A STUDY ON

THE IMPACT OF

LIBERALISATION, PRIVATISATION AND GLOBALISATION

ON WORLD ECONOMY

PROJECT REPORT

SUBMITTED BY

Sagar Jyoti Kashyap(3)

Smritirekha Das(9)
Iftikar Rahman(11)
Bhaskar Jyoti Nath(13)
Rup Jyoti Das(25)

Gauhati University
Dept. Of Business Administration
MBA(BE)
 CONTENTS

❖ Introduction
❖ Present Scenario
➢ Liberalization, Privatization and Globalization
➢ Meaning of liberalization
o The aims of liberalization

➢ Meaning of Privatization

➢ Meaning of Globalization

➢ Positive Approaches of Liberalization

➢ Negative Approaches of Liberalization
➢ Positive Approaches of Privatization
➢ Negative Approaches of Privatization
➢ Positive Approaches of Globalization
➢ Negative Approaches Globalization
➢ Foreign Investment
➢ Foreign Technology Agreement
➢ Public Sector Policy
➢ The priority areas for growth of public enterprises

❖ Introduction of various industries and its nature at global level:

➢ Domestic Company, International Company ,Multinational Companies, Global Companies

Transnational Companies
❖ Significance of the study
❖ Objectives of the Study
❖ Scope of the study
❖ Research Methodology:
❖ Conclusion
❖ References
❖ Introduction

Ever since India opened up its economy in 1991, it has aspired to achieve the status of a developed nation.
It has been more than 25 years since the then Finance Minister Manmohan Singh followed the
‘liberalisation, privatisation and globalisation (LPG)’ policy to rescue the country at its darkest moment
with the help of a liberalised trade and investment regime. Post that, India became a member of the World
Trade Organization (WTO) in 1995 and currently boasts the 3rd rank after China and the USA in the GDP
(Purchasing Power Parity) scale. With all these developments, the country is on its way to becoming a
superpower by 2020.The government of India has adopted the policy of the liberalization, privatization,
and globalization since 1990-91. This is commonly known as policy of Liberalization, Globalization and
Privatization. Before this policy Indian economy was passing through many crises. The Gross Domestic
Products had considerably gone down, the overall production was showing decline over a long period.
Even shortage of foreign exchange reserve and the growth of employment had considerably gone down.
This was due to conservative policy adopted by government of India. Many restrictions, rules and
regulation were imposed on industrial sector too. There was no free trade on international level. The new
licensing system has been created for the industrial growth and socio – economic development, and as a
result various resources of the economy were not properly utilized in the process of economic
development.

❖ Liberalization, Privatization and Globalization:

• Meaning of liberalization
➢ Liberal means to be free from internal and external factor. There is no tough rules, regulation,
control etc.
➢ The word Liberalization was introduced the English language in 1835 as it derived from word
‘liberal’. Literally translated, it means the act of making more liberal, or free. Liberalization is
used only when speaking of economic or social policies or other government regulations.

➢ Liberty to establish any kind of economic activity at any time anywhere in the country without
anticipating any private or public restrictions, In short liberalizations mean looseness in the rule
and regulations.
The aims of liberalization

The Government of India's liberalized Industrial Policy aims at rapid and substantial economic growth,
and integration with the global economy in a harmonized manner. The Industrial Policy reforms have
reduced the industrial licensing requirements; removed restrictions on investment and expansion, and
facilitation easy access to foreign technology and foreign direct investment. There are several objectives
of liberalization. The principle aims are enumerated as below.
➢ To improve the quality of good services,

➢ To increase the employment

➢ To create opportunities

➢ To join in the competition of the international level

➢ To develop the production-capacity

➢ To improve the process of domestic production.

Economic Effects of Country Liberalization

Liberalization of countries in emerging markets provides new opportunities for investors to increase their
diversification and profit. Economic liberalization refers to a country "opening up" to the rest of the world
with regards to trade, regulations, taxation and other areas that generally affect business in the country.

As a general rule, we can determine to what degree a country is liberalized economically by how easy it is
to invest and do business in the country. All developed (first world) countries have already gone through
this liberalization process, whereas emerging countries need to undergo a series of changes.

Removing Barriers to International Investing Investing in emerging market countries can sometimes be an
impossible task if the country you're investing in has several barriers to entry. These barriers can include
tax laws, foreign investment restrictions, legal issues, and accounting regulations, all of which make it
difficult or impossible to gain access to the country.

Stock Market Performance

In general, when a country becomes liberalized, stock market values also rise.

Fund managers and investors are always on the lookout for new opportunities for profit. The situation is
similar in nature to the anticipation and flow of money into an initial public offering (IPO).

When an entire country becomes available to be invested in, it tends to incur a windfall of foreign
investment.
A private company previously unavailable to investors that suddenly becomes available typically causes a
similar valuation and cash flow pattern. However, like an IPO, the initial enthusiasm also eventually dies
down and returns become more normal and more in line with fundamentals.

Political Risks Reduced

Liberalization reduces the political risk to investors. For the government to continue to attract more
foreign investment, areas beyond the ones mentioned earlier have to be strengthened as well. These are
areas that support and foster a willingness to do business in the country, such as a strong legal foundation
to settle disputes, fair and enforceable contract laws, property laws, and others that allow businesses and
investors to operate with confidence.

As such, government bureaucracy is a common target to be streamlined and improved in the liberalization
process. All these changes together lower the political risk for investors, and this lower level of risk is also
part of the reason the stock market in the liberalized country rises once the barriers are gone.

Diversification for Investors

Investors can benefit by being able to invest a portion of their portfolio into a diversifying asset class. In
general, the correlation between developed countries such as the United States and undeveloped or
emerging countries is relatively low. Although the overall risk of the emerging country by itself may be
higher than average, adding a low correlation asset to your portfolio can reduce your portfolio's overall
risk profile.

However, a distinction should be made that although the correlation may be low, when a country becomes
liberalized, the correlation may actually rise over time. A high degree of integration can also lead to
increased contagion risk, which is the risk that crises occurring in different countries cause crises in the
domestic country.

This is exactly what happened in the financial crisis that started in 2008-2009. Weaker countries within
the EU (such as Greece) began to develop severe financial problems that quickly spread to other EU
members.5 In this instance, investing in several different EU member countries would not have provided
much of a diversification benefit as the high level of economic integration among the EU members had
increased correlations and contagion risks for the investor.
• Meaning of Privatization

➢ 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.

➢ Privatization, also spelled privatization, may have several meanings. Primarily, it is the process of
transferring ownership of a business, enterprise, agency, public service or public property from the
public sector (a government) to the private sector, either to a business that operate for a profit or to
a non-profit organization. It may also mean government outsourcing of services or functions to
private firms, e.g. revenue collection, law enforcement, and prison management etc.

➢ Privatization has also been used to describe two unrelated transactions. The first is the buying of
all outstanding shares of a publicly traded company by a single entity, taking the company private.
This is often described as private equity. The second is a demutualization of a mutual organization
or cooperative to form a joint stock company.

Impact of Privatization on Economic Growth

Privatization, a method of reallocating assets and functions from the public sector to the
private sector, appears to be a factor that could play a serious role in the quest for growth. In
recent history, privatization has been adopted by many different political systems and has spread to every
region of the world. The process of privatization can be an effective way to bring about fundamental
structural change by formalizing and establishing property rights, which directly creates strong individual
incentives. A free market economy largely depends on well-defined property rights in which people make
individual decisions in their own interests.

Methods of Privatization
Countries around the world have pursued different methods of privatizing state assets depending on the
initial conditions of the country’s economy and the economic ideologies of the political party in charge.
The process of privatization is often easy for small institutions, while the process becomes harder when it
comes to finding the appropriate buyers for larger enterprises.
One of the main methods of privatization is the sale of state-owned enterprises to private investors. The
state would simply decide which institutions should be privatized and through the use of market
mechanism, private investors are able to buy shares of each firm. The benefits from this method of
privatization are that it creates badly needed revenues for the state while putting privatized firms in the
hands of investors who have the incentives and the means of investing and restructuring.
.
• Meaning of Globalization

➢ Guy Brainbant Says that ‘the process of globalization not only includes opening up of world trade,
development of advanced means of communication, internationalization of financial markets,
growing importance of MNC’s population migrations and more generally increased mobility of
persons, goods, capital, data and ideas but also infections, diseases and pollution. The term
globalization refers to the integration of economies of the world through uninhibited trade and
financial flows, as also through mutual exchange of technology and knowledge.
➢ Globalization has many meanings depending on the context and on the person who is talking
about. Though the precise definition of globalization is still unavailable a few definitions are
discussed.
➢ Globalization is widely considered to be the fundamental dynamic of our time an epoch making
event in the history of mankind radically transforming social and economic relations and
institutions in the present century.
➢ Globalization’ means the coming together of different societies and economies via cross border
flow of ideas, finances, capital, information, technologies, goods and services.

How Does Globalization Affect the World Economy?

Globalization has changed the world economy forever. The growth of international trade has led to a
reduction in poverty rates and has fueled technological progress. Small and large businesses alike can now
sell their products across borders and reach a global audience. The removal of barriers among nations
encourages the flow of goods, labor and capital, resulting in lower prices for customers and increased
competition among companies. However, globalization remains a controversial topic.

Causes of Globalization

Thousands of years ago, traders traveled long distances to exchange gold for food, clothing and other
goods. As technology evolved, so did transportation and international trade. Today, companies worldwide
can exchange goods and services, employ remote teams and communicate over the internet. Customers
have access to more products than ever before and can choose from thousands of brands.

Modern technology is one of the primary factors leading to globalization. The advancements in this area
led to major changes in the way people communicate, work and travel. Internet and phone services allow
businesses and individuals alike to share information on the go. Countries and economies around the
world are now interconnected. Digitalization has impacted the way companies work, deliver their products
and interact with customers.

The developments in transportation play a major role too. Companies can deliver goods and services to
customers worldwide within days. Other causes of globalization include the growth of global media, the
reduction in tariff barriers and the increased mobility of labor. Additionally, the rapid growth of
multinational corporations, such as IBM and Apple, is both a cause and consequence of globalization.
These organizations create new jobs, foster innovation and drive economic growth.

Economic Benefits of Globalization

Today, customers have access to both local and international brands at competitive prices. Domestic
companies are competing with foreign firms, which leads to better products at lower rates for the end
consumer. Small businesses can now expand their operations across the globe due to the advancements in
technology.

The Impact of Globalization on Economic Growth

Globalization aims to benefit individual economies around the world by making markets more efficient,
increasing competition, limiting military conflicts, and spreading wealth more equally.

Globalization Benefits World Economies

The Milken Institute's "Globalization of the World Economy" report of 2003 highlighted many of the
benefits associated with globalization while outlining some of the associated risks that governments and
investors should consider, and the principles of this report remain relevant.

Some of the benefits of globalization include:

Foreign Direct Investment: Foreign direct investment (FDI) tends to increase at a much greater rate than
the growth in world trade, helping boost technology transfer, industrial restructuring, and the growth of
global companies.

Technological Innovation: Increased competition from globalization helps stimulate new technology
development, particularly with the growth in FDI, which helps improve economic output by making
processes more efficient.

Economies of Scale: Globalization enables large companies to realize economies of scale that reduce costs
and prices, which in turn supports further economic growth. However, this can hurt many small businesses
attempting to compete domestically.
Some of the risks of globalization include:

Interdependence: Interdependence between nations can cause regional or global instabilities if local
economic fluctuations end up impacting a large number of countries relying on them.5

National Sovereignty: Some see the rise of nation-states, multinational or global firms, and other
international organizations as a threat to sovereignty. Ultimately, this could cause some leaders to become
nationalistic or xenophobic.

Equity Distribution: The benefits of globalization can be unfairly skewed towards rich nations or
individuals, creating greater economic inequalities.

❖ POSITIVE AND NEGATIVE APPROACHES OF LIBERALIZATION , PRIVATIZATION AND

GLOBALIZATION :

Many Economists gave their approaches about Liberalization, Globalization and Privatization. A good
numbers of books, Daily newspapers, government, bulletins and industrialist periodical, news channels
etc. are discussing on its positive and negative aspects. After some satisfaction, this policy was
implemented in 1991. What were the arguments or positive negative attitude before accepted this policy
and what is result of this policy? It was taken from so many reviews of literatures and that’s why to find
out some arguments was easy in this research activities. But one book gave following positive negative
approaches

➢ Positive Approaches of Liberalization

Liberalization will provide free trade services to everyone, and will give foreign market, domestic product
will have scope of export, area of industries will develop industrial growth rate will increase etc.

➢ Negative Approaches of Liberalization

Foreign industries will capture Indian market, Indian government has come under the foreign
capitalized class, control of WTO will increase on India, India’s Import of goods will increase,
domestic products can’t survive in liberalization will not reduce disparity.

➢ Positive Approaches of Privatization

Privatization will help reducing the burden on exchanger, it will help the profit making public sector
units to modernize and diversify their business, it will help making public sector units more
competitive, it will help in improving the quality of decision – making of managers because their
decisions will be made without any political interference. Privatization may help in receiving sick
units which have become a liability on the public sector, without government financial backing, capital
market will force public sector to be efficient.

➢ Negative Approaches of Privatization

Privatization will encourage growth monopoly power in the hands of big business 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, and result in lop- sided development of industries in the
country, the limited resources and the private individuals cannot meet some of the vital task which
alter the very character of the economy. The private sector may not uphold the principles of social
justice and public welfare.

➢ Positive Approaches of Globalization

It will help to restructure the production and trade pattern in a capital, labour abundant economy in
favour of labour intensive goods and techniques, Foreign capital will be attracted and with that,
updated technology will also enter the country, With the entry of foreign companies and the removal
of import tariff barriers, domestic industry will be subject to price and quality they improving effects
in the domestic economy. It is also believed that the efficiency of banking and financial sectors will
improve, as there will be competition from foreign capital and foreign backings. It is believed that
main effects of integration will be felt in the industrial and related sectors. High quality consumer
goods will be manufactured at home. Besides employment opportunities will also go up.

➢ Negative Approaches globalization

The globalization process is an essence a tremendous redistribution of economic power at the world
level which will increasingly translate into a redistribution of political power. One study reveals that in
the globalizing world. The economics of the world are ironically moving away from one another more
than coming together. With the lightning speed at which globalization is taking place, it is increasing
the pressure on economies for structural and conceptual readjustments to a breaking point. It is
becoming hard for the countries to ask their public to go through the pains and uncertainties of
structural adjustment for the sake of benefits yet to come. Globalization is helping particularly the
developed economies. None of the multinationals has set up manufacturing plants in India or signed
any technology transfer agreement with any Indian company. All these approaches are being discussed
by intellectual people of India and some effects are coming in front of country as well as Maharashtra
state.
❖ Policies towards Indian Economy:

Various policies are being implemented. Developed countries are interested to invest in India. Indian
economy is mixed economy. No one economy is run in India. Privatized area, public area has been
integrated and made mixed economy. All policies are implemented according to Indian economy.
Following are some policies towards Indian economy.

➢ Foreign Investment

While freeing Indian industry from official controls, opportunities for promoting foreign investments in
India should also be fully exploited. In view of the significant development of India's industrial economy
in the last 40 years, the general resilience, size and level of sophistication achieved, and the significant
changes that have also taken place in the world industrial economy, the relationship between domestic and
foreign industry needs to be much more dynamic than it has been in the past in terms of both technology
and investment. Foreign investment would bring attendant advantages in technology transfer, marketing
expertise, introduction of modern managerial techniques and new possibilities for promotion of exports.
This is particularly necessary in the changing global scenario of industrial and economic co-operation
marked by mobility of capital. The government will therefore welcome foreign investment which is in the
interest of the country's industrial development.

➢ Foreign Technology Agreement

There is a dire need for promoting an industrial environment where the acquisition of technological
capability receives priority. In the fast changing world of technology the relationship between the
suppliers and users of technology must be a continuous one. Such a relationship becomes difficult to
achieve when the approval process includes unnecessary governmental interference on a case to case basis
involving endemic delays and fostering uncertainty. The Indian entrepreneur has now come of age so that
it no longer needs such bureaucratic clearances of his commercial technology relationships with foreign
technology suppliers. Indian industry can scarcely be competitive with the rest of the world if it is to
operate within such a regulatory environment. With a view to injecting the desired level of technological
dynamism in Indian industry, Government will provide automatic approval for technology agreement
related to high priority industries within specified parameters. Similar facilities will be available for other
industries as well if such agreements do not require the expenditure of free exchange. Indian companies
will be free to negotiate the terms of technology transfer with their foreign counterparts according to their
own commercial judgment.
 ➢ Public Sector Policy

The Industrial Policy Resolution of 1956 gave the public sector a strategic role in the economy. Massive
investments have been made over the past four decades to build a public sector which has a commanding
role in the economy and lot of importance has been given to public sector which represents the socialist
philosophy. Today, key sectors of the economy are dominated by mature public enterprises that have
successfully expanded production, opened up new areas of technology and built up a reserve of technical
competence in a number of areas. The priority areas for growth of public enterprises.

Some public sector should have to government which is must, has been put to government. Following
strategies are underlined by the government.

1) Essential infrastructure goods and services.

2) Exploration and exploitation of oil and mineral resources.

3) Technology development and building of manufacturing capabilities in areas which are crucial in the
long term development of the economy and where private sector investment is inadequate.

4) Manufacture of products where strategic considerations predominate such as defense equipment.

5) At the same time the public sector will not be barred from entering areas not specifically reserved for it.

➢ Introduction of various industries and its nature at global level:

The stages of internationalization of industries have been changing at a fat rate after 1990s. Many factors
contributed to the changing scenario of internationalization. These factors include:

1) Globalization of various economics including the former communist countries and socialist pattern of
societies.

2) Establishment of World Trade Organization on 1st January 1995 in the place of General Agreements on
trade and Tariffs.

3) Information technology revolution and its wider applications to business across the globe.

4) Enlargement of European Union from 15 members to 25 members.

5) Higher growth rate of GDP of China, India, South Korea, Singapore, Malaysia, Thailand, Brazil and
Mexico.

These factors resulted in enhancement of opportunities for higher value addition in development countries.
Consequently developing countries started attracting multinational companies to establish their
manufacturing facilities in their countries. These factors contributed for the significant change in the
scenario of international business and resulted in the variations in the operations of international
companies. These variations the scenarios generally categorized into five stages e.g. domestic company,
international company, multinational company, global company and transnational company. Stages of
deferent types of industries are given as per below.

➢ Domestic Company

Domestic company limits its operations, mission and vision to the national political boundaries. These
companies focus its view on the domestic market opportunities, domestic financial companies, domestic
customers etc. These companies analyze the national environment of the country; formulate the strategies
to exploit the opportunities offered by the environment. The domestic companies’ unconscious motto is
that, if it is not happening in the home country, it is not happening. The domestic company does not select
the strategy of expansion or penetrating into the international markets. The domestic company never
thinks of growing globally. If it grows, beyond its present capacity, the company selects the diversification
strategy of entering into new domestic markets, new products, technology etc.

➢ International Company

Some of the domestic companies, which grow beyond their production and domestic marketing capacities,
think of internationalizing their operations. Those companies who decided to exploit the opportunities
outside the domestic country are the stage two companies. These companies remain ethnocentric or
domestic country oriented. These companies believe that the practices adopted in domestic business, the
people and products of domestic business are superior to those of other countries. The focus of these
companies is domestic but extends the wings to the foreign countries.

These companies select the strategy of locating a branch in the foreign markets and extend the same
domestic operations into foreign markets. In other words, these companies extend the domestic product,
domestic price, promotion and other business practices to the foreign markets.

➢ Multinational Companies

This stage of multinational company is also referred to as multi domestic. Multi domestic company
formulates different strategies for different strategies for different markets; thus, the orientation shifts
from ethnocentric to polycentric.5 under polycentric orientation the offices/branches/subsidiaries of a
multinational company work like domestic company in each country where they operate with distinct
policies and strategies suitable to the country concerned in each of their markets

➢ Global Companies

A global company is the one which has either global marketing strategy or a global strategy. Global
company either produces in home country or in a single country and focuses on marketing these products
globally, or produces the products globally and focuses on marketing these products domestically.
 ➢ Transnational Companies

Transnational company produces, markets, invests and operates across the world. It is an integrated global
enterprise that links global resources with global markets at profit. There is no pure transnational
corporation. However, most of the transnational companies satisfy many of the characteristics of a global
corporation. For example, Coca-Cola, Pepsi-Cola etc. the characteristics of a transnational company
include: geocentric orientation, scanning or information acquisition, long run visions etc. Here in short,

1) Geocentric Orientation: A transnational company is geocentric in its orientation. This company thinks
globally and acts locally. This company adopts global strategy but allows value addition to the
customer of a domestic country. This company allows adaption to add value to its global offer.

2) Transnational companies collect the data and information worldwide. These companies collect the data
and information worldwide. These companies scan the environmental information regarding economic
environment, political environment, social and cultural environment and technological environment.
❖ SIGNIFICANCE OF THE STUDY :
The significance of the study is to find out impact of LPG on Industries and socio economic
development of employees. Employees are important respondent. Socio economic development is a
main job of government. It should be evaluated. By studying of the industries and socio economic
status of employees is proper evolution of employees and as well as industrial status of world. This
study mainly focuses on impact of liberalization, privatization and globalization on Industries and
socio economic development of employees. This study is mostly useful to Industrialist, Research
scholars and any researchers.

❖ OBJECTIVES OF THE STUDY:

Following are the broad objectives of the present study.

1. To study the Liberalization, Privatization Globalization and its background, emerging trends,
industrial development

2. To highlight on the L.P.G. and its impact on industrial sector.

3. To highlight on the Socio- economic development of selected employees of the industrial units.

❖ SCOPE OF THE STUDY

The present study is very important in the context of Liberalization, Privatization and Globalization of
economy. The scope of study has touch of globally. Industries and its employees are the main source for
the research. Strategy of liberalization, privatization and globalization is world wild concept and which are
mainly depending on industries. This strategy represents industrial sector. Most of socio economic
development is achieved with the help of industries. Employments are generated; domestic industries are
trying to enter in other countries. Economy is affected by globalization. This research study is useful to
government, finance sector, Human resource sector, industrialist, statistical department etc.

❖ RESEARCH METHODOLOGY

For the completion of project report has used Descriptive research method.
Data collection:
In this study the data has been collected from secondary sources.
Secondary Data: Secondary data collected from the Internet.
Limitations of the Study
The study was conducted through secondary data sources only.
❖ CONCLUSION
The advent of Globalization as a result of liberalization and privatization has both positive and
negative impact on the economy. One group of people argue that globalization provides greater
opportunities, new markets, better technology etc. While other group feel that it does not protect
domestic industries. From Indian prospective, globalization improved our condition of living open up
employment in the field of IT, Telecommunication, Hospitality, Banking and others.

On the whole it can be concluded that changes across Euro, USA and other countries have
significantly changed the Indian economy. India has realized that its business can’t survive without
focusing on changes in other countries. Indian economy has become a major economy of the world
and a significant trading partner. In the new era, India is looking at the potentials of the new products.
The efforts are needed to balance the trade and consider expansion of trade in other countries of the
world.
▪ In particular, difficult decisions are to redress the fiscal imbalance, by reducing subsidies,
completing the process of tariff and tax reform, and stepping-up privatization of state-owned
enterprises.
▪ India’s trade reform programme resulted in strong economic growth in the globalization age.
▪ The most important lesson that we must learn from the crisis is that we must be self-reliant.
▪ Globalisation is increasing the integration of national markets and the interdependence of
countries worldwide for a wide range of goods, services, and commodities.
▪ Indian economy has made rapid strides in the process of globalisation.
❖ REFERENCES

• https://shodhganga.inflibnet.ac.in/
• http://melaju.co/causes-penalties-with-globalization/
• http://investopedia.com
• Impact of Privatization on Economic Growth - Adnan Filipovic, Furman Univeristy
• https://www.researchgate.net/
• Tutorials Point (India) Ltd.