Liberlisation privatisation and globalisation - an apprraisal

class 12 economics

1. LIBERLISATION, PRIVATISATION AND GLOBALISATION – AN APPRAISAL

2. CHAPTER OUTLINE Pre – reforms scenario or economic scenario in 1991 The need for economic reforms Roots of the crisis New Economic Policy or Economic Reforms since 1991-meaning and objectives Components of New Economic Policy – measures taken Liberalization Privatizing Globalization Impact of LPG policies on the Indian Economy

3. Pre – reforms scenario Large scale investment in Public sector and comparatively lesser role of the private sector The economic scenario in the country in year 1991 was, thus very much depressing as the economy was on the brink of collapse.

4. The nature of economic crisis and the need for economic reforms A continuous and increasing fiscal deficit- during 1990-91 the fiscal deficits were as high as 8.4 per cent of GDP high rate of inflation especially sharp rise in the prices of essential goods- in 1991 with annual rate of inflation at 12.1 percent had reached a peak level of 16.7 percent in August 1991 A high trade deficit and balance of payment crisis Gulf crisis leading to high external debt Poor performance of PSUs

5. Roots of the crisis Control and subsidies- license-permit-control raj was bad. Inward- looking policy Burden of foreign debts Non developmental expenditure of the government

6. In order to overcome this cries, the government of India approached the World Bank and IMF. They gave the loan to manage the crisis but imposed the conditions that India should liberalize the economy and private sector should be given more freedom to operate. India accepted these conditions and consequently announced NEP New Economic Policy

7. NEP The main objectives of NEP To reduce the rate of inflation in domestic territory To reduce fiscal deficit. To improve the balance of payment situation To encourage foreign capital investment To improve efficiency and productivity of the economy To put the economy back on the path of sustainable growth with social justice.

8. Broad directions Reducing the extent of government controls over various areas of the domestic economy. Increasing the role of the private sector Redirecting scarce public sector resource to areas where the private sector is unlikely to enter. Opening up of the economy to trade and foreign investments and thus integrating it with the global economy.

9. NEP can be classified Stabilization Measures Structural reforms measures

10. Components of NEP Liberalization Privatization Globalization

11. liberalization An economic policy which gives relaxations to entrepreneurs to enable them to make their decisions and give freedom to undertake economic activities at all levels is termed as policy of economic liberalization

12. Objectives of liberalization To unshackle the Indian industry form needless and irksome controls To release the growth promoting entrepreneurial energies To get rid of costly delays To enhance production of a verity of goods To upgrade technology To develop international competitiveness and integrate the Indian economy with the world economy.

13. Liberalization measures 1.Industrial policy reforms Reduction in industrial licensing – industrial licensing had been abolished for all items except a short list of 5 industries Alcoholic, Cigarettes, Specific hazardous chemicals, Industrial explosive, Electronic aerospace and defense equipment.

14. De-reservation of industries for public sector _ at present only tow industries are reserved for operations of public sector Atomic energy generation, Railway operations. Reforms in small scale sector - the investment celling on plant and machinery for micro, small and medium undertakings was enhanced. Expansion of production capacity - what to produce and how to produce would now be decided by the market forces

15. 2.Financial sector reforms Movement to market determined interest rate structure Capital market development Reduction in the statutory liquidity ratio Increase in the foreign investment limit in banks up to 50 per cent Foreign institutional investors such as merchant bankers, mutual fund and pension funds to be allowed to invest in Indian financial markets Establishment of private sector banks, Indian as well as foreign Freedom to certain selected banks to set up new branches and to rationalize existing branch networks without the approval of the RBI Banks have been permitted to generate resources form India and abroad. However some regulatory power has been retained by the RBI to safeguard the interests of the country.

16. 3.Trade and investment policy reforms Abolition of import licensing system Removal of quantitative restriction on imports. Reduction in tariff rates Strengthening the exports promotion structure by removing export duties.

17. 4. Tax reforms Reduction in the rates of income tax and corporate tax so that tax evasion could be reduced Reforms are also made in indirect taxes so that common national markets of goods and services can be established Simplification of tax structure.

18. 5.Foreign Exchange Reforms In order to overcome balance of payments crisis, an important measures that was adopted was the devolution of the rupee.

19. Privatization Transfer of ownership and control form the public sector to private sector by two ways Withdrawal of the government ownership and management form jointly owned enterprises. Sale of all or some of the assets of public enterprises to private entrepreneur.

20. Disinvestment Every year government fixes a target for disinvestment of public sector undertakings In the year 1991-92 government was able to mobiles ₹ 3038 crores from disinvestment proceeds as against the target at ₹2500 crores. In the year 2017-18 the target of ₹100000 crores was set up and the achievement was about ₹100057 crores The government has set up a target of ₹80000 crores for the year 2018-19

21. Objectives of disinvestment To release the public resources for the use of high priority areas To reduce day-to-day interference and to give greater autonomy to the PSUs for their management in order to restructure and strengthen the public sector enterprises which are potentially viable. To reduce public debt Modernization and upgradation to increase efficiency and competitiveness of PSUs To reduce the losses of PSUs.

22. Rational behind privatization Privatization will promote competition and efficiency Privatization will also attract FDI and promote diversification of production. Privatization promotes consumer sovereignty thereby implying a wider choice for consumers.

23. Case against of Privatization Private sector is guided by profit motive It does not take interest in the projects which take long time to complete and have low profitability. Privatization encourages production of goods for those who have the means to buy them Privatization without completion only results in inefficient private sector

24. Obstacles to Privatization The greatest obstacle in the process of privatization has been the resistance of workers through their unions. There is a danger of fraudulent practice on the part of the state to use book value of net assets.

25. Navratnas and Maharatnas BHEL BPCL HPCL IOC NTPC ONGC SAIL VSNL IPCL At present there are 17 navratnas

26. 7 Maharatnas NTPC ONGC SAIL BHEL IOC CIL GAIL At present there are 73 mini- ratnas

27. Globalisation Globalisation refers to the growing economic inter-dependence of countries worldwide through the cross-border transactions in goods and services, international capital flows and also through the more rapid and widespread diffusing of technology

28. Components of gobalisation Reduction of trade barriers to permit free flow of goods across national frontiers Free flow of capital among nation states Free flow of technology Free movement of labour among different countries of the world

29. Influence of globalization in India FDI was promoted Partial convertibility of rupee was allowed. Sale and purchase of foreign currency at market price was allowed for current account transactions like import and export of goods and services, payment of interest or dividends on investment and remittances to meet family expenses. Tariff barriers on goods traded between India and other nations were reduced and quantity restriction on imports were withdrawn.

30. Outsourcing Outsourcing implies hiring business services on contract form the outside world India has become an important destination for global outsourcing because 1) India has a large pool of skilled and young manpower available at relatively low wage rates. 2) Growth of Indian IT industry which has proved its competitive strength in the world.

31. W.T.O Established on 1 st January, 1995 after the conclusion of Uruguay found in place of GATT(1947) . India was a founder member of both the GATT .

32. Function of WTO Acting as a forum for multilateral trade negotiations To facilitate bilateral and multilateral trade agreements Seeking to resolve trade disputes Monitoring trade policies of countries and focusing on competition in the international markets Cooperating with other international institutions of economic policy making To reduce tariff and non-tariff trade barriers and to eliminate discriminatory treatment in international trade relations. Provide technical assistance and training for developing countries

33. Impact of LPG 1.Economic growth Growth rate of different sectors (%) Sector 2002-07 2007-12 2015-16 2016-17 Agriculture 2.13 3.6 0.7 4.9 Industry 8.9 7.56 8.8 5.6 Services 9.3 9.6 9.7 7.7 GDP 7.5 8.0 8.0 7.1

34. 2. Foreign investment and foreign exchange reserves.- the total foreign investment in India has increased form about US$ 100 million in 1990-91 to US $ 36 billion in 2015-16 2016-17 there were net FDI inflows of US $ 21.3 billion and net portfolio inflows of US$ 8.2 billion in the economy. The foreign exchange reserve has also increased from US $ 6 Billion at march 1991 to US $ 292 billion at the end of march 2013 to US $ 370 billion at the end of march 2017. it reached US $409.4 billion on December 29,2017.

35. 3.Export sector 4.A transition from monopoly to competitive market structure 5.Check on fiscal deficit 6.Check on inflation

36. Negative impact of LPG Neglect of agriculture – the share of agriculture sector has declined in the GDP from 29% in 1991-92 to 17.4% in 2014-15 Economic colonialism Spread of consumerism Non-inclusive growth Jobless growth disinvestment

37. Any questions ?

38. Thank you