Liberalisation,

Privatisation and
Globalisation –An
appraisal
 Reasons for Economic Reforms
• Poor performance of Public Sector
• Deficit in Balance of Payment
• Inflationary Pressures
• Fall in foreign exchange reserves
1. To pay interest that need to paid to international
lenders 2. To finance import for more than two
weeks
• Huge burden of debts.
• Inefficient management
 Due to crisis India approached World
bank (IBRD) and IMF for help and get a
loan of $2 Billion as loan.
 New Economic Policy (July 1991)
• Stablisation Measures: It refers to short term measures:
(1) Correcting weakness of the balance of payments by maintaining
sufficient foreign exchange reserves
And
(2) Controlling inflation by keeping the rising Price under control
__________________________________________________________
• Structural Refoms Measures: It refers to long terms measures
(1) Improving the efficiency of the economy
(2) Increasing international competitiveness by removing by rigidities in
various segments of the Indian Economy
 Liberalisation

New
Economic Privatisation
Policy

Globalisation
LIBERALISATION:
“Removal of entry and growth
restrictions on the private sector. “

• PURPOSE:
1. To encourage private sector and MNCS to Invest
and increase economic potential of India.
2. To Introduce much more competition into the
economy.
Economic Reforms under Lilberalisation
Industrial Financial
sector Sector
reforms Reforms

Foreign
Tax Reforms Exchange
Reforms

Trade and
Investment
policy Refoms
Industrial Sector Reforms
• Introduced on july 24, 1991
• Important Points:
1. Reduction in
Industrial
Licensing:
(a) Except some ( Liquor,
defense equipments ,
industrial explosives ,
smoking and chemicals etc.)
sectors rest sectors now
need not to take license from
the government.
(b) Now no license is required to set up new Industries and to expand
or diversify the existing line of manufacture.
2. Decrease number of Industries reserved for public
sector: The number of Industries reserved for public sector now
reduced from 17 (Before ) to 8 Industries (Defense , Atomic and
Railway)
3. De-reservation under small scale Industries: Many
product reserved for SSI were deserved now:
(a) The Investment ceiling on Plant and Machinery for small scale
Industries have now been deserved.
(b) In many Industries the market was allowed to determine the
prices through market forces not by directive policy of the
government.
4. Monopolies and Restrictive Trade Practice (MRTP ) Act
were eliminated and introduced new act name
competition act 2002.
 Financial Sector Reforms
• Change in role of RBI: Regulator to facilitator.
• Origin of Private Bank: Indian bank like ICICI and
Foreign bank like HSBC.
• Increase in limit of foreign Investments: Limit of
foreign Investment was raised to around 51%. FII
such as merchant bankers, mutual funds and
pension funds were now allowed to invest in Indian
financial markets.
• Ease in Expansion Process: Bank were given
freedom to set up new branches (after fulfillment of
certain conditions) without the approval of the RBI.
Tax Reforms:
“ It refer to reforms in government’s taxation and public expenditure
policies , which are collectively known as its ‘ Fiscal Policy’.
• Tax are of two types:
1 Direct Tax
2 Indirect Tax

MAJOR TAX REFORMS ARE:

(A) Reduction in Taxes
(B) Reforms in Indirect Taxes
(C) Simplification of Process
• Foreign Exchange • Trade and Policy
Reforms Reforms
• Reforms were Initiated due
• Devaluation of to following reasons:
•
Rupee To increase International competitiveness of
Industrial Production
• To Increase foreign Investments and
• Market •
technology in to the economy
To promote efficiency of local Industries and

Determination of to adopt new technology

• THE ABOVE REFORMS

Exchange Rate INCLUDED:
• Removal of Quantitative restriction on
Imports and Exports.
• Removal of Export duties
• Reduction in Import duties
• Reduction in Import Licensing system
Privatisation:
“ It refers to transfer of
ownership, management
and control of public
sector enterprises to the
entrepreneurs in the
private sector

• Examples : IPCL, IBP and Maruti Udyog etc.

_________________________________
• Two ways to done privatisation:
• By transfer of ownership and management.
• By selling off part of the equity of PSUS to the public
(Disinvestment).
PARTICULARS YEARLY TURNOVER NET PROFIT EXAMPLES
( average of last 3 ( average of last 3
years) years)

MAHARATNAS More than 25000 More than 5000 crore BHEL, GAIL , IOC etc.
(10) crore

NAVRATNAS Up to 25000 crore Up to 5000 crore Bharat Electronics Ltd,

(14) MTNL, Oil India ltd Etc.

MINIRATNAS 30 crore or more ------ Airport authority of India,

(74) Hindustan Newsprint ltd
Pawanhans helicopters ltd
Globalisation

• Globalisation: “ It means integrating

the national Economy with the world
economy through removal of barriers
on international trade and capital
movements”.
• It aim to create a boarder less world.
 Changes made by the Globalisation of
Indian Economy:
• NEP prepared a list of specified list of high
technology and high investment priority industries,
in which automatic permission will be available for
FDI up to 51 percent of foreign equity.
• In Respect of foreign technology agreements,
automatic permission is provided in high priority
industry up to a sum of Rupee 1 crore. No
permission is now required for hiring foreign
technicians or for testing indigenously developed
technology abroad.
Changes made by the Globalisation of
Indian Economy:

• In order to make international adjustment of

Indian currency, rupee was devalued in JULY 1991
by nearly 20 percent. It stimulated exports,
discouraged imports and raised the influx of
foreign capital.
• To integrate Indian economy with world, the
Union Budget 1992-93 made Indian rupee
partially convertible and then the rupee was
made fully convertible in 1993-94 budget.
Changes made by the Globalisation of
Indian Economy:
• A new five year export-Import policy (1992-97)
Was announced by the Government to establish the
framework of globalisation of India’s foreign trade. The
policy removed all restrictions and controls on the
external trade and allowed market forces to play a
greater role in respect of exports and Imports.
• In order to bring the Indian economy within the ambit
of global competition , the government has modified the
customs duty to a considerable extent. Accordingy, the
peak rate of customs duty has been reduced from 250
percent to 10 percent in 2007-2008 budget.
POSITIVE IMPACT NEGATIVE IMPACT
• GREATER EXCESS TO • IT WILL GIVE MORE BENEFIT TO
DEVELOP COUNTRIES AS THEY
GLOBAL MARKET WILL GET MARKETS TO SELL
THEIR PRODUCT.
• ADVANCED • IT COMPROMISE THE WELFARE
TECHNOLOGY AND IDENTITY OF PEOPLE OF
POOR COUNTRY.
• TO GIVE A CHANCE • IT WILL INCREASE THE
TO DOMESTIC ECONOMIC DISPARITIES AMONG
NATIONS AND PEOPLE .
INDUSTRY TO WORK
IN INTERNATIONAL
ARENA
Outsourcing : “It refers to contracting
out some of its activities to a third
party which were earlier performed
by the organisation”
• Features : • Due to telecommunication
• It is an outcome of links now it is easy to
globalisation digitised and transmitted
• It has intensified in recent the text, voice and visual
times due to growth of data in other countries even
communication and IT. continents.
 Why India is a favourable destination for
Outsourcing ?
• ANSWER: India is a favourable destination for
outsourcing because of low wage rate and
availability of skilled manpower
____________________________________________
Some of the examples of Outsourcing are:
1. Voice-based business processes ( known as BPO or
Call centers)
2. Record keeping 3. Accountancy 4. Banking services
5. Music Recording 6. Film editing 7. Book
transcription 8. Clinical advice etc.
WTO
OR
GATT
• GATT was established in 1948 with 23 countries
and
WTO was founded in 1995 as the successor.
• FUNCTIONS:-
• To facilitate International trade (bilateral and multi-lateral trade)
• To establish a rule- based trading regime.
• To ensure optimum utilisation of world resources
• To protect the environment
• SHOULD INDIA BE A • Bilateral Trade: Trade
MEMBER OF WTO between two countries.
• REASON(NOT TO • Multi lateral Trade: Trade
between more than two
BE A PART) countries.
1. Major volume of • Tariff Barriers: The barriers
International trade which are imposed on
occurs among the imports to make them
developed nations relatively costly and to
2. As developing countries protect the domestic
are being cheated as they production are known as
are forced to open up Tariff Barriers.
their markets for • Non Tariff Barriers:
developed countries Imposed on the amount of
Imports and Exports.
 Pros of Economic Reforms
1) Increase in rate of Economic Growth Due to
Economic reforms GDP was 5.6% during 1990-91. During
2018-19 , growth in GDP is estimated at 7.2% as
compared to growth rate of 6.7% in 2017-18.
2) Inflow of foreign Investment: The FDI and FII
increased from about US$ 100 million in 1990-91 to US$
73.3 billion in 2014-15.
3) Rise in Foreign Exchange Reserve: FER increases
from US$ 6 billion in 1990-91 to about US$ 321 billion in
2014-15.
4) Rise in Export: Increase in Export of Auto parts,
engineering goods, IT software and textiles.
 Pros of Economic Reforms
5) Control on Inflation: Control on Inflation by
increase in production and tax reforms.
6) Increase in role of private sector: Abolition of
licensing system and removal of restrictions on
entry of private sector
Criticism of Economic Reforms

Growing Unemployment

Neglect of Agriculture

Low level of Economic Growth

Ineffective Disinvestment Policy

Ineffective Tax Policy

Spread of Consumerism

Unbalance Growth
Agriculture sector appears to be adversely
affected by the reform Process Why?
• Resons:
• Reduction of Public Investment: Investment in Agriculture
especially in Infrastructure has been reduced.
• Removal of Subsidy: Removal of Subsidy from Fertilizers
increase the cost of Production.
• Liberalisation and reduction in Import duties:
Following policies adversely affected and created international
competition for the farmers:
1. Reduction in Import duties on Agricultural products.
2. Removal of MSP 3. Increase quantitative restrictions
• Shifting toward cash crops: Export – oriented policy in agriculture
forced farmer to produce cash crop which increased the price of
food grains
Why Industrial sector recorded a slow
growth during the reform period?
• Reasons:
• Cheaper Imported Goods: Cheaper Imported goods
replaced the demand for domestic goods and domestic
manufactures started facing competition from Imports. Example:
Chinese goods.
• Lack of Infrastructure facilities: Example : Power supply
remained inadequate due to lack of Investment.
• Non Tariff Barriers by Developed countries: Some
developed countries like USA had not removed their quota
restrictions on import of textiles from India.
Ineffective Govt. always fixed a target of

Disinvestment disinvestment . Like Govt. fixed a target of

Policy Rs. 56000 crore (2014 - 15) of

Disinvestment but done only of Rs. 34,500 crore .

• Reasons behind ineffective policy:

1. Assets of PSEs were under valued and sold to
private sector.
2. Amount received from disinvestment were used
to compensate government revenue rather than
using it for the development of PSEs and Building
social Infrastructure
• Ineffective tax policy: • Spread of Consumerism:
Tax reduction was done to Encouraging a dangerous
generate larger revenue trend of consumerism by
and to curb tax evasion. encouraging the production
But did not result to of luxuries and items of
increase in tax revenue for superior consumption.
the government; • Unbalance growth:
• Tariff reduction decreased In place of working in
the scope for raising Primary sector and
revenue through customs secondary sector govt.
duties. worked a lot in finance,
• This policy attract foreign entertainment and
investments further telecommunication, travel
reduced the scope for and hospitality services etc.
raising tax revenues.
THANK
YOU