IMPACT OF LIBERALIZATION,PRIVATISATION AND GLOBALISATION ON INDIAN ECONOMY.pptx

IMPACT OF LIBERALIZATION,PRIVATISATION AND GLOBALISATION ON INDIAN ECONOMY

PRESENTED BY SURABHI SOODAN DEEPAK SETHI PAYAL CHOUDHARY MEHAK CHOUDHARY DIMPLE RAHEJA

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.

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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……

Introduction of Liberalization in India

 The Pre-liberalization Era

– Prior to 1991

 The Post Liberalization Era -- The Present Era.

Why Did it Start…….????  In 1991, India Faced a “Balance of Payments Crisis”.

 It had to Pledge its Gold to Foreign Countries.  It was a deal with The IMF.  Then PM of India, P V Narsimha Rao Knew that It was time for Some Bold Decision.

“Liberalization” and “Economic 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 barriers.”  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 neo-liberalism. 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, lower 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.

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 made large losses.

 Infrastructure investment was poor because of the public sector monopoly.  License Raj established the "irresponsible, self-perpetuating bureaucracy that

still exists throughout much of the country" and corruption flourished under this system.

Privatization:Privatization - is the incidence or process of transferring

 ownership of business from the public sector (government) to the private sector (business).  Privatization is opening up of an industry that has been reserved for public sector to the private sector.

 Privatization means replacing government monopolies with the competitive pressures of the marketplace to encourage efficiency, quality and innovation in the delivery of goods and services.

“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" government-owned 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 service-

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.

To be continued……

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Effectively minimizes corruption and optimizes output and functions.

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Gets rid of employment inconsistencies like free loaders, or over employed departments reducing the strain on resources.

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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

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Permit the private sector to contribute to economic development.

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Development of the general budget resources and diversifying sources of income.

Globalization-:

 It Means that opening up of the economy for foreign direct investment by liberalizing the rules and regulations and by creating favorable socio-economic and political climate for global business.  Opening and planning to expand business throughout the world.  Buying and selling goods and services from/to any countries in the world.

Steps Taken to Globalize Indian Economy 1. Devaluation: To solve the balance of payment problem Indian currency

were devaluated by 18 to 19% 2 . Disinvestment: To make the LPG model smooth many of the public sectors were sold to the private sector. 3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as Insurance (26%), defense industries (26%) etc. 4. NRI Scheme: The facilities which were available to foreign investors were also given to NRI 's.