An Overview Of Liberalization,

Privatization and Globalization

Indian economy had experienced major policy changes in
early 1990s. The new economic reform, popularly known as,
Liberalization, Privatization and Globalization (LPG
model) aimed at making the Indian economy as fastest
growing economy and globally competitive. The series of
reforms undertaken with respect to industrial sector, trade
as well as financial sector aimed at making the economy
more efficient.

With the onset of reforms to liberalize the Indian economy
in July of 1991, a new chapter has dawned for India and her
billion plus population. This period of economic transition
has had a tremendous impact on the overall economic
development of almost all major sectors of the economy,
and its effects over the last decade can hardly be
overlooked. Besides, it also marks the advent of the real
integration of the Indian economy into the global economy.

To be Continued

This era of reforms has also ushered in a remarkable
change in the Indian mindset, as it deviates from the
traditional values held since Independence in 1947, such as
self reliance and socialistic policies of economic
development, which mainly due to the inward looking
restrictive form of governance, resulted in the isolation,
overall backwardness and inefficiency of the economy,
amongst a host of other problems. This, despite the fact that
India has always had the potential to be on the fast track to
prosperity.

Now that India is in the process of restructuring her
economy, with aspirations of elevating herself from her
present desolate position in the world, the need to speed up
her economic development is even more imperative. And
having witnessed the positive role that Foreign Direct
Investment (FDI) has played in the rapid economic growth
of most of the Southeast Asian countries and most notably
China, India has embarked on an ambitious plan to emulate
the successes of her neighbors to the east and is trying to sell
herself as a safe and profitable destination for FDI.
Definitions Of The Term
Liberalization and
Economic Liberalization

The term Liberalization stands for the act of making less
strict.
Liberalization in Economy stands for The process of
making policies less constraining of economic activity." And
also Reduction of tariffs and/or removal of non-tariff
barriers.
Economic liberalization is a very broad term that usually
refers to fewer government regulations and restrictions in
the economy in exchange for greater participation of
private entities; the doctrine is associated with neo-
liberalism. The arguments for economic liberalization
include greater efficiency and effectiveness that would
translate to a "bigger pie" for everybody.




In developing countries, economic liberalization refers more
to liberalization or further "opening up" of their respective
economies to foreign capital and investments. Three of the
fastest growing developing economies today; Brazil, China
and India, have achieved rapid economic growth in the past
several years or decades after they have "liberalized" their
economies to foreign capital.

Most first world countries, in order to remain globally
competitive, have pursued the path of economic
liberalization: partial or full privatization of government
institutions and assets, greater labor-market flexibility,
lower tax rates for businesses, less restriction on both
domestic and foreign capital, open markets, etc. British
Prime Minister Tony Blair wrote that: "Success will go to
those companies and countries which are swift to adapt,
slow to complain, open and willing to change. The task of
modern governments is to ensure that our countries can rise
to this challenge.
Impact Of Liberalization On
Indian Economy
The low annual growth rate of the economy of India before
1980, which stagnated around 3.5% from 1950s to 1980s,
while per capital income averaged 1.3%.At the same time,
Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%,
South Korea by 10% and in Taiwan by 12%.
Only four or five licenses would be given for steel, power
and communications. License owners built up huge
powerful empires.
A huge public sector emerged. State-owned enterprises
made large losses.
Infrastructure investment was poor because of the public
sector monopoly.
License Raj established the "irresponsible, self-
perpetuating bureaucracy that still exists throughout much
of the country" and corruption flourished under this
system.
Financial Liberalization
Capital Account
& Financial Liberalisation
Impact on Government Budget Impact on Private Economy
Revenue & Expenditure Private Flows Official Flows Domestic Financial Markets Foreign Multinationals
Access To Credit Industrial Performance
Definitions Of The Term
Privatization and Economic
Privatization
The term Privatization refers to The transfer of
ownership of property or businesses from a government to a
privately owned entity.

The transition from a publicly traded and owned company
to a company which is privately owned and no longer trades
publicly on a stock exchange. When a publicly traded
company becomes private, investors can no longer purchase
a stake in that company.

The process of converting or "selling off" government-
owned assets, properties, or production activities to private
ownership. After several decades of increasing government
control over productive activities, privatization came into
vogue in the 1980s, along with business deregulation and an
overall movement toward greater use of markets.

Privatization is frequently associated with industrial or
service-oriented enterprises, such as mining, manufacturing
or power generation, but it can also apply to any asset, such
as land, roads, or even rights to water. In recent years,
government services such as health, sanitation, and
education have been particularly targeted for privatization
in many countries.


Privatization helps establish a "free market", as well as
fostering capitalist competition, which its supporters argue
will give the public greater choice at a competitive price.
Conversely, socialists view privatization negatively, arguing
that entrusting private businesses with control of essential
services reduces the public's control over them and leads to
excessive cost cutting in order to achieve profit and a
resulting poor quality service.



Impact Of Privatization On
Indian Economy

It frees the resources for a more productive utilization.

Private concerns tend to be profit oriented and transparent in their
functioning as private owners are always oriented towards making
profits and get rid of sacred cows and hitches in conventional
bureaucratic management.

Since the system becomes more transparent, all underlying
corruptions are minimized and owners have a free reign and
incentive for profit maximization so they tend to get rid of all free
loaders and vices that are inherent in government functions.

Gets rid of employment inconsistencies like free loaders, or over
employed departments reducing the strain on resources.

Reduce the government's financial and administrative burden.

To be continued

Effectively minimizes corruption and optimizes output and
functions.

Gets rid of employment inconsistencies like free loaders, or
over employed departments reducing the strain on
resources.

Private firms are less tolerant towards capitulations and
appendages in government departments and hence tend to
right size the human resource potential befitting the
organization's needs and may cause resistance and
disgruntled employees who are accustomed to the benefits
as government functionaries

Permit the private sector to contribute to economic
development.

Development of the general budget resources and
diversifying sources of income.



Privatization Chart