LIBERALISATION PRIVATISATION

GLOBALISATION
 Introduction

 July 1991,India has taken a series of measures to structure the economy and
improve the BOP position. The new economic policy introduced changes in
several areas. The policy have salient feature which are:
 1.Liberlisation (internal and external)
 2.Extending Privatization
 3.Globalisation of the economy Which are known as “LPG”. (libearlisation
privatisation globalisation)
Reasons for implementing LPG

  Excess of consumption and expenditure over revenue resulting in heavy govt.

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

 Reasons for implementing LPG

 • Large and growing fiscal imbalances.(Gross fiscal deficit rose to 12.1% of GDP
in 1991)
 • Growing inefficiency in the use of resources.
 • Low foreign exchange reserves.($1.2 billion in January 1991) • High inflation
rate.(13.87% in year 1990-91)
 • The low annual growth rate of Indian economy stagnated around 3.5% from
1950s to 1980s, while per capita income averaged 1.3%.
Liberalization

 Liberalization refers to relaxation of government restrictions in areas of economic

policies. Thus, when government liberalizes trade it means it has removed the
tariff, subsidies and other restrictions on the flow of goods and
 The fruits of liberalisation reached their peak in 2007, when India recorded its
highest GDP growth rate of 9%. With this, India became the second fastest
growing major economy in the world, next only to China. The growth rate has
slowed significantly in the first half of 2012. An OECD report states that the
average growth rate 7.5% will double in a decade, and more reforms would speed
up the pace.service between countries.
 The Path of liberalization
 • Relief for foreign investors
 • Devaluation of Indian rupees
 • New industrial Policy
 • New trade policy
 • Removal of import Restrictions
 • Liberalization of NRI remittances
 • Freedom to import technology
 • Encouraging foreign tie-ups
 • MRTP relaxation
 • Privatization of public sector
Privatisation

 It refers to the transfer of assets or service functions from public to private

ownership or control and the opening of the closed areas to private sector entry.
 Privatisation can be achieved in many waysfranchising, leasing, contracting, etc.
Capital markets should be sufficiently developed to be able to absorb the
disinvested public sector shares.
Successful Privatizations in India

 Lagan jute machinery company limited (LJMC)

 Gross turnover: pre-privatization= Rs. 6 million (april-june 2000),
 post-privatization= Rs. 24 million (july-september 2000) • Modern food industries
limited (MFIL)
 Share value went up from Rs. 2138 on 30th Dec.(prior to sale) to Rs. 3247 on
 25th Feb.(post sale). • Paradeep Phosphates Limited (PPL)
 Net profit: pre sale= Rs. -57.95 Cr., post sale= Rs. 23.96 Cr. • Bharat aluminium
company limited (BALCO) • Hotel Corporation of India limited (HCI) •
Hindustan Zinc limited (HZL)
Globalisation

 Economic globalization is the increasing economic interdependence of national

economies across the world through a rapid increase in crossborder movement of
goods, service, technology and capital. It is a process which draws countries out
of their insulation and makes them join rest of the world in its march towards a
new world economic order.
 Current globalization trends can be largely accounted for by developed economies
integrating with less developed economies by means of foreign direct investment,
the reduction of trade barriers as well as other economic reforms and, in many
cases, immigration.
Foreign Direct Investment

 Foreign direct investment (FDI) is a direct investment into production or business

in a country by an individual or company in another country, either by buying a
company in the target country or by expanding operations of an existing business
in that country.
FDI in India

 The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry,
Government of India makes policy pronouncements on FDI which are notified by the RBI as
amendments to the Foreign Exchange Management Regulations. • A 2012 UNCTAD survey
projected India as the second most important FDI destination after China. • India ranked third in the
list of most attractive FDI destinations as per Ernst &Young's 2012 survey.
 FDI in India FDI caps in various sectors: • Defense 26% • Insurance 49% (earlier 26%) • Telecom
100% (earlier 74%) • Single brand retailing 100% • Multi brand retailing 51% • Civil aviation 49%
 The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry,
Government of India makes policy pronouncements on FDI which are notified by the RBI as
amendments to the Foreign Exchange Management Regulations. • A 2012 UNCTAD survey
projected India as the second most important FDI destination after China. • India ranked third in the
list of most attractive FDI destinations as per Ernst &Young's 2012 survey.
 FDI in India FDI caps in various sectors: • Defense 26% • Insurance 49% (earlier 26%) • Telecom
100% (earlier 74%) • Single brand retailing 100% • Multi brand retailing 51% • Civil aviation 49%
Advantages

 Globalisation of under developed countries improves the efficiency of resource,

reduce the capital output ratio and increase labour productivity, increase the
inflow of capital, update technology that gives a boost to the average growth rate
of the economy. • Restructures the production and trade pattern in a capital scarce,
labour abundant economy in favour of labour-intensive goods and techniques.
 With the entry of foreign competition and the removal of import tariff barriers,
domestic industry will be subject to price and quality improving effects in the
domestic economy. • Efficiency of banking and financial sectors will improve, as
there will be competition from foreign capital and foreign banks.
Disadvantages

 Globalisation is helping the developed economies more than the developing

economies. • Multinational companies and Chinese goods will flood the market at
cheaper rates and there will be no takers for local products. • Entry of MNC
supermarket and hypermarket chains would cause severe displacement of small
and unorganised shopkeepers and traders. • None of the multinationals that has set
up manufacturing plants in India has signed any technology transfer agreement
with any Indian company.
Effects of Globalisation

 India’s share in the world export which had fallen 0.53% in 1991, has reversed
trends and has improved to 1.60% in 2013. • Our foreign currency reserves which
had fallen to barely $1 billion in June, 1991 rose substantially to about $
 Exporters are responding well to sweeping reforms in exchange rate and trade
policies. The average growth of export has been more than 20% per annum since
2002-03. • Exports now finance nearly 65% of imports, compared to only 60% in
the later half of the eighties. • The current account deficit was over 3% of GDP in
1990-91. In 2004-05 and 2005-06, we again had current account deficit of (-)0.4
and (-)1.1 percent respectively.277.72 billion in October, 2013.
Main organizations facilitating
globalisation
 Some of the international organisations which facilitate the process of
globalisation:
 • International Monetary Fund (IMF)
 • World Bank
 • World Trade Organisation (WTO)