Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.
With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy.
This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947, such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity.
Now that India is in the process of restructuring her economy, with aspirations of elevating herself from her present desolate position in the world, the need to speed up her economic development is even more imperative. And having witnessed the positive role that Foreign Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast Asian countries and most notably China, India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI.
Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities; the doctrine is associated with neo-liberalism.
The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a “bigger pie” for everybody. Since 1977, and specially after 1985-86, the Government has embarked upon a series of economic reforms leading towards liberalization and deregulation Subsequently, there has been a significant improvement in the growth rate of the country-from the long existing, low rate of income growth of 3.5 percent to an average growth rate of 5.5 per cent and above. Until July 1991 when the new Congress Government came to power.
Since then the change in the policy packages have picked up momentum. There have been major changes since July 1991. The present Man Mohan Singh led Congress Government came into power in 2004. It has further extended the liberalization policy started in 1991. In its 2004-2005 and 2005-2006 budgets, the government has brought along with almost simultaneous changes in trade and finance announced outside the Budget.