India's Economic Liberalization — The LPG Reforms

In June 1991, India stood on the brink of sovereign default. Foreign exchange reserves had dwindled to barely two weeks of imports — roughly $1.2 billion. The country was forced to airlift 47 tons of gold to the Bank of England as collateral for an emergency loan. Prime Minister P.V. Narasimha Rao appointed the economist Manmohan Singh as Finance Minister. On July 24, 1991, Singh presented a budget that dismantled four decades of the License Raj — the labyrinthine system of permits, quotas, and state controls that had governed Indian industry since independence. The reforms, collectively known as LPG (Liberalization, Privatization, Globalization), slashed import tariffs, abolished industrial licensing for most sectors, opened the economy to foreign investment, devalued the rupee, and began the privatization of state-owned enterprises. Singh, quoting Victor Hugo, told Parliament: "No power on earth can stop an idea whose time has come." The results were transformative: India's GDP growth rate doubled from the "Hindu rate of growth" (3.5%) to over 7% annually. The IT services industry, led by companies like Infosys, Wipro, and TCS, emerged as a global force. India's middle class expanded from roughly 30 million to over 300 million within two decades. By 2023, India had become the world's fifth-largest economy.