The main reasons that led to the introduction of the LPG (Liberalisation, Privatisation, and Globalisation) reforms in India are as follows:
Declining foreign investments:
- Prior to the LPG reforms, India experienced a decline in foreign investments due to a restrictive and highly regulated economic environment.
- The lack of a conducive business environment and limited foreign investment opportunities led to a reduction in foreign capital inflows, which was detrimental to the growth and development of the Indian economy.
Increasing public debt:
- India faced a significant increase in public debt during the pre-reform period, primarily as a result of extensive government borrowing to fund various developmental projects and initiatives.
- The mounting public debt posed serious challenges to the fiscal health of the country and constrained the government's ability to invest in critical sectors and infrastructure.
Poor performance of Public Sector Undertakings (PSUs):
- Public Sector Undertakings (PSUs) in India, which were considered the backbone of the economy, were plagued by inefficiencies, lack of innovation, and bureaucratic red tape.
- Their poor performance resulted in financial burdens for the government, as they required continuous financial support and subsidies, impacting the overall fiscal health of the nation.
Escalating financial burden due to foreign loans:
- India's reliance on foreign loans to meet its financial obligations, coupled with the challenges posed by mounting interest payments, exerted significant pressure on the country's financial resources.
- The rising burden of foreign loans limited the government's capacity to invest in critical sectors and hampered overall economic growth and development.
