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An Overview Of Liberalization, Privatization and Globalization

Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient. With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy. To be Continued

This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947, such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity. Now that India is in the process of restructuring her economy, with aspirations of elevating herself from her present desolate position in the world, the need to speed up her economic development is even more imperative. And having witnessed the positive role that Foreign Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast Asian countries and most notably China, India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI.

Definitions Of The Term Liberalization and Economic Liberalization Liberalization

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

In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today; Brazil, China and India, have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital. Most first world countries, in order to remain globally competitive, have pursued the path of economic liberalization: partial or full privatization of government institutions and assets, greater labor-market flexibility, laborlower tax rates for businesses, less restriction on both domestic and foreign capital, open markets, etc. British Prime Minister Tony Blair wrote that: "Success will go to those companies and countries which are swift to adapt, slow to complain, open and willing to change. The task of modern governments is to ensure that our countries can rise to this challenge. challenge.

Impact Of Liberalization On Indian Economy


The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% from 1950s to 1980s, while per capital income averaged 1.3%.At the same time, Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in Taiwan by 12%. Only four or five licenses would be given for steel, power and communications. License owners built up huge powerful empires. A huge public sector emerged. State-owned enterprises Statemade large losses. Infrastructure investment was poor because of the public sector monopoly. License Raj established the "irresponsible, selfselfperpetuating bureaucracy that still exists throughout much of the country" and corruption flourished under this system.

Financial Liberalization
Capital Account & Financial Liberalisation

Impact on Government Budget

Impact on Private Economy

Revenue & Expenditure

Private Flows

Official Flows

Domestic Financial Markets

Foreign Multinationals

Access To Credit

Industrial Performance

Definitions Of The Term Privatization and Economic Privatization

The term Privatization refers to The transfer of ownership of property or businesses from a government to a privately owned entity. The transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange. When a publicly traded company becomes private, investors can no longer purchase a stake in that company. The process of converting or "selling off" governmentgovernmentowned assets, properties, or production activities to private ownership. After several decades of increasing government control over productive activities, privatization came into vogue in the 1980s, along with business deregulation and an overall movement toward greater use of markets.

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

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

Impact Of Privatization On Indian Economy


It frees the resources for a more productive utilization. Private concerns tend to be profit oriented and transparent in their functioning as private owners are always oriented towards making profits and get rid of sacred cows and hitches in conventional bureaucratic management. Since the system becomes more transparent, all underlying corruptions are minimized and owners have a free reign and incentive for profit maximization so they tend to get rid of all free loaders and vices that are inherent in government functions. Gets rid of employment inconsistencies like free loaders, or over employed departments reducing the strain on resources. Reduce the government's financial and administrative burden.
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Effectively minimizes corruption and optimizes output and functions. Gets rid of employment inconsistencies like free loaders, or over employed departments reducing the strain on resources. Private firms are less tolerant towards capitulations and appendages in government departments and hence tend to right size the human resource potential befitting the organization's needs and may cause resistance and disgruntled employees who are accustomed to the benefits as government functionaries Permit the private sector to contribute to economic development. Development of the general budget resources and diversifying sources of income.

Privatization Chart