LPG- Liberalisation Privatisation Globalisation

Liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy.
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.
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.

1. THE NEW INDUSTRIAL POLICY- 1991 LIBERALISATION PRIVATISATION GLOBALISATION 1

2. CONTENTS Introduction Reasons for implementing LPG Liberalization Privatization Globalization 2

3. 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) 3

4. 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 4

5. 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. 5

6. 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 6

7. 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 7

8. Disadvantages of Liberalization Increase in unemployment. Loss to domestic units. Increase dependence on foreign nations Unbalanced development 8

9. 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

10. 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 escalation and other consequences; 10

11. 11 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.

12. 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 12

13. 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. 13

14. 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 14

15. 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) 15

16. 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. 16

17. 17 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.”

18. 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. 18

19. 19 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

20. 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 20

21. 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 21

22. 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 22

23. 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.   23

24. 24 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.

25. 25 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.

26. Impact of LPG on Industry The external policies in 1960s, 1970s and 1980s were guided by the principle of import substitution, which had been prompted to some extent because of scarcity of foreign exchange. The strategy therefore involved, restricting imports through quotas and high tariff rates as well as there being restrictions on FDI, foreign collaborations, import of technology. The general trade and industrial policies that India adopted till mid-80s and till 199os insulated the Indian industry from competition, domestic as well as foreign.

27. Impact of LPG on Industry However, the environment has changed drastically since New Economic Policies were initiated in 1990s. Globalisation has led to opening up of markets leading to intense competition. There is greater competition in domestic market with imports of high quality goods from developed countries and low priced goods from developing countries. Competition has further intensified with the arrival of MNCs as the restrictions on FDI have been removed.

28. Impact of LPG on Industry Thus Indian enterprises, small and large have been forced to improve their quality and productivity in order to ( i ) compete with imported goods or with goods produced by MNCs; (ii) export successfully without government support. A study, based on CMIE (Centre for Monitoring Indian Economy) database to test competitiveness of domestic private sector companies with respect to foreign companies, show that competitiveness of Indian companies; measured in terms of cost management and profitability lag behind that of foreign firms.

29. Impact of LPG on Industry: Competitiveness of Indian Industry Raw materials expenses to net sales lower for foreign companies by 5 per cent vis-à-vis Indian companies. Cost of production to net sales too lower for foreign companies. On the profitability side, Profit after Tax (PAT) to capital employed was 5 per cent higher for foreign companies. ROCE for the Indian firms fell from 6.3% in 1993-94 to 1.6 in 1999-2000. Foreign firms’ ROCE too fell from 10 to 7 per cent in the same period. However there has been increasing gap between the two set of firms.

30. Impact of LPG on Automobile Industry The automobile industry, compromises of four segments, the passenger car and jeep industry, commercial vehicles, two and three wheeler industry and automobile components First Automobile Policy in 1949, which banned import of completely built automobiles but firms engaged in assembling vehicles from completely knocked down units were permitted to operate. By late 1960s, bias against passenger car industry, which was absent earlier came into play. In 1968, for the first time, Statutory Price Control was imposed on the passenger car, segment as it happened to be a ‘luxury’ good. Unlike the ’50s and ’60s, the period of ‘70s saw poor performance by car manufacturers. Low demand, high prices, high input costs, low scales of production and low profit were some of the highlights. However, things didn’t look up even after Statutory Price Control was lifted in 1975.

31. Impact of LPG on Automobile Industry 1993: De-licensing of the automobile industry. Removal of FERA and allowing 100% FDI, saw host of joint ventures entered into by PA (with Peugot ), HML (with GM), TELCO (with Mercedes, Daimler-Benz, Mitsubishi). New entrants like DCM (with Daewoo), Kirloskar (with Toyota). Hyundai has 100% owned subsidiary in India. Reduction of import duties on parts and components, in alignment to ASEAN rates. Completely Built Up (CBU) allowed since 2001

32. Impact of LPG on Automobile Industry Currently domestic market size is to the tune of 7,55,771 cars. Number of models has gone up from 4-5 in mid-1980s to 25-26 in 2002-03. Over and above this, exports had been 1,30,000 in 2003. Exports projected to grow at 10-15% in the coming years. Manufacturing Hub for vehicles Hyndai - Export base for small cars. Ford exporting CKDs of Ikon to S. Africa and CIS countries Tata Indica being sold in Europe under Rover brand. M&M targeting S. Africa, China, Europe, Russia for export of Scorpio and Bolero. Maruti exports cars to EU.

33. Production of Passenger Cars Year No. of Cars 1960 19,097 1970 35,205 1980 30,538 1985 1,02,456 1990 1,76,609 1996 3,76,263 2003 7,55,771

34. CASE – Ashok Leyland Ashok Leyland: one of the largest manufacturer of commercial vehicles in India. They were the first to introduce CNG buses in Delhi. Entry of global companies like GM, Ford, Honda, Toyota, has forced Ashok Leyland to achieve international competitiveness to survive. Therefore company is now focusing on maximum effective utilisation of resources, they have started cost saving measures on operation side, including VRS. They are more consumer-centric now.

35. Impact of LPG on Steel Industry 1950-70: Pre-liberalisation phase – Nature of controls Integrated Plants/Primary Steel Sector Industry being one of the key inputs in infrastructural sectors and heavy industry goods, was completely regulated through compulsory licensing for capacity expansion, investment. As a result most of the capacity expansion in the pre-liberalisation phase has been in PSUs through, SAIL, Rashtriya Ispat Nigam Ltd. (RINL). TISCO being the only private enterprise. Only private player, TISCO, not allowed to increase capacity, till the late 60s. Virtual monopoly of PSUs

36. Impact of LPG on Steel Industry 1970-91 Secondary Steel Sector However, since late 60s, private sector allowed in the secondary sector, using steel scrap for producing steel. And large number no. of small firms or mini-steel plants (MSPs) emerged in this sector in the 1970s and 1980s, though its share was very small in total capacity. Some liberalisation: MSPs allowed to import scrap, customs duties and excise duties lowered for encouraging growth of MSPs. Some selected MSPs, also permitted to diversify production into high grade alloy steel. Primary Steel Sector With nationalisation drive all PSUs brought under one management, SAIL. Also TISCO allowed to go in for modernisation, with help from the state as well as loan from World Bank.

37. Impact of LPG on Steel Industry Post- liberalisation phase: 1991 onwards De-licensing private investment in steel, abolition of the system of administered prices for steel. Most restrictions lifted on private domestic and foreign companies. De-reservation of steel from public sector, no new projects to be in the public sector. Import duties on various steel products reduced from the range of 20 -85% to 5-30% by the end of 1990s, forcing domestic firms to be more quality conscious and efficient. Greater no. of private players, like, Lloyds, Sunflag , Essar Gujarat, Jindal Strip. Number of steel plants have gone up from 7 in the pre-91 period to 16 in post-91 period. Modernised plants and technology, like midi-plants, used by the private firms, more in sync with world state of production. From being a importer in th e 70s, there has been modest rise in exports in the 1990s .

38. Impact of LPG on Steel Industry However over-capacity in domestic steel industry due to sudden rise in no. of players Global over-capacity in steel industry of Korea, Japan, leading to dumping of cheaper imports. Sharp fall in domestic and international demand have plagued the industry since 1995-96 to about 2002-03. However, since 2003 world demand has picked up Indian steel Industry doing well. Even then, inferior technology of Indian industries makes them energy inefficient and hence places India at a disadvantageous position in terms of cost of production and quality of products.

39. Impact of LPG on Electronics Industry Electronics industry comprise of six categories. Of them, consumer electronics contributes a major proportion of the industry’s production. The growth of this industry has been primarily due to phenomenal expansion of the consumer electronics segment, especially Televisions (TV) and Audio systems during the 80s and PCs during the 1990s. Recent Developments : The industry is undergoing rapid transformation due to major changes

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