LIBERALISATION

PRIVATISATION
GLOBALISATION

Manan Doshi
XII F
11609
Economics AIL
 India before LPG:
• India’s economy in the early nineties faced a major economic
crisis. This was because expenses were very high because of the
focus on development of the country and to eradicate
unemployment, poverty and handle population explosion, etc.

• But the government could not generate enough amount of revenue

through tax, public sector enterprises in comparison to its
expenses.

• By 1980’s the expenditure exceeded the revenue by a huge margin.

This caused the economic downfall.

• As a result, inflation rate grew, prices of commodities hiked, and

imports were greater than exports.

• No country was willing to lend funds to India

Implementing LPG
• After not receiving financial aid from any
country, India then approached World
bank & IMF(International Monetary Fund)

• They agreed to lend $7 Billion to India on

the condition that they open their
economy, reduce the role of govt in many
areas and remove restriction on private
sectors

• India agreed to these conditions and the

government announced a New Economic
Policy on July 24, 1991. This new model of
economic reforms is commonly known as
the LPG or Liberalisation, Privatisation,
and Globalisation model.
LIBERALISATION

• It is a broad term that usually refers to

fewer government regulations and
restrictions in the economy

• It refers to relaxation of previous

government restrictions usually in areas
of social and economic policies

• When government liberalised trade, it

means it has removed tariff, subsidies
and other restrictions on the flow of
goods and services between countries
Advantages of LIBERALISATION
• Increase in foreign investment

• Increase foreign exchange reserve

• Increase in consumption and control over

price

• Check on corruption

• Reduction in dependence on external

commercial borrowings
Disadvantages of LIBERALISATION

• Increase in unemployment

• Loss to domestic units

• Increased dependance on foreign nations

• Unbalanced development
PRIVATISATION
• It means the transfer of ownership or management
of an enterprise from the public sector to the
private sector

• It also means withdrawal of the state from an

industry fully or partially

• Privatisation is the replacement of government

policies with the competitive pressures of
marketplace to encourage efficiency, quality and
innovation in delivery of goods and services
• There are different approaches. Some of them are:
1. Transfer of minority equity ownership
2. Transfer of complete ownership
3. Relative share enlargement approach
Advantages of PRIVATISATION
• Helps to reduce the burden on the government

• It helps the profit-making public sector to modernise and diversify

their business

• It helps in improving the quality of decision making since it is free

from any political intervention

• Increase in efficiency

• Industrial growth

• Helps in reviving loss making units which were initially a liability to

the public sector

• Helps in making public sector more competitive

Disadvantages of PRIVATISATION
• Lack of welfare

• Industrial sickness

• Increase in inequality

• Ignorance of weaker sections

• Ignorance of national importance

• Problem of financing

• Class struggles
GLOBALISATION
• The integration of economy of the country with
the rest of the world economy and opening of
the economy for foreign direct investment by
liberalising the rules and regulations and by
creating favourable socio economic and
political climate for global business is called
GLOBALISATION

Main features of globalisation are:

1. Erasing the difference between domestic and
foreign market
2. Buying and selling goods and services from/to
any country in the world
3. Locating the production and other physical
facilities on a consideration of the global
business dynamics, irrespective of national
consideration
Advantages of GLOBALISATION
• Free flow of capital and increase in the
total capital employed
• Free flow of technology
• Increase in Industrialisation
• Spread of production facilities throughout
the globe
• Balanced human development
• Balanced development of world
economies
• Increase in production and consumption
• Increase in jobs and income
• Higher standard of living
IMPACT OF LPG ON INDIA’S INDUSTRY AND ECONOMY

❑ The general trade and industrial policies that India adopted till
mid 80s and 1990s insulated the Indian industry from competition,
domestic as well as foreign

❑ However, the environment changed drastically since new economic

policies were initiated in 1990s. Globalisation has led to opening of
markets leading to intense competition

❑ Now, there is greater competition in domestic market with imports

of high-quality goods from developed countries and low-priced
goods from developing countries. Competition has further
intensified with the arrival of MNCs as the restrictions on the FDI
have been improved.

❑ Thus, Indian enterprises, small and large have been forced to

improve their quality and productivity in order to:
i. compete with imported goods or with goods produced by MNCs.
ii. Export successfully without government support
• On the profit perspective, PAT(profit after tax) to capital
employed was 5% higher for foreign companies

• Raw material expenses to Net sales lowered for MNCs

which meant low cost of production

• IT industries in India have reached global level due to

these reforms

• There was a fall in inflation rates as reforms increased the

production of goods and services resulting in either falling
of price or constant price. The competition also helped to
keep inflation in check.

• The reform led to the smooth running of businesses

without any hindrance, which led to more employment
and hence the decline in Poverty.
ILL EFFECTS OF GLOBALISATION
• The reforms were mainly for the formal sector of the economy, the
agricultural sector, the urban informal sector, and forest depending
communities were untouched by the reform. This resulted in Uneven
economic growth and unequal distribution of wealth.

• Economic liberalization in the organized manufacturing industries

(subjected to strict labour laws) has led to very little employment.

• Market-based reforms led to the economic disparity between the rich

class and the poor class.

• Social Sectors like Health, education were ignored in this reform which
has led to poor health sector development and lousy educational growth.

• Economic reforms have pushed up the growth of the economy but have
miserably failed to generate adequate employment.