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An Overview Of Liberalization,

Privatization and Globalization


Indian economy had experienced major policy changes in early
1990s. The new economic reform, popularly known as,
Liberalization, Privatization and Globalization (LPG model)
aimed at making the Indian economy as fastest growing
economy and globally competitive. The series of reforms
undertaken with respect to industrial sector, trade as well as
financial sector aimed at making the economy more efficient.

With the onset of reforms to liberalize the Indian economy in


July of 1991, a new chapter has dawned for India and her
billion plus population. This period of economic transition has
had a tremendous impact on the overall economic development
of almost all major sectors of the economy, and its effects over
the last decade can hardly be overlooked. Besides, it also marks
the advent of the real integration of the Indian economy into
the global economy.

To be Continued

This era of reforms has also ushered in a remarkable change in


the Indian mindset, as it deviates from the traditional values
held since Independence in 1947, such as self reliance and
socialistic policies of economic development, which mainly due
to the inward looking restrictive form of governance, resulted
in the isolation, overall backwardness and inefficiency of the
economy, amongst a host of other problems. This, despite the
fact that India has always had the potential to be on the fast
track to prosperity.

Now that India is in the process of restructuring her economy,


with aspirations of elevating herself from her present desolate
position in the world, the need to speed up her economic
development is even more imperative. And having witnessed
the positive role that Foreign Direct Investment (FDI) has
played in the rapid economic growth of most of the Southeast
Asian countries and most notably China, India has embarked
on an ambitious plan to emulate the successes of her neighbors
to the east and is trying to sell herself as a safe and profitable
destination for FDI.

Definitions Of The Term


Liberalization and
Economic Liberalization
The term Liberalization stands for the act of making less
strict.
Liberalization in Economy stands for The process of making
policies less constraining of economic activity." And also
Reduction of tariffs and/or removal of non-tariff barriers.
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; the doctrine is associated with neo-liberalism. The
arguments for economic liberalization include greater
efficiency and effectiveness that would translate to a "bigger
pie" for everybody.

In developing countries, economic liberalization refers more to


liberalization or further "opening up" of their respective
economies to foreign capital and investments. Three of the
fastest growing developing economies today; Brazil, China and
India, have achieved rapid economic growth in the past several
years or decades after they have "liberalized" their economies
to foreign capital.

Most first world countries, in order to remain globally


competitive, have pursued the path of economic liberalization:
partial or full privatization of government institutions and
assets, greater labor-market flexibility, lower tax rates for
businesses, less restriction on both domestic and foreign capital,
open markets, etc. British Prime Minister Tony Blair wrote
that: "Success will go to those companies and countries which
are swift to adapt, slow to complain, open and willing to
change. The task of modern governments is to ensure that our
countries can rise to this challenge.

Impact Of Liberalization On
Indian Economy
The low annual growth rate of the economy of India before
1980, which stagnated around 3.5% from 1950s to 1980s, while
per capital income averaged 1.3%.At the same time, Pakistan
grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea
by 10% and in Taiwan by 12%.
Only four or five licenses would be given for steel, power and
communications. License owners built up huge powerful
empires.
A huge public sector emerged. State-owned enterprises made
large losses.
Infrastructure investment was poor because of the public
sector monopoly.
License Raj established the "irresponsible, self-perpetuating
bureaucracy that still exists throughout much of the country"
and corruption flourished under this system.

Financial Liberalization

Capital Account
& Financial Liberalisation

Impact on Government
Budget

Revenue & Expenditure

Private Flows

Impact on Private
Economy

Official Flows

Domestic Financial
Markets

Foreign Multinationals

Access To Credit

Industrial Performance

Definitions Of The Term


Privatization and Economic
Privatization
The term Privatization refers to The transfer of ownership
of property or businesses from a government to a privately
owned entity.

The transition from a publicly traded and owned company to a


company which is privately owned and no longer trades
publicly on a stock exchange. When a publicly traded company
becomes private, investors can no longer purchase a stake in
that company.

The process of converting or "selling off" government-owned


assets, properties, or production activities to private ownership.
After several decades of increasing government control over
productive activities, privatization came into vogue in the
1980s, along with business deregulation and an overall
movement toward greater use of markets.

Privatization is frequently associated with industrial or serviceoriented enterprises, such as mining, manufacturing or power
generation, but it can also apply to any asset, such as land,
roads, or even rights to water. In recent years, government
services such as health, sanitation, and education have been
particularly targeted for privatization in many countries.

Privatization helps establish a "free market", as well as


fostering capitalist competition, which its supporters argue will
give the public greater choice at a competitive price.
Conversely, socialists view privatization negatively, arguing
that entrusting private businesses with control of essential
services reduces the public's control over them and leads to
excessive cost cutting in order to achieve profit and a resulting
poor quality service.

Impact Of Privatization On
Indian Economy
It frees the resources for a more productive utilization.

Private concerns tend to be profit oriented and transparent in their


functioning as private owners are always oriented towards making
profits and get rid of sacred cows and hitches in conventional
bureaucratic management.

Since the system becomes more transparent, all underlying corruptions


are minimized and owners have a free reign and incentive for profit
maximization so they tend to get rid of all free loaders and vices that
are inherent in government functions.

Gets rid of employment inconsistencies like free loaders, or over


employed departments reducing the strain on resources.

Effectively minimizes corruption and optimizes output and


functions.

Gets rid of employment inconsistencies like free loaders, or


over employed departments reducing the strain on resources.

Private firms are less tolerant towards capitulations and


appendages in government departments and hence tend to right
size the human resource potential befitting the organization's
needs and may cause resistance and disgruntled employees who
are accustomed to the benefits as government functionaries

Permit the private sector to contribute to economic


development.

Development of the general budget resources and diversifying


sources of income.

Privatization Chart

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