THE NEW INDUSTRIAL POLICY- 1991

LIBERALISATION
PRIVATISATION GLOBALISATION

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 CONTENTS

 Introduction
 Reasons for implementing LPG
 Liberalization
 Privatization
 Globalization

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 Introduction

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: -

1.Liberlisation (internal and external)
2.Extending Privatization
3.Globalisation of the economy
Which are known as “LPG”. (libearlisation privatisation
globalisation)

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 Reasons for implementing LPG
 Excess of consumption and expenditure over
revenue resulting in heavy govt. borrowings.
 Growing inefficiency on the use of resources.
 Over protection to industries.
 Mismanagement of the firm and the economy.
 Increase in losses for public sector enterprises.
 Various distortion like poor technological
development, shortage of foreign exchange and
borrowing from abroad.
 Low foreign exchange reserves.
 Inflation
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 Liberalization

Liberalization is a very broad term that usually refers to

fewer government regulations and restrictions in the
economy.
Liberalization refers to the relaxation of the previous
government restriction usually in area of social and
economic policies. When government liberalized trade ,
it means it has removed the tariff ,subsidies and other
restriction on the flow of goods and services between
the countries.

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 The Path of liberalization
 Relief for foreign investors
 New industrial Policy
 New trade policy
 Removal of import Restrictions
 Liberalization of NRI remittances
 Freedom to import technology
 Encouraging foreign tie-ups
 MRTP relaxation
 Privatization of public sector

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 Advantages of liberalization

 Industrial licensing
 Increase the foreign investment.
 Increase the foreign exchange reserve.
 Increase in consumption and Control over
price.
 Check on corruption.
 Reduction in dependence on external
commercial borrowings

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 Disadvantages of Liberalization

 Increase in unemployment.
 Loss to domestic units.
 Increase dependence on foreign
nations
 Unbalanced development

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 Privatization

Privatization means transfer of ownership and/or

management of an enterprise from the public sector to
the private sector .It also means the withdrawal of the
state from an industry or sector partially or fully.

Privatization is opening up of an industry that has been

reserved for public sector to the private sector.
Privatization means replacing government monopolies with
the competitive pressures of the marketplace to
encourage efficiency, quality and innovation in the delivery
of goods and services.

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 Need for Privatisation.

Though the PSUs have contributed heavily to develop the

industrial base of the country, they continue, even today, to
suffer from a number of shortcomings which are identified
below very briefly :-
 A sizable number of PSUs have been incurring and reporting
losses on a continual basis. Consequently, a large number of
PSUs have already been referred of loss giving units;
 Multiplicity of authorities to whom the PSUs are
accountable;
 Delay in implementation of projects leading to cost escalation
and other consequences;

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 Ineffective and widespread inefficiency on management;
 With a view to provide opportunities for more and more
unemployed youths, more number of people, than required,
were recruited and therefore, many PSUs are over-staffed
resulting in lower labour productivity, bad industrial relations,
etc.;
 A number of sick companies (40 companies) which were in
the private sector was taken over by public sector mainly to
protect the employees. These sick units are causing a big drain
on the resources of the state; etc.

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 Advantages of Privatization

 Privatization helps to reduce the burden on Govt.

 It will help profit making public sector unit to modernize
and diversify their business.
 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.
 Privatization may help in reviving sick units which are the
liability of the public sector.
 Industrial growth.
 Increase the foreign investment.
 Increase in efficiency.
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Disadvantages of Privatization

 Industrial sickness.
 Lack of welfare.
 Class struggle.
 Increase in inequality
 Opposition by employees.
 Problem of financing.
 Increase in unemployment.
 Ignores the weaker sections.
 Ignores the national importance

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Examples of privatization in India

 Lagan Jute Machinery Company

Limited (LJMC)
 Videsh Sanchar Nigam Limited (VSNL)
 Hindustan Zinc Limited (HZL)
 Hotel Corporation Limited of India
(HCL)
 Bharat Aluminum Company limited
(BALCO)

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 Globalization

Globalization implies integration of the

economy of the country with the rest of the
world economy and opening up of the
economy for foreign direct investment by
liberalizing the rules and regulations and by
creating favorable socio-economic and political
climate for global business.

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 According to IMF: -”The growing economic
interdependence of countries worldwide
through increasing volume and variety of
cross border transaction in goods and services
and of international capital cash flows, and
through the more rapid and widespread
diffusion of technology.”

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 Features of Globalization

 Opening and planning to expand business

throughout the world.
 Erasing the difference between domestic market
and foreign market.
 Buying and selling goods and services from/to any
countries in the world.
 Locating the production and other physical facilities
on a consideration of the global business dynamics
,irrespective of national consideration.

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  Basing product development and production planning
on the global market consideration.
 Global sourcing of factor of production i.e. raw-
material, components , machinery,technology,finance
etc. are obtained from the best source anywhere in
the world.
 Global orientation of organizational structure .and
management culture

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 Pros and Cons of Globalisation
Globalization have several benefits ,these are: -
 Free flow of capital and increase in the total
capital employed.
 Free flow of technology.
 Increase in industrialization.
 Spread of production facilities throughout the
globe.
 Balanced development of world economies.
 Increase in production and consumption.
 Commodities at lower price with high quality.
 Increase in jobs and income.
 Higher Standard of living.
 Balanced human development
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 Negative effects of Globalization

 Loss of domestic industries

 Exploits Human resource
 Decline in income
 Unemployment
 Transfer of natural resources
 Lead to commercial and political colonism
 Widening gap between rich and poor
 Dominance of foreign institutions

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CONCLUSION

Economic liberalization has increased the responsibility

and role of the private sector. At the same time, it has
reduced the control of the government on economy
affairs. It is expected that the reforms would liberalize
the Indian economy enough to create a conducive
environment for rapid economic development.


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 The process of reforms according to many economists
and social scientists is not fast enough to achieve the
goals. Jeffrey Sachs, director of Harvard University’s
center for international development and a noted
economist, pointed out that the reform process in India
had a long way to go. He feels that without a focus on
the “twin pillars” of social and economic strategies, the
future would be bleak for India, especially in the context
of competition all around.

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 The government, however, is reluctant to give up its role of
owning and controlling economic activities. At the same time
its inability to spend for providing minimum health and
education services. It is eager to spend on higher education
without spending enough on primary and secondary
education. It has failed in providing a corruption free
administration, an essential precondition for increasing
competitiveness.
Success of the economic reforms depends upon the
commitment of all concerned – people, political parties,
bureaucracy, and government – to the socio economic
progress of the country.
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