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LIBERAlISATIONPRIVATISATIONGLOBALISATION

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CONTENTS

introduction

Reasons for implementing LPG

Liberalization

Privatization

Globalization

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Introduction

July 1991,India has taken a series of measures to structure the

economy and improve the BOP position. The new economicpolicy 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)

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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

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Liberalization

Liberalization is a very broad term that usually refers tofewer government regulations and restrictions in theeconomy in exchange for greater participation ofprivate entities

Liberalization refers to the relaxation of the previousgovernment restriction usually in area of social andeconomic policies. When government liberalized trade, it means it has removed the tariff ,subsidies and

other restriction on the flow of goods and servicesbetween the countries.

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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

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Advantages of liberalization

Industrial licensing

Increase the foreign investment.

Increase the foreign exchange reserve. Increase in consumption and Control over price.

Check on corruption.

Reduction in dependence on external commercial

borrowings

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Disadvantages of Liberalization

Increase in unemployment.

Loss to domestic units.

Increase dependence on foreign nations

Unbalanced development

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Examples

Name of Enterprises Situation

1.National Thermal Power Corporation Profit

2.Indian Oil Corporation Profit

3.Mananegar Telephone Nigam Limited Profit

4.Steel Authority India Limited Profit

5.Bharat Petroleum Corporation Limited Profit

6.Hindusthan Petroleum Corporation Limited Profit

7.Bharat Heavy Electronics Limited Profit

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Privatization

Privatization means transfer of ownership and/or management ofan enterprise from the public sector to the private sector .It alsomeans the withdrawal of the state from an industry or sectorpartially or fully.

Privatization is opening up of an industry that has been reservedfor public sector to the private sector.

Privatization means replacing government monopolies with thecompetitive pressures of the marketplace to encourageefficiency, quality and innovation in the delivery of goods and

services.

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Different Ways in privatization

Liberalization Approach

Relative Share Enlargement Approach

Association of Private Sector Management

Approach Transfer of Minority Equity Ownership

Approach

Transfer of Complete Ownership Approach

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Advantages of Privatization

Privatization helps to reduce the burden on Govt.

It will help profit making public sector unit to modernize and

diversify their business.

It will help in making public sector unit more competitive.

It will help to improving the quality of decision making, because

the decisions are free from any political interference.

Privatization may help in reviving sick units which are the liability

of the public sector.

It Encourage the new innovations without any restrictions.

Industrial growth.

Increase the foreign investment.

Increase in efficiency.12

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Disadvantages of Privatization

Industrial sickness.

Lack of welfare.

Class struggle.

Increase in inequality

Opposition by employees.

Problem of financing.

Increase in unemployment.

Ignores the weaker sections.

Ignores the national importance

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Examples of privatization in India

Lagan Jute Machinery Company Limited

(LJMC)

Videsh Sanchar Nigam Limited (VSNL) Hindustan Zinc Limited (HZL)

Hotel Corporation Limited of India (HCL)

Bharat Aluminum Company limited(BALCO)

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Globalization

Globalization implies integration of the economy of the countrywith the rest of the world economy and opening up of theeconomy for foreign direct investment by liberalizing therules and regulations and by creating favorable socio-

economic and political climate for global business.

According to IMF: -The growing economic interdependence ofcountries worldwide through increasing volume and varietyof cross border transaction in goods and services and of

international capital cash flows, and through the more rapidand widespread diffusion of technology.

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Features of Globalization

Opening and planning to expand business throughout the world.

Erasing the difference between domestic market and foreign market.

Buying and selling goods and services from/to any countries in theworld.

Locating the production and other physical facilities on a considerationof the global business dynamics ,irrespective of national consideration.

Basing product development and production planning on the globalmarket consideration.

Global sourcing of factor of production i.e. raw-material,components,machinery,technology,finance etc. are obtained from thebest source anywhere in the world.

Global orientation of organizational structure .and management culture

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Foreign market entry strategies

Exporting

Licensing/Franchising

Contract manufacturing

Management contract

Assembly operations

Fully owned manufacturing facilities

Joint venturing

Merger and acquisition

Strategic alliance Countertrade

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Pros and Cons of Globalisation

Globalization have several benefits ,these are: -

Free flow of capital and increase in the total capital employed.

Free flow of technology.

Increase in industrialization.

Spread of production facilities throughout the globe.

Balanced development of world economies.

Increase in production and consumption.

Commodities at lower price with high quality.

Increase in jobs and income. Higher Standard of living.

Balanced human development

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Negative effects of Globalization

Loss of domestic industries

Exploits Human resource

Decline in income

Unemployment

Transfer of natural resources

Lead to commercial and political colonism

Widening gap between rich and poor

Dominance of foreign institutions

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References

BOOKS:

K.AswathappaEssentials of Business Environment

Justin PaulBusiness Environment

F. CheruniliamBusiness and Government

Shaikh saleemBusiness Environment

INTERNET:Wikipedia

Businesschakra.com

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