The year 1991 changed India’s destiny. Faced with a severe economic crisis, India adopted the New Economic Policy (NEP), famously known as LPG (Liberalisation, Privatisation, Globalisation).
Impact of LPG Policies
For Class 12 students, the “Impact of LPG” is a favorite topic for 6-mark questions in the Indian Economic Development section. You must be able to debate both sides.
Positive Impact of LPG (The Good News)
Impact of LPG Policies
1. Increase in GDP Growth Rate
Before 1991, India was stuck in the “Hindu Rate of Growth” (around 3.5%). After reforms, the GDP growth shot up to nearly 8% per annum, making India one of the fastest-growing economies.
2. Rise in Foreign Investment (FDI/FII)
Opening the doors to foreign companies meant massive inflows of dollars. Foreign Direct Investment (FDI) brought technology and jobs (e.g., MNCs like Samsung and Hyundai setting up factories).
3. Control Over Inflation
In 1991, inflation was nearly 17%. The reforms increased the supply of goods, which brought prices down and stabilized the economy.
Negative Impact of LPG (The Bad News)
Impact of LPG Policies
1. Neglect of Agriculture
This is the biggest criticism. The reforms focused heavily on Industry and Service sectors. Agriculture, which employed 60% of India, saw a decline in public investment (irrigation/roads), leading to agrarian distress.
2. Urban Concentration of Growth
Growth was limited to metro cities (IT hubs like Bangalore/Hyderabad). Rural India did not see the same level of development, increasing the gap between the rich and the poor.
3. “Jobless Growth”
While GDP increased, employment didn’t increase at the same speed. The service sector grew (which needs skilled labor), but the manufacturing sector (which absorbs unskilled labor) lagged behind.
Summary for Board Exam
If asked to “Critically Appraise” the reforms:
- Introduction: Mention the Crisis of 1991.
- Body: Write 3 Positive points (Growth, Forex Reserves) and 2 Negative points (Agriculture neglect, Jobless growth).
- Conclusion: Conclude that while LPG saved India from bankruptcy, it needs to be more inclusive for the poor.
