Liberalisation, Privatisation

and Globalisation

Presented by
Dr. Gulshan Gupta
 Background

In the late 1980s, government expenditure began to exceed

its revenue. Prices of many essential goods rose sharply.
Imports grew at a very high rate without matching the
growth of exports.
As pointed out earlier, foreign exchange reserves declined
to a level that was not adequate to finance imports for more
than two weeks. There was also not sufficient foreign
exchange to pay the interest that needed to be paid to
international lenders. Also, no country or international
funder was willing to lend to India.
 Background

To manage the crisis; India approached the International Bank for

Reconstruction and Development (IBRD), popularly known as World
Bank and the International Monetary Fund (IMF) for developing the
country and received $7 billion as loan to manage the crisis of BoP.
These international agencies expected India to liberalise and open up
the economy by removing restrictions on the private sector, reduce
the role of the government in many areas and remove international
trade restrictions between India and other countries.
These bank suggested that the government should open towards
restrictions on trade which is mostly done by the private sectors in
between India and other countries.
 The New Economic Policy

After the suggestion put forward by the International

Banks (World Bank & IMF), the Indian Government

announced its New Economic Policy or NEP.

This policy consisted of an extensive range of reforms.
These measures are broadly classified into two groups-
a) Structural Reforms & b) Stabilisation Measures.
Both sets of measures were taken for a short-term period.
a) The objective of structural measures was to develop
international competitiveness.
 The New Economic Policy

b) In stabilisation measures, the aim was to rectify and correct

the existing weakness developed in controlling the inflation and
balance of payments. The stabilisation measure included
Liberalisation, Privatisation, and Globalisation.
Under this measure, the balance of payment (BoP) was enabled
to record all forms of economic transactions of a country with
the rest of the world in a year.
In such a scenario, inflation refers to the growth of prices in
goods and services over a particular period.
 Liberalisation
Liberalisation of the economy means its freedom from direct or
physical controls imposed by the government. The Government
was expected to be flexible with its regulation in the nation.
The objectives of this policy were to enhance the competition
among the domestic industries and encourage international
trade with planned imports and exports. Moreover, it aimed at
increasing international technology and capital.
Also, this policy was expected to expand the international
market frontier of the nation and reduce the burden of debt in
the country.
 Privatisation
The second policy of the stabilisation measure is Privatisation. It
is the general process of involving the private sector in the
ownership or operation of a state-owned enterprise.
This policy aims to expand the domination of private sector
companies and reduce the control of the public sectors. Thus, the
Government-owned enterprise will have less ownership.
Besides these Government companies can be converted into
private sector companies with two approaches. These
approaches are a) by withdrawing the control of the
Government in the public sector company and b) by disinvesting.
 Privatisation
There are three forms of Privatisation:
i) Strategic Sale or denationalisation, the Government needs to deliver
100% of productive resources ownership to the private companies.
ii) The Partial Sale or Partial privatization owns a minimum of 50%
ownership with the help of the transfer of shares. They would,
therefore, own the majority of the shares and would have control of
the autonomy and functioning of the company.
iii) In the Token or the Deficit Privatisation, the Government would
have to disinvest the share capital by up to 5-10% in order to meet
the shortage in the budget. With the reduced work pressure the
efficiency of the public sector would automatically increase.
 Globalisation
Globalisation is the third and the last policy that is to be
implemented. The country's economy is expected to grow
with the help of the global economy. It is a process
associated with increasing openness, growing economic
interdependence and deepening economic integration in the
world economy.
The primary focus was on foreign trade and institutional and
private investments.
One of the major outcomes of Globalisation is outsourcing.
 Globalisation
Outsourcing means an enterprise can employ professionals
from other countries to reach a particular goal.
For example: There is a lot of contractual work that is being
outsourced in the field of Information Technology leading to its
development.
Globalisation has opened new avenues for a lot of private
sectors and Indian skills are regarded as the most effective and
vibrant across the globe. The low wage rate and dedicated
employees have made India one of the constructive nations
suitable for international outsourcing.
 FDI, BPOs and KPOs
FDI: Foreign Direct Investment

BPOs: Business Process Outsourcing

KPOs: Knowledge Process Outsourcing

A Foreign Direct Investment (FDI) is when a business invests in or

owns another company, project, or business entity in another
country. FDI does not focus only on capital investment, it also
includes the employment of management and infrastructure.
Companies invest in FDI to acquire raw materials, expand the
company’s territory, or establish an international presence.
 BPOs: Business Process Outsourcing
BPO refers to the outsourcing of business functions such as airlines, hotel
reservations, customer services, data entry and processing tasks. It
involves the low-end processes of any organization.
Due to the competitive advantages, many overseas companies have
established their outsourcing operations in India. Time efficiency,
economic benefits, the availability of skilled and cheap labor, handling of
non-core functions, risk management, providing value-added services and
the convergent technology are few reasons, which attracts outsourcing
operations in India.
The rate of unemployment in India is less talked about because of the
quick absorption of the youth (nearly about 30,00,000 employees) in
various domestic and international BPOs.
 KPOs: Knowledge Process Outsourcing
KPO is a subset of BPO. KPO involves outsourcing of core functions
which may or may not give cost benefit to the parent company but
surely helps in value addition. The processes which are outsourced
to KPOs are usually more specialized and knowledge based as
compared to BPOs.
Services included in KPO are related to R&D, Capital and insurance
market services, legal services, biotechnology, animation and design,
etc. are the usual activities that are outsourced to KPOs.
LPO or Legal Process Outsourcing is special type of KPO dealing
with legal services.
 BPO vs KPO
BPO KPO
BPO provides services like customer care, KPO provides in-depth
technical support through voice processes, knowledge, expertise and
Definition tele-marketing, sales, etc. analysis on complex areas
like Legal Services, Business
and Market Research, etc.
Knowledge Processing
Stands for Business Processing Outsourcing
Outsourcing
Good communication skills and basic
Requires Specialized knowledge
computer knowledge
Services Low end services High end services
Requires application and
Process Pre-defined process
understanding of business
Skill and expertise of
Employees Not so qualified employees
knowledge employees
Expertise in Process Knowledge
Relies on Cost arbitrage Knowledge arbitrage
Driving force Volume driven, Insights driven