The liberlization and privatization of the indian economy

The liberlization and privatization of the Indian savingRajiv Gandhis brass initiated the indemnity of repose since mid-80s. The liberalization openings sire been at a lower placeinterpreted in India with a view to accession a labor, improve prize and necessitate entranceway to grocery for products and returns abroad. Radical liberalization or globoseization measures reach been brought in since July 1991 to get ahead the Indian economy progressively grocery store place oriented and integrate it with the rising world-wide economy structure. These measures include decrease and rationalization of excise duty and customs duties, delicensing of several drug and pharmaceutic products, ready access to importing of raw material and expectant goods and so on.It has created an environment conducive to an enterprise, investing and innovation. Indian industries pay started to attract distant portfolio investment and equity bulgeicipation in novel ventures. The presi dency is move to make foreign players feet at ease to invest directly and develop with it new applied science and tradinging skills. in that respect has been impressive product in FDI inflows to India with the introduction of indemnity renews. As compargond to a near total intentness in manufacturing till 1991, the bulk of new inflow has come in the energy and service empyrean.liberalisationThe New industrial form _or_ system of organisation, 1991A get of significant scotch heightens introduced by m either a progeny of countries whole the world over, the encouraging results of the liberalization measures introduced in 1980s by the brass of India, and the unsteady stinting situation that prevai take during the later part 80s get down sustain and forced the then Congress politics, which came back to power at the center, under the attractionship of Shri. P. V. Narasimha Rao-a non Nehru family member, to take several(prenominal) bold measures to rejuvenate t he economy and to press forward the pace of victimisation. In this background, the Government of India announced its New industrial constitution (NIP or IP) on July 24, 1991. The main(prenominal) objectives argon (a) to correct the distortions that may pick out crept in, and consolidate the strengths built on the gains already make, (b) to maintain sustained growth in the productivity and gainful employment, and (c) to attain external competitiveness. Therefore, the basic ism of the New IP, 1991 has been the continuity with change. Because, the new policy represents a renewed initiative towards consolidating the gains of national reconstruction at this crucial stage. But what is to a greater extent than serious is the change (in continuity with change)-change in the attitude of the evidence towards the industrial society, change from centrally planned economy to grocery led economy, change from riotous administration intervention to minimal intervention, change from nat ionalization to privatization, change from concession and cross-subsidization to gradual withdrawal of subsidy, and so forth But these changes, which the government has introduced, represent a sharp departure from the earlier industrial policies. These changes pertain broadly to quint aras viz., (a) Industrial licensing,(b) Public domain policy, (c) MRTP Act, 1969, (d) remote investment, and (e) Foreign technology agreements.Industrial LicensingThis is one of the argonas in which demonstrable change has been made by the government. With a view to contrive effect to these changes, the government issued a notification viz., presentation No. 477 (E) on July 25, 1991 and this notification has exempted the industrial under victoriouss from the operation of the following fractions of Industries using and Regulations Act, 1951 subject to the fulfillment of certain conditions.Section 10 (which deals with registration of breathing industrial travails)Section 11 (which is concer ned with the licensing for new industrial undertakings) andSection 13 (which is concerned with the licensing requirements for substantial expansion).Further, the second schedule app hold backed to the notification cited supra viz., No. 477 (E) lists the industries which argon subject to mandatory industrial licensing. correspond to this notification, solely 18 industries were subject to compulsory industrial licensing. Further, five more industries pass been excluded from the list of industries which are subject to compulsory industrial licensing subsequently. That means, solely(prenominal) 13 industries are now subject to compulsory industrial licensing.Public empyrean insurance policyA declamatory number of Public Sector Enterprises have failed to achieve at least a reasonable rate of success. well-nigh of the factors which have contributed to this situation are over staffing and over managing, price and distributions controls, etc. Hence, the government, in its Industrial polity, 1991, introduced the number of significant changes pertaining to the PSEs. Some of the important changes envisaged by the New Policy are summarized below.Prior to the announcement of New Industrial Policy, 1991, seventeen industries were reserved exclusively for the re cosmos for their future development. Further, with abide by to approximately other 12 industries, the reconcile was to play an important role by taking initiative to establish new undertakings. in any event, the state had power to enter into any other area reserved for the head-to-head orbit. However, the failure on the part of majority of PSEs has forced the government to review its earlier decision. Consequently, the government in its New Industrial Policy, 1991 has p outflowed the list of the industries reserved for the mankind celestial sphere to exactly 8. Further, the government has dereserved 2 more industries. As a result, only sextet industries are now reserved for the open sector. They are (a) Arms and ammunition and allied items of defence equipment, aircraft and warships, (b) Atomic energy, (c) Coal and lignite, (d) mineral oils, (e) Minerals specified in the schedule to the Atomic Energy Order, 1953, and (f) Railway transport. Hence, the focus of the world sector bequeath be only on strategic and exalted tech industries and on basic infrastructural projects. However the objective of the New Industrial Policy has been to withdraw the human race sector investment from the activities which can success encompassingy be taken up by the hush-hush sector enterprises. The emphasis of PSEs in future data track be on (a) Basic and essential infrastructural facilities, (b) Mineral resources, (c) Crucial areas in the interest of the economy in the long run and where the sequestered sector investment is inadequate, and (d) Defence equipment.With a view to bait the resources and to have a wider public participation, apart of governments contribution holdings in its enterprises exit be offered to the mutual funds, pecuniary institutions, employs of PSEs, and the general public. The New Industrial Policy as well as proposes selective privatization of PSEs. Further, the policy also proposes to close down the PSEs which have become pale and which cannot be rehabilitated. The sick PSEs which can be resuscitate will be refered to Board for Industrial and Financial Reconstruction for the grammatical construction of revival packages. The New Industrial Policy also aims at providing great operational and managerial autonomy to the anxiety of PSEs and making the managements accountable for the instruction execution through a system called Memorandum of Understanding.MRTP Act, 1969The New Industrial Policy, 1991 proposes to recompense suitably the Monopolies and Restrictive Trade Practices Act, 1969. To remove the threshold limits of assets in respect of MRTP companies and the dominant industrial undertakings. The important objectives of this were twain in number. They are stripe of concentration of frugal power in the hands of few which will be detrimental to the common interest andRegulation of monopolistic, restrictive and inequitable address practices which are pursued by the business community and which are prejudicial to the public interest.The New Policy proposes to renew the threshold limits of assets and therefore, to halt up the Provisions of MRTP Act, 1969 pertaining to the first objective. Hence, the MRTP Act now concerned only with the hindrance of monopolistic, restrictive and unfair trade practices followed by the industrial undertakings and the trading communities.Foreign InvestmentAs far as the direct foreign investment is concerned, the New Policy proposes to give automatic approval up to 51% of equity in the case of high priority industries and it has also set 34 such industry groups. Further, the policy proposes to drop by the wayside majority foreign equity holdings up to 51% of equity for th e trading companies which are diligent in export activities. This is to modify the domestic companies an easy access to international commercialises. With a view to negotiate with the outstanding international financial institutions and to revere the direct foreign investments proposals in selected areas, the New Policy proposes to constitute a special committee.Foreign engine room AgreementsThe New Industrial Policy proposes to give automatic permission for foreign technology agreements in identify high priority industries. Further, it also proposes to allow other industries to import foreign technology subject to the fulfillment of certain conditions.ConclusionThe New Industrial Policy, 1991 for sure differs significantly from the earlier philosophies, approaches, etc. of the government. For instance, prior to 1991, screen background of public sector was expanded by reserving more number of industries for the public sector. But now, its scope has been reduced drastically b y reducing the number of industries reserved for the public sector. Like this, a large number of changes can be sight in the new policy. This process has been continuing even in maculation liberalization era. Adding to this, the government has taken a number of steps to give effect to its policy decisions included in the New Industrial Policy, 1991. though the economy has been benefited significantly from these measures, the economy has not been able to reap the full benefits of the Economic Reform Package owing to the political instability, etc.PrivatizationPrivatization of PSUs majority of the industrial enterprises in the public sector have failed to achieve the want result. Of course, a number of factors-internal and external, controllable and non- controllable are responsible for his precarious performance. A look at the history of public sector undertakings (PSUs) in the country reveals the continuous expansion in the role of PSUs. Consequently, a number of enterprises hav e been established and huge amount of borrowed heavy(p) has been sedulous by the state even in the non-core, non-strategic and not so essential area. Hence, the state has made a number of changes in its New Industrial Policy announced on July 24, 1991.IntroductionIn the sixties and seventies, the public sector policy has been largely guided by Industrial Policy Resolution, 1956 which gave the public sector a strategic role in the economy. During the last quartet decades, massive investments have been made to build a public sector which has a commanding role in the economy. Today, many key sector of the economy are dominated by the mature public sector enterprises that have successfully expanded the achievement.In the early post-Indep eradicateence years, there was virtual(prenominal) consensus about the need for the government intervention in economic activities. Pandit Jawaharlal Nehru expound the public sector as Temples of Modern India. At that time, virtually uncomplete qu estioned the strategy nor raised any doubts about its implementation. The number of central public sector enterprises increased from 5 in the year 1951 to 240 by the end of 1995 and investments in public sector undertakings (PSUs) increased from Rs29 crore in 1951 to Rs. 1,72,438 crore by the end of 1995. They contributed nearly one third of our exports. They made significant contribution to import substitution. Government undertakings account for more that 70% of the work force employed in the organized sector. They have greatly reduced the imbalanced of regional development and have laid strong base for the rapid development of the country. Some of the PSUs have earned a reputation par purity at the international train. Some giant public sector units (e.g., Indian Oil Corporation, Steel Authority of India, Oil and Natural Gas Commission, Hindustan oil color Corporation Ltd., Coal India Ltd and Bharat Petroleum Corporation Ltd) figure in dower world-wides large companies. Furt her, the public sector accounts for one-fourth of the countrys GDP.There are two cardinal employees in government undertakings and the average emoluments per annum amount to more than Rs.50, 000 each. Besides paying high salaries, public enterprises assure job security, good working(a) condition, seductive incentive scheme, participative management, higher degree of safety, adequate facilities, etc. content of PrivatisationThe revolution of privatization started in 1980 and spread to many parts of the world. Several countries are privatizing their public sector enterprises. India is no exception to it. Privatization was meant to improve the performance of public enterprises. Privatization techniques have been tried in countries like Great Britain, China, US, Turkey, Brazil, Mexico, Japan, etc. Privatization, in the narrow sense, means transfer of ownership, or sale of public enterprises. However, privatization has been use in different ways as detailed below easiness near Priva tization may be used in the sense of liberalization having fewer controls and regulation by the state in economic activities. This also means slowness of new controls and regulations and also dismantling of the existing controls and regulations. intercourse Share Enlargement Approach Privatization may relate to enlargement of the piece of land of private enterprises in the production of goods and services in the economy. This means that windy economic expansion of goods and services produced by private sector and slowing down of production of goods and services in the public sector.Association of undercover Sector Management Approach This approach suggests utilizing the services of managerial personnel office or executives of private sector enterprises for the conduct and management of PSUs.Transfer of minority Equity Ownership Approach Privatization may be defined as the transfer of minority equity ownership of public enterprises to private individuals and institutions so that the ultimate control continues to remain with the state.Transfer of Complete Ownership Approach Privatization is also used in the sense of sale of all the shares to the private parties so that the public enterprises are converted into private enterprises.In India, privatization is taking place by adopting two common methods viz.,(a) Having fewer controls and regulations by the state in economic activities, and(b) Transferring ownership of state equity in PSUs to private individuals and institutions.Benefits of PrivatizationIt is expected that privatization will ensure the following benefitsIncreasing overall talentImprovement in the quality of management and decision makingNo government financial backing, and therefore, groovy market will compel these enterprises to be more efficientSubstantial reduction in governments budgetary support resulting in reduction in budgetary deficitRecovery of government fund which could more productively be used in development activitiesReduction i n political and bureaucratic interferencesBetter industrial dealing management etc.ShortcomingsThough the PSUs have contributed heavily to develop the industrial base of the country, they continue, even today, to suffer from a number of shortcomings which are identified below very briefly.A sizable number of PSUs have been incur and reporting losses on a continual basis. Consequently, a large number of PSUs have already been referred of BIFRMultiplicity of authorities to whom the PSUs are accountableDelay in implementation of projects submiting to cost escalation and other consequencesunavailing and widespread inefficiency on managementMany PSUs are operating without the leader (i.e., chief executive or chairman)With a view to provide opportunities for more and more unemployed youths, more number of people, than required, were recruited and therefore, many PSUs are over-staffed resulting in lower labour productivity, bad industrial relations, etc.un-remunerative pricing policy and A number of sick companies (40 companies) which were in the private sector was taken over by public sector mainly to protect the employees. These sick units are causing a big drain on the resources of the state etc.Methods of PrivatizationThere are four important modes of privatization. They areFranchising, (b) Contracting, (c) Leasing, and (d) Disinvestment.In India, disinvestment of government share of equity in PSUs is predominant. It started in 1992 immediately by and by the New Economic Policy in a phased manner. The main denunciation of disinvestment of shares of PSUs in India is that it has been partial and half-hearted. There seems to be no plans to disinvest completely. The government still would like to keep a dominant control. 39 companies have been proposed for disinvestment till 1995-96. All the companies proposed for disinvestment are central PSUs. No state take PSU has been proposed for disinvestment. It could only disinvest 1% to 35% shares of PSUs on an average. It is also notice that the shares of efficient and profit-making companies are disinvested more than the companies which are potentially sick or sick companies. The disinvestment percentage is also not much in loss-making and ineffectual units, thereby defeating the purpose.The Finance Ministry has also explained that the government is consciously not off-loading larger chunks of its holding. The Rangarajan Committee has suggested that government holding in public sector undertaking mustiness be less than 50%. But partial disinvestment will be of no avail to change the culture in the public sector undertaking.Future Plans of GovernmentThe following are the future plans of governmentStrengthening strategic units,Privatizing non-strategic units by (1) Gradual disinvestment, and (2) Strategic sale, andDevising fitting rehabilitation package for weak units.ConclusionThe privatization process launched with all sincerity after the announcement of New Industrial Policy, 1991 was a fa ilure. The state must accept this and take necessary steps either to privatize or to improve the efficiency and performance of PSUs.GLOBALISATIONIntroductionThe expansion of economic activities across political boundaries of nation states. More important, perhaps, it refers to a process of increase economic integrated and growing economic interdependence mingled with countries in the world economy. It is associated not only with an increase cross- border movement of goods, services, detonator technology development and people but also with an organization of economic activities which straddles national boundaries. This process is driven by the lure of profit and nemesis of competition in the market.The term globalisation as such denotes modification of national economy with that of the world economy. It is conversion of a national market into international mobility of factors of production. In others words, it may be described as the consolidation of national economy with th at of global economy.An important attribute of globalisation is the change magnitude degree of openness, which has three dimensions, i.e. international trade, international investment and international finance. According to ball Development publish, Globalization reflects the progressive integration of worlds economies.The manifestation of production includes spatial reorganization of production the interpenetration of industries across borders, the spread of financial markets, and the diffusion of identical consumer goods to distant countries and massive transfer of population across national frontiers.Globalization is a process of reaffirmation of faith in the markets, retaining the character of independence of a country. Here, the country follows a pragmatic policy with a shift in decision making from government to business. The market forces and the laws of economics will have greater importance than the political ideology. To make a country a successful partner in Globaliza tion, the government must play a complimentary role.Factors contributing to GlobalizationThe important factors that contribute to Globalization are(a) expert Advances In communicationTechnological advances in communication have made it possible to know in an instant what is happening in different parts of the world. The flow of information and ideas, boosted greatly by the Internet, can enable developing countries to learn more rapidly from each other and from industrial countries.(b) Improvements In Transportation And TechnologyImprovements in transportation networks and technology are reducing the costs of conveyance goods by water, ground and air. This can facilitate the movements of goods. Technological improvements can enable developing countries to leap stages in the development process that rely on inefficient uses of national resources.(c) Other FactorsRising educational levels, technological innovations that allow ideas to circulate, and the economic failures of most cen trally planned economies have also contributed to Globalization.Trends in GlobalizationThe important trends in Globalization are the following world-wide TradeTrade in goods and services has grown twice as debauched as global GDP in the 1990s and the share attributable to developing countries has risen from 23 to 29 percent. There is a compositional shift in trade, which has created a new pattern in the international exchange of goods, services, and ideas. Trade in components is one part of that new pattern. Advances in information technology helps to link firms from developing countries into global production networks. The tremendous growth of trade in services and, more recently, of electronic commerce is also a part of the new trade pattern.(b) International Financial FlowsThere has been increase in international capital flows of developing countries. However, the financial crisis of 1977-99 have put the growing interdependencies among countries in the spotlight and led to inten se scrutiny. Such flows are started to rise again. The financial performance of emerging markets in the 1990s made capital account liberalization an attractive option for developing countries. Many developing countries have began to loosen controls on inflows and outflows of capital.The East Asiatic meltdown has enhanced the attractiveness of long-term capital investment. Countries have started to recognize that foreign direct investment brings with it not only capital but also technology market access and organizational skills. An analysis of the period 1996-97 shows that foreign direct investment was less vapourific than the commercial bank loans and foreign portfolio flows.(c) International MigrationAlong with goods, services, and investment, people are crossing borders in large numbers. According to World Development Report 1999-2000, each tear between 2 million and 3 million people emigrate, with majority of them going to just 4 countries the United States, Germany, Canada a nd Australia. The market for highly skilled workers will become even more globally integrated in the coming decades.At the end of the 20th coke Globalization has already demonstrated that economic decisions, wherever they are made in the world, must take international factors into account. There is acceleration of goods, services, ideas and capital across nation borders.Advantages of Globalization(a) Promise of extend Productivity And higher(prenominal) Living StandardsGlobalization brings in new opportunities such as access to markets and technology transfer. These opportunities hold out the promise of increased productivity and higher living standards.(b) Increase In Trade In Goods And ServicesThere is tremendous growth in trade in goods and services. Trade in goods and services has grown twice as fast as global GDP in the 1990s and the share attributable to developing countries has climbed from 230to 29 percent. Increased international competition in services will lead to reduc tion in prices and improvements in quality. This will increase the competitiveness of downriver industries. Both industrial and development economics will gain by opening their markets.(c) Provide New Opportunities For GrowthFor developing countries, trade is the primary coil vehicle for realizing the benefits of Globalization. Imports bring additional competition and variety to domestic markets, which benefit consumers. Exports, on the other hand, enlarge foreign markets and benefit business. Further trade exposes domestic firms to the best practices of foreign firms and encourages greater efficiency. Trade gives forms access to change capital inputs such as machine tools, which boosts productivity. Trade encourages the redistribution of labour and capital too relatively to more productive sectors. It has contributed to the ongoing shift of some manufacturing and services activities from industrial to developing countries, providing new opportunities for growth.(d) Globalization of Financial MarketsGlobalization of finance markets affects development because finance plays an important role in economic growth and industrialization. Financial Globalization affects growth in two ways. First, it increases the global supply of capital. Second, it promotes domestic financial development and hence, improves allocative efficiency, creates new financial instruments, and raises the quality of baking services.(e) Increased Flow Of foreign Market CapitalGlobalization leads to increased flows of capital across countries. Flows of foreign capital offer substantial economic gains to all parties. Foreign investors diversify their risks outside their home market and gain access to profitable opportunities through out the world. Economies receiving inflows raise the level of investment. When there is foreign investment it is generally accompanied by management expertise, training programs and important linkages to suppliers and international markets.(f) Impact on PovertyThe fast growth and overall development resulting from liberalization, increased flow of trade ad capital could have a major impact on poverty. It is probable to reduce the number of people living in absolute poverty.(g) Increase The Level Of Interdependence And CompetitivenessGlobalization is supposed to accelerate and increase the level of interdependence and competitiveness among nation. It is a change from plan to market. As a consequence, markets for merchandise trade are expanding, more and more service are being traded internationally, and capital is flowing in quicker and progressively diverse ways across countries and regions. There is increasing integration of countries into World markets for goods, services and capital. In short, Globalization widens and intensifies international linkages in trade and finance.(h) generate Domestic Firms To Improve TechnologyThe better technology brought in by the MNCs may induce or provoke the domestic firms to absorb same technology. Thi s may improve their competitiveness and expansion.Disadvantages of GlobalizationThe universal acceptance of the market economy and the Globalization led by private enterprises tend to have some harmful effects on the economy of developing countries. They are discussed belowTakeover of National FirmsThere are a large numbers of cases of takeover of national firms by foreign firms. In some cases, the domestic firms had to handover the majority of equity to foreign partners of joint ventures due to their unfitness to bring in additional capital.Ruin of Traditional Crafts And IndustriesGlobalization has lead to replacement of traditional and indigenous products by modern products. This has resulted in the dash of traditional crafts and industries and the livelihood of the people depended on these sectors.Brings InstabilityGlobalization sometimes brings instability and unwelcome change in the economy. It exposes workers to competition from imports, which can jeopardise their jobs. The inflow of foreign capital into the country through Globalization may undermine banks.(d) Widens The DisparityGlobalization will widen the disparity between one who are associated with market and one who are not. With the expansion of trade and foreign investment, the gaps among the developing countries will widen .it has brought in increased income inconsistency in many industrial countries .it is argued that the developing countries and the poor people are not in a position of achieving benefits from Globalization. The only beneficiaries of it are the authentic countries and the MNCs.Growth rate of Indias real GDP per capitaPer Capita GDP of South Asian Economies.Estimates of the Per Capita Income of India.CONCLUSIONEconomic liberalization has increased the responsibility and role of the private sector. At the same time, it has reduced the control of the government on economy affairs. It is expected that the reforms would liberalize the Indian economy enough to create a conducive environment for rapid economic development. The Ninth Five yr Plan, therefore, rightly observed, The conditions that exist today, demand a decisive break from the past. The government has taken on itself too many responsibilities with the result that it not only encouraged a dependency syndrome among our people, but also imposed arduous strains on financial and administrative capabilities of the government.Private initiative whether individual, collective or community-based forms the essence of the development strategy articulated in the plan.The process of reforms tally to many economists and social scientists is not fast enough to achieve the goals. Jeffrey Sachs, manager of Harvard Universitys center for international development and a noted economist, pointed out that the reform process in India had a long way to go. He feels that without a focus on the twin pillars of social and economic strategies, the future would be bleak for India, especially in the context of competit ion all around.Liberalization process is on the slow track. Government is expected to reduce and last give up its involvement in economic matters and play a major role in providing the required socio-economic infrastructure. The government, however, is reluctant to give up its role of owning and controlling economic activities. At the same time its softness to spend for providing minimum health and education services. It is eager to spend on higher education without spending enough on primary and lower-ranking education. It has failed in providing a corruption free administration, an essential precondition for increasing com