Introduction

Since 1991, Government of India has introduced diverse economic reforms to pull the country out of economic crisis and to accelerate the rate of growth. These reforms hinge upon: (i) The policy of liberalisation (L) in place of Licensing (L) for the industries and trade. (ii) The policy of privatisation (P) in place of quotas (Q) for the industrialists. (iii) The policy of globalisation (G) in place of Permits (P) for exports and imports. These reforms are often described as the New Economic Policy or the policy of LPG in place of the policy of LQP.

1. Need for Economic Reforms

Launching its First Five Year Plan (April 1, 1951), India had commenced upon its journey to economic development on the path of socialistic pattern of society and mixed economy. By far, India has completed ten five-year plans and five one-year plans. There is no denying the fact that in these five decades, Indian economy has achieved many successes but the number of failures is by no means small. During the period of planning public sector was given the utmost importance. Private sector was largely kept under government control. Trade and industry were subjected to many restrictions. Bureaucratic delays and red tapism have been the normal features of work culture. The cumulative effect of all these factors was that in the end of June 1991, our country was faced with an unprecedented economic crisis, Reserves of foreign exchange were merely enough to pay for two weeks imports. New loans were not available. Large amounts were being withdrawn from the account of non-resident Indians (NRIs). Faith of international community in Indian economy was shaken. Industrial progress was very slow and prices were touching the sky. In order to pull the economy out of economic crisis and to put it o the path to rapid and steady economic growth, it was most essential to correct financial disequilibrium, check rising prices, correct adverse balance of payments and replenish foreign exchange reserves. To achieve all these objectives, introduction of economic reforms or an appropriate economic policy was considered inevitable. Need for economic reforms or the new economic policy was felt mainly because of the following reasons:

(i)

Increase in Fiscal Deficit

Prior to 1991, fiscal deficit of the government had been mounting year after year on account of continuous increase in its non-development expenditure. Fiscal deficit means difference between the total expenditure and total receipts minus loans. It is equivalent to total expenditure and total receipts minus loans. It is equivalent to total borrowings by the government. In 1981-82, it was 5.4 per cent of gross domestic product. In 199091, it rose to 8.4 per cent of GDP. With a view to meeting fiscal deficit, the government was obliged to borrow and pay interest thereon. Thus, due to persistent rise in fiscal deficit there was corresponding rise in public debt and interest payment liability. In 1980;81, interest payment on public debt amounted to 19 per cent of total government expenditure. In 1991, amount of interest liability rose further to 36.4 per cent of total

government expenditure. There was serious apprehension that the government was fast moving towards debt trap. Faith of international financial institutions like World Bank, etc., in the fiscal state of the government had been shaken. It, therefore, became inevitable for the government to substantially reduce its non developmental expenditure so as to bring down fiscal deficit.

(ii) Mounting Adverse Balance of Payments (BOP)

Balance of payments is the difference between total exports and total imports of a country. When total imports exceed total exports, the balance of payment becomes adverse. Our country needs foreign exchange to pay for the import of goods and services . The required foreign exchange is earned by exporting goods and services. Another source of foreign exchange is the remittances by Non-resident Indians (NRIs). When receipts of foreign exchange fall short of their payments or when the value of total imports is greater than the value of total exports, the problem of adverse balance of payments arises. Although government granted diverse kinds of incentives and concessions to the exporters under export promotion programme, the export did not rise to the desired extent. It was mainly due to the fact that in international market our exports could not compete in price and quality. All this was the direct result of the policy of protection so liberally pursued by the government and for so long. As against slow growth of exports there was rapid increase in imports. As a result, balance of payment deficit increased tremendously. Deficit of balance of payments had been rising continuously since 198081. For instance, in 1980-81, balance of payments on current account was adverse to the tune of Rs. 2,214 crore and it rose in 1990-91 to Rs. 17,367/- . To meet this deficit large amount of foreign loans had to be obtained. Thus, foreign loans that amounted in 198081 to 23 per cent of gross domestic product. Accordingly, the burden of foreign debt service, i.e., repayment of loan instalments and payment of interest increased tremendously. In 1980-81, foreign debt service constituted 15% of our export earning while in 1990-91 it rose to 30 per cent. All this led to Further deterioration of balance of payments position.

(iii) Gulf Crisis

On account of Iraq war in 1990-91, prices of petrol shot up, India used to receive huge amount of remittance s from gulf countries in foreign exchange; all that stopped totally. Gulf crisis thus further accentuated the already adverse balance of payments position.

(iv)

Fall in Foreign Exchange Reserves

In 1990-91 Indias foreign exchange reserves fell to such a low level that the same were not enough to pay for an import bill for even 10 days. Foreign exchange reserves that were Rs. 8,151 crore in 1986-87, declined sharply to Rs. 6,252 crore in 1989-90. the situation grew so acute that Chandrashekhar government had to mortgage countrys gold to discharge its foreign debt servicing obligation. In such a predicament

government felt compelled to adopt the policy of liberalisation as proposed by international financial institutions, in order to secure loans from them.

(v)

Rise in Prices
In India prices continued to rise rapidly. Average annual rate of inflation increased from 6.7 per cent to 16.7 per cent. Prior to 1991, despite good monsoon for three consecutive years, prices of food grains rose substantially. Because of increasing pressure of inflation, countrys economic position deteriorated further. Min reason for inflation or annual rate of increase in prices was rapid increase in the supply of money. This, in turn, was due to excessive resort to deficit financing. Deficit financing refers to borrowing from Reserve Bank of India by the government to meet its deficit. Reserve Bank offered this loan by printing new currency notes. Cost of production goes up due to high rate of inflation. It adversely affects domestic and foreign demand for our products.

(vi)

Poor Performance of Public Sector Undertakings (PSUs)

In 1951 there were just 5 enterprises in public sector in India but in March 2006 their number rose to 239. Several thousand crores of public funds were invested therein. In the initial 15 years, their functioning was quite satisfactory but thereafter most of these suffered losses. Because of their poor performance, public sector undertakings degenerated into a liability. On account of these factors, it became inevitable for the government to adopt new Economic Policy or initiate Reform Policies. Our government was left with no options but to approach World Bank and IMF (International Monetary Fund) for economic asylum. To manage the crises, India was granted an loan of $7 billion, but it was a tied loan tied to set of reform policies. Liberalisation, Privatisation and Globalisation were the three basic elements of the new reform policy.

2. Elements of NEP (New Economic Policy)

Liberalisation, privatisation and globalisation are the three main elements of NEP. Three Main Elements of NEP

Liberalisation Privatisation Globalisation

Liberalisation

Liberalisation of the economy means its freedom from direct or physical controls imposed by the government. Prior to 1991, government had imposed several types of controls on Indian economy, e.g., industrial licensing system, price control or financial control on goods, import licence, foreign exchange control, restrictions on investment by big business houses, etc. It was experienced by the government that several shortcomings had crept into the economy on account of these controls. They had dampened the enthusiasm of the entrepreneurs to establish new industries. These control had given rise to corruption, undue delays and inefficiency. Rate of economic growth of the economy fell sharply and high-cost economic system came into being. Economic reforms therefore made a bid to reduce restrictions imposed on the economy. Economic reforms (with liberalisation as its epicentre) were based on the assumption that market forces would guide the economy in a more effective manner that government control. Examples of other underdeveloped countries like Korea, Thailand, Singapore, etc. that had achieved rapid economic development as a result of liberalisation were worthy of emulation. Economic reforms (with liberalisation as its epicentre) were based on the assumption that market forces would guide the economy in a more effective manner that government control.

Economic Reforms under Liberalisation

Important economic reforms under liberalisation are as under: (i) Industrial Sector Reforms Liberalisation virtually implied de-regulation of industrial sector of the economy. Following observations highlight how it happened: Abolition of Industrial Licensing: In July 1991, a new industrial policy was announced, abolishing the requirement of licensing except for the following six industries: (i) liquor, (ii) cigarette, (iii) defence equipment, (iv) industrial explosives, (v) dangerous chemicals, and (vi) drugs and pharmaceuticals. De-reservation of Production Areas: Many production areas which earlier were reserved for SSI (small scale industries) have now been de-reserved. Forces of the market are allowed to determine allocation of resources to different uses rather that the directive policy of the government. Expansion of Production Capacity: Earlier production capacity was linked with licensing. Now, freedom from licensing implied freedom from capacity constraints what to produce and how much to produce was now a matter of producers choice depending on market conditions. Freedom to Import Capital Goods: Liberalisation also implied freedom for the industrialists to import capital goods with a view to updating their technology. International agreements on the import of technology no longer required permission from the government.

(ii)

Financial Sector Reforms Financial sector includes (i) banking and non-banking financial institutions (ii) stock exchange market and (iii) foreign exchange market. In India financial sector is regulated and controlled by the RBI (Reserve Bank of India). Liberalisation implied a substantial shift in role of the RBI from a regulator to a facilitator of the financial sector. Example: As a regulator, the RBI (prior to liberalisation) would itself fix interest rate structure for the commercial banks. But as a facilitator (after liberalisation) the RBI would only facilitate the free play of the market forces and leave it to the commercial banks to decide their interest rate structure. Now, competition prevails rather that controls. Consequent upon the policy of Liberalisation, there has been a substantial shift in role of the RBI from a regulator to a facilitator of the financial sector. Now competition prevails rather that controls. Free play of the market forces has led to the emergence of private bankers both domestic as well as international in the Indian banking industry. Liberalisation has also allowed FII (Foreign Institutional Investors) to invest in Indian financial markets. (Examples of FII: merchant bankers, mutual funds and pension funds). Consequent upon these changes, financial sector in India has shown a multi dimensional growth and is serving as a life-line of economic activity in the economy.

(iii)

Fiscal Reforms Fiscal reforms relate to revenue and expenditure of the government. Tax reforms are the principal component of fiscal reforms. Broadly taxes are classified as (a) direct taxes and (b) indirect taxes Direct taxes are those taxes, the burdent of which cannot be shifted onto others. (Examples: sales tax on goods, service tax). One who pays such a tax (Example: a shopkeeper paying sales tax to the government) can shift the burden of this tax on to the final buyers of the goods by adding the tax amount to the basic price of the goods sold. Prior to liberalisation, tax structure in the country has been highly complicated and evasive. Fearing a heavy burden of taxation, people would often evade the payment of taxes. Now tax structure has been fairly simplified and moderated. This has raised tax compliance and therefore tax revenue of the government. It is a widely recognized fact that a simple and moderate tax structure raises tax compliance and therefore tax revenue of the government. Efforts are being made to ensure uniform application of VAT (value added tax) in all states of the country. Once this is achieved, it will go a long way in establishing a common national market in the country. Implying a balanced regional growth

(iv)

External Sector Reforms

External sector reforms include: (a) foreign exchange reforms and (b) foreign trade policy reforms Foreign exchange reforms were triggered in 1991 with the devaluation of the Indian rupee against foreign currencies. Devaluation implies a fall in the value of repee vis-vis (say) US dollar or English pound. Implying a US $ can be exchanged for more rupees than before. Or, implying that a US $ can buy more goods in the Indian markets. This accelerated the flow of foreign currency into the Indian economy. This is what we desperately desired to solve the foreign exchange crises. Devaluation Devaluation implies lowering the value of our currency in relation to other currencies of the world. Consequently, a US dollar or an English pound can be exchanged for more rupees than before. Implying that a US dollar or an English pound can buy more goods in the Indian markets. It is expected to decelerate the flow of foreign exchange into the Indian economy. Followed by devaluation in 1991, the exchange value of the Indian rupee in the international money market (or foreign exchange market) was left to the free play of the market forces. Presently, exchange rate is determined by the forces of supply and demand in the international exchange market. Foreign Trade Policy underwent a comprehensive change in the wake of liberalisation. Tariff restrictions have been considerably moderated, rather withdrawn from many items of export and imports. Instead of policy of protection to the domestic industry now there is the policy of survival of the fittest. Presently, it is the competition that prevails and not the quotas and tariffs. Efficiency is the benchmark of growth, not merely expansion. Salient Features of Trade policy After Liberalisation (i) abolition of import quotas (ii) abolition of import licensing (except in case of goods which are not environment-friendly and are hazardous) (iii) moderation / reduction of import duty to enhance competitiveness in the domestic market (iv) withdrawal of export-duty to enhance competitiveness of Indian goods in the international market. Briefly, trade policy after liberalisation is to facilitate integration of the Indian markets with rest of the world with a view to enhancing economic growth through global competition rather than non-competitive controls and protection.

Privatisation

 Privatization is the general process of involving the private sector in the ownership or operation of a state owned enterprise. It implies parting with government ownership or management of the public sector enterprises. It may happen in two ways: (i) outright sale of the government enterprises to the private entrepreneurs or (ii) withdrawal of the government ownership and management from the mixed enterprises (the enterprises jointly owned and managed by the government and the private entrepreneurs).

Disinvestment Disinvestment is a variant of privatisation. It refers to a situation when the government sells off a part of its share capital of PSUs (public sector undertakings) to the public. Argument in favour of disinvestment is the same as in favour of privatisation. It is taken as a remedial measure to improve production and managerial efficiency, as well as to facilitate modernisation. Case for Privatisation Case for privatisation is based on an inefficient performance of PSUs. The process of industrialisation was embarked upon during second Five Year Plan with an all round dependence and reliance on PSUs. The Industrial Policy Resolution (1956) clearly and categorically stated the significance of PSUs in the process of growth and development. And, it is beyond doubt that it was through the spread of PSUs that India could diversify its industrial base between the period 1951-1991. It was on account of the spread of PSUs that the Indian economy underwent a structural transformation: people started shifting from agriculture to industry as their source of livelihood, and there was a gradual increase in the per cent contribution of industry to GDP. PSUs gave us navratanas (nine jewels of the Indian industry, besides a host of mini ratanas). But, towards the close of 1990s, the government seemed to have finally realised that the PSUs were more of a social burden and less of a social gain. Mounting losses of PSUs became unsustainable. Leakage, pilferage, inefficiency and corruption had become so rampant in PSUs that their privatisation was considered as the only alternative. Thus, barring navratanas, (Where the government is enhancing functional freedom with a view to upgrading their performance), the ownership of PSUs is being gradually sold off to the private entrepreneurs.

Obvious Gains and Imperative Losses of Privatisation

Obvious Gains
(1) privatisation implies supremacy of self-interest over social interest. When self-interest prevails, the entrepreneurs work with 100 per cent commitment, and Efficiency becomes the condition of survival for the workers. High productivity is the obvious result. Privatisation expects private enterprises to work in a competitive environment both domestic as well as international. Competition induces up gradation and modernisation. These are the essential conditions of growth and development. Privatisation promotes diversification of production: Unlike PSUs, private enterprises invariably generate high profits. These are used for expansion and diversification of production. MNCs (Multinational Corporations) are a testimony to the fact that private sector enterprises are capable of redefining the benchmark of growth. Privatisation promotes consumers sovereignty Production is undertaken to the satisfaction of consumer wants. Higher degree of consumers sovereignty implies better quality of life.

(2)

(3)

(4)

Imperative Losses
(i) Socialistic pattern of the society (in which social interest is upheld as a supreme interest) is left to survive only as an academic concept. It loses its practical validity once PSUs are sold off to the private players. (ii) Privatization encourages the free play of market forces. But in the process, goods are produced only for those who have the means to buy them. When prices rise (which is an obvious tendency in a system driven by the free play of market forces) weaker sections of the society suffer deprivation.

Globalisation
Globalisation means integrating the economy of a country with the economics of other countries under conditions of free flow of trade and capital, and movement of persons across borders. Globalisation may be defined as a process associated with increasing openness, growing economic interdependence and deepening economic integration in the world economy. Economic Reforms assume that Indian economy should be integrated with world economy. As a result, there will be unrestricted flow of goods and services, technology and expertise among different countries of the world. Capital and technology will flow from the developed countries of the world towards India. Outsourcing

This is an important outcome of the process of globalisation. It refers to a system of hiring business services from the outside world. These services include: call centres, transcription, clinical advice, teaching/coaching, and the like. India is emerging as an important destination of outsourcing particularly, BPO (business process outsourcing, also called call centres). This is because of two important reasons: (i) availability of cheap labour in India, or relatively low wage rte for the skilled workers, and (ii) a revolutionary growth of IT industry in India. Policy Strategies Promoting Globalisation of the Indian Economy Following are some important policy strategies that have influenced the process of globalisation of the Indian economy: (i) Increase in Equity Limit of Foreign Investment: Equity limit of foreign capital investment has been raised from 40 per cent to 51 to 100 per cent. In 47 high priority industries foreign direct investment to the extent of 100 per cent will be allowed without any restriction and red-tapism. Export trading houses will also be allowed foreign capital investment up to 100 per cent. In this regard Foreign Exchange Management Act (FEMA) will be enforced. In matters of import of spare parts, raw materials and technical know-how, these foreign capital investment units will be subject to normal rules. Partial Convertibility : To achieve the objective of globalisation, partial convertibility of Indian rupee was allowed. It was in conformity with economic reforms. Partial convertibility means to buy or sell foreign currency like dollar or pound sterling, for foreign transactions at a price determined by the market. This convertibility was valid for the following transactions: (a) Import and export of goods and services; (b) payment of interest or dividend on investment; (c) Remittances to meet family expenses. It is called partial convertibility because it does not cover capital transactions. Long-Term trade Policy: In conformity with economic reforms, foreign trade policy was enforced for long duration, viz., five years. Main characteristics of this policy is that it is a liberal policy. Under this policy, all restrictions and controls on foreign trade have been removed. Open competition has been encouraged and all facilities are being provided to this end. Barring some specific goods, any other good can be imported or exported. Reduction in Tariffs: In order render Indian economy beneficial internationally, custom duties and tariffs imposed on imports and exports are being reduced gradually.

(ii)

(iii)

(iv)

Two Parameters of Economic Reforms: Macroeconomic Stabilisation and Microeconomic Structural Adjustments

(i) Macroeconomic Stabilisation Macroeconomic stabilisation measures refer to those set of measures which affect the entire economy and are therefore pervasive in nature (spreading across all sectors of the economy). These measures included review of: (a) monetary policy, (b) fiscal policy and (c) exchange rate policy. The focus of these measures was to cope with the crises of confidence relating to ability of the government to manage the countrys dwindling BOP status, particularly its ability to repay the loans taken from the rest of the world. (ii) Microeconomic Structural Adjustments These refer to those measures by the government which focused on structural changes in the economy and which bad specific bearing on different sectors of the economy. The measures included reforms in (a) industrial policy, (b) trade policy, (c) public sector policy, (d0 price policy, (e) tariff policy, etc. It may be noted that while Macroeconomic Stabilisers are short-team measures to correct overall imbalances in the system, Microeconomic adjustments are long-team measures aiming at improving the level of efficiency and productivity in different sectors of the economy. First Generation Reforms and Second Generation Reforms Distinction is sometimes drawn between First Generation Reforms and Second Generation Reforms. First Generation Reforms are those which do not require any legislative action. These reforms can be carried out simply through the executive and administrative machinery of the government. Second Generation Reforms on the other hand are those which require legislative action. These reforms just cannot be carried out through the existing administrative and executive setup of the government. Accordingly, Second Generation Reforms are often delayed.

3. An Appraisal of LPG Policies Briefly referred to as LPG policies, the term implies policies related to liberalisation (L), Privatisation (P) and globalisation (G). an appraisal of LPG policies implies and appraisal of NEP (New Economic Policy) or an appraisal of Economic Reforms initiated since 1991. appraisal of LPG or NEP requires that the reader appreaciates or understands the merits and demerits of this policy on the Indian economy or that he analyses the positive and negative impact of this policy on the Indian economy.

Positive Impact of the LPG Policies

Following observations highlight the positive impact of LPG policies on the Indian economy: (i) A Vibrant Economy: Indian economy has definitely become a more vibrant economy. Overall level of economic activity has definitely picked up after the introduction of the policies of liberalisation, privatisation and globalisation. Results are evident in terms of an impressive increase in the growth rate of GDP. Currently, the growth rate of GDP is estimated to be more that 8 per cent, and the planners and the politicians are expecting that, in the near future, it should get close to 9 per cent per annum. (ii) A stimulant to Industrial Production: LPG policies have worked as a great stimulant to industrial production in the Indian economy. Presently, industrial production is hovering around 10 per cent which is a big jump from the pre-1991 level. It is only after LPG policies, that IT industry in India has become the point of discussion throughout the world. A Check on Fiscal Deficit: Mounting fiscal deficit has been a serious threat to the process of investment in the Indian economy. It was as high as 8.5 per cent prior to 1991. Thanks to the LPG policies, there has been a significant increase in Government Revenue. Consequently, fiscal deficit has been contained to around 5 percent of GDP. This is not sufficiently low yet significantly lower than before. A Check on Inflation: Owing to a greater flow of goods and services in the economy, there has been a check on the rate of inflation. Till 2007-08, it ranged between 4-5 per cent which is not seriously threatening, even though it is very significantly low. Consumers Sovereignty: Consumers sovereignty has definitely widened over time. This is evident from the fact that a large variety of goods and services from the diverse global markets are now within the easy reach of the buyers. Producers are widely responding to the consumers choice and preference. Consequently, overall level of expenditure of the households has tended to rise. Implying and overall rise in the welfare status of the people. A Substantial Increase in Foreign Exchange Reserves: Depletion of forex-reserves was one of the compulsions of the Government to introduce LPG policies. Thanks to these policies, forex reserves of the country are now placed at a comfortable level. Good amount of forex reserves reflects robustness of the economy and enhances economic confidence of the global investors in the Indian markets. Flow of Private Foreign Investment: Private foreign investment has taken a quantum jump after the adoption of LPG policies. This has been a great relief to the Indian planner and the politicians in view of the facts that, (i) domestic economy was not generating enough of surplus for reinvestment, and (ii) indigenous technology was getting obsolete. It is significant to note

(iii)

(iv)

(v)

(vi)

(vii)

that private foreign investment not only implies influex of capital in the domestic economy, it also implies influx of technology. (viii) Recognition of India as an Emerging Economic Power: It is owing to LPG policies that the consequent rise in the overall level of economic activity, that India is now being recognised as an emerging economic power in the world. This recognition (particularly by developed nations of the world) not only raises Indias economic ranking in the world, but also impacts psychology of the global investors to choose India as their preferred destination. A Drift from Monopoly Market to Competitive Market: Launch of LPG policies has caused a significant shift in the structure of the Indian markets. Indian markets are now increasingly shedding its monopolistic character, and becoming more and more competitive in nature. For instance, a couple of decades back, products like cars, refrigerators, ACs and PCs were the monopoly markets of select brands only. Now a variety of these products are available at competitive rates.

(ix)

Briefly, owing to LPG policies the Indian economy has definitely got a long awaited kick-start. The process of growth has not only accelerated, but has also become more diversified. Here is a definite change in welfare level of the people. Recognition of the Indian economy as an emerging economic power in the world is of crucial significance.

Negative Impact of LPG Policies All the glitters is not gold. There is a negative side of the story as well. Following observations highlight negative impact of LPG policies in India: (i) Neglect of Agriculture: Growth of GDP has primarily been owing to a substantial growth of industrial sector. In the wake LPG policies, focus shifted from agriculture to industry. Consequently, growth rate in agriculture suffered a set-back. Set-back to agricultural sector, implies a set-back to the principal source of livelihood of the masses in India. Indeed neglect of agriculture implies spread of poverty. And it is pertinent to note that slow growth of agriculture sector (which presently is just about 2 per cent) must ultimately hinder the process of growth of the industrial sector as well. This because: (i) agricultural sector is an important source of raw material for the industrial sector, (ii) agricultural sector is the principal source of labour supply to the industrial sector, and (iii) agricultural sector offers a huge demand base for the industrial products like tractors and thrashers. As noted earlier, rise in prices of agricultural goods has triggered a rise in general price line. Presently, the rate of inflation being more that 6 per cent, and interest rates tending to rise, there is a serious threat to inducement to

invest. If the existing trends continue, GDP growth rate may fall short of expectations. (ii) Urban Concentration of Growth Process: LPG policies have resulted in the concentration of growth process in urban areas. Think of any MNC, you will hardly find its trace in the rural areas of the country. All MNCs are focusing only on urban areas, where they find conducive infrastructural facilities. Consequently rural-urban gulf is widening. Any such economic dualism deepens social dualism as well. Any social dualism ultimately threatens the process of growth. Economic Colonialism: India suffered nearly 200 year of political colonialism during the British rule. Now, while MNCs are dominating the Indian economy, we might suffer a sort of economic colonialism. Implying a situation where MNCs are exploiting the Indian markets to sell their products, and in the process, domestic producers are being marginalised owing to their poor competitive strength. Spread of Consumerism: Spread of MNCs is the country as a consequence of LPG policies has resulted in a large-scale spread of consumerism. A variety of global brands in the market has lured the masses to become spend thrift, even beyond their means the Indian society is fast adapting itself to the western culture, of spending through borrowing. This may expand size of the market for the traders and the manufactures but certainly enhances vulnerability of the households as consumers. They become the victim of demonstration effect which enhances materialism but robs the peace of mind. Lopsided Growth Process: LPG has accelerated the growth process of the Indian economy, but it is lopsided. It is not an Inclusive Growth Process. It is a growth process that does not include balanced growth across all sectors of the economy. Rather, it is a growth process that centres around service sector of the economy. It is just and IT-based growth process. While industrial growth is retarding, that of agriculture is becoming negative. It is alarming to note that, owing to liberalisation and globalisation, the Indian farmer is shifting to production of cash crops for the foreign markets, causing a shortfall of domestic supplies of foodgrains. Alas! We are forced to import foodgrains despite Green Revolution. Cultural Erosion: Globalisation has also caused cultural erosion of the Indian society. Economic prosperity has taken a lead over all other parameters of life. Everybody wants to be economically independent and well-off regardless of his responsibility towards the family or the society. Loyalty towards the family and loyalty towards the society which, used to be the strongholds of the Indian social culture are being surrendered as useless virtues in the wake of materialism.

(iii)

(iv)

(v)

(vi)

Which Way to Go?

Should we or should we not subscribe to the LPG policies? It is a debatable issue. But avoiding the intricacies of the debate, the students of economics at the senior secondary level can definitely make on concrete observation: The LPG policies are the only way out to economic growth and development. Indeed pursual of LPG policies was to a great extent a matter of economic compulsion rather that a matter of choice for the politicians of the country. However, a compulsion should never mean a complete surrender. It is strongly recommended that LPG policies are pursued with guarded precautions. We must see to it that we do not compromise with economic interest of our domestic producers, while holding negotiations in the areas of international trade and tariffs. Also we must see to it that we do not become economically subservient to the multinational corporations. We must remain in the commanding position to direct foreign investment in the areas of infrastructure rather that consumer goods offered by KFC or Dominos.