Final PPT

LIBERALIZATIONLIBERALIZATION

Liberalization

• Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities.

What made India to be liberalize• A Balance of Payments crisis in 1991which pushed

the country to near bankruptcy.• IMF bailout, gold was transferred to London as

collateral.• the Rupee devalued and economic reforms were

forced upon India.• India central bank had refused new credit and

foreign exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports

Reforms taken during liberalization

• Abolition of industrial licensing and registration• Liberalizing the MRTP act• Freedom for expansion and production• Increase in the investment limit of the small

industries• Freedom to import capital goods• Freedom to import technology• Free determination of interest rates

COMPONENTSOF

LIBERALIZATION

Industrial Liberalization

Trade Liberalization

Financial Liberalization

Fiscal Sector Reforms

1. Industrial Liberalization

Industrial Sector was among the first sectors to be liberalized in India in a series of measures. Industrial licensing has been abolished except in a small number of sectors where it has been retained on strategic considerations.

The industrial policy reforms have substantially reduced

the industrial licensing requirements

removed restrictions on expansion

facilitated easy access to foreign technology and,

foreign direct investment.

Trade policy allowing domestic providers (of goods and/or services) to compete more freely in world markets and foreign providers to compete more freely in domestic markets.

Trade liberalization promotes growth. As the first generation of trade reforms, consisting mainly of easing of border restrictions to merchandize trade and liberalization of foreign exchange markets, have been or are being implemented by the majority of developing countries

The provision of greater access to markets, for both goods and service providers plays an equally major role in stimulating the access to foreign markets

2. Trade Liberalization

Financial liberalization (FL) refers to the deregulation of domestic financial markets and the liberalization of the capital account.

In one view, it strengthens financial development and contributes to higher long-run growth. In another view, it induces excessive risk-taking, increases macroeconomic volatility and leads to more frequent crises.FL leads to more rapid economic growth in middle-income countries (MIC), but does not have the same effect in low-income countries (LIC)

In LIC liberalization does not lead to higher growth because their financial systems are not sufficiently developed so as to permit significant increases in leverage and financial flows

3. Financial Liberalization

4. Fiscal Sector Reforms

India's fiscal sector reforms help to raise the rate of savings and investment in India. This further helps to enhance the productivity of public expenditures

India has established itself as one of the fastest growing economies in the world. India is also advancing towards the economical growth and improvement in literacy.

During 1999-2000, India's domestic savings and investment was estimated to grow by 23% and Indian economy was expected to grow by 6.4% although the average growth rate declined to 6.0% in comparison to earlier year.

In the first five year plan (1951-1979), India had attained an average annual growth rate by 3.5%.

Indian economy showed an average growth rate of 6.4%, which was 5.9% in the 80's. At the end of the 8th Five Year Plan, the annual growth rate of India reached 6.9 percent.

During the period from 1991-92 the Indian economy passed through a tough time. The overall economic growth in this period declined to 1.1% and the total fiscal deficit became 8% of the GDP.

For Example:-

AUTO & AUTO COMPONENTS

AFTER LIBERALISATION

2nd largest small car market in the world.

Largest motorcycle manufacturer in the world.

2nd largest scooter and tractor manufacturer in the world.

Many international auto majors are manufacturing in India – Daimler Chrysler, General Motors, Toyota, Ford, Honda, Hyundai, Volkswagen, Suzuki etc

Most of them are also outsourcing their components from India as a hub.

Production of Automobiles (4 Wheelers)

after Liberalization

671,928

1,263,764

0

200000

400000

600000

800000

1000000

1200000

1400000

1992-93 1994-95 1996-97 1387276 1998-99 2000-01 2001-02 2002-03 2003-04

4 Wheelers (in Nos)

Vehicle Exports

146543

38230

332087

121140

0

100000

200000

300000

400000

500000

600000

1992-93 1994-95 1996-97 1998-99 2000-01

Year

In N

os.

4 Wheelers (in Nos) 2 and 3 Wheelers (in Nos)

Vehicle Exports after Liberalization

STEEL Industry after Liberalization

Production and Export of Finished Steel

14.33 17.8223.82

29.7 33.67 36.19

4506 5200

3680

10

20

30

40

1991-92 1994-95 1998-99 2000-01 2002-03 2003-04(Provisional)

0100020003000400050006000

Production (in million tonnes) Exports (in '000 tonnes)

Arguments in the favour of Liberalization

• Increase in rate of economic growth• Increase in competitiveness of industrial

sector• Reduction in poverty and inequality• Fall in fiscal deficit• Control on prices• Decline in deficit of BOP• Increase in Efficiency

Arguments in the Against of Liberalization

• Less importance to agriculture.• Pressure by IMF and World Bank.• More depending on Foreign Debt.• Dependence on Foreign technology.• Promotion of Consumerism.• Undue importance to Privatization.• Problem of Unemployment.

Measure taken for liberalization.

Liberalization for industrial licensing.Concession from Monopolies Act.Freedom for expansion and production to

industriesIncrease in the investment limit of the small

industries.Freedom to import the capital goods and raw

material.Freedom to import technology.

It is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the government to the private sector.

In a broader sense, privatization refers to transfer of any government function to the private sector including governmental functions like revenue collection and law enforcement.

What is privatization???

Objectives

• Effective Utilisation of Resources• Economic Growth• Encourages Capital Formation • Reduce Size of Public Sector• Dispose of Loss-Making Govt.

Unit

Releasing large amount of public resources

Reducing the public debt

Transfer of Commercial Risk

Releasing other tangible and intangible resources

Primary objectives for privatising the PSU’s

Advantages• Reduction In Monopoly of Public

Sector units• Effective Management• More Funds available With Govt.• Increase in Profitability• High Industrial growth rate• Increase in efficiency of Public Sector• Encouragement to Innovation• Quick Decision making

Disadvantages• Class Struggle• Unemployment & Corruption• Inflation• Non Acceptable by Trade Union• Public monopolies have been turned

into private monopolies • Economic Imbalances• Wastage & Misallocation of

Resources

Expose the privatised companies to market discipline

Wider distribution of wealth

Increase in Economic Activity

Wider choices for consumers

Other benefits expected from privatization

• DENATIONALISATIONcomplete transfer of state owned blocks of productive assets to private sector. eg. Modern food industries sold to HUL.

• DISINVESTMENTsale of part of equity capital of PSUs to private sector.eg. A part of equity of Maruti Udyog sold to Suzuki.

• LIMITINGrestricting the role of PSUs and non diversification of existing PSUs

MODES OF PRIVATIZATION

• DERESERVATIONEntry of private firms into areas reserved for public sector like telecom, power, banking etc.except for major oil and mineral sector, strategic industries like defence equipments and essential infrastructure.

• TRANSFER OF CONTROLtransfer of management and control to private hands through franchising, leasing etc. leading to professionalism.

Lagan Jute Machinery Company Limited (LJMC), (subsidiary of Bharat Bhari Udyog Nigam Ltd. hereinafter referred to BBUNL)

Modern Food Industries Limited (MFIL) Bharat Aluminium Company Limited (BALCO) CMC Ltd. (CMC) HTL Ltd. (HTL) Videsh Sanchar Nigam Limited (VSNL) Paradeep Phosphates Limited (PPL) Jessop and Company Limited, (subsidiary of BBUNL)

Following are the cases of Privatisation in India till date :

GLOBALIZATION??

Meaning of GLOBALIZATION

• it is the flow across national boundaries of goods and services ,capital, people, technology, ideas, and culture.

• Vasudhaivh kutumbkum.

• It refers to the expansion of economies beyond national borders

Why globalization

• Factors to increase globalization-1. Industrialization 2. Endless need3. Worldly problem-1) Natural 2.) Social4. Communication networks.

Factors affecting globalization

1. Technological change, especially in communications technology

2. Transport is much cheaper and faster communications technology.

3. Deregulation.4. Removal of capital exchange controls.5. Free Trade6. Consumer tastes have changed, and consumers

are more willing to try foreign products

Globalization including these things

CORPORATE EXPANSION

• Any corporation registered and operating in more than one country at a time, usually with its headquarters in a single country.

Multi-national or trans-national corporations (MNCs or TNCs)

The negative effects of globalization

• Fast food chains like McDonalds and KFC are spreading in the developing world. People are consuming more junk food from these joints which has an adverse impact on their health.

• Bad aspects of foreign cultures are affecting the local cultures through TV and the Internet.

• Enemy nations can spread propaganda through the Internet.

• Deadly diseases like HIV/AIDS are being spread by travelers to the remotest corners of the globe.

The positive aspect of globalization

• Globalization has a positive side as well. Supporters of globalization argue that it is good and beneficial. Some of their arguments are listed below.

• Globalization has created the concept of outsourcing. Work such as software development, customer support, marketing, accounting and insurance is outsourced to developing countries like India.

• So the company that outsourced the work enjoys the benefit of lower costs because the wages in developing countries is far lower than that of developed countries. The workers in the developing countries get employment. Developing countries get access to the latest technology.

• Increased competition forces companies to lower prices. This benefits the end consumers.

• Increased media coverage draws the attention of the world to human right violations. This leads to improvement in human rights.

Impact of globalization on India• Opportunities in BPO,KPO,IT etc. sector.• International expansion of Indian companies,

products• Increase in the manufacturing and export• It reduces the poverty from 40% to 25%.• It increased the FDI.• It increased the competition for domestic

companies.

ADVANTAGES & DISADVANTAGES OFGLOBALIZATION

Advantages Disadvantages

Increased free trade between nations Increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labor

Increased liquidity of capital allowing investors in developed nations to invest in developing nations

Increased likelihood of economic disruptions in one nation effecting all nations

Corporations have greater flexibility to operate across borders

Corporate influence of nation-states far exceeds that of civil society organizations and average individuals

Global mass media ties the world together Threat that control of world media by a handful of corporations will limit cultural expression

Increased flow of communications allows vital information to be shared between individuals and corporations around the world

Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage

Advantages Disadvantages

Greater ease and speed of transportation for goods and people

Greater risk of diseases being transported unintentionally between nations

Reduction of cultural barriers increases the global village effect

Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity

Spread of democratic ideals to developed nations

International bodies like the World Trade Organization infringe on national and individual sovereignty

Reduction of likelihood of war between developed nations

Increase in the chances of civil war within developing countries and open war between developing countries as they vie for resources

Increases in environmental protection in developed nations

Decreases in environmental integrity as polluting corporations take advantage of weak regulatory rules in developing countries

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