Economic Reforms since 1991

About this unit

In 1991 India faced a severe economic crisis and responded with a new set of policies: liberalisation, privatisation and globalisation (LPG). This unit explains why the crisis arose, what the main reforms were in industry, finance, taxation, foreign exchange and trade, and how the reforms affected different sectors. It also covers India's role in the World Trade Organisation and the debate on gains and costs of the reforms.

Key ideas

• The 1991 crisis: low foreign exchange reserves, rising prices and a large fiscal deficit.
• Stabilisation measures are short-term; structural reform measures are long-term.
• Liberalisation removed many controls, including most industrial licensing.
• Privatisation includes disinvestment of public sector shares.
• Globalisation integrates the economy with the world through trade, investment and outsourcing.
• The reforms raised growth, especially in services, but had uneven effects on agriculture, industry and employment.

How to prepare

Learn the features of each type of reform with one example each, the meaning of terms like disinvestment and outsourcing, and the arguments on both sides of the appraisal. Expect "identify the reform" and assertion–reason questions.