THE NEW INDUSTRIAL POLICY- 1991

LIBERALISATION PRIVATISATION GLOBALISATION

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CONTENTS

IntroductionReasons for implementing

LPG LiberalizationPrivatizationGlobalization

Introduction

July 1991,India has taken a series of measures to structure the economy and improve the BOP position. The new economic policy 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 to fewer government regulations and restrictions in the economy.

Liberalization refers to the relaxation of the previous government restriction usually in area of social and economic policies. When government liberalized trade , it means it has removed the tariff ,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 remittance (payment

/transfer of funds)

• 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

Privatization

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

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

Privatization means replacing government monopolies with the competitive pressures of the marketplace to encourage efficiency, quality and innovation in the delivery of goods and services. 9

Need for Privatisation. Though 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 incurring and 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 increase and other consequences;

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• Ineffective and widespread inefficiency on management;

• 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.;

• 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.

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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.

• Industrial growth.• Increase the foreign investment.• Increase in efficiency.

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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)

Globalization

Globalization implies integration of the economy of the country with the rest of the world economy and opening up of the economy for foreign direct investment by liberalizing the rules and regulations and by creating favorable socio-economic and political climate for global business.

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According to IMF: -”The growing economic interdependence of countries worldwide through increasing volume and variety of cross border transaction in goods and services and of international capital cash flows, and through the more rapid and 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 the world.

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

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• Basing product development and production planning on the global market consideration.

• Global sourcing of factor of production i.e. raw-material, components , machinery, technology,finance etc. are obtained from the best 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

CONCLUSION

Economic 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.

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• The process of reforms according to many economists and social scientists is not fast enough to achieve the goals. Jeffrey Sachs, director of Harvard University’s 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 competition all around.

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• The government, however, is reluctant to give up its role of owning and controlling economic activities. At the same time its inability to spend for providing minimum health and education services. It is eager to spend on higher education without spending enough on primary and secondary education. It has failed in providing a corruption free administration, an essential precondition for increasing competitiveness.

Success of the economic reforms depends upon the commitment of all concerned – people, political parties, bureaucracy, and government – to the socio economic progress of the country.

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