Unit IV, V and VII PDF

RAIGANJ UNIVERSITY: BUSINESS ENVIRONMENT
UNIT IV UNIT V UNIT VII

STRUCTURAL CHANGES IN THE INDIAN ECONOMY
AFTER LIBERALISATION
INTRODUCTION
The year 1991 marked a watershed in the process of growth of the Indian
economy. Since 1991, there has been a major change in the strategies of
development of Indian economy. This has come to be known as the new economic
policy. Some people call this change as economic reforms. The new economic
policy was based on three major policy measures, namely (i) the policy of
liberalisation (L), (ii) the policy of privatisation (P), and (iii) the policy of
globalisation (G). Liberalisation policy was characterised by liberalisation of the
Indian economy from various types of controls, licensing, and permits, which
regulated the non-agricultural sector before 1991. The policy of privatisation
basically implied expansion of the private sector and limiting the role of the
public sector. Globalisation was the policy of opening up the Indian economy to
the other economies of the world. Thus, the new economic policy has three broad
components, popularly known as LPG. The new economic policy has resulted in
remarkable changes-aggregate as well as structural-in the Indian economy.
NEED FOR ECONOMIC REFORMS

The need for economic reforms arose from a large variety of factors.
1. Weakness of the Pre-1991 Policies:
One of the important factors which led to economic reforms was the weaknesses
of pre-1991 economic policies which resulted in low rate of economic growth,
rising unemployment, stagnation in the rate of domestic savings and investment.
poor performance of the public sector industries, inadequate infrastructural
facilities, slow industrial development and growth of monopolies, etc.
However, there prevailed certain crisis like situations in 1994 and 1991 like
foreign exchange crises, pressure of World Bank, which pushed India towards
liberalisation and globalisation.
2. Major Foreign Exchange Crisis:

In the year 1991, Indian economy faced an acute shortage of foreign exchange
Several factors were responsible for this crisis.
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First, the immediate cause for the foreign exchange crisis was the war between
the Gulf countries of Iraq and Kuwait in 1990-91. This pushed up oil prices and
as a result the oil import bill went up substantially.
Second, India's external debt had increased over time. The burden of interest and
repayment of old debts was very large. Fresh debts were being denied by the
international institutions such as the International Monetary Fund (IMF) and the
World Bank as well as by other commercial lenders. This resulted in drying up of
foreign exchange.
Third, foreign exchange in the form of NRI deposits was being withdrawn very
rapidly because of the political instability and uncertainty at home.
Finally, the growth in imports had always been far more than the growth in
exports. This led to deficit in the current account of balance of payments. Deficit
in the balance of payments had been rising continuously since 1980-81. India had
to, therefore, depend on foreign loans to cope with the deficit. Hence, foreign debt
was always on rise. The burden of foreign debt servicing (repayment of loan and
payment of interest) increased tremendously. For instance, foreign debt servicing,
constituted 30 per cent of export earning in 1990-91.
Very soon, the foreign exchange crisis took a serious turn. Between January 1991
and June 1991, India reached a situation in which it had foreign exchange just
enough to meet the import needs of only about three weeks. India was almost on
the edge of defaulting on its foreign lenders claims. As a result, the foreign
exchange reserves with the Reserve Bank of India almost dried up. The situation
became so grave that the then government of Chandrashekhar had to mortgage
country's gold reserve with the World Bank to meet its foreign debt servicing
obligations.
3. Conditionalities Imposed by IMF and World Bank:

In view of the foreign exchange crisis, the Government of India was pushed to
the wall. Therefore, it had to approach the IMF and the World Bank to tide over
the crisis. These institutions provided the much-needed foreign exchange, but on
their own terms and conditions. As part of these conditions, India was required to
cut down fiscal deficit and the growth of money supply. It was also required to
liberalise the domestic economy and to relax restrictions on international flow of
goods, services, capital, and technology. Therefore, under the pressure from the
IMF and the World Bank, the Indian policy-makers were almost pressurised to
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make several changes in economic policy before the country could obtain fresh
credit from the IMF and the World Bank to tide over the crisis.
Thus, desperate conditions of 1990 and 1991 and the pressure of the IMF and the
World Bank pushed India towards globalisation.
4. Fall of USSR (Union of Soviet Serial Republics):

The USSR and the East European countries had become the major markets for
Indian consumer goods over the years. At the end of 1990, political system of
these countries collapsed. Most of these countries became market-oriented
economies. India had to open up trade with these and other countries on the basis
of its ability to compete. It had to compete in the global market to retain its share
of exports. India had, therefore, to reorganise its own policies to preserve its share
in the world market.
The foreign exchange crisis was clearly an important factor. But the decision to
bring in economic reforms was innovative. It cannot be explained by the
economic crisis alone because the reforms went much beyond what IMF and
World Bank were pressing for. In any case, the foreign exchange crisis was over
in 1993, but the government was keen on reforms independent of the crisis. Thus,
India embarked on bold new path of Economic reforms.
POLICY OF LIBERALISATION OF INDIAN ECONOMY
The policy of liberalisation forms an important part of economic reforms

characterising the new economic policy.
Meaning of Liberalisation
Economic liberalisation is the policy of deregulation of different segments of
the economy. It is the policy of doing away or reducing the government controls
over industry, investment, imports, foreign exchange and other activities, which
existed before 1991. The objective of introducing the liberalisation policy in 1991
was to move away from a regulated system towards a new system where
regulations were to be reduced and ultimately minimised. Different sectors of the
economy were to be freed from various types of controls, licences and permits
The Indian policy-makers were not thinking of a policy of laissez-faire, i.e.,
completely unregulated economy, but of reduced regulations. It was believed that
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the strengthening of the market forces would steer the Indian economy into the
path of growth and development.
11.3.2 Features of Liberalisation Policy
The main features of the policy of liberalisation are as follows:
1. Delicensing:
Before 1991, there existed a regulatory system of licensing and controls
Industries covered under this system were required to be registered and were
granted licences by the government. The regulatory system of licensing and
controls became a hurdle in the industrial growth. It caused delays and was
breeding corrupt practices. The industrial licensing policy led to unnecessary
government interference, delays in investment decisions, bureaucratic red-
tapism, etc. The regulatory measures also created an inefficient, high-cost and
weak industrial sector. Thus, the license permit raj meant a slow industrial and
economic development. Therefore, there was the need to review these measures.
The thrust of the policy of liberalisation was on abolishing the requirement of
licensing of industries. In most cases, the industrial policy of 1991 made the
licensing policy very liberal. The requirement of licensing was abolished for most
of the industries except five (alcohol, cigarettes, hazardous chemicals, defence
equipments, and industrial explosives for security, strategic, social, and
environmental reasons). Entrepreneurs are now free to enter any industry, trade,
or business. In many cases, licences are no longer needed to start business as was
the case earlier. The approval for any new venture, including any change in the
existing venture, is almost automatic now. The licensing procedures in other cases
(where they are still needed) have been streamlined so as to remove various
irritants in the operation of the licensing system. The removal of licensing system
has given a greater role to the market forces.
2. Relaxation in Controlling Monopolies:

Under the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, all the
firms with assets above a certain amount (Rs. 100 crore since 1985) were
permitted to enter selected industries only, and they were required to take
approval of the government for any investment proposals. This Act has been
abolished as part of liberalisation policy. In order to make deregulation more
effective, restrictions on functioning of monopolies have been relaxed. Monopoly
houses are no longer required to seek prior government approval for expansion
and establishment of new industries. The emphasis has shifted now to controlling
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and regulating the monopolistic and restrictive unfair trade practices by taking
action against the offenders so as to safeguard the interest of the consumers.
3. Industrial Location Policy Liberalised:
In a departure from the earlier industrial location policy, freedom has been given
to industries to start their operation at all locations other than the cities with more
than one million population. There is no need for obtaining the approval of the
government, except for industries subject to compulsory licensing.
4. Removal of Restrictions on Mergers:
Restrictions on mergers, takeovers, separation of industrial units, etc., are all
removed.
5. Liberalisation of Capital Market:
Capital market has been made free. A new company can be floated now with the
issuance of new shares and debentures without seeking the permission of the
government. However, Securities and Exchange Board of India (SEBI) has been
set up as a watchdog for regulating the functioning of the capital market.
6. Foreign Exchange Market Reforms:
These reforms have been introduced in the foreign exchange market. Flexible
exchange rate has been introduced under which exchange rate is determined by
the market forces. The Reserve Bank of India (RBI) helps only to ensure that
there are no extreme fluctuations in the exchange rate. In 1993-94, the rupee was
made fully convertible into foreign currency on trade account. Exporters can now
convert the foreign currency earned by them into Indian rupees at the prevailing
market exchange rate. Similarly, importers can now buy the foreign currency
from the foreign exchange market at the market rate.
7. Foreign Trade Reforms:
Foreign trade policy underwent a substantial change in the wake of liberalisation.
Tariff restrictions have been considerably relaxed. Import controls have been
abolished thereby moving to market based method of allocating imports. The
policy of liberalisation has led to freedom to import capital goods and technology.
Imports quotas of manufactured goods and agricultural products were removed
in 2001.
8. Development of Infrastructure:
Private sector has been allowed to enter and develop the infrastructure such as
power, roadways, communications, shipping, civil aviation, banking, etc.
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9. Ease of Doing Business:
The NDA government has taken a series of measures during the last four years to
improve doing business in India. As part of this policy, existing rules regarding
various licenses and permissions needed for doing business in the country have
been simplified. This has created an investment- friendly environment in the
country.
10. Other Changes:
Several other changes such as liberalising the control of RBI on commercial
banks and price decontrols (for example, that of sugar and petroleum) have been
adopted as part of the policy of liberalisation. Banking reforms has led to a shift
of the role of RBI from a 'regulator' to a 'facilitator' of the financial sector.
Significance of Liberalisation Policy

1. Policy of liberalisation has tried to overcome the problems of ‘control raj’,
such as problems of uncalled delays, corruption, etc. It liberalised trade and
industrial policies and freed up capital market and the financial sector.
2. Liberalisation policy has provided freedom to the entrepreneurs. The business
entry has been liberalised now.
3. Liberalisation policy has injected a spirit of competition in the economic
system and has encouraged the entrepreneurs to undertake investment. This has
increased efficiency in the economy.
POLICY OF PRIVATISATION
The public sector enterprises were established in many countries primarily for
pragmatic reasons but partly for ideological reasons. In recent years, however,
with the emergence of a new philosophy of economic liberalisation, the private
sector and the market forces have acquired prominence once again. At this
juncture, the faith in the public sector is shaken. This is the case particularly in
the developing countries like India. In the past, the policy-makers in these
countries traditionally held the view that the public sector was the prime mover
for economic development. The Industrial Policy Resolution of 1956 assigned a
strategic role to the public sector in India. Accordingly, massive investment was
undertaken during the Five-Year Plans to build the public sector. There is no
denying the fact that public sector in India was able to establish the industrial base
in the country by developing heavy and basic industries and by providing
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requisite infrastructure. But developing countries all over the world today are
witnessing a change in their perception about the role of public sector in the
process of economic development. In this scenario, the role of the public sector
enterprises is being reappraised. In fact, the public sector enterprises are losing
their importance. In India also, the role of public sector is undergoing a change in
the wake of the new economic policy. An important factor responsible for decline
in the popularity of public sector enterprises in many countries is the process of
privatisation.
Meaning and Rationale of Privatisation
Privatisation basically implies the process which leads to transfer of ownership
of public sector enterprises from the government to the private sector. However,
taken in a wider sense, privatisation also implies the process of granting
autonomy to the public sector enterprises in decision-making and infusing the
spirit of commercialisation in them.
The process of privatisation started first in the UK and USA during 1980s. UK,
under the leadership of Mrs Margaret Thatcher, became the champion of
privatisation. It set in motion the programme of privatisation of state-run
enterprises by transferring British Airways to the private sector. A number of
public sector companies, including railways, oil, telecommunications, mining,
and bus services were sold off to the private sector. Privatisation of public sector
enterprises was undertaken on a large scale by President Ronald Reagan in USA
almost at the same time. This gave an impetus to privatisation in other developed
countries of the world such as West Germany, France, Japan, Canada, Italy, etc.
This was followed by privatisation in many former Communist countries and
developing countries of the world.
The supporters of privatisation have put forward the following arguments in
support of such privatisation:
1. Ideological Grounds:
Privatisation in the advanced countries is favoured on ideological grounds. The
central idea of this argument is that public sector enterprises should be confined
to essential activities, which the private sector cannot or will not perform. All
other activities should be performed by the private sector enterprises as they are
more efficient.
2. Improvement in Managerial Efficiency:
Privatisation is supported as a means of improving managerial efficiency.
Privatisation through disinvestment (i.e., the policy of sale of equities held by the
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government to private investors) will establish a direct relationship between the
shareholders and the management. The private shareholders would have direct
interest in increasing the efficiency of these enterprises. The management would
not be subjected to uncalled political pressure and interference. This would
remove the managerial inefficiency of public sector enterprises that arises due to
political intervention. Management would be guided by economic and
commercial considerations. It will help in improving the quality of decision-
making.
3. Creation of Competitive Environment:
Transfer of the ownership of the public sector enterprises to the private sector
would abolish their monopoly position. These enterprises will have to compete
with other similar enterprises. Therefore, a competitive environment can be
created. Such an environment would help in improving the competitive strength
and efficiency of these enterprises. It would infuse commercial spirit in the
enterprises. These enterprises would be under pressure to increase production
efficiency by using modern and improved technologies.
4. Profit-oriented Decisions:
Privatisation policy will help in infusing the commercial spirit in the functioning
of the enterprises. The private sector will introduce 'profit-oriented' decision-
making process in the working of enterprises. This will lead to an improvement
in the efficiency and performance of these enterprises.
5. Greater Flexibility in Decision-making:
Public sector enterprises normally do not enjoy sufficient functional autonomy.
This often leads to delay in decision-making. In fact, delayed decision-making is
often equivalent to making no decision at all. The policy of privatisation will be
helpful in imparting greater flexibility in the decision-making process.
Management would be free from any government intervention. It would not have
to consult others for any decision. It would be possible to take quick and timely
decisions, which is the hallmark of efficiency. Timely and prudent decisions will
improve the efficiency of business operation.
6. Reduction in Burden on Public Exchequer:
Operation of the public sector enterprises has been putting a large burden on
public exchequer because of huge losses incurred by a number of enterprises and
growing amount of subsidy payments. Privatisation would be helpful in reducing
this financial burden on the government. Government would not be under the
obligation of providing subsidy and making up for the losses.
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7. Greater Attention to Consumers' Satisfaction:
It is often argued that many a time the public sector enterprises do not get
personally involved with the needs of the consumers. However, the very survival
of the private enterprises depends on the satisfaction of the consumers. Private
enterprises have to give attention to the interest of the consumers for creating and
sustaining their market. Quality of service will improve thereby.
8. Greater Investment and Employment Opportunities:
Privatisation will lead to opening up of new areas to the private sector
enterprises, hitherto reserved for the public sector. This will lead to increase in
investment by the private sector. Higher investment would mean creation of larger
employment and income-earning opportunities in the economy.
9. Revival of Sick Units:
A number of public sector enterprises have been incurring losses for a long time.
They have become, more or less, sick units. Privatisation may help in reviving
such sick units, which have become a liability on the government.
10. Increase in Accountability:
Personnel in the public sector enterprises are not accountable for any lapse. There
is always the scope of responsibility being shifted to others. However, the areas
of responsibility in the private sector are clearly defined. Thus, privatisation will
lead to an increase in accountability of the personnel managing these enterprises.
11. Increase in Financial Discipline:
The public sector enterprises can get budgetary support from the government
irrespective of their performance. But the private sector enterprises will be able
to raise funds in the capital market only if they are performing well. Therefore,
privatisation will put pressure on the enterprises to perform well in order to raise
funds in the capital market. This will improve their financial discipline.
Arguments against Privatisation

A number of arguments have been advanced against the policy of privatisation:
1. Privatisation Not Always Desirable:
In many cases, public sector enterprises have been set up because the private
sector either does not possess the requisite resources or simply is not interested
because of long gestation period and low profitability. Many public sector
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enterprises are set up to achieve social welfare. Privatisation of such public sector
enterprises may not be possible because private sector may not be forthcoming to
acquire such public sector units.
2. Social Welfare Neglected:
Privatisation policy may sometimes neglect the consumers' interest. Private sector
enterprises operate mainly with the objective of profit maximisation. Private
operators would not like to provide goods at subsidised prices to the poor
consumers to promote social welfare. The private sector may not uphold the
principles of social justice and public welfare. They may be interested in
maximising their profit only. Thus, social welfare may be ignored under the
policy of privatisation.
3. Possibility of Unemployment:
One of the genuine fears is that privatisation will lead to unemployment. There
is always the fear of retrenchment and consequent unemployment when the public
enterprises are taken over by the private sector. The experience of privatisation in
many countries, including India, is testimony to the fact that this indeed has
happened.
4. Growth of Private Monopoly:
Another genuine apprehension is that the sale of a public sector undertaking to a
private company may only result in the substitution of a public monopoly by a
private monopoly. This may lead to monopolistic exploitation by efficient private
owners replacing the inefficient public ownership. Privatisation of electricity in
Delhi has seen how consumers are exploited through frequent hikes in electricity
rates.
5. Possibility of Corrupt Practices:

The implementation of the policy of privatisation may open the door to welfare
corruption. There is the possibility of undervaluation of assets of the public sector
units to favour the private sector. There may be complicity between politicians,
bureaucrats, and particular business groups. In India, the sale of Bharat
Aluminium Company (BALCO), a cash-rich public sector company, to Sterlite
group in 2001 was very much in news for being heavily undervalued. In many
cases, privatisation is identified with ‘briberisation’.
6. Lopsided Industrial Development:
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Privatisation may result in lopsided development of industries in the country.
Private enterprises will not be interested in projects which are risky and have long
gestation period with lower profitability. It may retard the growth of basic and
heavy industries and infrastructure in the country.
Features of the Policy of Privatisation in India
Privatisation basically implies contracting the role of the public sector and
encouraging the expansion of the private sector. The New Economic Policy
centres around six major measures to reform the public sector enterprises. These
reforms are:
1. Policy of Dereservation:
The Industrial Policy Resolution of 1956 had reserved 18 industries for the public
sector. These 18 public sector industrial undertakings were gradually liberalised.
The Industrial Policy of 1991 reduced the number of such industries to eight.
Subsequently, the number of industries reserved exclusively for the public sector
was reduced to three, namely atomic energy, specified minerals and railways.
However, the public sector will be allowed to enter in areas not reserved for it for
healthy competition as and when the need arises. Similarly, there will be no bar
for areas exclusively opened up to the private sector.
2. Policy Towards Sick Public Sector Undertakings:
Sick enterprises are those enterprises which have been incurring heavy losses year
after year. The Board for Industrial and Financial Reconstruction (BIFR) was set
up in 1987 to look into the revival of sick industrial units within private
companies. In pursuance of the new industrial policy, sick public sector
enterprises were brought within the jurisdiction BIFR for their revival/
rehabilitation with effect from 1992. Prior to 1992, this scheme was used only in
the case of sick private sector enterprises. Chronically sick public enterprises
were referred to BIFR for their revival/rehabilitation. 65 cases of central public
sector enterprises (CPSEs) were referred to the BIFR at different times. Out of
these 65 cases, BIFR sanctioned 13 cases for revival/rehabilitation schemes. This
means that the government assisted these 13 public sector units to make them
viable units. Subsequently, the government established the Board for
Reconstruction of Public Sector Enterprises (BRPSE) in December, 2004 to
advise the government on moderation/revival/reconstruction of sick and loss-
making public sector enterprises. However, the government wound up BRPSE in
November, 2015 to streamline the mechanism of the revival of sick CPSEs. Now,
the concerned, administrative ministers/departments are responsible to monitor
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sickness of CPSES functioning under them and take timely redressal measures
with the approved of the competent authority. The NDA government is giving
priority to the closure of chronically sick CPSEs. It has decided to close down 25
such state- owned enterprises at the earliest. The condition of the sick CPSEs has
improved over the years. The number of sick CPSES came down from 105 in
2003 to 40 in March, 2016.
3. Policy for Navaratnas and Miniratnas:
The government introduced the Navratna scheme in 1997 to identify CPSEs that
had comparative advantages and to support them in their drive to become global
giants. The government has made attempts to improve the efficiency of CPSEs
by giving them autonomy in making managerial decision. CPSEs have been
grouped as Maharatna, Navaratna and Miniratna companies according to their
financial performance and growth. The government has granted enhanced powers
to the Board of Directors of various profit-making CPSEs, known as Maharatna,
Navaratna, and Miniratna. The Navaratnas originated as part of the programme
of the government in 1997 to identify high-performing and profit-making public
sector enterprises. These enterprises were provided financial, managerial and
operational autonomy to enable them to become global giants. This was done in
order to improve efficiency, infuse professionalism and to enable CPSEs to
compete more effectively in the liberalised global environment. Initially, nine
such enterprises (and hence nicknamed as Navaratnas) were identified, and 12
more were added to the list later, raising the number to 21. In February 2010, the
government introduced the Maharatnas scheme under which mega Navaratna
public sector enterprises have been empowered to expand their operations, both
in the domestic as well as foreign market so as to emerge as global giants. As on
31 March, 2020, there were 10 Maharatnas and 14 Navaratnas. The Miniratna
companies followed suit to grant enhanced autonomy and delegation of financial
enterprises to some other profit making companies. These were consistently
profit-making companies. Their number was 39 in 2001, which increased to 73
by 31 March, 2020. These Maharatnal Navaratna/Miniratna companies have
been given additional power and freedom to incur capital expenditure, raise debt,
enter into joint ventures, restructure their board of directors, and work out their
own manpower and resources management policies.
4. Memorandum of Understanding (MOU):
The government has entered into MOU with the public sector enterprises with the
purpose of improving their performance. The main objective of MOU is to grant
autonomy to the public sector enterprises by reducing the quantity of control and
increasing the quality of accountability of management. It aims at bringing a
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balance between autonomy and accountability. This is sought to be done by
specifying in clear-cut terms the measurable goals through setting targets-both in
financed and non-financed areas---and giving each enterprise greater autonomy
to achieve these targets in a competitive environment. The purpose of MOU is to
ensure a level playing field for the public sector vis-a-vis the private corporate
sector. The government evaluates the performance of the public sector enterprises
through performance evaluation based on the comparison between the actual
achievements and the annual targets set by the government. The public sector
enterprises entering into MOU with the government are given rating as per their
performance. Ratings on a 5 point scale- excellent, very good, good, fair and poor
- are given to the public sector enterprises as an incentive to improve their
efficiency. The number of public sector enterprises entering into MOU with the
government has increased over the years. The scope of MOU system has been
extended to cover nearby all CPSEs. Out of these 144 public sector enterprises
which signed MOU during 2018-19, 42 were rated excellent, 38 very good, 30
good, 16 fair, and 18 poor.
5. Voluntary Retirement Scheme (VRS):
Many of the public sector undertakings have been facing the problem of
overstaffing. Government has initiated a voluntary retirement scheme in the
public sector enterprises to reduce the number of excess workers. Under this
scheme, workers seeking voluntary retirement are given financial compensation.
As a result of this scheme, the government has succeeded in reducing the excess
number of employees working with the public sector enterprises. About 6.28 lakh
employees had opted for voluntary retirement scheme from 1988 till March,
2019.
6. Disinvestment Policy:
The major plank of the privatisation programme under the Industrial Policy of
1991 is the disinvestment policy. Disinvestment means selling off investment. In
the context of public enterprises, the policy of disinvestment refers to selling off
government's equity in the public sector units in the market. Under this policy,
a part of the government shareholding in the selected public sector undertakings
is offered to private investors, financial institutions, mutual funds, workers, and
the public at large. Disinvestment of shares of a select number of profit-making
public sector enterprises is being done in order to raise resources with the
objective of reducing public debt burden, to provide funds for giving assistance
to public sector undertakings for their modernisation and to encourage wider
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participation of general public and workers in the ownership of the public sector
enterprises. However, the main objective of disinvestment policy seems to raise
financial resources for the budget so as to reduce fiscal deficit of the government.
A department of disinvestment was set up in 1999 to identify the public sector
enterprises for equity disinvestment and to work out the modalities of
disinvestment. Many methods of disinvestment have been formulated and
implemented. Initially, equity was offered to retail investors through domestic
public issues.
Subsequently, funds were raised in the overseas market through Global
Depository Receipts (GDRs). Equity shares have also been sold to government's
own financial institutions. Of late, the government is pursuing the strategic sale
method. Under this method, the government sells a major part of its stake to
strategic buyers at the market price and also hands over the management to them.
In the Budget of 2021, the government has made absolutely clear that it may
reduce the number of public sector enterprises to two dozens, following the new
policy that focuses on privatisation in non-core sector while shutting down loss-
making CPSEs. The government has made it clear that there will be only four key
strategic sectors for the CPSEs. The remaining CPSEs in the strategic sector will
be privatised or merged with other CPSEs or closed.
The government has raised about Rs.5,77,200 crore over a period of two and- a-
half decades from 1991-92 to 2019-20 through the policy of disinvestment. The
present government has divested the minority and majority stake of some of the
most profitable CPSEs like ONGC, HPCL, coal India and BHEL.
However, disinvestment policy has certain disturbing features in the process of

its implementation. The main disquieting features of this programme are:
(a) The actual realisation from the disinvestment programme has been much
below the target. For example, the targeted amount of disinvestment for the 10
years period (2010-11 to 2019-20) was about Rs.5,40,400 crore, but the actual
realisation amounted to about Rs.4,02,600 crore only (around 74 per cent of the
target). Moreover, the amount realised through disinvestment has been too
insignificant to affect the structure, management, and working of the public sector
enterprises.
(b) Equities of the public sector enterprises have been sold at very low prices.
The public sector equity has been underpriced and thus has been sold for a
fraction of what it could actually fetch. A recent example is the sale of BALCO
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by the government to Sterlite group in March, 2001 at an almost throwaway price.
This is true to some extent even in case of high profile companies such as ONGC,
Steel Authority of India, Indian Oil Corporation, and Shipping Corporation of
India.
(c) Funds realised through disinvestment have not been used appropriately. The
government has used these funds largely to finance the budgetary deficit. It is like
selling the family gold to meet the extravagant expenditure. In particular, the
proceeds from disinvestment have not been used to reduce debt burden and to
provide financial assistance to the public sector enterprises for their restructuring.
(d) The government has carried out the whole exercise of disinvestment in a hasty
and unplanned way. It launched the programme of disinvestment without creating
appropriate conditions for its success. It did not get public enterprises listed on
the stock exchange.
(e) The disinvestment exercise has lacked maturity and transparency.
(f) It has led to strengthening of private monopolies.
The programme of disinvestment needs to be transparent so as to avoid any
possibility of underhand sale of the public sector enterprises. The funds raised
through disinvestment policy should be used to reduce public debt and to
restructure the remaining public sector enterprises rather than to cover the
budgetary deficit. There is also the need to ensure that the policy of disinvestment
does not promote private monopolies.
Thus, the New Economic Policy of 1991 has attempted to bring privatisation with
the objective of reforming the public sector enterprises.
However, it should be noted that privatisation is not likely to remove all the
shortcomings of public sector enterprises. If competitive environment does not
exist in a country, transferring ownership to the private sector is unlikely to
achieve much. Moreover, transferring ownership through privatisation may create
private monopolies. Creation of private monopolies goes against the basic social
and national interest. The policy of privatisation would fail to deliver goods
unless it improves the performance of these enterprises.
POLICY OF GLOBALISATION
A third feature of the new economic policy is globalisation. It is the policy of
opening up the Indian economy to the world economy.
CS GOVIND DEWAN 15
Meaning of Globalisation
Globalisation is a process of integrating the economy of a country with other
economies of the world through trade, capital flow, and technology. It means
opening up an economy to the other economies of the world. The main channels
through which globalisation takes place are as follows:
1. The first channel of globalisation is opening up of the world trade.
Globalisation implies removal of the barriers to international trade so as to allow
free flow of goods and services between countries. This requires liberalisation in
trade of goods and services. In order to expand the world trade, there is the need
for introducing import liberalisation programmes and removal of quantitative
restrictions like reducing the import duties.
2. Globalisation also requires the removal of barriers to international investment.
Liberalisation of foreign investment would lead to a large increase in international
investment. It is particularly important to open up the economy to the foreign
direct investment (FDI). Foreign companies, including multinational
corporations (MNCs), need to be encouraged to undertake investment in other
countries. Facilities should be provided to the foreign companies and restrictions
on the entry of MNCs should be removed in order to encourage international
investment.
3. Globalisation can effectively take place through free flow of technology
between countries. Transfer of technology from advanced countries is needed to
promote economic development of developing countries like as India.
Effects of Globalisation
Globalisation has several advantages on economic, technological and other
fronts:
1. Expansion of World Trade:
Globalisation has led to increase in free flow of goods between countries. As a
result, world trade has increased in recent years.
2. Increased Flow of International Capital:
Globalisation has increased international flow of capital. Investment
opportunities in the developed countries have increased. MNCs from the
developed countries have started undertaking investment in the developing
countries. This has led to the emergence of worldwide financial market.
3. Increased Interdependence between Countries:
CS GOVIND DEWAN 16
Globalisation has increased interdependence between different countries of the
world. This is reflected in the increasing interdependence in the field of trading
in goods and services and in the movement of capital.
4. Transfer of Technology:
Globalisation has brought in new opportunities for the developing countries.
These countries have now got greater access to the advanced technologies. The
technology transfer from the developed countries has led to increased
productivity and higher living standard in the developing countries.
5. Emergence of World Market:
There has emerged a worldwide product market. This has increased the range of
goods available to producers and consumers.
6. Increased Information Flow:
The communication between people of different countries has increased as a
result of revolution in the global mass media. Information flow between different
countries has increased. This has made the world appear smaller.
7. Economic Prosperity:
Globalisation has increased economic prosperity and growth opportunity in the
developing world due to the availability of advanced technologies and increase
in FDI.
8. Increase in Cross-cultural Contacts:

Globalisation has brought people of different cultures together. It has reduced the
cultural barriers. Increase in the cross- cultural contacts has made the dream of
global village more realistic.
However, the trend towards globalisation is by no means an unmixed blessing:

1. Vulnerability to Other Countries:
A serious consequence of globalisation is that all the countries of the world have
become vulnerable to the developments outside their own borders. Thus, the
decade of 1990s has been marked by a large number of currency crises, large
fluctuations in exchange rates and stock prices. Likewise, recessionary conditions
in the USA in 2008 were transmitted to the rest of the world The same threat was
faced in 2012 because of Euro crisis.
CS GOVIND DEWAN 17
2. Volatility of Markets:
Globalisation has also thrown up new challenges like growing inequality across
the nations, volatility in financial market, and environmental degradation.
GLOBALISATION OF INDIAN ECONOMY

India embarked on the programme of globalisation in 1991. However, the seeds
of globalisation were sown in the early 1980s itself with liberalisation of imports,
granting of some concessions to foreign capital, and permitting MNCs to enter in
some areas of the Indian economy. But globalisation of Indian economy started
in full earnest after July, 1991 as an essential part of the policy of economic
reforms.
Features of the Globalisation Policy
As part of implementation of the agenda of globalisation, the Government of
India has undertaken the following policy measures since 1991:
1. Exchange Rate Reforms:
The most important measure for integrating Indian economy with the global
economy was to change over from the fixed exchange rate system to market-
determined flexible exchange rate system. This policy of allowing the exchange
rate to be determined in the international market without official intervention is
known as convertibility of the currency. The convertibility of Indian rupee on
trade account was achieved in August 1994. This policy is called partial
convertibility because it covers current account transactions only and not capital
account transactions. Along with this, various types of exchange control measures
were lifted in a phased manner. As a result, restrictions on the transfer of foreign
exchange have been considerably relaxed over the years.
2. Import Liberalisation:
India is committed to reducing restrictions on its foreign trade as a member of
the World Trade Organization (WTO). The government has taken a number of
steps in the direction of import liberalisation.
(a) The system of import licensing has been dismantled.
(b) Quantitative restrictions on imports have been almost totally abolished under
agreement with the WTO.
CS GOVIND DEWAN 18
(c) Duties on imports and exports have been reduced to make the trade between
nations freer than before. The tariff rates (import duties) have been reduced
sharply from an average of 57 per cent in 1991-92 to 31 per cent in 1996-97 and
reduced further to an average of 17 per cent in 2011-12 and 5 per cent in 2018.
Thus, average tariffs is now less than one-tenth of 1991.
3. Foreign Direct Investment (FDI):

FDI is an important driver of economic growth. It leads to increase in
productivity and employment. FDI is expected to add to the domestic investment,
and thereby, contribute to industrial and economic development of the country. It
leads to higher efficiency and productivity by increasing competition and by
bringing new technology into the country. In the changing global scenario of
industrial and economic cooperation, promotion of FDI is important. The
government is playing a proactive role in promoting investment through a liberal
FDI policy. A favourable policy regime has facilitated increase in FDI in the
country. In a bid to attract foreign capital and to integrate Indian economy with
the global economy, the Government of India has thrown open its doors to foreign
investors. The government is committed to encouraging flow of FDI for acquiring
better technology, for modernisation, and for providing goods and services of
international standard. In order to invite foreign investment in high priority
industries requiring large investments and advanced technology, the government
decided in 1991 to grant approval for FDI up to 51 per cent of foreign equity. This
limit was raised from 51 per cent to 74 per cent and
subsequently to 100 per cent for many of these industries. FDI has been permitted
up to 100 per cent for most of the manufacturing activities in the Special
Economic Zones (SEZs). Several industrial sectors have been opened up to the
MNCs. The policy of the government is also aimed at encouraging foreign
investment in the core infrastructure sectors like road development, airports,
airlines, real estate, banks, power generation, oil exploration, etc. Moreover,
foreign institutional investors have been allowed to invest in the Indian capital
market subject to certain regulations.
In November, 2015, the government increased the foreign investment limit in the
insurance sector from 20 per cent to 49 per cent. The revised policy also opened
up FDI in defence, railways and construction. FDI norms have been relaxed in 15
sectors including defence, real estate, aviation, plantation, single brand retail,
broadcasting and domestic manufacturing. In January, 2018, the government
CS GOVIND DEWAN 19
allowed 100 per cent FDI in single brand retail and real estate broking services as
well as FDI up to 49 per cent in Air India. These FDI policy reforms have brought
most of the sectors under automatic approval route. With these changes, India is
now one of the most open economy of the world for FDI.
The NDA government launched 'Make in India' programme in 2014 with the
objective of making India a global hub of manufacturing new processes and
innovation, new infrastructure and new mindset. This has generated awareness
among the foreign investors about the investment opportunities available in India
so as to make India as a preferred investment destination and to increase India's
share of global FDI.
4. Foreign Technology:
With a view to encourage technological development in Indian industries, free
flow of technology is allowed by the government. Government provides
automatic approval for technological agreements in case of high priority
industries. Similar facilities are provided for other industries as well, provided
such agreements do not require foreign exchange. Foreign technology induction
is facilitated both through FDI and through foreign technology agreements.
Effects of Globalisation on Indian Industry
Globalisation has generated a lot of many positive effects on Indian industries:
1. Inflow of Multinational Corporations (MNCs):
Globalisation has attracted a number of MNCs to Indian industries. These MNCs
have brought in huge amount of foreign investment into the Indian industries,
especially in pharmaceutical, petroleum, chemical, textile, and cement
manufacturing industries. A huge amount of FDI coming to the Indian industries
has boosted Indian economy.
2. Emergence of IT and BPO Sectors:
One of the major benefits of globalisation has been the emergence of information
technology (IT) sector and business process outsourcing (BPO) sector. The IT
and BPO sectors of India are providing outsourcing to the customers in other
countries, particularly the USA and Europe.
3. Availability of Advanced Technology:
Another benefit of globalisation for the Indian industries is that the MNCs have
brought in highly advanced technology with them. This has helped to make Indian
industry technologically advanced.
CS GOVIND DEWAN 20
4. Providing Employment to Skilled Manpower:
Setting up of industries by the foreign companies has helped to provide
employment to many people in the country. The opening of the call centres,
outsourcing of IT and BPO services, and operation of MNCs in the country have
created tremendous job opportunities in the country. The last few years have seen
an increase in the number of Indian skilled professionals employed in these
sectors. A new middle class has emerged around the wealth that the IT and BPO
industries has generated.
5. Setting up of Special Economic Zones (SEZs):
SEZs have been set up to attract foreign companies. Creation of SEZs has
enhanced the growth of industrialisation. They have helped in generating
employment opportunities, creating world class infrastructure and in promoting
investment, including foreign investment.
6. Indian Corporate Sector Emerging as Global Player:
The policy of globalisation has helped produce some world class companies.
India has emerged as global power in many sectors. Some of the leading Indian
industries such as the Tatas, Reliance, United Brewery, Essars, etc., have gone
global by undertaking investment abroad and by acquiring some of the leading
foreign companies. From steel to textiles, from cars to IT, Indian companies have
emerged as the new major players in globalisation.
However, the process of globalisation in India has generated some negative
effects as well.
1. Competition from Foreign Companies:
One of the adverse effects of globalisation on Indian industry is that it has
increased competition in the Indian market between the foreign companies and
the domestic companies. In many cases, it has led to unequal competition between
the giant MNCs and Indian industries. Indian industries have lost to MNCs
because of better quality of the foreign goods and higher cost of production of
Indian goods. Consumers in the country prefer to buy foreign goods in view of
their better quality. This has reduced the profit levels of the Indian companies.
2. Loss of Jobs in Some Areas:
Another negative effect of globalisation on Indian industry is that with the
coming of advanced foreign technology, the labour requirement has decreased.
This has resulted in many people losing their jobs. A number of small
manufacturers producing plastic toys, electronic goods, batteries, capacitors,
CS GOVIND DEWAN 21
tyres, dairy products, vegetable oils have lost to MNCs. Similarly, Indian steel
industry has been facing problems for the last two-to-three years because many
finished steel products imported from China are very low priced.
3. Takeovers of Domestic Companies:
Much of FDI has gone into takeovers of the existing enterprises and towards
speculative investment in Indian stock market. Foreign shareholders have
increased their holdings of the Indian companies.
Thus, despite positive effects of globalisation on Indian economy, there have been
some negative effects as well. Therefore, there is the need for evolving an
appropriate policy to minimise the harmful effects of globalisation.
CHANGES IN THE INDIAN ECONOMY AFTER LIBERALISATION
Over the last three decades, the successive governments have followed the path
of economic reforms after India embarked on the new bold path of economic
reforms in 1991. The new economic policy comprising liberalisation,
globalisation and privatisation has brought about many changes in the growth and
direction of the Indian economy. Economic reforms have resulted in improving
the performance of various sectors of the economy. Some of the major
achievements of the new economic policy are as follows:
1. Higher Growth Rates:
The new economic policy has played an important role in stepping up the growth
rate of the Indian economy in recent years. The growth rate of real GDP picked
up from 5 per cent in 1990-1991 to about 10 per cent in 2007-08. Indian economy
experienced a phenomenal growth rate of around 7.5 per cent per annum during
the period of about two decades between 2000 and 2018. India has emerged as is
the fastest growing economy among the major economies of the world with GDP
growth rate of 8.3 per cent in 2016-17. However, growth rate of Indian economy
slowed down in 2019-20 with GDP growth moderating to 4.1 per cent due to
global financial crisis and protectionist tendencies of China and USA. This is the
lowest growth rate during the last decade. However, GDP per capita income
increased from ₹16,000 in 1990-91 to 94,570 in 2019-20 i.e. about six-fold
increase. Indian economy has become a more vibrant economy. India emerged as
the world's fifth largest economy with a GDP of $2.9 trillion in 2019.
Indian economy experiencial contraction of GDP to by 7.3 per cent in 2020-21
due to the impact of the Covid-19 induced lockdown, with the crucial services
and manufacturing sectors taking massive hit. This is the first contraction of GDP
in over four decades since 1979-80. It is also the record contraction of GDP since
CS GOVIND DEWAN 22
1951-52. The crucial manufacturing sector has contracted by 7.2 per cent. While
construction sector recorded a negative growth rate of 8.6 per cent, the growth
rate of hotels, transport and communication services have declined by a record
18.2 per cent in 2020-21.
2. Uneven Spread of Liberalisation:
Liberalisation made a big impact on Indian economy, but the one that was not
evenly spread out. Inequalities in income and wealth have widened during the
period of liberalisation. While the share of high income earners increased, the
shares of poor persons fell. Similarly, inequalities of wealth have increased since
liberalisation. While the share of the top 10 per cent. Indians in the national wealth
has increased from 34 per cent in 1990. 91 to 56 per cent in 2019-20, the share of
bottom 10 per cent persons has decreased from 22.2 per cent to 4.7 per cent. Thus,
rich have become much richer now. Since liberalisation, number of millionaires
(high net-worth individuals with assets of $1 million or more) has shot up from
50 in 2001 to 263 in 2019. Neverthless nearly 300 million Indians have been lifted
out of poverty since 1991.
Benefits of liberalisation has not been equally spread out across the states.
Industrialised states-Gujarat, Maharashtra, Karnataka, Tamil Nadu, and Delhi
have achieved a higher growth rate than the poor non-Industrialised states-
Rajasthan, Odisha, Uttar Pradesh, Assam, J & K Jharkhand and Chhattisgarh.
North- Eastern states have also achieved a lower growth rate. Thus, rich states
have become richer and the gap between them and the poorer states has grown.
3. A Stimulus to Industrial Sector:
The performance of the industrial sector during the post-reform period is much
better than during the pre-reform period. The period immediately following the
economic reforms was marked by a low growth rate of industrial output - an
average annual growth rate of 6 per cent between 1990 and 2000. However, the
slowdown in the industrial output was a transitional phenomenon. The industrial
sector experienced a very high growth rate of over 8 per cent per annum during
the period between 2004-05 and 2018-19. This allays all fears that once the
economy opens up, the industrial sector will not be able to withstand the
competition from other countries. However, the industrial sector showed a low
growth rate of 0.7 per cent in 2019-20 due to global financial crisis. The sector
has contracted by 7.2 per cent in 2020-2021 due to the impact of lockdown arising
from Covid-19.
4. Changes in the Composition of National Income:
CS GOVIND DEWAN 23
The post-reform period has been characterised by significant changes in the
composition of national income. The share of the agriculture and allied sector in
national income decreased from 29 per cent in 1990-91 to 14.8 per cent in 2019-
20. The share of the industrial sector, on the other hand, showed a steady increase
from 24 per cent in 1990-91 to 29.6 per cent in 2019-20. Importantly, the share
of the tertiary or service sector increased significantly from 47 per cent in 1990-
91 to about 55.6 per cent in 2019-20. Thus, the service sector has registered a
large and consistent growth in the post-reform period. This reflects the structural
transformation of the Indian economy.
5. Savings and Investment Performance:
Post-reform period showed a remarkable increase in savings and investment.
Gross domestic savings as proportion of GDP increased from about 23 per cent
in 1990-91 to over 34 per cent in 2012-13. Rate of investment (rate of gross
domestic capital formation as per cent of GDP) increased from 26 per cent in
1990-91 to about 39 per cent in 2012-13. Private sector has been assigned a major
role under the new economic policy. As a consequence, the share of the private
sector in GDCF increased from 57 per cent in 1990-91 to about 76 per cent in
2018-19. However, the rate of gross domestic capital formation and rate of
domestic savings have decreased in recent years to the level of 32.2 per cent and
31.4 per cent respectively in 2018-19.
6. Higher Growth Rate of Foreign Trade:
Foreign trade has become an important driver of the Indian economy during three
decades of global economic integration. The value of India's exports and imports
has increased considerably since 1990-91. Trade flows (exports and imports) have
expanded over the years. The average annual growth rate of exports (in US
dollars) jumped from 9 per cent in 1990-91 to over 22 per cent in 2011-12. The
average annual growth rate of imports (in US dollars) was significantly higher at
32 per cent in 2011-12 as against 13 per cent in 1990-91. The Indian economy is
now much open than it was before 1990-91. This shows a significant change in
the foreign trade sector. One way to measure the extent to which an economy is
globalised is through the share of total trade (exports plus imports) in GDP. In
2014-15, India's total trade was equivalent to about 50 per cent of its GDP as
against only 17 per cent of GDP in 1990. This shows the growing integration of
the Indian economy with the world economy. However, the growth rate of
international trade has slowed down considerably in recent years (negative
growth rate between 2013-14 and 2015-16) due to world wide recession. The
growth rate of international trade picked up again in 2016-2017, 2017-2018 and
2018-19 due to the revival of the world economy, but it slowed down again
CS GOVIND DEWAN 24
(negative growth rate) in 2019-20 due to slowing down of the growth rate of the
global economy and protectionist policies of China and USA, coupled with a
number of domestic industries demanding more protection as they were willing
to complete with imports in the domestic market. As a result, total trade as a
percentage of GDP declined to below 39 per cent in 2019, the lowest in the two
decades.
7. Expansion of Infrastructure:
A significant progress has been made in the expension of infrastructure facilities
during the post- reform period. The installed capacity of electric generation
increased from 264.3 billion Kwh in 1990-91 to 1363.5 billion Kwh in 2019-20,
i.e., an increase by over 5 times. The route length of Indian railways increased by
a moderate amount from 62,400 km in 1990-91 to 67,600 km in 2019-20.
However, the route length of electrified railways increased from 10,000 km to
39,900 km during the same period. India's road network increased by more than
2.6 times from 23.3 lakh km in 1990-91 to 62.6 lakh km in 2019-20. Our
expressway airports and ports are now world class. The progress of
communication services has been very impressive. Telephone technology has
undergone a revolutionary changes since 1995. Telecom sector in India is the
fastest growing sector in the world during the last decade. It is the second largest
in the world after China, with 1148 million cellular subscribers and 776 million
internet subscribers in 2020. Telecom sector is dominated by the private sector
operators with a share of 89 per cent in 2020. Banking sector in India has made
an impressive growth with a network of 1.5 lakh branches in 2019-20.
8. Improvement of Education and Health Indicators:
Education and health indicators have shown a significant improvement. Indians
today are not only wealthier but also more educated and healthier. Literacy rate
increased from 48.2 per cent in 1990-91 to 76 per cent in 2019-20. Thus, three in
four Indians are literate now. Life expectancy at birth has increased from 59 in
1990-91 to 69.3 in 2019-20. Thus, Indians now live 10 years more now as
compared to 1990-91.
9. Foreign Exchange Reserves:
Indian economy faced a serious foreign exchange crisis during 1990-91 because
of adverse balance of payments. But the balance of payments has shown
significant improvement during the post-reform period. As a result, India's
foreign exchange reserves have increased rapidly. The reserves stood at the level
of US $477.8 billion at the end of March, 2019 as against only $2.2 billion in
June, 1991. In 1990-91, the foreign exchange reserves were enough to finance
CS GOVIND DEWAN 25
imports for 2.5 months only. But in 2018-19, country's foreign exchange reserves
were adequate to pay for the imports for 11 months.
10.Flow of Foreign Direct Investment:
Various reforms in the FDI sector have led to a significant increase in FDI
inflows into India. FDI (net) in India has increased significantly since 1991. It
has increased from US $1.3 billion in 1990-91 to US $56 billion in 2019-20. FDI
as proportion of GDP increased from less than 0.05 per cent of GDP in 1990-91
to 1.6 per cent of GDP in 2019-20. After the launch of 'Make in India' initiative
in September 2014, and Ease of Doing Business campaign, there has been a large
increase in FDI inflows to India. India has become the fifth most attractive
destination of FDI in 2019. This is a reflection of liberalised policy changes as
well as an improved investment climate.
11.Overseas Investment by Indian Companies:
A significant recent development is that Indian companies have also started
undertaking overseas investment. Overseas investment by Indian companies
picked up recently from $0.7 billion in 2000-01 to $12.9 billion in 2019-20. The
biggest foreign investment was done by petroleum, real estate, textile, telecom
and pharmaceutical companies.
12.Role of Public Sector:
The public sector was initially considered as the engine of self- sustained
economic growth. The pre-reform phase was characterised by the expansion of
public sector. The share of public sector in national income, employment, gross
capital formation, etc., increased initially.
But the policy of privatisation has gradually reduced the importance of public
sector. The government has now given greater emphasis on the private sector led
economic growth. The share of public sector in GDP decreased from 22 per cent
in 1990-91 to 20 per cent in 2011-12. Similarly, the share of public sector in
GDCF has decreased from 43 per cent 1990-91 to 24 per cent in 2017-18.
It is obvious from above that the post- reform period was characterised by
significant changes --- both aggregate and structural-in the Indian economy.
Economic reforms initiated as part of the new economic policy in 1991 and
thereafter have definite positive effects on the Indian economy. Indian economy
has emerged from an economy of scarcity in 1991 into an economy of abundance
now. Indian economy is recognised now as an emerging economic power in the
world.
CS GOVIND DEWAN 26
However, it must be noted that the new economic policy has not been able to
solve all the problems facing the Indian economy. It has failed to reduce poverty,
inequality of income and unemployment. The trend in India's exports and imports
and FDI shows considerable changes on the external sector front. It shows India's
globalisation. However, the extent of India's globalisation so far is insignificant.
In fact, it is one of the lowest in the world. Despite all the big talks, India is still
one of the lowest globalised economy among the major countries of the world.
India's share in world exports in 2018, for instance, was a meagre 1.64 per cent
as against 10.3 per cent of China. Similarly, India's share of world FDI in 2018
was only 2.1 per cent as compared to 8 per cent of China and 3.7 per cent of
Brazil.
It is pertinent to note that economic reforms which were set in motion in 1991 are
far from complete. In the first place, social sectors of health and education have
lagged behind and not kept pace with our economic progress. As such, reforms
on the education and health sectors are the need of the hour. At the same time
reforms in the land market, labour market and banking sector are urgently needed.
MULTINATIONAL COMPANIES (MNCS)

A multinational company is one which is incorporated in one country
(called the home country); but whose operations extend beyond the
home country and which carries on business in other countries (called
the host countries) in addition to the home country.
It must be emphasized that the headquarters of a multinational company
are located in the home country.
Following are the salient features of MNCs:

(i) Huge Assets and Turnover:
Because of operations on a global basis, MNCs have huge physical and
financial assets. This also results in huge turnover (sales) of MNCs. In
fact, in terms of assets and turnover, many MNCs are bigger than
national economies of several countries.
CS GOVIND DEWAN 27
(ii) International Operations Through a Network of Branches:
MNCs have production and marketing operations in several countries;
operating through a network of branches, subsidiaries and affiliates in
host countries.
(iii) Unity of Control:
MNCs are characterized by unity of control. MNCs control business
activities of their branches in foreign countries through head office
located in the home country. Managements of branches operate within
the policy framework of the parent corporation.
(iv) Mighty Economic Power:
MNCs are powerful economic entities. They keep on adding to their
economic power through constant mergers and acquisitions of
companies, in host countries.
(v) Advanced and Sophisticated Technology:
Generally, a MNC has at its command advanced and sophisticated
technology. It employs capital intensive technology in manufacturing
and marketing.
(vi) Professional Management:
A MNC employs professionally trained managers to handle huge funds,
advanced technology and international business operations.
(vii)Aggressive Advertising and Marketing:

MNCs spend huge sums of money on advertising and marketing to
secure international business. This is, perhaps, the biggest strategy of
success of MNCs. Because of this strategy, they are able to sell
whatever products/services, they produce/generate.
(viii) Better Quality of Products:
CS GOVIND DEWAN 28
A MNC has to compete on the world level. It, therefore, has to pay
special attention to the quality of its products.
ADVANTAGES OF MNCS
(i) Employment Generation:
MNCs create large scale employment opportunities in host countries.
This is a big advantage of MNCs for countries; where there is a lot of
unemployment.
(ii) Automatic Inflow of Foreign Capital:
MNCs bring in much needed capital for the rapid development of
developing countries. In fact, with the entry of MNCs, inflow of foreign
capital is automatic. As a result of the entry of MNCs, India e.g. has
attracted foreign investment with several million dollars.
(iii) Proper Use of Idle Resources:
Because of their advanced technical knowledge, MNCs are in a
position to properly utilise idle physical and human resources of the
host country. This results in an increase in the National Income of the
host country.
(iv) Improvement in Balance of Payment Position:
MNCs help the host countries to increase their exports. As such, they
help the host country to improve upon its Balance of Payment position.
(vi) Technical Development:
MNCs carry the advantages of technical development 10 host
countries. In fact, MNCs are a vehicle for transference of technical
development from one country to another. Because of MNCs poor host
countries also begin to develop technically.
(vii) Managerial Development:
MNCs employ latest management techniques. People employed by
MNCs do a lot of research in management. In a way, they help to
CS GOVIND DEWAN 29
professionalize management along latest lines of management theory
and practice. This leads to managerial development in host countries.
LIMITATIONS OF MNCS
(i) Danger for Domestic Industries:

MNCs, because of their vast economic power, pose a danger to
domestic industries; which are still in the process of development.
Domestic industries cannot face challenges posed by MNCs. Many
domestic industries have to wind up, as a result of threat from MNCs.
Thus MNCs give a setback to the economic growth of host countries.
(ii) Repatriation of Profits:
(Repatriation of profits means sending profits to their country).
MNCs earn huge profits. Repatriation of profits by MNCs adversely
affects the foreign exchange reserves of the host country; which means
that a large amount of foreign exchange goes out of the host country.
(iii) No Benefit to Poor People:
MNCs produce only those things, which are used by the rich.
Therefore, poor people of host countries do not get, generally, any
benefit, out of MNCs.
(iv) Danger to Independence:
Initially MNCs help the Government of the host country, in a number
of ways; and then gradually start interfering in the political affairs of
the host country. There is, then, an implicit danger to the independence
of the host country, in the long-run.
(v) Disregard of the National Interests of the Host Country:

MNCs invest in most profitable sectors; and disregard the national
goals and priorities of the host country. They do not care for the
CS GOVIND DEWAN 30
development of backward regions; and never care to solve chronic
problems of the host country like unemployment and poverty.
(vi) Misuse of Mighty Status:
MNCs are powerful economic entities. They can afford to bear losses
for a long while, in the hope of earning huge profits-once they have
ended local competition and achieved monopoly. This may be the
dirties strategy of MNCs to wipe off local competitors from the host
country.
(vii) Careless Exploitation of Natural Resources:

MNCs tend to use the natural resources of the host country carelessly.
They cause rapid depletion of some of the non-renewable natural
resources of the host country. In this way, MNCs cause a permanent
damage to the economic development of the host country.
(viii) Selfish Promotion of Alien Culture:

MNCs tend to promote alien culture in host country to sell their
products. They make people forget about their own cultural heritage. In
India, e.g. MNCs have created a taste for synthetic food, soft drinks etc.
This promotion of foreign culture by MNCs is injurious to the health
of people also.
CS GOVIND DEWAN 31
FEATURESOF TECHNOLOGY
Technology features can vary greatly depending on the context, but

here are some common ones across different domains:
1. Artificial Intelligence (AI) Integration: Incorporating AI
algorithms and machine learning techniques to automate tasks,
personalize experiences, and enhance decision-making
processes.
2. Internet of Things (IoT) Connectivity: Interconnecting physical
devices and enabling them to communicate and exchange data,
leading to smart homes, cities, and industries.
3. Augmented Reality (AR) and Virtual Reality (VR): Immersive
technologies that overlay digital information onto the real world
(AR) or create entirely virtual environments (VR) for
entertainment, training, education, and other applications.
4. Blockchain Technology: Distributed ledger technology that
ensures secure, transparent, and tamper-proof record-keeping,
commonly used in cryptocurrencies, supply chain management,
and decentralized applications.
5. 5G Connectivity: The fifth generation of cellular network
technology, providing faster data speeds, lower latency, and
increased capacity for more connected devices and advanced
applications like autonomous vehicles and remote surgery.
6. Biometric Authentication: Using unique biological
characteristics such as fingerprints, iris patterns, or facial
features for secure access control and identity verification.
7. Cloud Computing: On-demand delivery of computing services,
including storage, processing power, and software applications,
over the internet, offering scalability, flexibility, and cost-
efficiency.
8. Autonomous Systems: Incorporating robotics, drones, and self-
driving vehicles that can operate with minimal human
CS GOVIND DEWAN 32
intervention, revolutionizing industries like transportation,
manufacturing, and agriculture.
9. Cybersecurity Solutions: Advanced technologies and practices
to protect digital systems, networks, and data from unauthorized
access, breaches, and cyber threats.
10. Natural Language Processing (NLP): AI-driven
technology tht enables computers to understand, interpret, and
generate human language, powering applications such as virtual
assistants, chatbots, and language translation services.
These are just a few examples, and the technological landscape is

continually evolving with new innovations and advancements.
IMPORTANCE OF TECHNOLOGY IN BUSINESS
Technology offers numerous advantages to companies across various

industries. Here are some of the key benefits:
1. Increased Efficiency: Technology streamlines processes,
automates repetitive tasks, and reduces manual errors, leading to
higher productivity and efficiency within the organization.
2. Cost Reduction: Implementing technology solutions can lower

operational costs by optimizing resource utilization, reducing
the need for physical infrastructure, and minimizing human
intervention in repetitive tasks.
3. Improved Communication and Collaboration: Technologies such
as email, instant messaging, video conferencing, and
collaborative platforms enhance communication and
collaboration among team members, regardless of their
geographical location, leading to better teamwork and faster
decision-making.
CS GOVIND DEWAN 33
4. Enhanced Customer Service: Companies can leverage
technology to provide better customer support through various
channels such as chatbots, self-service portals, and social media
platforms, leading to improved customer satisfaction and
loyalty.
5. Data-driven Decision Making: Advanced analytics and business
intelligence tools allow companies to collect, analyze, and
interpret vast amounts of data, enabling them to make informed
decisions, identify trends, and predict future outcomes.
6. Market Expansion and Global Reach: Technology facilitates
market expansion by enabling companies to reach a wider
audience through e-commerce platforms, digital marketing
channels, and global supply chain networks.
7. Innovation and Competitive Advantage: Embracing new
technologies fosters innovation within the organization,
allowing companies to develop unique products and services,
stay ahead of competitors, and adapt to changing market
demands.
8. Flexible Work Arrangements: Remote work technologies enable
employees to work from anywhere, leading to improved work-
life balance, higher job satisfaction, and access to a broader
talent pool for companies.
9. Scalability and Growth: Technology solutions can easily scale to
accommodate business growth without significant disruptions,
allowing companies to expand their operations, enter new
markets, and seize new opportunities.
10. Risk Mitigation and Compliance: Technology helps
companies identify and mitigate risks by implementing security
measures, ensuring regulatory compliance, and enhancing data
protection practices.
Overall, embracing technology empowers companies to become more
agile, competitive, and resilient in today's fast-paced business
environment.
CS GOVIND DEWAN 34
TECHNOLOGY POLICY OF INDIA
Technology offers numerous advantages to companies across various

industries. Here are some of the key benefits:
1. Increased Efficiency: Technology streamlines processes,
automates repetitive tasks, and reduces manual errors, leading to
higher productivity and efficiency within the organization.
2. Cost Reduction: Implementing technology solutions can lower

operational costs by optimizing resource utilization, reducing
the need for physical infrastructure, and minimizing human
intervention in repetitive tasks.
3. Improved Communication and Collaboration: Technologies such

as email, instant messaging, video conferencing, and
collaborative platforms enhance communication and
collaboration among team members, regardless of their
geographical location, leading to better teamwork and faster
decision-making.
4. Enhanced Customer Service: Companies can leverage

technology to provide better customer support through various
channels such as chatbots, self-service portals, and social media
platforms, leading to improved customer satisfaction and
loyalty.
5. Data-driven Decision Making: Advanced analytics and business

intelligence tools allow companies to collect, analyze, and
interpret vast amounts of data, enabling them to make informed
decisions, identify trends, and predict future outcomes.
CS GOVIND DEWAN 35
6. Market Expansion and Global Reach: Technology facilitates

market expansion by enabling companies to reach a wider
audience through e-commerce platforms, digital marketing
channels, and global supply chain networks.
7. Innovation and Competitive Advantage: Embracing new

technologies fosters innovation within the organization,
allowing companies to develop unique products and services,
stay ahead of competitors, and adapt to changing market
demands.
8. Flexible Work Arrangements: Remote work technologies enable

employees to work from anywhere, leading to improved work-
life balance, higher job satisfaction, and access to a broader
talent pool for companies.
9. Scalability and Growth: Technology solutions can easily scale to

accommodate business growth without significant disruptions,
allowing companies to expand their operations, enter new
markets, and seize new opportunities.
10. Risk Mitigation and Compliance: Technology helps

companies identify and mitigate risks by implementing security
measures, ensuring regulatory compliance, and enhancing data
protection practices.
Overall, embracing technology empowers companies to become more

agile, competitive, and resilient in today's fast-paced business
environment.
CS GOVIND DEWAN 36
India's technology policy encompasses various initiatives, regulations,
and strategies aimed at fostering innovation, digital transformation,
and economic growth. Here are some key aspects of India's
technology policy:
Digital India Initiative: Launched in 2015, Digital India aims to

transform India into a digitally empowered society and knowledge
economy. It focuses on providing digital infrastructure, delivering
government services digitally, promoting digital literacy, and
leveraging technology for inclusive growth.
National Policy on Electronics (NPE): The NPE aims to promote

domestic manufacturing and design capabilities in the electronics
sector, attract investments, and position India as a global hub for
electronics manufacturing and innovation.
Startup India Initiative: Startup India is a flagship initiative aimed at

fostering entrepreneurship and promoting startups in India. It provides
various incentives, funding opportunities, and support mechanisms to
nurture innovation and facilitate the growth of startups across
different sectors.
Make in India Campaign: Make in India is a major initiative aimed at

encouraging domestic manufacturing, attracting foreign investment,
and promoting India as a global manufacturing hub. It encompasses
various sectors, including electronics, automobiles, textiles, and
defense.
National Cybersecurity Policy: India has formulated a National

Cybersecurity Policy to strengthen cybersecurity infrastructure,
CS GOVIND DEWAN 37
enhance cybersecurity awareness, and mitigate cyber threats across
government, critical infrastructure, and private sector organizations.
Data Protection and Privacy Regulations: India is in the process of

enacting comprehensive data protection legislation to safeguard the
privacy and security of personal data. The Personal Data Protection
Bill aims to regulate the collection, processing, and storage of
personal data while promoting innovation and economic growth.
National AI Strategy: India has been developing a National Artificial

Intelligence Strategy to leverage the potential of AI for economic
growth, social development, and governance. The strategy aims to
foster AI research and innovation, develop AI talent, and address
ethical and regulatory challenges.
Digital Infrastructure Development: India is investing in building

robust digital infrastructure, including high-speed broadband
networks, digital payment systems, e-governance platforms, and
smart cities, to support digital inclusion and socioeconomic
development.
International Collaborations and Partnerships: India actively

collaborates with other countries, international organizations, and
industry stakeholders to promote technology transfer, innovation
exchange, and capacity building in areas such as ICT, renewable
energy, biotechnology, and space technology.
Overall, India's technology policy framework is geared towards

leveraging technology as a driver of economic growth, social
development, and global competitiveness while addressing challenges
related to cybersecurity, data privacy, and digital inclusion
CS GOVIND DEWAN 38

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RAIGANJ UNIVERSITY: BUSINESS ENVIRONMENT

UNIT IV UNIT V UNIT VII

NEED FOR ECONOMIC REFORMS

2. Major Foreign Exchange Crisis:

3. Conditionalities Imposed by IMF and World Bank:

4. Fall of USSR (Union of Soviet Serial Republics):

POLICY OF LIBERALISATION OF INDIAN ECONOMY

The policy of liberalisation forms an important part of economic reforms

2. Relaxation in Controlling Monopolies:

Significance of Liberalisation Policy

Arguments against Privatisation

5. Possibility of Corrupt Practices:

However, disinvestment policy has certain disturbing features in the process of

8. Increase in Cross-cultural Contacts:

However, the trend towards globalisation is by no means an unmixed blessing:

GLOBALISATION OF INDIAN ECONOMY

3. Foreign Direct Investment (FDI):

MULTINATIONAL COMPANIES (MNCS)

Following are the salient features of MNCs:

(vii)Aggressive Advertising and Marketing:

(viii) Better Quality of Products:

(i) Danger for Domestic Industries:

(v) Disregard of the National Interests of the Host Country:

(vii) Careless Exploitation of Natural Resources:

(viii) Selfish Promotion of Alien Culture:

Technology features can vary greatly depending on the context, but

These are just a few examples, and the technological landscape is

IMPORTANCE OF TECHNOLOGY IN BUSINESS

Technology offers numerous advantages to companies across various

2. Cost Reduction: Implementing technology solutions can lower

Technology offers numerous advantages to companies across various

2. Cost Reduction: Implementing technology solutions can lower

3. Improved Communication and Collaboration: Technologies such

4. Enhanced Customer Service: Companies can leverage

5. Data-driven Decision Making: Advanced analytics and business

6. Market Expansion and Global Reach: Technology facilitates

7. Innovation and Competitive Advantage: Embracing new

8. Flexible Work Arrangements: Remote work technologies enable

9. Scalability and Growth: Technology solutions can easily scale to

10. Risk Mitigation and Compliance: Technology helps

Overall, embracing technology empowers companies to become more

Digital India Initiative: Launched in 2015, Digital India aims to

National Policy on Electronics (NPE): The NPE aims to promote

Startup India Initiative: Startup India is a flagship initiative aimed at

Make in India Campaign: Make in India is a major initiative aimed at

National Cybersecurity Policy: India has formulated a National

Data Protection and Privacy Regulations: India is in the process of

National AI Strategy: India has been developing a National Artificial

Digital Infrastructure Development: India is investing in building

International Collaborations and Partnerships: India actively

Overall, India's technology policy framework is geared towards

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