Has the Indian governmental system
responded adequately to the demands
of Liberalization, Privatization and
Globalization started in 1991? What
can the government do to be responsive
to this important change?

GS 2
Governance
2016
12.5 Marks

Subject: Governance

India's response to Liberalization, Privatization, and Globalization (LPG) reforms since 1991 has been transformative yet faces ongoing challenges. The dismantling of the License Raj marked a paradigm shift from a controlled economy to a market-oriented approach, fundamentally reshaping India's governance framework.

Government's Response to LPG Reforms

Policy and Institutional Reforms:

  • Implementation of the New Economic Policy 1991 dismantled industrial licensing and opened strategic sectors for private investment.
  • Significant improvement in Ease of Doing Business ranking from 142nd (2014) to 63rd (2020), reflecting enhanced business environment.
  • Creation of specialized bodies like SEBI and CCI to regulate markets and ensure fair competition.

Economic Performance:

  • Central Public Sector Enterprises (CPSEs) showed remarkable growth with net profits reaching Rs 3.22 lakh crore in FY24, a 47% increase from previous year.
  • Substantial increase in Foreign Direct Investment (FDI), with recent inflow of US $5.0 billion (September 2024).
  • Enhanced infrastructure spending with Rs 11.2 lakh crore allocated for capital expenditure in 2025-26 budget.

Areas Requiring Government Attention

Administrative Reforms:

  • Need for further bureaucratic reforms to reduce red-tapism and enhance decision-making efficiency.
  • Strengthening of regulatory frameworks to match international standards.
  • Implementation of single-window clearance systems across all sectors.

Economic Measures:

  • Acceleration of disinvestment process while ensuring strategic control in crucial sectors.
  • Enhancement of public-private partnership (PPP) models for infrastructure development.
  • Focus on improving labor market flexibility and skill development programs.

The government must continue its reform agenda with renewed focus on digital governance, strengthening regulatory institutions, and enhancing market efficiency. Success stories like Digital India and GST implementation demonstrate India's capacity for transformative reforms, but sustained efforts are needed to fully realize the potential of LPG reforms.

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