Beruflich Dokumente
Kultur Dokumente
Privatization, Globalization
Initial
Role Played by the State
Need for Economic Reforms
Role during the post-reform period
1
LPG - Indian Economy
The background
Assessment of LPG
Suggestions to carry forward reforms
2
Rationale
Perfection of an economic policy is time-
specific
Most macroeconomic economic
policies become obsolete or
irrelevant over time
Changes in the economic conditions turn
existing policies ineffective
Hence fine-tuning or replacing of policies
inevitable
3
Indian Economy : initial years
India’s economic development strategy
immediately after Independence
Mahalanobis model, which gave preference
to the investment goods industries sector,
with secondary importance accorded to the
services and household goods sector
For example, the Mahalanobis model placed
strong emphasis on mining and
manufacturing (for the production of
capital goods) and infrastructural
development (including electricity
generation and transportation).
4
Indian Economy : initial years
The Mahalanobis model downplayed the role
of the factory goods sector because it was
more capital intensive and therefore would
not address the problem of high
unemployment in India.
Any increase in planned investments in India
required a higher level of savings than that
existed in the country.
Government had to impose restrictions on the
growth of consumption expenditures to step
up savings (since low income)
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Development Strategy
strategy of economic development in India
meant (1) direct participation of the
government in economic activities such as
production and
selling and
(2) regulation of private sector economic
activities through a complex system of
controls.
the Indian economy was sheltered from
foreign competition through use of both the
“infant industry argument” and a binding
foreign exchange constraint.
6
Restrictions
India became a relatively closed
economy, permitting only limited
economic transactions with other
countries.
Domestic producers were sheltered
from foreign competition not only from
abroad but also from within India itself.
7
1950s and 1960s
Over time, India created a large number of
government institutions to meet the objective
of growth with equity.
The size of the government grew substantially
as it played an increasingly larger role in the
economy in such areas as investment,
production, retailing, and regulation of the
private sector.
In the late 1950s and 1960s, the government
established public sector enterprises in such
areas as production and distribution of
electricity, petroleum products, steel, coal,
and engineering goods. 8
1970s
In 1970, to increase foreign exchange
earnings, it designated exports as a
priority sector for active government
help
Encouraged 100 per cent export-
oriented entities to help producers
export
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1980s
Finally,from the late 1970s through the
mid-1980s, India liberalized imports
such that those not subject to licensing
as a proportion to total imports grew
from five per cent in 1980-1981 to
about 30 per cent in 1987-1988.
However, this partial removal of
quantitative restrictions was
accompanied by a steep rise in tariff
rates.
10
Technology Missions
Sam Pitroda, Advisor to PM Rajiv Gandhi in
the 1980s headed six technology missions
related to telecommunications, water, literacy,
immunisation, dairy, and oil seeds.
He was also the founder and first chairman of
India's Telecom Commission.
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Technology Missions
He is chairman of India's National
Knowledge Commission, reporting to
the Prime Minister.
The commission's mandate is to offer a
series of recommendations on how to
leverage India's knowledge strengths to
help it become a knowledge economy.
Pitroda holds close to 100 worldwide
patents
12
Outcomes of Controlling
This active and dominant participation by
the government in economic activities
resulted in the creation of a protected,
highly-regulated, public sector-
dominated economic environment.
A dramatic increase in corruption in the
economy.
A number of serious sectoral
imbalances, with shortages in some
sectors and surpluses in others.
13
Liberalization
Simplification of procedures
14
Privatization
Ownership structure
Problems of PSE
15
How Important is Globalization?
Buzz word of the decade
Used by policy makers, business persons,
academics, journalists to signify:
Something (man-made) is happening/
emergence of new
Economic
Political
Cultural order
16
Globalization: Meaning
Fundamental shift in the National economies
17
Globalization: Modes
Markets Integration
Production
Free movement of goods, capital and
people
Technological innovations in Finance,
transportation, communication and global
institutions
Growing role of services
18
Interpretations (1)
Dominance of World Capitalistic
Economic system
Supplanting primacy of nation state by
TNCs/ Orgnaisations
Erosion of local cultures through global
culture
Westernization of the world
Increasing homogeneity
19
Interpretations (2)
Producing diversity & heterogeneity
through increased hybridization
Strategy for increasing corporate profits
& power
Increase in State power
Lever to produce positive social goods
like environment action,
democratization, humanization
It is modernity
20
One Single meaning?
Thus globalization is a theoretical construct
Open to various meanings and inflections
It can be described positively, negatively or
multivalent to describe complex and multi-
dimensional process in the economy, polity,
culture, and everyday life
21
Global culture
Promoting life-styles, consumption, products, and identities
TNCs deploy advertising to penetrate local markets to sell
global products to overcome local resistance
Private cable and satellite systems aggressively promoting
a commercial culture throughout the world
Global homogenization and new local hybrid forms and
identities
22
What has Globalization
created?
Dissemination of new technologies
Time-space compression produced by
new media and communication
technologies are helping to overcome
previous barriers
New labour markets, production centres
are getting created
Deindustrialization or “rustbelts” created
elsewhere
23
Global Institutions
Creation of the World Bank and the IMF
GATT (1947) and NAFTA (1/1/1994)
WTO (1995)
As we look back 50 years, economic growth
has expanded five-fold, international trade
roughly twelve times and FDI 2/3rds of the
international trade
However, there has been unevenness in the
above developments
Economic elites benefited and LDCs could not,
and the poorer regions of LDCs became
relatively poorer
24
Globalization
Difficulties
Differences in tastes and preferences
Local preferences
Labour costs
25
Globalization
American drives a car
made in Germany,
steel from Korea,
French company,
transported to US in a ship owned by
26
The world we live in
Globalization causing
Sufferingof domestic industry
Job losses, income inequalities
27
Global commodity
Itis a world in which products are made from inputs that
come from all over the world
Increased opportunities and threats
Global markets
2 lakh small US business firms employing less than 100 had
foreign sales
Boeing 777 has 1,32,500 major components made by 545
suppliers
28
In Defense of Globalization
Anti-Globalization
Globalization’s Human Face:
Poverty
Child Labor
Women
Environment
29
Making Globalization Work Better
Appropriate Governance
Coping with Downsides
Accelerating the Achievements of
Social Agendas
Managing Transitions: Optimal Not
Maximal Speed
30
New Economic Policy (NEP)
Liberalization, Privatization, and
Globalization (LPG)
Objective of the NEP has been to make
India a vibrant economy
Achieve rapid rate of growth
Increasing involvement of private
enterprise and initiative.
31
Reform Initiatives
India received IMF Package
We are committed to IMF to reduce the peak
tariffs (nominal) applicable on imports to about
25 percent in 10 years
Loss-making PSUs would be disinvested/
privatised/ closed
Private investments to be encouraged into Non-
strategic sectors
Fiscal deficit would be lowered (FRBM Act)
32
The Background
33
The Background (2)
Manufacturing sector in particular remained
highly regulated
Very little scope for furthering competition
prior to the reforms
Enormous delays existed due to lengthy
procedures for FDI
The unjustifiable suppression of competition
through business lobbying with politicians
34
The Background (3)
35
Assessment of reforms
Two approaches:
1)To take a stance in favour or against the
reforms and attempting to justify the
same,
2)To look at the key macroeconomic
variables and contrasting the pre and
post-reform figures with a view to trace
the direction of change.
36
Assessment of LPG
Review the macroeconomic variables
Growth rate, Employment, Inflation, Structural
change of the economy, Trade openness,
Saving-Investment ratios
FDI, forex, Exchange rate movement,
Composition of exports, Infrastructure, and
Fiscal Deficit.
Communication sector progressed significantly
Banking/ Insurance sectors strengthened
37
Foreign exchange reserves
Remained between US$ 1-2 bn during
1991
Stands at over US$ 308.52 bn
currently (July 11, 2008)
Continuous decline in international
interest rates and the interest rate
arbitrage in India was the major factor
behind continuous rise in India’s foreign
exchange reserves
38
Some Further Issues
1) Agriculture sector still remains the backbone of
the Indian economy in terms of employment and
output generation.
Reforms have largely contributed to distortions in
agriculture
Union Budget 2008-09 to focus on
Rural development
Health
Education
39
Some Further Issues
2) Low literacy, a very large
unorgainsed sector (93% on the basis
of employment), the government
requires to educate the masses on
the benefits from reforms and the
changing role of the State
3) Streamlining of procedures to attract
more FDI.
40
Some Further Issues
42
Some Further Issues
43
Conclusion
No one single definition for globalization
India initiated reforms to revitalize the
economy
LPG Initiatives have brought in some
decisive positive effects in our economy
Assessment and Impacts
Some cautions
44
Some definitions
International companies are importers and exporters, they have no
investment outside of their home country.
45
References
CharlieWL Hill, International Business, TMG, Delhi, 2003
Carbaugh Robert J. : International Economics, South-
Western College Publishing, Cincinnati, US, 2000, Ch 1
Jagadish Bhagwati, In defense of Globalization, OUP,
2004
ANIL K. LAL & RONALD W. CLEMENT
ECONOMIC DEVELOPMENT IN INDIA: THE ROLE OF
INDIVIDUAL ENTERPRISE, Asia-Pacific Development Journal Vol. 12,
No. 2, December 2005
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