Hsslive-Xi-Eco-Ch-3 Liberalisation, Privatisation and Globalisation An Appraisal
Hsslive-Xi-Eco-Ch-3 Liberalisation, Privatisation and Globalisation An Appraisal
Hsslive-Xi-Eco-Ch-3 Liberalisation, Privatisation and Globalisation An Appraisal
S
HSST Economics
Govt. Model Boys HSS, Attingal
UNIT II
ECONOMIC REFORMS SINCE 1991
The origin of the financial crisis can be traced from the inefficient management of
the Indian economy in the 1980s.
Expenditure is more than income; the government borrows to finance the deficit
from banks and also from people within the country and from international
financial institutions.
The government was spending a large share of its income on areas which do not
provide immediate returns such as the social sector and defence.
The income from public sector undertakings was also not very high to meet the
growing expenditure.
Foreign exchange, borrowed from other countries and international financial
institutions, was spent on meeting consumption needs.
In the late 1980s, government expenditure began to exceed its revenue by large
margins.
No country or international funder was willing to lend to India.
India approached the International Bank for Reconstruction and Development
(IBRD), popularly known as World Bank and the International Monetary Fund
(IMF),and received $7 billion as loan to manage the crisis.( The International Bank for
Reconstruction and Development (IBRD) and International Monetary Fund (IMF) were established by
delegates at the Bretton Woods Conference in 1944 and became operational in 1946.)
New Economic Policy (NEP) consisted of two groups: the stabilisation measures
and the structural reform measures.
Stabilisation measures are short-term measures, intended to correct some of the
weaknesses in the balance of payments and to bring inflation under control.
Structural reform policies are long-term measures, aimed at improving the
efficiency of the economy and increasing its international competitiveness by
removing the rigidities in various segments of the Indian economy.
Liberalisation, Privatisations and Globalisation.(LPG)
LIBERALISATION
Liberalisation was introduced to put an end to the restrictions and open various
sectors of the economy.
Sectors which received greater attention in and after 1991 are in industrial
sector, financial sector, tax reforms, foreign exchange markets and trade and
investment .
The reform policies introduced in and after 1991 removed so many restrictions.
Industrial licensing was abolished for almost all products. (except alcohol, cigarettes,
hazardous chemicals etc.), The only industries which are now reserved for the public
sector are a part of defence equipment, atomic energy generation and railway
transport. Many goods produced by small-scale industries have now been
dereserved. In many industries, the market has been allowed to determine the
prices.
PRIVATISATION
It implies shedding of the ownership or management of a government owned
enterprise.
Government companies are converted into private companies in two ways (i)
by withdrawal of the government from ownership and management of public
sector companies and or (ii) by outright sale of public sector companies.
Privatisation of the public sector enterprises by selling off part of the equity of
PSEs to the public is known as disinvestment.
Some examples of public enterprises with Maharatnas , Navratnas and
Miniratnas status are :
Maharatnas – (a) Indian Oil Corporation Limited, and (b) Steel Authority of
India Limited,
Navratnas – (a) Hindustan Aeronautics Limited, (b) Mahanagar Telephone
Nigam Limited
Miniratnas – (a) Bharat Sanchar Nigam Limited; (b) Airport Authority of India
and (c) Indian Railway Catering and Tourism Corporation Limited.
GLOBALISATION
ж Globalization is generally refers to the integration of the economy of the
country with the world economy.
ж It involves creation of networks and activities which eliminates economic, social
and geographical boundaries.
Outsourcing is one of the important outcomes of the globalisation process. In
outsourcing, a company hires regular service from external sources.
As a form of economic activity, outsourcing has widely enlarged.
Many of the services such as voice-based business processes (popularly known
as BPO or call centres), record keeping, accountancy, banking services, music
recording, film editing, book transcription, clinical advice etc outsourced by
companies in developed countries to India.
The low wage rates and availability of skilled manpower in India have made it a
destination for global outsourcing in the post-reform period.
World Trade Organisation (WTO): The WTO was founded in 1995 as the
successor organization to the General Agreement on Trade and Tariff (GATT).
GATT was established in 1948.
WTO is expected to establish a rule-based trading regime in which nations
cannot place arbitrary restrictions on trade.
The purpose of WTO is to enlarge production and trade of services, to ensure
optimum utilization of world resources and to protect the environment.
The WTO agreements cover trade in goods as well as services to facilitate
international trade (bilateral and multilateral) through removal of tariff as well
as non-tariff barriers between member countries.
As an important member of WTO, India has been in the forefront of framing
fair global rules, regulations and advocating the interests of the developing
world.
INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT
In economics, the growth of an economy is measured by the Gross Domestic
Product(GDP)
The post–1991 India witnessed a rapid growth in GDP on a continual basis for
two decades.
During the reform period, the growth of agriculture has declined. While the
industrial sector was in fluctuation, the growth of the service sector has
improved.
The opening of the economy has led to a rapid increase in foreign direct
investment and foreign exchange reserves.
The foreign investment includes foreign direct investment (FDI) and foreign
institutional investment (FII)
India becomes successful in exporting of auto parts, engineering goods, IT
software and textiles in the reform period. Rising prices have also been kept
under control.
Reform process has been widely criticized because it does not fully address the
areas of employment, agriculture, industry, infrastructure development and
fiscal management.
Growth and Employment: Though the GDP growth rate has increased
in the reform period, scholars point out that the reform-led growth has not
generated sufficient employment opportunities in the country.
Reforms in Agriculture: Reforms have not been able to benefit
agriculture. Public investment in agriculture sector especially in infrastructure
has fallen in the reform period. Removal of fertilizer subsidy has led to increase
in the cost of production, which has severely affected the small and marginal
farmers. Export oriented policy strategies in agriculture leads to focusing on
cash crops. This leads to increasing in the prices of food grains.
Reforms in Industry: Industrial growth has also recorded a slowdown.
This is because of decreasing demand of industrial products due to cheaper
imports, inadequate investment in infrastructure etc. The infrastructure
facilities, including power supply, have remained inadequate due to lack of
investment. Developing country like India still does not have the access to
developed countries’ markets because of high non-tariff barriers.
Disinvestment: Every year, the government fixes a target for
disinvestment of public sector enterprises. Critics point out that the assets of
public sector enterprises have been undervalued and sold to the private sector.
Disinvestment is used to offset the shortage of government revenues rather
than development of social infrastructure.
Reforms and Fiscal Policies: The tax reductions in the reform period,
aimed at yielding larger revenue and curb tax evasion, but it does not achieve
the fruitful result. Reform policies, involving tariff reduction, have curtailed the
scope for raising revenue through custom duties.