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International Business Management Report International Business Management Report

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Indian Institute of Planning & Management

Satbari, New Delhi

International Business Management Report

Index

S.NO TOPIC PAGE

1. CERTIFICATE 3

2. ACKOWLEDGEMENT 4

3. INTRODUCTION 5

4. LIBERALIZATION 7

5. PRIVATIZATION 14

6. GLOBALIZATION 20

7. CONCLUSION 26

8. BIBLIOGRAPHY 37

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CERTIFICATE

T h i s i s t o c e r t i f y t h a t t h e P r o j e c t R e p o r t t i t l e d “ D r a w b a c k s o f

l i b e r a l i z a t i o n , P r i v a t i z a t i o n , G l o b a l i z a t i o n i n I n d i a n B u s i n e s s ”

s u b m i t t e d b y :

N a m e R o l l N o

1 . A r v i n d B i n d a l 2 2

2 . Y a s h R a t h o r e

3 . R u c h i r S o o d

4 . A n i s h G a r g 1 3

5 . A m r i t A g g a r w a l

6 . A r j u n V i j

7 . S h i v a n g S a x e n a

8 . S u n a y a n a K h o u n d

9 . S u m i t B a d o r i a

e m b o d i e s t h e w o r k d o n e b y t h e m O n / O f f c a m p u s i s u n d e r m y

s u p e r v i s i o n .

Date: _____________

S ignature:_________________

(Prof: PankajUpadhayay)

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ACKNOWLEDGEMENT

This project involved the collection and analysis of information from a wide variety of sources and the efforts of many people beyond me. Thus it would not have been possible to achieve the results reported in this document without their help, support and encouragement.

I will like to express my gratitude to the following people for their help in the work leading to this report:

Prof: PankajUpadhayay: for their useful comments on the subject matter and for the knowledge I gained by sharing ideas with them.

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INTRODUCTION

Raj iv Gandhi ’ s government in i t iated the po l icy of

l ibera l i zat ion s ince mid-80s . The l ibera l i zat ion in i t iat ives have

been undertaken in Ind ia wi th a v iew to increase a product ion,

improve qual i ty and get access to market for products and

serv ice abroad. Radica l l ibera l i zat ion or g loba l i zat ion

measures have been brought in s ince Ju ly 1991 to make the

Ind ian economy progress ive ly market or iented and integrate i t

wi th the emerg ing g loba l economy st ructure . These measures

inc lude reduct ion and rat iona l i zat ion of exc ise duty and

customs dut ies , de l i cens ing of severa l drug and

pharmaceut ica l products , ready access to import of raw

mater ia l and cap i ta l goods and so on.

I t has created an env i ronment conduc ive to an enterpr i se ,

investment and innovat ion. Ind ian industr ies have s tarted to

at t ract fore ign port fo l io investment and equi ty part ic ipat ion in

new ventures . The government i s committed to make fore ign

p layers feet at ease to invest d i rect ly and br ing wi th i t new

technology and market ing sk i l l s .

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There has been impress ive growth in FDI in f lows to Ind ia

wi th the introduct ion of po l i cy reforms. As compared to a near

tota l concentrat ion in manufactur ing t i l l 1991, the bu lk of new

inf low has come in the energy and serv ice sector .

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LIBERALIZATIONLIBERALIZATION

The New Industrial Policy , 1991

A number of s ign i f i cant economic changes introduced by

many a number of countr ies a l l the wor ld over , the

encourag ing resu l ts of the l ibera l i zat ion measures introduced

in 1980s by the Government of Ind ia , and the precar ious

economic s i tuat ion that preva i led dur ing the later part 80s

have encouraged and forced the then Congress government ,

which came back to power at the centre , under the leadersh ip

of Shr i . P . V . Naras imha Rao—a non - Nehru fami ly member , to

take some bold measures to re juvenate the economy and to

acce lerate the pace of deve lopment . In th is background, the

Government of Ind ia announced i t s New Industr ia l Po l i cy (NIP

or IP) on Ju ly 24, 1991 . The important ob ject ives are :

a ) To correct the d is tort ions that may have crept in , and

conso l idate the s t rengths bu i l t on the ga ins a l ready made

b) To mainta in susta ined growth in the product iv i ty and

ga infu l employment

c) To at ta in internat iona l compet i t iveness .

Therefore , the bas ic ph i losophy of the New IP , 1991 has

been the cont inu i ty wi th change. Because, the new pol icy

represents a renewed in i t iat ive towards conso l idat ing the

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ga ins of nat iona l reconstruct ion at th is c ruc ia l s tage. But what

i s more important i s the change ( in cont inu i ty wi th change)—

change in the at t i tude of the s tate towards the industr ia l

soc iety , change f rom centra l ly p lanned economy to market led

economy, change f rom excess ive government intervent ion to

min imal intervent ion, change f rom nat iona l i zat ion to

pr ivat i zat ion, change f rom subs id izat ion and cross-

subs id izat ion to gradual wi thdrawal of subs idy , etc . But these

changes , which the government has introduced, represent a

sharp departure f rom the ear l ier industr ia l po l i c ies . These

changes perta in broadly to f ive areas v iz ,

a) Industr ia l l i cens ing,

b) Publ ic sector pol icy

c) MRTP Act , 1969

d) Fore ign investment

e) Fore ign technology agreements .

Industr ia l L icens ing

This i s one of the areas in which substant ia l change has

been made by the government . With a v iew to g ive ef fect to

these changes , the government i ssued a not i f i cat ion [v i z . ,

Not i f i cat ion No. 477 (E) ] on Ju ly 25, 1991 and th is not i f i cat ion

has exempted the industr ia l undertak ings f rom the operat ion

of the fo l lowing Sect ions of Industr ies Development and

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Regulat ions Act , 1951 sub ject to the fu l f i lment of certa in

condi t ions .

(a ) Sect ion 10 (which dea ls wi th reg is t rat ion of ex i s t ing

industr ia l undertak ings)

(b) Sect ion 11 (which i s concerned with the l i cens ing for

new industr ia l undertak ings)

(c ) Sect ion 13 (which i s concerned with the l i cens ing

requi rements for substant ia l expans ion) .

Further , the second schedule appended to the

not i f i cat ion c i ted above [v i z . , No. 477 (E) ] l i s ts the industr ies

which are subject to mandatory industr ia l l i cens ing . Accord ing

to th is not i f i cat ion, on ly 18 industr ies were subject to

compulsory industr ia l l i cens ing . Further , f i ve more industr ies

have been exc luded f rom the l i s t o f industr ies which are

subject to compulsory industr ia l l i cens ing subsequent ly . That

means , on ly 13 industr ies are now subject to compulsory

industr ia l l i cens ing .

Publ ic Sector Pol icy

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A large number of Publ ic Sector Enterpr i ses have fa i led to

ach ieve at least a reasonable rate of success . Some of the

factors which have contr ibuted to th is s i tuat ion are over

s taf f ing and over managing , pr ice and d is t r ibut ions contro ls ,

etc . Hence, the government , in i t s Industr ia l Po l i cy , 1991,

int roduced the number of s ign i f i cant changes perta in ing to the

PSEs . Some of the important changes env isaged by the New

Pol icy are summar ized be low.

Pr ior to the announcement of New Industr ia l Po l i cy , 1991,

seventeen industr ies were reserved exc lus ive ly for the s tate

for the i r future deve lopment . Further , wi th respect to another

12 industr ies , the s tate was to p lay an important ro le by tak ing

in i t iat ive to estab l i sh new undertak ings . Bes ides , the s tate had

power to enter into any other area reserved for the pr ivate

sector . However , the fa i lure on the part of major i ty of PSEs

has forced the government to rev iew i ts ear l ier dec is ion.

Consequent ly , the government in i t s New Industr ia l Po l i cy ,

1991 has pruned the l i s t o f the industr ies reserved for the

publ ic sector to on ly 8 . Further , the government has

dereserved 2 more industr ies . As a resu l t , on ly s ix industr ies

are now reserved for the publ ic sector . They are : (a ) Arms and

ammunit ion and a l l ied i tems of defence equipment , a i rcraf t

and warsh ips , (b ) Atomic energy , (c ) Coa l and l ign i te , (d )

Minera l o i l s , (e ) Minera ls spec i f ied in the schedule to the

Atomic Energy Order , 1953, and ( f ) Ra i lway t ransport . Hence,

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the focus of the publ ic sector wi l l be on ly on s t rateg ic and

h igh tech industr ies and on bas ic in f rastructura l pro jects .

However the object ive of the New Industr ia l Po l i cy has been to

wi thdraw the publ ic sector investment f rom the act iv i t ies

which can successfu l ly be taken up by the pr ivate sector

enterpr i ses . The emphas is of PSEs in future wi l l be on: (a )

Bas ic and essent ia l in f rastructura l fac i l i t ies , (b ) Minera l

resources , (c ) Cruc ia l areas in the interest of the economy in

the long run and where the pr ivate sector investment i s

inadequate , and (d) Defence equipment .

With a v iew to mobi l i ze the resources and to have a wider

publ ic part ic ipat ion, apart of governments share ho ld ings in i t s

enterpr i ses wi l l be of fered to the mutual funds , f inanc ia l

inst i tut ions , employs of PSEs , and the genera l publ ic . The New

Industr ia l Po l i cy a l so proposes se lect ive pr ivat i zat ion of PSEs .

Further , the po l icy a l so proposes to c lose down the PSEs which

have become s ick and which cannot be rehabi l i tated. The s ick

PSEs which can be rev ived wi l l be refered to Board for

Industr ia l and F inanc ia l Reconstruct ion for the formulat ion of

rev iva l packages . The New Industr ia l Po l i cy a l so a ims at

prov id ing greater operat iona l and manager ia l autonomy to the

management of PSEs and making the managements

accountable for the per formance through a system ca l led

Memorandum of Understanding .

MRTP Act , 1969

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The New Industr ia l Po l i cy , 1991 proposes to amend

su i tab ly the Monopol ies and Restr ic t ive Trade Pract ices Act ,

1969. To remove the threshold l imi ts of assets in respect of

MRTP companies and the dominant industr ia l undertak ings .

The important ob ject ives of th is were two in number . They

are :

(a ) Prevent ion of concentrat ion of economic power in

the hands of few which wi l l be detr imenta l to the

common interest ; and

(b) Regulat ion of monopol i s t i c , rest r ic t ive and unfa i r

t rade pract ices which are pursued by the bus iness

community and which are pre jud ic ia l to the publ ic

interest .

The New Pol icy proposes to renew the threshold l imi ts of

assets and therefore , to repeal the Prov is ions of MRTP Act ,

1969 perta in ing to the f i r s t ob ject ive . Hence, the MRTP Act

now concerned only wi th the prohib i t ion of monopol i s t i c ,

rest r ic t ive and unfa i r t rade pract ices fo l lowed by the

industr ia l undertak ings and the t rad ing communit ies .

Fore ign Investment

As far as the d i rect fore ign investment i s concerned, the

New Pol icy proposes to g ive automat ic approva l up to 51% of

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equi ty in the case of h igh pr ior i ty industr ies and i t has a l so

ident i f ied 34 such industry groups . Further , the po l icy

proposes to a l low major i ty fore ign equi ty ho ld ings up to 51%

of equi ty for the t rad ing companies which are engaged in

export act iv i t ies . Th is i s to enable the domest ic companies an

easy access to internat iona l markets . With a v iew to negot iate

wi th the large internat iona l f inanc ia l inst i tut ions and to

approve the d i rect fore ign investments proposa ls in se lected

areas , the New Pol icy proposes to const i tute a spec ia l

committee.

Fore ign Technology Agreements

The New Industr ia l Po l i cy proposes to g ive automat ic

permiss ion for fore ign technology agreements in ident i f ied

h igh pr ior i ty industr ies . Further , i t a l so proposes to a l low

other industr ies to import fore ign technology subject to the

fu l f i l lment of certa in condi t ions .

PRIVATIZATIONPRIVATIZATION

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Introduct ion

In the s ix t ies and sevent ies , the publ ic sector po l i cy has

been large ly gu ided by Industr ia l Po l i cy Reso lut ion, 1956 which

gave the publ ic sector a s t rateg ic ro le in the economy. Dur ing

the last four decades , mass ive investments have been made to

bu i ld a publ ic sector which has a commanding ro le in the

economy. Today, many key sector of the economy are

dominated by the mature publ ic sector enterpr i ses that have

successfu l ly expanded the product ion.

In the ear ly post - Independence years , there was v i r tua l

consensus about the need for the government intervent ion in

economic act iv i t ies . Pandi t Jawahar la l Nehru descr ibed the

publ ic sector as Temples of Modern Ind ia . At that t ime,

v i r tua l ly ne i ther quest ioned the s t rategy nor ra i sed any doubts

about i t s implementat ion. The number of centra l publ ic sector

enterpr i ses increased f rom 5 in the year 1951 to 240 by the

end of 1995 and investments in publ ic sector undertak ings

(PSUs) increased f rom Rs29 crore in 1951 to Rs . 1 ,72 ,438 crore

by the end of 1995. They contr ibuted near ly one th i rd of our

exports . They made s ign i f i cant contr ibut ion to import

subst i tut ion. Government undertak ings account for more that

70% of the work force employed in the organized sector . They

have great ly reduced the imbalanced of reg ional deve lopment

and have la id s t rong base for the rap id deve lopment of the

country . Some of the PSUs have earned a reputat ion par

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exce l lence at the internat iona l leve l . Some g iant publ ic sector

un i ts (e .g . , Ind ian Oi l Corporat ion, S tee l Author i ty of Ind ia , O i l

and Natura l Gas Commiss ion, H industan Petro leum Corporat ion

Ltd . , Coa l Ind ia L td and Bharat Petro leum Corporat ion Ltd)

f igure in Fortune Internat iona l ’ s large companies . Further , the

publ ic sector accounts for one- fourth of the country ’s GDP.

There are two mi l l ion employees in government

undertak ings and the average emoluments per annum amount

to more than Rs .50 , 000 each. Bes ides pay ing h igher sa lar ies ,

publ ic enterpr i ses assure job secur i ty , good work ing condi t ion,

at t ract ive incent ive scheme, part ic ipat ive management , h igher

degree of safety , adequate fac i l i t ies , etc .

Meaning of Pr ivat i sa t ion

The revolut ion of pr iva t iza t ion s tar ted in 1980 and spread

to many par ts of the wor ld . Severa l countr ies a re pr iva t iz ing

the i r publ ic sec tor enterpr ises . India i s no except ion to i t .

Pr iva t iza t ion was meant to improve the performance of publ ic

enterpr ises . Pr iva t iza t ion techniques have been t r ied in

countr ies l ike Great Br i ta in , China , US, Turkey, Braz i l ,

Mexico, Japan, e tc . Pr iva t iza t ion , in the narrow sense , means

t ransfer of ownership , or sa le of publ ic enterpr ises . However ,

pr iva t iza t ion has been used in d i f ferent ways as de ta i led be low:

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1. L ibera l i zat ion Approach : Pr ivat i zat ion may be used in the

sense of l ibera l i zat ion hav ing fewer contro ls and

regulat ion by the s tate in economic act iv i t ies . Th is a l so

means s lowing of new contro ls and regulat ions and a lso

d ismant l ing of the ex is t ing contro ls and regulat ions .

2 . Relat ive Share Enlargement Approach : Pr ivat i zat ion may

re late to en largement of the share of pr ivate enterpr i ses

in the product ion of goods and serv ices in the economy.

Th is means that faster economic expans ion of goods and

serv ices produced by pr ivate sector and s lowing down of

product ion of goods and serv ices in the publ ic sector .

3 . Assoc iat ion of Pr ivate Sector Management Approach :

Th is approach suggests ut i l i z ing the serv ices of

manager ia l personnel or execut ives of pr ivate sector

enterpr i ses for the conduct and management of PSUs.

4 . Transfer of Minor i ty Equity Ownership Approach :

Pr ivat i zat ion may be def ined as the t ransfer of minor i ty

equi ty ownersh ip of publ ic enterpr i ses to pr ivate

ind iv idua ls and inst i tut ions so that the u l t imate contro l

cont inues to remain wi th the s tate .

5 . Transfer of Complete Ownership Approach : Pr ivat i zat ion

i s a l so used in the sense of sa le of a l l the shares to the

pr ivate part ies so that the publ ic enterpr i ses are

converted into pr ivate enterpr i ses .

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Shortcomings

Though the PSUs have contr ibuted heav i ly to deve lop the

industr ia l base of the country , they cont inue, even today, to

suf fer f rom a number of shortcomings which are ident i f ied

be low very br ie f ly .

1 . A s i zab le number of PSUs have been incurr ing and

report ing losses on a cont inua l bas is . Consequent ly , a

large number of PSUs have a l ready been referred of B IFR;

2 . Mult ip l i c i ty of author i t ies to whom the PSUs are

accountable ;

3 . Delay in implementat ion of pro jects lead ing to cost

esca lat ion and other consequences ;

4 . Inef fect ive and widespread inef f i c iency on management ;

5 . Many PSUs are operat ing wi thout the leader ( i .e . , ch ief

execut ive or cha i rman) ;

6 . With a v iew to prov ide opportuni t ies for more and more

unemployed youths , more number of people , than

requi red, were recru i ted and therefore , many PSUs are

over-staf fed resu l t ing in lower labour product iv i ty , bad

industr ia l re lat ions , etc . ;

7 . un-remunerat ive pr ic ing po l i cy ; and

8. A number of s i ck companies (40 companies) which were in

the pr ivate sector was taken over by publ ic sector main ly

to protect the employees . These s ick un i ts are caus ing a

b ig dra in on the resources of the s tate ; etc .

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Methods of Privatization

There are four important modes of pr ivat i zat ion. They are :

(a ) Franchis ing

(b) Contract ing

(c ) Leas ing

(d) D is investment .

In Ind ia , d i s investment of government share of equi ty in

PSUs i s predominant . I t s tar ted in 1992 immediate ly a f ter the

New Economic Po l i cy in a phased manner . The main cr i t i c i sm

of d i s investment of shares of PSUs in Ind ia i s that i t has been

part ia l and ha l f -hearted. There seems to be no p lans to

d is invest complete ly . The government s t i l l would l i ke to keep a

dominant contro l . 39 companies have been proposed for

d is investment t i l l 1995-96. A l l the companies proposed for

d is investment are centra l PSUs. No state leve l PSU has been

proposed for d is investment . I t cou ld on ly d is invest 1% to 35%

shares of PSUs on an average. I t i s a l so observed that the

shares of e f f i c ient and prof i t -making companies are

d is invested more than the companies which are potent ia l ly

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s ick or s i ck companies . The d is investment percentage i s a l so

not much in loss -making and inef f i c ient un i ts , thereby

defeat ing the purpose.

Pr ivat izat ion of PSUs

Major i ty of the industr ia l enterpr i ses in the publ ic sector

have fa i led to ach ieve the des i red resu l t . Of course , a number

of factors - interna l and externa l , contro l lab le and non-

contro l lab le are respons ib le for h i s precar ious per formance. A

look at the h is tory of publ ic sector undertak ings (PSUs) in the

country revea ls the cont inuous expans ion in the ro le of PSUs.

Consequent ly , a number of enterpr i ses have been estab l i shed

and huge amount of borrowed cap i ta l has been employed by

the s tate even in the non-core , non-st rateg ic and not so

essent ia l area . Hence, the s tate has made a number of changes

in i t s New Industr ia l Po l i cy announced on Ju ly 24 , 1991.

GLOBALISATIONGLOBALISATION

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Introduction:

The expans ion of economic act iv i t ies across po l i t i ca l

boundar ies of nat ion s tates . More important , perhaps , i t

re fers to a process of increas ing economic integrated and

growing economic interdependence between countr ies in the

wor ld economy. I t i s assoc iated not on ly wi th an increas ing

cross- border movement of goods , serv ices , cap i ta l technology

in format ion and people but a l so wi th an organizat ion of

economic act iv i t ies which s t raddles nat iona l boundar ies . Th is

process i s dr iven by the lure of prof i t and threat of

compet i t ion in the market .

The term Global i zat ion as such denotes ad justment of

nat iona l economy with that of the wor ld economy. I t i s

convers ion of a nat iona l market into internat iona l mobi l i ty of

factors of product ion. In others words , i t may be descr ibed as

the integrat ion of nat iona l economy with that of g loba l

economy.

An important at t r ibute of G lobal i zat ion i s the increas ing

degree of openness , which has three d imens ions , i .e . ;

internat iona l t rade, internat iona l investment and internat iona l

f inance. Accord ing to Wor ld Deve lopment Report ,

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Global i zat ion ref lects the progress ive integrat ion of wor ld ’s

economies .

The mani festat ion of product ion inc ludes spat ia l

reorganizat ion of product ion the interpenetrat ion of industr ies

across borders , the spread of f inanc ia l markets , and the

d i f fus ion of ident ica l consumer goods to d is tant countr ies and

mass ive t ransfer of populat ion across nat iona l f ront iers .

G lobal i zat ion i s a process of reaf f i rmat ion of fa i th in the

markets , reta in ing the character of independence of a country .

Here , the country fo l lows a pragmat ic po l i cy wi th a sh i f t in

dec is ion making f rom government to bus iness . The market

forces and the laws of economics wi l l have greater importance

than the po l i t i ca l ideology . To make a country a successfu l

partner in G lobal i zat ion, the government must p lay a

compl imentary ro le .

Factors contributing to Globalization :

The impor tant fac tors tha t cont r ibute to Global iza t ion are :

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(a) Technological Advances In communication :

Technological advances in communicat ion have made i t

possible to know in an instant what is happening in di f ferent

parts of the world . The f low of information and ideas ,

boosted great ly by the Internet , can enable developing

countr ies to learn more rapidly from each other and from

industr ia l countr ies .

(b) Improvements In Transportation And Technology :

Improvements in t ransportat ion networks and technology

are reduc ing the costs of sh ipp ing goods by water , ground and

a i r . Th is can fac i l i tate the movements of goods . Technolog ica l

improvements can enable deve lop ing countr ies to leap s tages

in the deve lopment process that re ly on inef f i c ient uses of

nat iona l resources .

(c) Other Factors:

Ris ing educat iona l leve ls , technolog ica l innovat ions that

a l low ideas to c i rcu late , and the economic fa i lures of most

centra l ly p lanned economies have a l so contr ibuted to

G lobal i zat ion.

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Trends in Globalization:

The important t rends in G lobal i zat ion are the fo l lowing:

(a) International Trade :

Trade in goods and serv ices has grown twice as fast as

g loba l GDP in the 1990’s and the share at t r ibutab le to

deve lop ing countr ies has r i sen f rom 23 to 29 percent . There i s

a compos i t iona l sh i f t in t rade, which has created a new

pattern in the internat iona l exchange of goods , serv ices , and

ideas . Trade in components i s one part of that new pattern .

Advances in in format ion technology he lps to l ink f i rms f rom

deve lop ing countr ies into g loba l product ion networks . The

t remendous growth of t rade in serv ices and, more recent ly , o f

e lectronic commerce i s a l so a part of the new trade pattern .

(b) International Financial Flows :

There has been increase in internat iona l cap i ta l f lows of

deve lop ing countr ies . However , the f inanc ia l c r i s i s o f 1977-99

have put the growing interdependenc ies among countr ies in

the spot l ight and led to intense scrut iny . Such f lows are

s tarted to r i se aga in . The f inanc ia l per formance of emerg ing

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markets in the 1990s made cap i ta l account l ibera l i zat ion an

at t ract ive opt ion for deve lop ing countr ies . Many deve lop ing

countr ies have began to loosen contro ls on in f lows and

outf lows of cap i ta l .

The East As ian meltdown has enhanced the at t ract iveness of

long-term capi ta l investment . Countr ies have s tarted to

recognize that fore ign d i rect investment br ings wi th i t not on ly

cap i ta l but a l so technology market access and organizat iona l

sk i l l s . An ana lys i s o f the per iod 1996-97 shows that fore ign

d i rect investment was less vo lat i le than the commerc ia l bank

loans and fore ign port fo l io f lows.

(c) International Migration:

Along with goods , serv ices , and investment , people are

cross ing borders in large numbers . Accord ing to Wor ld

Deve lopment Report 1999-2000, each tear between 2 mi l l ion

and 3 mi l l ion people emigrate , wi th major i ty of them going to

just 4 countr ies : the Uni ted States , Germany, Canada and

Austra l ia . The market for h igh ly sk i l led workers wi l l become

even more g loba l ly integrated in the coming decades .

At the end of the 20 t h century G lobal i zat ion has a l ready

demonstrated that economic dec is ions , wherever they are

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made in the wor ld , must take internat iona l factors into

account . There i s acce lerat ion of goods , serv ices , ideas and

cap i ta l across nat ion borders .

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CONCLUSION:

The low annual  growth rate  of the economy of

India  before 1980, which stagnated around 3.5% f rom

1950s to 1980s, whi le  per capi ta income averaged

1.3% ]  At the same t ime,  Pakistan grew by

5%,  Indonesia  by 9%,  Thai land by 9%,  South Korea by

10% and inTaiwan by 12%.

Only four or f ive l icences would be g iven

for  s teel ,  power  and communicat ions . L icense owners

bui l t up huge powerfu l empires.

A huge publ ic sector  emerged. State-owned enterpr ises

made large losses.

In f rast ructure investment was poor because of the

publ ic sector  monopoly .

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License Raj  establ ished the " i r responsib le, se l f -

perpetuat ing bureaucracy that s t i l l ex is ts throughout

much of the country  andcorrupt ion   f lour ished under th is

system.

Economic l ibera l i zat ion has increased the respons ib i l i ty

and ro le of the pr ivate sector . At the same t ime, i t has

reduced the contro l o f the government on economy af fa i rs . I t

i s expected that the reforms would l ibera l i ze the Ind ian

economy enough to create a conduc ive env i ronment for rap id

economic deve lopment . The Ninth F ive Year P lan , therefore ,

r ight ly observed, “The condi t ions that ex is t today , demand a

dec is ive break f rom the past . The government has taken on

i t se l f too many respons ib i l i t ies wi th the resu l t that i t not on ly

encouraged a dependency syndrome among our people , but

a l so imposed severe s t ra ins on f inanc ia l and admin is t rat ive

capabi l i t ies of the government .

Pr ivate in i t iat ive whether ind iv idua l , co l lect ive or

community-based forms the essence of the deve lopment

s t rategy ar t icu lated in the p lan.

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The process of reforms accord ing to many economists and

soc ia l sc ient i s ts i s not fast enough to ach ieve the goa ls .

Je f f rey Sachs , d i rector of Harvard Univers i ty ’ s center for

internat iona l deve lopment and a noted economist , po inted out

that the reform process in Ind ia had a long way to go. He fee ls

that wi thout a focus on the “twin p i l lars” of soc ia l and

economic s t rateg ies , the future would be b leak for Ind ia ,

espec ia l ly in the context of compet i t ion a l l around.

L ibera l i zat ion process i s on the s low t rack . Government i s

expected to reduce and f ina l ly g ive up i t s invo lvement in

economic matters and p lay a major ro le in prov id ing the

requi red soc io-economic in f rastructure . The government ,

however , i s re luctant to g ive up i t s ro le of owning and

contro l l ing economic act iv i t ies . At the same t ime i t s inab i l i ty

to spend for prov id ing min imum heal th and educat ion serv ices .

I t i s eager to spend on h igher educat ion without spending

enough on pr imary and secondary educat ion. I t has fa i led in

prov id ing a corrupt ion f ree admin is t rat ion, an essent ia l

precondi t ion for increas ing compet i t iveness .

Success of the economic reforms depends upon the

commitment of a l l concerned – people , po l i t i ca l part ies ,

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bureaucracy , and government – to the soc io economic progress

of the country .

The economic l iberal isat ion in India   refers to

ongoing economic reforms  in   India   that s tar ted in 1991.

Af ter Independence in 1947, India adhered

to  socia l is t  pol ic ies. In the 1980s, Pr ime Minis ter  Raj iv

Gandhi   in i t ia ted some reforms. In 1991, af ter India sold 67

tons of gold to the   Internat ional Monetary Fund  ( IMF), the

government of  P. V. Narasimha Rao  and h is f inance

minis ter  Manmohan Singh star ted breakthrough

reforms.  The new neo- l ibera l  pol ic ies inc luded opening for

in ternat ional t rade and investment ,  deregulat ion , in i t ia t ion

ofpr ivat izat ion , tax reforms, and inf la t ion-contro l l ing

measures. The overal l d i rect ion of l ibera l isat ion has s ince

remained the same, i r respect ive of the ru l ing par ty ,

a l though no par ty has yet t r ied to take on powerfu l lobbies

such as the   t rade unions  and farmers, or content ious

issues such as reforming labour laws and

reducing agr icu l tura l subsid ies .  The main object ive of the

government was to t ransform the  economic

system f rom socia l ism  to capi ta l ism so as to achieve

h igh economic growth  and  industr ia l ize   the nat ion for the

wel l -being of Indian c i t izens.  Today India is main ly

character ized as a  market economy.

As of 2009, about 300 mi l l ion people—equivalent to the

ent i re populat ion of the Uni ted States—have  escaped

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extreme poverty .  The f ru i ts of l ibera l isat ion reached thei r

peak in 2007, when India recorded i ts h ighest GDP growth

rate of 9%.  With th is , India became the second fastest

growing major economy in the wor ld, next only to

China.  An Organisat ion for Economic Co-operat ion and

Development   (OECD) report s tates that the average growth

rates 7.5% wi l l double the average income in a decade and

more reforms would speed up the pace.

Indian government coal i t ions have been advised to

cont inue l ibera l isat ion. India grows at s lower pace

than China, which has been   l ibera l is ing i ts economy  s ince

1978.  McKinseystates that removing main obstacles "would

f ree India ’s economy to grow as fast as China’s, at 10

percent a year" .

Indian economic pol icy  af ter   independence was inf luenced

by the colonia l exper ience (which was seen by Indian

leaders as explo i tat ive in nature) and by those leaders '

exposure to  Fabian socia l ism. Pol icy tended

towards protect ionism, wi th a st rong emphasis on   import

subst i tu t ion ,   industr ia l izat ion under s tate

moni tor ing   ,  s tate in tervent ion at the micro level in a l l

businesses especia l ly   in labour and f inancia l markets, a

large publ ic sector , business regulat ion, and  centra l

p lanning Five-Year Plans of India   resembled centra l

p lanning in the  Soviet Union .  Steel ,  min ing,  machine

tools ,  water ,   te lecommunicat ions ,   insurance, and e lect r ica l

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plants, among other industr ies, were

ef fect ive ly  nat ional ized   in the mid-1950s.  Elaborate

l icences, regulat ions and the accompanying  red tape,

commonly referred to as  L icence Raj , were required to set

up business in   India  between 1947 and 1990.

Before the process of reform began in 1991, the

government at tempted to c lose the Indian economy to the

outs ide wor ld. The Indian currency, the   rupee, was

inconvert ib le and h igh tar i f fs and import l icensing

prevented fore ign goods reaching the market . India a lso

operated a system of  centra l p lanning   for the economy, in

which f i rms required l icenses to invest and develop. The

labyr inth ine bureaucracy of ten led to absurd rest r ic t ions—

up to 80 agencies had to be sat is f ied before a f i rm could

be granted a l icence to produce and the state would

decide what was produced, how much, at what pr ice and

what sources of capi ta l were used. The government a lso

prevented f i rms f rom lay ing of f workers or c los ing

factor ies. The centra l p i l lar of the pol icy was   import

subst i tu t ion , the bel ie f that India needed to re ly on internal

markets for development , not in ternat ional t rade—a bel ie f

generated by a mixture of  socia l ism and the exper ience of

colonia l explo i tat ion. Planning and the state, rather than

markets, would determine how much investment was

needed in which sectors.

In the 80s, the government led by  Raj iv Gandhi  s tar ted

l ight reforms. The government s l ight ly reduced  L icense

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Raj  and a lso promoted the growth of

the  te lecommunicat ions  and sof tware  industr ies

The VishwanathPratap Singh  government (1989–1990)

and Chandra Shekhar Singh  government (1990–1991) d id

not add any s igni f icant reforms.

 1991 India economic crisis

The assassinat ion of pr ime minis ter   Indi ra Gandhi   in 1984,

and later of her son  Raj iv Gandhi   in 1991, crushed

internat ional investor conf idence on the economy that was

eventual ly pushed to the br ink by the ear ly 1990s.

As of 1991, India st i l l had a f ixed  exchange rate  system,

where the  rupee was pegged to the value of a basket of

currencies of major t rading par tners. India star ted

having balance of payments  problems s ince 1985, and by

the end of 1990, i t was in a ser ious  economic cr is is . The

government was c lose to defaul t , i ts  centra l bank  had

refused new credi t and   fore ign exchange reserves  had

reduced to the point that   Indiacould barely f inance three

weeks’ worth of   imports .

A Balance of Payments cr is is in 1991 pushed the country

to near  bankruptcy . In return for an   IMF bai lout ,  gold was

t ransferred toLondon as col la tera l , the  Rupee devalued

and economic reforms were forced upon   India . That low

point was the cata lyst required to t ransform the economy

through badly needed reforms to unshackle the economy.

Contro ls s tar ted to be

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dismant led,   tar i f fs ,dut ies  and  taxes progressively lowered,

s tate monopol ies broken, the economy was opened to

t rade and investment ,  pr ivate sector enterpr ise  and

compet i t ion were encouraged and  g lobal isat ion  was s lowly

embraced. The reforms process cont inues today and is

accepted by a l l pol i t ica l par t ies, but the speed is of ten

held hostage by coal i t ion pol i t ics and  vested interests .

Later reforms

Atal Bihar i Vajpayee 's administ rat ion surpr ised many by

cont inuing reforms, when i t was at the helm of af fa i rs of

India for f ive years.

The Vajpayee administ rat ion cont inued

wi th  pr ivat izat ion , reduct ion of taxes, a sound   f iscal

pol icy  a imed at reducing def ic i ts and debts and

increased in i t ia t ives for publ ic works.

The UF government at tempted a progressive budget that

encouraged reforms, but the 1997  Asian f inancia l

cr is is  and pol i t ica l instabi l i ty  created economic

stagnat ion .

Economic and technology-re lated sanct ions have

repeatedly not proved to be very ef fect ive in compel l ing

nat ions to change thei r sovereign decis ions made in

enl ightened sel f - in terest . India faced severe sanct ions

af ter Pokhran- I ( f ive nuclear tests on May 11 and 13,

1998 at the Pokhran range in Rajasthan

Desert ) ,andsanct ions that were more comprehensive

were imposed fo l lowing Pokhran- I I . There were d i re

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predict ions of the col lapse of the economy, double-d ig i t

in f la t ion etc.

After f ive years, most of the sanct ions have been l i f ted

and the Indian economy is cont inuing to grow at an

acceptably sat is factory rate. The ant ic ipated growth rate

for 2003-04 is 6.0%. Though India ’s Gross Nat ional

Income is only $477.4 b i l l ion by convent ional

ca lculat ions, i t t ranslates in to $2,913 b i l l ion purchasing

power par i ty (PPP), according to the latest wor ld

development indicators. In PPP terms, i t is the wor ld 's

four th largest economy, behind only the US, China and

Japan.

Liberalization vs Democratization

There is a dist inct difference between l iberal ization

and democratization, which are often thought to be

the same concept. Liberal ization can take place

without democratization, and deals with a

combination of pol icy and social change special ized

to a certain issue such as the l iberal ization of

government-held property for private purchase,

whereas democratization is more pol it ical ly

special ized that can arise from a l iberal ization, but

works in a broader level of government.

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What are Disadvantages of

Privatisation ?

1. Pr iva t i sa t ion i s expensive and genera tes a lo t of income in

fees for specia l i s t advisers such as banks .

2 . Publ ic monopol ies have been turned in to pr iva te monopol ies

wi th too l i t t le compet i t ion , so consumers have not benef i ted as

much as had been hoped. This i s the main reason why i t has

been necessary to crea te regula tors (OFWAT, OFGAS etc) . This

i s an impor tant point . I t par t ly depends on how the

pr iva t i sa t ion took place . For example , the ra i lways were

pr iva t i sed in b i t of a rush and there might have been other ways

to do i t so tha t more compet i t ion was crea ted . I t par t ly depends

on the market . Some markets a re 'na tura l monopol ies ' where

compet i t ion i s d i f f icul t . For example , i t would be very wasteful

and expensive to bui ld two se ts of t rack in to Liverpool St ree t

jus t to crea te some compet i t ion . Natura l monopol ies crea te a

specia l jus t i f ica t ion for publ ic ownership in the genera l publ ic

in teres t .

3 . The na t ional i sed indust r ies were sold off too quickly and too

cheaply . With pa t ience a be t te r pr ice could have been had wi th

more benef ic ia l resul t s on the government ' s revenue. In a lmost

a l l cases the share pr ices rose sharply as soon as dea l ing began

af ter pr iva t i sa t ion .

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4. The pr iva t i sed bus inesses have sold off or c losed down

unprof i table par ts of the bus iness (as bus inesses normal ly do)

and so services eg t ranspor t in rura l a reas have got worse .

5 . Wider share ownership d id not rea l ly happen as many smal l

inves tors took the i r prof i t s and d idn ' t buy anything e lse .

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Bibliography

ht tp : / /www.google .com

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