Liberalization

Privatization
Globalization
LIBERALISATION
Liberalisation means freeing the economy from govt. control. It put an end to
all the rules and laws which were aimed at regulating the activities of private
sector.
India has taken many efforts for liberalisation which are as follows:
New economic policy 1991.
Objectives of the new economic policy.
i. To achieve higher economic growth rate.
ii. To reduce inflation
iii. To rebuild foreign exchange reserves.

Following are the major changes taking place in important areas under the
liberalisation policy:

1. Deregulation of Industrial Sector
2. Financial sector reforms
3. Tax Reforms
4. Foreign Exchange Reforms
5. Trade and Investment policy reforms

FEMA:
Foreign exchange Regulation Act 1973 was repealed and Foreign exchange
Management Act was passed. The enactment has incorporated clauses which have
facilitated easy entry of MNCs.
i. Joint ventures with foreign companies. E.g.: TVS Suzuki.
ii. Reduction of import tariffs.
iii. Removal of export subsidies.
iv. Full convertibility of Rupee on current account.
v. Encouraging foreign direct investments.

The effect of liberalization is that the companies of developing countries are facing a
tough competition from powerful corporations of developed countries.

The local communities are exploited by multinational companies on account of
removal of regulations governing the activities of MNCs.
Privatisation:
In the event of globalization privatisation has become an order of the day.
Privatisation can be defined as the transfer of ownership and control of public
sector units to private individuals or companies. It has become inevitable as a result
of structural adjustment programmes imposed by IMF.

Objectives of Privatisation:
To strengthen the private sectors.
Government to concentrate on areas like education and infrastructure.
In the event of globalization the government felt that increasing inefficiency on the
part of public sectors would not help in achieving global standards. Hence a
decision was taken to privatise the Public Sectors.

Government companies can be converted into private companies in two ways:
By withdrawal of the government from ownership and management of Public
Sector Undertakings (PSUs).
By outright sale of public sector companies


Disinvestment: Privatisation of PSUs by selling off part of the equity (share) to the
public is known as disinvestment

Government adopted following two main methods for disinvestment:
Minority Sale: Equity is offered to investors through domestic public issue. The
govt transfers minority share to private persons. The management control is not
transferred.
Strategic Sale: Govt sells majority share above 51% to the private sector. It is
called strategic as management is transferred to the private sector as a matter of
strategy.
Causes of Inefficiency of Public Sectors:
i. Bureaucratic administration
ii. Out dated Technology
iii. Corruption
iv. Lack of accountability.
v. Domination of trade unions
vi. Political interference.
vii. Lack of proper marketing activities.


Privatisation has its own advantages and disadvantages Viz:
Advantages:
i. Efficiency
ii. Absence of political interference
iii. Quality service.
iv. Systematic marketing
v. Use of modern Technology
vi. Accountability
vii. Creation of competitive
environment.
viii. Innovations
ix. Research and development
x. Optimum utilisation of resources
xi. Infra structure.
Disadvantages.
i. Exploitation of labour.
ii. Abuse of powers by executives.
iii. Unequal distribution of wealth and
income.
iv. Lack of job security for employees
Privatisation has become inevitable in the present scenario. But some control should
be exercised by the government over private sectors
Globalization:
The term globalization can be used in different contexts. The general usages of the
term Globalization can be as follows:
i. Interactions and interdependence among countries.
ii. Integration of world economy.
iii. Deterritorisation.
By synthesising all the above views Globalization can be broadly defined as follows:
It refers to a process whereby there are social, cultural, technological exchanges
across the border.

Undoubtedly, it can be accepted that globalization is not only the present trend but
also future world order.

Effect of Globalization on India:
Globalization has its impact on India which is a developing country. The impact of
globalization can be analysed as follows:

1. Access to Technology
2. Growth of International Trade
3. Increase in Production
4. Employment Opportunities
5. Free Flow of Foreign Capital

Negative Effect of Globalization
1. Inequalities within countries
2. Financial Instability
3. Impact on workers
4. Impact on Farmers
5. Impact on Environment
6. Domination by MNC
7. Threat to national sovereignty

ASSESSMENT OF NEW ECONOMIC POLICY
Positive Impact
1. The growth of GDP increased from 5.6% during 1980-91 to 6.4% during
1992-2001. The Tenth Plan (2002-2007) has projected the GDP growth
rate at 8%.
2. Foreign investment increased from about US $ 100 million in 1990-91 to
US $ 150 billion in 2003-04.
3. Foreign exchange reserves increased from about US $ 6 billion in 1990-91
to US $ 125 billion in 2004-05.
4. The growth of agriculture and industrial sector has declined whereas the
growth of service sector has gone up.
5. India became a successful exporter of auto parts, engineering goods, IT
software and textiles.

There has been high growth of the service sector in India, There is increase
in demand for services because:
1.It is more profitable for the other countries to contract services from
developing countries.
2. There is easy availability of skilled manpower at lower wage rate.
Negative Impact
Not being able to solve the basic problems facing our economy in the
areas of employment, agriculture, industry, infrastructure development and
fiscal management
Growth and Employment: NEP has not generated sufficient employment
opportunities
Adverse Effect on Agriculture: The growth rate in agriculture has been
decreasing during the reform period
Adverse Effect on Industrial Sector: Industrial growth has recorded a
slow down because of cheaper imports and inadequate investment in
infrastructure
Disinvestment: The assets of PSUs have been undervalued and sold to
the private sector. It has resulted in substantial loss to the government
Reforms and Fiscal Policy:
Tax reductions have not resulted in increase in tax revenue.
Tariff reduction have curtailed the scope for raising revenue through
custom duties
Tax concessions given to promote foreign investment further reduced
the scope for raising tax revenues


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