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THE NEW INDUSTRIAL

POLICY- 1991

LIBERALISATION

PRIVATISATION

GLOBALISATION

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CONTENTS

IntroductionReasons for implementing LPG

LiberalizationPrivatizationGlobalization

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IntroductionJuly 1991,India has taken a series of measures to

structure the economy and improve the BOPposition. The new economic policy introducedchanges in several areas.

The policy have salient feature which are: -1.Liberlisation (internal and external)2.Extending Privatization3.Globalisation of the economyWhich are known as LPG . (libearlisation privatisation

globalisation)

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Reasons for implementing LPG

Excess of consumption and expenditure overrevenue resulting in heavy govt. borrowings.Growing inefficiency on the use of resources. Over protection to industries.

Mismanagement of the firm and theeconomy.Increase in losses for public sectorenterprises.Various distortion like poor technological

development, shortage of foreign exchangeand borrowing from abroad.Low foreign exchange reserves.Inflation

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LiberalizationLiberalization is a very broad term that usuallyrefers to fewer government regulations andrestrictions in the economy.Liberalization refers to the relaxation of theprevious government restriction usually in area ofsocial and economic policies. When governmentliberalized trade , it means it has removed thetariff ,subsidies and other restriction on the flow of

goods and services between 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 foreignnations Unbalanced development

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Privatization

Privatization means transfer of ownership and/ormanagement of an enterprise from the publicsector to the private sector .It also means thewithdrawal of the state from an industry orsector partially or fully.

Privatization is opening up of an industry thathas been reserved for public sector to the private

sector.Privatization means replacing government

monopolies with the competitive pressures of themarketplace to encourage efficiency, quality andinnovation in the delivery of goods and services.

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Need for Privatisation.

Though the PSUs have contributed heavily todevelop the industrial base of the country, theycontinue, even today, to suffer from a number ofshortcomings which are identified below verybriefly :-

A sizable number of PSUs have been incurringand reporting losses on a continual basis.Consequently, a large number of PSUs have

already been referred of loss giving units; Multiplicity of authorities to whom the PSUs are

accountable; Delay in implementation of projects leading to

cost escalation and other consequences; 10


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Ineffective and widespread inefficiency onmanagement;

With a view to provide opportunities for more andmore unemployed youths, more number of people,than required, were recruited and therefore, manyPSUs are over-staffed resulting in lower labourproductivity, bad industrial relations, etc.;

A number of sick companies (40 companies) whichwere in the private sector was taken over by publicsector mainly to protect the employees. These sickunits are causing a big drain on the resources of thestate; etc.

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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 onGovt.

It will help profit making public sector unit tomodernize and diversify their business.

It will help in making public sector unit morecompetitive.

It will help to improving the quality of decisionmaking, because the decisions are free fromany political interference.

Privatization may help in reviving sick unitswhich are the liability of the public sector.

Industrial growth. Increase the foreign investment.

Increase in efficiency. 13


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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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Globalization

Globalization implies integration of theeconomy of the country with the rest of theworld economy and opening up of the

economy for foreign direct investment byliberalizing the rules and regulations and bycreating favorable socio-economic andpolitical climate for global business.

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According to IMF: - The growingeconomic interdependence of countriesworldwide through increasing volume

and variety of cross border transactionin goods and services and ofinternational capital cash flows, andthrough the more rapid and

widespread diffusion of technology.

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Basing product development and productionplanning on the global market consideration.

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

Global orientation of organizational structure.and management culture

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Foreign market entry strategies

ExportingLicensing/FranchisingContract manufacturingManagement contract

Assembly operationsFully owned manufacturing facilitiesJoint venturingMerger and acquisition

Strategic allianceCountertrade

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Pros and Cons of Globalisation

Globalization have several benefits ,these are: -Free flow of capital and increase in the totalcapital employed.Free flow of technology.Increase in industrialization.Spread of production facilities throughout theglobe.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 ofGlobalization

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 andpoor Dominance of foreign institutions

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CONCLUSION

Economic liberalization has increasedthe responsibility and role of the privatesector. At the same time, it has reduced

the control of the government oneconomy affairs. It is expected that thereforms would liberalize the Indianeconomy enough to create a conducive

environment for rapid economicdevelopment.

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The process of reforms according to manyeconomists and social scientists is not fastenough to achieve the goals. Jeffrey Sachs,director of Harvard Universitys center for

international development and a notedeconomist, pointed out that the reformprocess in India had a long way to go. Hefeels that without a focus on the twinpillars of social and economic strategies,

the future would be bleak for India,especially in the context of competition allaround.

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The government, however, is reluctant to give upits role of owning and controlling economicactivities. At the same time its inability to spendfor providing minimum health and education

services. It is eager to spend on higher educationwithout spending enough on primary andsecondary education. It has failed in providing acorruption free administration, an essential

precondition for increasing competitiveness.Success of the economic reforms depends uponthe commitment of all concerned people,political parties, bureaucracy, and government to the socio economic progress of the country.

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