The LPG Model: Liberalisation, Privatisation and Globalisation (ICSE Class 9 Economics)
Updated 18 October 2026 · Fact-checked
The LPG model is the set of reforms India began in 1991 under the New Economic Policy after a balance of payments crisis: liberalisation (removing government controls such as industrial licensing), privatisation (a larger role for the private sector, including disinvestment) and globalisation (integration with the world economy through trade and foreign investment). The syllabus asks for the meaning and the positive impact of each.
Notice that one crisis led to three linked reforms, each with its own aim and benefit, while India stayed a mixed economy.
Illustration drawn for QuestionBuddy.
Understand The LPG Model: Liberalisation, Privatisation and Globalisation
Background. In July 1991 India began economic reforms under the New Economic Policy when P. V. Narasimha Rao was Prime Minister and Dr Manmohan Singh was Finance Minister. The country faced a serious balance of payments crisis: foreign exchange reserves were very low, inflation was high and the government had a large fiscal deficit. Before 1991 licences were needed to start or expand factories, many industries were reserved for the public sector and high tariffs kept foreign goods out. The aim of the reforms was a more efficient, competitive and fast-growing economy. India remained a mixed economy, but the market got a much larger role.
Liberalisation. Meaning: removing or relaxing unnecessary government controls and restrictions on economic activity. Measures: abolition of industrial licensing for most industries, freedom for firms to expand and change products, fewer goods reserved for small industries, freer imports of machinery and raw materials, financial sector reforms, and simpler, lower taxes.
Positive impact: faster growth; more competition and efficiency; more choice and better quality for consumers; growth of telecommunications, IT and IT-enabled services; less red tape and corruption linked to the licence raj.
Privatisation. Meaning: increasing the role of the private sector and reducing that of the public sector, by opening industries earlier reserved for the public sector (a few, such as atomic energy and railway operations, remain reserved), by disinvestment (the government selling part or all of its shares in public sector enterprises to private investors) and by transferring management or ownership.
Positive impact: better efficiency and productivity; a lighter burden on the government from loss-making enterprises; revenue from disinvestment for health, education and infrastructure; better services through competition (airlines, telecom, banks); professional management and new technology.
Globalisation. Meaning: integrating the economy of a country with the world economy through the free flow of goods, services, capital, technology and people across borders. Measures: lower import duties and removal of quantity limits, foreign direct investment (FDI) in many sectors, rupee convertibility on the current account, and India joining the World Trade Organisation (WTO) in 1995.
Positive impact: growth of foreign trade (India became a major exporter of software and IT services); inflow of foreign investment and technology; larger foreign exchange reserves; jobs in IT, business process outsourcing and export industries; wider choice and better quality for consumers; Indian firms expanding abroad.
Only the positive impacts are asked, so do not write criticisms in these answers.
Neighbouring topics: the concept of a smart city and its case study framework are on the next page of this chapter.
The LPG Model: Liberalisation, Privatisation and Globalisation: key facts
- LPG
Liberalisation fewer controls privatisation bigger private role globalisation link with the world economy - Adopted in 1991.
- Disinvestment value
- Amount raised = Percentage sold x Value of the enterprise | e.g. 20 per cent of Rs 5,000 crore = Rs 1,000 crore
- Revenue for the government.
- Tariff effect
- Price = Cost + Import duty
- duty = Rate x Cost
- a lower rate lowers the price
- Used in the example.
The LPG Model: Liberalisation, Privatisation and Globalisation in real life
The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.
A cut in import duty
Suppose an imported machine part costs Rs 800 before duty, and the import duty is 50 per cent. The duty is cut to 20 per cent.
What is the price to the buyer before and after the cut?
Try it first, then show the solutionSolution
- Before: duty = 50% of 800 = Rs 400, so price = 1,200.
- After: duty = 20% of 800 = Rs 160, so price = 960.
- Fall in price: 1,200 - 960 = Rs 240, which is 20 per cent of the earlier price.
Answer: The price falls from Rs 1,200 to Rs 960, which helps buyers and firms that use imported parts.
Memory hook: Lower duty, lower price.
Tricks to remember The LPG Model: Liberalisation, Privatisation and Globalisation
Short memory aids. Say each one aloud once, then use it on a question the same day.
L-P-G
Liberalise, Privatise, Globalise: free, private, worldwide.
Use it when: The three parts.
Dis-invest means sell shares
Disinvestment is the government selling its shares.
Use it when: Privatisation.
1991 and 1995
Reforms began in 1991; India joined the WTO in 1995.
Use it when: Dates.
The LPG Model: Liberalisation, Privatisation and Globalisation: solved examples
Ordered from board level to HOTS. Try each one before you open the solution.
Example 1: Meaning of LPG · 1 mark · MCQBoard level
LPG in the context of the Indian economy stands for:
(a) liquid petroleum gas (b) liberalisation, privatisation, globalisation (c) land, product, goods (d) labour, production, growth
Try it first, then show the solutionSolution
- LPG is the set of 1991 reforms.
Answer: (b) liberalisation, privatisation, globalisation
Example 2: Which reform · 3 marks · Short answerHarder board level
Identify the reform in each case: (i) the abolition of industrial licensing for most industries; (ii) the government selling part of its shares in a public sector company; (iii) lowering import duties and allowing foreign direct investment.
Try it first, then show the solutionSolution
- (i) Liberalisation: a government control is removed. (1 mark)
- (ii) Privatisation (disinvestment). (1 mark)
- (iii) Globalisation: integration with the world economy through trade and investment. (1 mark)
Answer: (i) liberalisation (ii) privatisation (iii) globalisation
Example 3: Disinvestment · 3 marks · Short answerHarder board level
The government owns all the shares of a public sector company worth Rs 5,000 crore and sells 20 per cent of them to private investors. How much does it raise? State two benefits of such a step.
Try it first, then show the solutionSolution
- Amount raised = 20 / 100 x 5,000 = Rs 1,000 crore. (1 mark)
- Benefit: revenue that can be spent on health, education and infrastructure. (1 mark)
- Benefit: a lighter burden of loss-making enterprises and improved efficiency. (1 mark)
Answer: Rs 1,000 crore; revenue for development and better efficiency.
Example 4: Case study: the car market · 4 marks · Case-basedHOTS / competency
Before 1991 a firm needed a licence to expand its car factory and imports were restricted. After 1991 the licence was abolished, import duties were lowered and a foreign company set up a plant in India.
(i) Name the reforms shown. (2)
(ii) State one positive impact on consumers. (1)
(iii) State one positive impact on industry. (1)
Try it first, then show the solutionSolution
- (i) Liberalisation (abolition of licensing) and globalisation (lower duties and foreign investment).
- (ii) More choice and better quality at competitive prices.
- (iii) Greater competition and efficiency, new technology and growth of the industry.
Answer: (i) liberalisation and globalisation (ii) more choice and quality (iii) competition, technology and growth
Example 5: Effect of a duty cut · 3 marks · Short answerHarder board level
An imported part costs Rs 800 before duty. Find its price when the import duty is 50 per cent and when it is cut to 20 per cent. By what percentage of the earlier price does the price fall?
Try it first, then show the solutionSolution
- Duty at 50 per cent = Rs 400, so price = 800 + 400 = Rs 1,200. (1 mark)
- Duty at 20 per cent = Rs 160, so price = 800 + 160 = Rs 960. (1 mark)
- Fall = 240, which is 240 / 1,200 x 100 = 20 per cent of the earlier price. (1 mark)
Answer: Rs 1,200 to Rs 960; a fall of 20 per cent.
Where students lose marks in The LPG Model: Liberalisation, Privatisation and Globalisation
The slips examiners see most often, and what to write instead.
Mistake: Writing criticisms
The syllabus asks only positive impacts.
Wrong working
Globalisation increased inequality
Right working
Globalisation brought foreign investment and technology and raised exports
Do this: Write positive impacts only.
Usually costs: 2 marks
Mistake: Confusing privatisation with liberalisation
Both reduce government role.
Wrong working
Privatisation means removing licences
Right working
Privatisation means a larger private role; licences belong to liberalisation
Do this: Match each with its meaning.
Usually costs: 1 mark
Mistake: Wrong year
1991 and 1995 are mixed.
Wrong working
WTO membership in 1991
Right working
WTO membership in 1995
Do this: Reforms 1991, WTO 1995.
Usually costs: 1 mark
Exam tips
- For each part of LPG give the meaning, two measures and two positive impacts.
- Use the word disinvestment with its meaning in privatisation answers.
- Write India as still a mixed economy.
- Show the working in numericals about disinvestment and duties.
Practice questions on The LPG Model: Liberalisation, Privatisation and Globalisation
Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.
Q1 · 1 mark · MCQBoard level
The New Economic Policy that began the LPG reforms was adopted in:
(a) 1951 (b) 1971 (c) 1991 (d) 2011Hint
After the balance of payments crisis.
Answer
(c) 1991
Q2 · 2 marks · Very short answerBoard level
What is disinvestment?
Hint
Shares.
Answer
Disinvestment is the sale of part or all of the government's shares in public sector enterprises to private investors.
Q3 · 3 marks · Short answerHarder board level
The government holds 75 per cent of the shares of a company with a total value of Rs 8,000 crore. Find the value of its holding. If it sells one-third of its holding, how much does it raise?
Hint
Percent of the total, then a third.
Answer
Holding = 75 / 100 x 8,000 = Rs 6,000 crore. One-third of it = Rs 2,000 crore.
Q4 · 3 marks · Short answerHarder board level
State three positive impacts of liberalisation on the Indian economy.
Hint
Growth, competition, choice.
Answer
Faster growth of industry and services; more competition and efficiency; more choice and better quality for consumers; growth of IT and telecommunications; less red tape (any three).
Q5 · 3 marks · Short answerHOTS / competency
"Privatisation does not mean that the government has no role in industry." Explain.
Hint
Which industries are still reserved?
Answer
Privatisation increases the role of the private sector, but a few industries such as atomic energy and railway operations remain reserved for the public sector, and the government continues to regulate and run welfare schemes, so India stays a mixed economy.
Test your recall
Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.
1.When did the LPG reforms begin?Show answer
1991
2.Who was the Finance Minister then, according to the chapter page?Show answer
Dr Manmohan Singh.
3.What is FDI?Show answer
Foreign direct investment.
4.Name an industry still reserved for the public sector.Show answer
Atomic energy (or railway operations).
5.What was the licence raj?Show answer
The system of government licences needed to start or expand industries.
6.Which reform linked India with the WTO?Show answer
Globalisation.
The LPG Model: Liberalisation, Privatisation and Globalisation: frequently asked questions
Why were reforms needed in 1991?
Because of a serious balance of payments crisis, low foreign exchange reserves, high inflation and a large fiscal deficit.
Is India a capitalist economy after 1991?
No. It remains a mixed economy with a larger role for the market.
Do I need to list all measures?
Know the main ones and the meaning and positive impacts.