What is a Share? Difference Between Two Types of Shares
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Class 12,Indian Economic Development,Liberalisation,Privatisation and Globalisation,UPSC Examination
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Easy Way to Understand LPG Model: Liberalisation, Privatisation & Globalisation (1991 Reforms) Explained with Examples
22/08/2025
Indian Economic Development,
Class 12,
Liberalisation, Privatisation and Globalisation
Back in the late 20th century, many countries decided to fundamentally reshape their economies. This shift was built on three core ideas: letting go of control, changing who owns things, and opening up to the world. While they often work together, it’s helpful to understand what each one means on its own.
1. Liberalisation: Cutting the Red Tape
Imagine an economy tangled in rules, permits, and bureaucratic hurdles. Liberalisation is the process of untangling that knot. It’s about the government stepping back and stripping away unnecessary restrictions and regulations that hold businesses back.
The whole point is to create an environment where companies have the freedom to make their own choices—what to produce, how much to charge, and where to invest—without having to ask for permission at every turn. A famous example is India’s 1991 reforms, where they tore up the infamous “License Raj,” slashed import taxes, and made it easier for foreign companies to invest.
The results are a mixed bag. On the plus side, it typically fuels faster economic growth and forces domestic companies to become more efficient due to increased competition. The downside? If not managed carefully, local businesses can get swamped by foreign competitors, and the economy can become too dependent on global fluctuations.
Definition:
Liberalisation means removing or loosening government restrictions and regulations in economic activities to encourage free movement of goods, services, and capital.
Purpose:
- Reduce bureaucracy and controls (less “License Raj”).
- Allow industries more freedom in production, pricing, and investment.
Scope
- Trade policy reforms (lower import/export restrictions).
- Financial sector reforms (deregulation of banks).
- Industrial policy changes (freedom in capacity expansion).
Outcomes:
✅ Faster economic growth
✅ Increased competition and efficiency
⚠️ Risk of over-dependence on global markets
Example (India):
In 1991, the Indian government reduced import tariffs, eased foreign investment rules, and abolished industrial licensing for most sectors.
2. Privatisation: From Public to Private Hands
This one is about ownership. Privatisation is the transfer of state-owned companies—everything from airlines to utilities—into the hands of private individuals or corporations. This can be a full sale or just selling off a portion of the government’s stake.
The reasoning is that a privately-run company, driven by profit and competition, will naturally be more efficient, innovative, and customer-focused than a government bureaucracy. It also relieves the state of a massive financial burden. The sale of Air India to the Tata Group is a textbook case of this.
The outcomes are often positive for efficiency and service quality, but they come with legitimate concerns. The drive for profit can lead to job losses in the short term or price hikes for essential services that were once subsidized by the state.
Definition:
Privatisation means transferring ownership and control of enterprises from the government to private hands, either fully or partially.
Purpose:
- Improve efficiency through competition and profit-driven management.
- Reduce financial burden on the government.
Scope:
- Sale of government companies to private sector.
- Outsourcing services to private firms.
Outcomes:
✅ Better efficiency and innovation
✅ Reduced political interference
⚠️ Possible job cuts or higher prices
Example (India):
Air India sale to Tata Group in 2021.
3. Globalisation: Joining the World Party
If liberalisation is about internal rules and privatisation is about ownership, then globalisation is about connection. It’s the process of weaving a national economy into the larger global fabric through trade, investment, and the flow of technology and culture.
The goal is to give domestic producers access to vast international markets while also attracting foreign capital, expertise, and technology into the country. Think about the arrival of global giants like Amazon and IKEA in India, or how your local factory might now be part of a worldwide supply chain.
The effects are profound. It opens up a world of opportunities, creates new jobs in sectors like IT and manufacturing, and gives consumers more choices than ever before. However, it also means fierce competition that can hurt unprepared local industries and can sometimes lead to a loss of cultural uniqueness as global brands become ubiquitous.
Definition:
Globalisation is the integration of a country’s economy with the world economy through trade, investment, technology, and cultural exchange.
Purpose:
- Expand markets for domestic goods.
- Attract foreign investment and technology reforms.
Scope:
- International trade and investment.
- Global supply chains.
- Cross-border flow of ideas, culture, and technology.
Outcomes:
✅ Access to world markets and technology
✅ More job opportunities in export-oriented sectors
⚠️ Competition for local industries, cultural homogenisation
Example (India):
Entry of multinational companies like Amazon, IKEA, and foreign banks after the 1991
In simple terms:
- Liberalisationis about getting the government out of the way within the country.
- Privatisationis about selling state assets to private
- Globalisationis about tearing down the walls between
Together, these three forces have reshaped the modern economic landscape, creating both tremendous opportunities and significant challenges that we continue to navigate today.
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