Q.Explain the New Industrial Policy, 1991 and describe its Liberalisation, Privatisation and Globalisation (LPG) components.

The New Industrial Policy, 1991 replaced India's licence-based, public-sector-dominant regime with a market-oriented framework built on liberalisation of controls, privatisation of ownership, and globalisation of the economy.

Facing a severe balance-of-payments crisis and mounting evidence that the licence-permit regime built up since 1956 had produced slow growth and chronic inefficiency, the Government of India announced the New Industrial Policy, 1991, marking the most significant shift in Indian industrial policy since independence. Its reforms are conventionally grouped under three headings.

Liberalisation removed most of the regulatory apparatus that had constrained private industry for decades. Industrial licensing was abolished for all industries except a short list retained on security, strategic, or environmental grounds; restrictions under the Monopolies and Restrictive Trade Practices (MRTP) Act on the expansion of large business houses were substantially eased; and location restrictions on new industrial units outside a few notified large cities were relaxed.

Privatisation reduced the exclusive domain of the public sector. The list of industries reserved solely for the State under Schedule A of the 1956 policy was cut down to a handful of strategic areas such as atomic energy and specified defence production; the government introduced a disinvestment policy under which it sold part of its equity holding in selected public sector undertakings to private and institutional investors, both to raise resources and to improve efficiency and accountability; and sectors previously closed to private enterprise — insurance, telecommunications, civil aviation among them — were progressively opened to private participation.

Globalisation integrated the Indian economy far more closely with the rest of the world. Foreign Direct Investment was permitted, and in many industries automatically approved up to specified equity limits; foreign technology collaboration agreements were made easier to conclude; import tariffs were reduced in stages; and the rupee was made convertible on the current account, encouraging both exports and inward foreign investment.

Taken together, the LPG reforms produced a marked rise in industrial and GDP growth, sharper competition that generally benefited consumers through better quality and choice, and substantial FDI inflows into Indian industry. At the same time, the reforms have been criticised for producing comparatively jobless growth in some periods, for widening regional disparities as new investment concentrated in already better-off states, and for the hardship faced by workers in industries and public sector units unable to withstand the new competitive pressure — a balanced essay answer is expected to present both sides.

Essays sometimes describe only the positive effects of the 1991 reforms and omit the standard criticisms, or blur Liberalisation and Privatisation into a single undifferentiated idea instead of explaining each component separately as the question requires.