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Prepared By: Mr. S.repared By: Mr. S. Manikandananikandan
Executive Officer BOS ICAIxecutive Officer BOS ICAIGeneral Economics General Economics
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Reasons for implementing LPGExcess of consumption andexpenditure over revenue resultingin heavy government borrowings.Growing inefficiency in the use ofresources.Over protection to industryMismanagement of firms and theeconomyMounting losses of public sector
enterprises
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Reasons for implementing LPGVarious distortions like poor
technological development shortage offoreign exchanges; and imprudentborrowings from abroad andmismanagement of foreign exchangereserves.Low foreign exchange reserves.Burden of national debt.Inflation.
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LiberalizationLiberalization refers to relaxation ofprevious government restrictionsusually in areas of social andeconomic policies. Thus, whengovernment liberalizes trade itmeans it has removed the tariff,
subsidies and other restrictions onthe flow of goods and services
between countries .
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PrivatisationIt refers to the transfer of assets orservice functions from public toprivate ownership or control and theopening of the hitherto closed areasto private sector entry. Privatisationcan be achieved in many ways-
franchising, leasing, contracting anddivesture.
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Conditions for privatisaton
Liberalisation and de-regulation ofthe economy is an essential pre-requisite if privatisation is to takeoff and help realize higherproductivity and profits .
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Conditions for privatisaton
Capital markets should besufficiently developed to be able toabsorb the disinvested public
sector shares.
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Arguments in favour of privatisation
It will help in improving the quality
of decision-making of managersbecause their decisions will be
made without any politicalinterference .
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Arguments in favour of privatisation
Privatisation may help in reviving sickunits which have become a liability on
the public sector.Without government financial backing,capital market and internationalmarket will force public sector to beefficient
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Arguments against privatisationPrivatisation will encourage growthmonopoly power in the hands of bigbusiness house. It will result in greater
disparities in income and wealth.Private enterprise may not show any
interest in buying shares of loss-making and sick enterprises .
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Arguments against privatisationPrivatisation may result in lop-sideddevelopment of industries in the country.The limited resources of the private
individuals cannot meet some of the vitaltasks which alter the very character of theeconomy.The private sector may not uphold theprinciples of social justice and public
welfare.
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Privatization
Privatization offers bothopportunities and threats to theeconomy. We have to privatize in
such a manner that we make themaximum opportunities while at
the same time minimizing thethreats to the economy.
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Disinvestment
Disinvestment means disposal of
public sectors unit's equity in themarket or in other words selling ofa public investment to a privateentrepreneur. It means selling ofgovernment share in one PSU toother PSUs or private sector orbanks.
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Disinvestment
In India, disinvestment hasprogressed slowly. It has beencarried out in a hasty, unplanned
and hesitant manner. As a result,the progress has been quite poor .
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Privatization and Disinvestment in India
Privatization in India generally is in
the form of disinvestment of equity.In general, here privatisation has notled to 100% transfer of control frompublic sector to private sector unit.Only in exceptional cases, 100%privatization has taken place (e.g.Centaur Hotel).
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Example of Privatization in India
Lagan jute machinery companylimited (LJMC).Modern food industries limited(MFIL)
Bharat aluminium company limited(BALCO)
Hotel Corporation of India limited(HCI)
Hindustan Zinc limited (HZL)Paradeep Phosphates Limited (PPL)
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Methods of Disinvestment
Initially, equity was offered to retailinvestors through domestic publicissues. This was followed by
issuance of the Global DepositoryReceipts (GDRs) to tap the
overseas markets.
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Methods of Disinvestment
Other methods includes cross-holding(the government simply selling part ofits shares in one PSU to other PSUs),warehousing (governments own
financial institutions buyinggovernments stake in select PSUs andholding them until and third buyeremerged) and retaining golden share(retaining governments stake up to
26% in the PSU to protect its interest).
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Methods of Disinvestment
Of late, the government waspursuing the strategic salemethod. Under this method, the
government sells a major portionof its stake to a strategic buyer and
also gives over the managementcontrol.
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Methods of Disinvestment
Under strategic sales method,disinvestment price would bemarket based and not prefixed,PSUs shares sale would be underthe department of Disinvestmentand disinvestment would bedelinked from the union budgetexercise.
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Methods of Disinvestment
Presently the government has decided tocall off the disinvestment of stake throughstrategic sale in 13 profit-making centralpublic sector enterprises. It is considering
the public offer route to sell minoritystakes in these enterprises. Of late (in2005-06), it has resorted to DifferentialPricing Method and sold the shares ofPSUs to public sector financial institution
and banks.
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Globalisation
Globalisation means integrating
the domestic economy with theworld economy. It is a processwhich draws countries out of theirinsulation and makes them joinrest of the world in its marchtowards a new world economicorder.
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Globalisation
It involves increasing interaction
among national economic system,more integrated financial markets,
economies of trade, higher factormobility, free flow of technologyand spread of knowledgethroughout the world.
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Cases for Globalisation
It is argues that Globalisation of underdeveloped countries will improve theallocative efficiency of resource, reducethe capital output ratio and increase
labour productivity, help to develop theexport spheres and export culture,increase the inflow of capital, updatedtechnology that gives a boost to theaverage growth rate of the economy.
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Cases for Globalisation
It will help to restructure theproduction and trade pattern in acapital scarce, labour abundanteconomy in favour of labour-intensive goods and techniques.Foreign capital will be attracted andwith its entry, updated technologywill also enter the country.
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Cases for Globalisation
It is believed that the main effects of
integration will be felt in theindustrial and related sectors. Atresult cheaper and high qualityconsumer goods will bemanufactured at home. Besides,employment opportunities wouldalso go up.
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Cases against Globalisation
The globalisation process is in essence atremendous redistribution of economic
power at the world level which willincreasingly translate into a redistribution
of political power.One study reveals that in the globalisingworld the economics of the world areironically moving away from one anothermore than coming together.
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Cases against Globalisation
With the lightening speed at whichglobalisation is taking place, it is
increasing the pressure on economiesfor structural and conceptualreadjustments to a breaking point.It is becoming hard for the countries toask their public to go through the pains
and uncertainties of structuraladjustment of the sake of benefits yet tocome .
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Cases against GlobalisationGlobalisation is helping more thedeveloped economies than the developingeconomies.. Like India, it is argued that itis true that letting in Cokes and Pepsishave led to opening doors for INTEL, but
the sum total of their investment has beenvery less in relation to their investmentabroad. None of the multinationals has set
up manufacturing plants in India orsigned any technology transfer agreementwith any Indian company.
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Measures towards Globalisation
Convertibility of Rupee : To make thecurrency fully convertible i.e., allow it to
determine its own exchange rate in theinternational market without any officialintervention.Import Liberalisation : As per therecommendation of the World Bank, freetrade of all items except negative list ofimports and exports has been allowed .
M t d Gl b li ti
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Measures towards Globalisation
Opening the economy to foreign
capital : The government has taken anumber of measures to encourageforeign capital in India. Manyfacilities and incentives have beenoffered to the foreign investors andnon-resident Indians in the neweconomic policy .
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Effects of Globalisation of Indian economy
Indias share in the world exportwhich had fallen 0.53% in 1991from 1.78% per cent in 1950, hasreversed trends and has improvedto 1% in 2005.
Effects of Globalisation of Indian economy
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Effects of Globalisation of Indian economy
Our foreign currency reserves
which had fallen to barely onebillion U.S. dollars in June, 1991
rose substantially to about 180billion U.S dollars in March 2007 .
Eff t f Gl b li ti f I di
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Effects of Globalisation of Indian economy
Exporters are responding well tosweeping reforms in exchange rateand trade policies. The averagegrowth of export has been more than
20% per annum since 2002-03.Exports now finance nearly 65% of
imports, compared to only 60% in thelatter half of the eighties.
ff f l b l f d
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Effects of Globalisation of Indian economy
The current account deficit was over3% of GDP in 1990-91. In 2004-05 and
2005-06, we again had current accountdeficit of (-) 0.4 and (-) 1.1 per centrespectively.Our external debt crises reduced from$8 billion to $3 billion from 1990-91 to
1996-2006 respectively.Markets have started responding to
the movements abroad
Eff f Gl b li i f I di
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Effects of Globalisation of Indian economy
International confidence in India has beenrestored.
Consumer are benefited through largevariety of consumer goods, improvedquality of goods and in some cases andreduced price of consumer durable.Programmes of quality management andresearch and development aresystematically conducted by corporate
sector.
M i i i f f ili i l b li i
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Main organization for facilitating globalisation
There are many internationalorganisation which have facilitated theprocess of globalisation. We shall studythree main organisations here. These
areInternational Monetary Fund (IMF)
World BankWorld Trade Organisation (WTO)
International Monetary Fund
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International Monetary Fund
IMF was organized in 1946 andcommenced its operation in March1947. The main objectives:
The elimination or reduction of
existing exchange control
International Monetary Fund
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International Monetary Fund
The establishment and maintenanceof currency convertibility with stableexchange rateThe widest extension of multilateraltrade and payments.The solving of short-term balance ofpayment problems faced by itsmember nations
Function of IMF
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Function of IMF
It functions as a short-term creditinstitutionIt provides machinery for the orderlyadjustment of exchange rates.It is a reservoir of the currencies ofall the members nation who canborrow the currency of other nations.
Function of IMF
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Function of IMF
It provides machinery forinternational consultations.
It monitors economic and financialdevelopment of its members andprovides policy advice aimed atcrisis preventions .
The World Bank
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The World Bank
The international Bank for Reconstructionand Development (IBRD) more popularlyknown as the world bank was formed as apart of the deliberations at Bretton woodsin 1945. The World Bank was floated in
order to give loan to members countries,initially for the reconstruction of their(world) war-ravaged economies, and laterfor the development of the economies ofthe poorer member countries .
Objectives of World Bank
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Objectives of World Bank
Investing in the people, particularlythrough basic health and education.Focusing on social development.Protecting the environmentSupporting and encouraging privatebusiness development.Promoting reforms to create a stable
macro-economic environment, conduciveto investment and long-term planning .
Functions of World Bank
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Functions of World Bank
To help its members countries in thereconstruction and developmental of theirterritories by facilitating the investment ofcapital for productive purposes.To encourage private foreign investment and
credit by providing guarantee of repayment ofthe private investors.To promote the long-term balanced growth ofinternational trade and the maintenance ofequilibrium in balance of payment of its
member countries.
The World Trade Organisation
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The World Trade Organisation
The WTO came in to existence on 1 st
January,1995. The WTO is a powerfulbody which broadly aims at makingthe whole world a big village wherethere is free flow of goods andservices and where there are nobarriers to trade.
Features of WTO
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Features of WTO
The WTO is the main organ
implementing the Multilateral Trade Agreements.
The WTO is global in itsmembership.It is the forum for negotiationsamong its member.
Features of WTO
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Features of WTO
It is a full-fledged internationalorganisation in its own right
The WTO has legal personality.
The decision-making under WTO iscarried out by consensus .
Functions of WTO
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Functions of WTO
The WTO shall facilitate theimplementation, administration andoperation of world trade agreements.
The WTO shall provide the forum fortrade negotiations among its
members countries.
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Multiple Choice Question
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Multiple Choice Question
Question 1The following are the ways ofprivatization:
divestituredenationalizationFranchisingall the above
Multiple Choice Question
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u t p e C o ce Quest o
Question 1The following are the ways ofprivatization:
divestituredenationalizationFranchisingall the above
Question 2
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Q
Which of the following factors cause manygovernments to undertake programmes of
public sector reforms, according to Prof.Samuel Paul?economic inefficiency in the productionactivities of the public sector ineffectiveness in the provision of goodsand servicerapid and in reasonable expansion of thebureaucracyall the above
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Question 3
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Q
Reasons for privatization are
inefficiency indifference andcorruptionindifference and corruptioninefficiency and irresponsibilityinefficiency, indifference,irresponsibility and corruption
Question 3
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Q
Reasons for privatization are
inefficiency indifference andcorruptionindifference and corruptioninefficiency and irresponsibilityinefficiency, indifference,
irresponsibility and corruption
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Question 4
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Globalization means
domestic liberalizationexternal sector liberalizationboth (a) and (b)none of the above
Question 5
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External sector liberalization meansrelaxing restriction on international flowof goods and servicesrelaxing restriction on production,investment and pricesincreasing the roll of market
relaxing restrictions on international flowof goods, services, technology andcapital.
Question 5
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External sector liberalization meansrelaxing restriction on international flow
of goods and servicesrelaxing restriction on production,investment and pricesincreasing the roll of marketrelaxing restrictions on international flowof goods, services, technology andcapital.
Question 6
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The main causes for economic reformsgrowing inefficiency in the use ofresourcesover production of industry
mismanagement of firms and theeconomyall the above
Question 6
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The main causes for economic reformsgrowing inefficiency in the use ofresourcesover production of industry
mismanagement of firms and theeconomyall the above
Question 7
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Industrial licensing was abolished for allprojects except for
12 industries14 industries18 industries20 industries
Question 7
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Industrial licensing was abolished for allprojects except for
12 industries14 industries18 industries20 industries
Question 8
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How many industries are registeredunder the public sector?
5 industries3 industries6 industries9 industries
Question 8
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How many industries are registeredunder the public sector?
5 industries3 industries6 industries9 industries
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Question 9
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Up to-------------------------- direct foreigninvestment allowed in high priorityindustries
49%
55%51%
50%
Question 10
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How many percent of FDI were allowedin Banking sector?
30%49%60%51%
Question 10
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How many percent of FDI were allowedin Banking sector?
30%49%60%51%
Question 11
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The different facets of new economic reform can besummarized as
disinvestment in public sector, delicensing ofprivate industriesreducing agriculture subsidies and reducing tax
ratesliberalization, privatization and globalizationcontaining fiscal deficit and reducing moneysupply
Question 11
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The different facets of new economic reform can besummarized as
disinvestment in public sector, delicensing ofprivate industriesreducing agriculture subsidies and reducing taxratesliberalization, privatization and globalizationcontaining fiscal deficit and reducing money
supply
Question 12
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New Economic Reform aims at thefollowing objectives
privatization
liberalizationGlobalization
all the above
Question 12
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New Economic Reform aims at thefollowing objectives
privatization
liberalizationGlobalization
all the above
Question 13
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Financial sector reforms mainly relate to
banking sector insurance sector both (a) and (b)transport sector
Question 13
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Financial sector reforms mainly relate to
banking sector insurance sector both (a) and (b)transport sector
Question 14
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Expand FRA
Foreign ratio agreementForeign rate agreementForward ration agreementForward rate agreement
Question 14
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Expand FRA
Foreign ratio agreementForeign rate agreementForward ration agreementForward rate agreement
Question 15
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The rupee was devalued twice in -----------------
June 1991 August 1991September 1991July 1991
Question 15
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The rupee was devalued twice in -----------------
June 1991 August 1991September 1991July 1991
Question 16
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Foreign Exchange Regulation Act waspassed in the year
1973197119721974
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Question 17
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Expand QRQuantitative RestrictionsQuota RestrictionBoth (a) and (b)None of the above
Question 18
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The QR were removed on ------------------720 items730 items710 items714 items
Question 18
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The QR were removed on ------------------720 items730 items710 items714 items
Question 19
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Expand SDRSecurities drawing rightsSpecial draw rightsSpecial drawing rightsNone of the above
Question 19
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Expand SDRSecurities drawing rightsSpecial draw rightsSpecial drawing rightsNone of the above
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Question 20
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Disinvestment meansdisposal of public sectors unitsequity in the marketrelaxation of previous government
social and economic policiestransfer of assetsnone of the above
Question 21
d
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Expand TRIPsTrade related intelligent propertyrightsTrade related intellectual property
rightsTrade related intellectual prosperity
rights All the above
Question 21
E d TRIP
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Expand TRIPsTrade related intelligent property
rightsTrade related intellectual property
rightsTrade related intellectual prosperityrights
All the above
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