LIBERALISATION PRIVATISATION GLOBALISATION » ® PHILIP S. PRIYANKA DEEPAK KUMAR SAMUEL RAJKUMARHISTORY..... o July 1991,India has taken a series of measures to structure the economy and improve the BOP position. The new economic policy introduced changes in several areas. The policy have salient feature which are: © Liberalization (internal and external) o Extending Privatization o Globalization of the economy Which are known as “ LPG ”. (liberalization privatization globalization)REASONS... © 1991 CRISIS Towards the end of 1980s, India was facing a Balance of Payments (BoP) crisis, due to unsustainable borrowing and high expenditure. The Current Account Deficit (3.5 percent) in 1990-91 massively weakened the ability to finance deficit. Macroeconomic Indicators and Balance of Payments Situation in 1990-199: © The trade deficit crore in 1990-91, © The current account deficit increased from Rs. 11,350 crore in 1989-90 to Rs. 17,350 crore in 1990-91. o The CAD/GDP ratio increased from 2.3 in 1989-90 to 3.1 percent in 1990- 91. Besides this, the fiscal deficit to GDP ratio was more than 7 percent during the two years 1989-90 and 1990-91. The foreign exchange reserves, meant to cover import costs for two years (1989-1991), were just sufficient to cover close to two and half months of imports. increased from Rs. 12,400 crore in 1989-90 to Rs. 16,900© The average rate of inflation was 7.5 percent in 1989-90, which went up to 10 percent in the year 1990-91. In 1991-92, it crossed 13 percent. The GDP growth rate which was 6.5 percent in 1989-90, went down to 5.5 percent in 1990-91. © The Balance of Payments crisis also affected the performance of industrial sector. The average industrial growth rate was 8 percent in the second half of 1980s. In 1989-90, it was 8.6 percent and in 1990-91 it was 8.2 percent. © India’s foreign exchange reserves stood at Rs. 5,277 crore on 31 December 1989, which declined to Rs. 2,152 crore by the end of December 1990. Between May and July 1991, these reserves ranged between Rs. 2,500 crore to 3,300 crore. © DrManmohan Singh, from the Indian National Congress was the 19th Finance Minister of India, from 21st June 1991 to 16th May 1996, when P. V. Narasimha Rao was the Prime Minister of India.DEFINATION © Liberalization is a relaxation of government restrictions, usually in such areas of social, political and economic policy. This may be similar to deregulation. o Examples for liberalization i. Abolishing licensing requirement in most of the industries 2. Freedom in fixing the prices 3. Freedom in deciding the scale of business activitiesDEFINATION o Privatization : The transfer of ownership, property or business from the government to the private sector is termed privatization. The government ceases to be the owner of the entity or business. The process in which a publicly-traded company is taken over by a few people is also called privatization. o Example for privatization 1. Sale government sector to private sector o METHODS | FRANCHISING 2. LEASING 3, CONTRACTING 4. DISINVESTMENTDEFINATION © Globalization the process by which businesses or other organizations develop international influence or start operating on an international scale. o Examples for globalization i. Organizations such as the Red Cross respond quicker to disasters around the world.POLICIES UNDER LIBERALIZATION o Abolition of license except in few. o No restriction on expansion or contraction of business activities. o Liberalization in import and export. o Easy and simplifying the procedure to attract foreign capital in India. o Freedom in movement of goods and services. o Freedom in fixing the prices of goods and services.POLICIES UNDER PRIVATIZATION o Disinvestment of public sector, i.e., transfer of public sector enterprise to private sector. o Setting up of Board of Industrial and Financial Reconstruction (BIFR). This board was set up to revive sick units in public sector enterprises suffering loss. o Dilution of Stake of the Government. If in the process of disinvestments private sector acquires more than 51% shares then it results in transfer of ownership and management to the private sector.POLICIES UNDER GLOBALIZATION o Import Liberalization. Government removed many restrictions from import of capital goods. o Foreign Exchange Regulation Act (FERA) was replaced by Foreign Exchange Management Act (FEMA) o Rationalization of Tariff structure. 0 Abolition of Export duty. o Reduction of Import duty.o Foreign Exchange Regulation Act (FERA) The Foreign Exchange Regulation Act (FERA) was legislation passed in 1973 that imposed strict regulations on certain kinds of payments, the dealings in foreign exchange (forex)and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency. o Foreign Exchange Management Act The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India".o Rationalization of Tariff structure o Tariff_a tax or duty to be paid on a particular class of imports or exports. © Rationalization is a reorganization of a company in order to increase its efficiency. This reorganization may lead to an expansion or reduction in company size, a change of policy, or an alteration of strategy pertaining to particular products.IMPACTS OF THESE POLICIES Increasing Competition More Demanding Customers Rapidly Changing Technological Environment Necessity for Change : Prior to 1991 business enterprises could follow stable policies for a long period of time but after 1991 the business enterprises have to modify their policies and operations from time to time. Need for Developing Human Resources Market Orientation: Loss of Budgetary Support to Public Sector Export a Matter of Survival oooo°o oo00LIBERALIZATIONADVANTAGE Industrial licensing Increase the foreign investment. Increase the foreign exchange reserve. Increase in consumption and Control over price. Reduction in dependence on external commercial borrowings. Competition promotes efficiency, so resources are wasted much less. Liberalization allows financial markets to provide loans to people who previously may not have been able to access loans that they can pay off, and it allows more financial instruments to be developed so people can choose the one that suits them. o Liberalization removes government regulations on the economy. CoO GG GO 6DISADVANTAGE o Increase in unemployment. o Loss to domestic units. o Increase dependence on foreign nations o Unbalanced developmentPRIVATIZATIONADVANTAGE o Privatization helps to reduce the burden on Govt. © It will help profit making public sector unit to modernize and diversify their business. o It will help in making public sector unit more competitive. © It will help to improving the quality of decision making, because the decisions are free from any political interference. It Encourage the new innovations without any restrictions. o Industrial growth. o Increase the foreign investment. o Increase in efficiencyDISADVANTAGE *¢ «¢ o Lack of welfare. o Class struggle. o Increase in inequality Opposition by employees. o Problem of financing. o Problem in unemployment. o Ignores the weaker sections. o Ignores the national importance.GLOBALISATIONADVANTAGE o Increase in Trade in Goods and Services. o Free flow of technology. o Increase in industrialization. o Increase in production and higher standard of living. o Commodities at lower price with high quality. o Increase in jobs and incomes. o Balanced human development.DISADVANTAGE o Loss of domestic industries. o Exploits human resources. o Decline in income o Transfer of natural resources. o Widening gap between rich and poor. o Dominance of foreign institute.