment up to 51% in high priority areas. The Government could also regard proposals involving more than 51 per cent equity, but such proposals would need prior clearance of the Government. No permission was needed for hiring foreign technicians, foreign testing of indigenously developed technologies, etc.

5. Chronically sick public sector enterprises were referred to the Board for Industrial and Financial Reconstruction (BIFR) for the formulation of revival/rehabilitation schemes. A social security mechanism was introduced to protect the interests of workers likely to be affected by such rehabilitation packages.

6. To enhance the performance of public sector enterprises, greater autonomy was given to PSU managements and the Boards of public sector companies were made more professional.

7. The economy was opened to other nations to motivate more exports. To support the import of foreign capital and technology and other allied imports, decrease in import duties and other obstructions were brought about.

You must understand that LPG Model of development focuses a bigger role for the private sector. It imagines a much larger quantum of foreign direct investment to enhance our growth process. It intends at a strategy of export resulted growth as against import substitution practised earlier. It intends at reducing the role of the State substantially and therefore, abandons planning fundamentalism in support of a more liberal and market driven pattern of development.

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