Q.State the reasons for implementing LPG.

India launched Liberalisation, Privatisation and Globalisation (LPG) in 1991 mainly to pull the economy out of the 1991 balance-of-payments crisis and to make it more efficient and competitive.

In the Tamil Nadu HSC Class-11 Economics syllabus, the LPG reforms are studied as India's response to the 1991 crisis. The reasons for implementing them were:

• Huge fiscal deficit — years of heavy government spending over revenue pushed the fiscal deficit to unsustainable levels and raised public debt.
• Adverse balance of payments — imports far exceeded exports, creating a persistent current-account deficit.
• Fall in foreign-exchange reserves — reserves dropped so low that they could finance only about two weeks of imports; India even had to pledge gold.
• Rising prices (inflation) — double-digit inflation eroded purchasing power. …