ECONOMIC REFORMS

INTRODUCTION

Term Economic reforms indicates

necessary structural adjustments to
external events.
It requires reduction in countrys
spending to the level parallel to its
income & thereby reducing its fiscal
deficit.
Requires gradual reduction in import
restrictions & also elimination of export
restrictions.

NEED OF ECONOMIC
REFORMS

Increase in Fiscal deficit

Increase in Adverse Balance of
Payment
Gulf crisis
Fall in foreign exchange reserves
Rise in prices
Poor performance of PSUs

MAIN FEATURES OF
ECONOMIC REFORMS
ECONOMIC REFORMS

GLOBALISATION

LIBERALISATION
PRIVATISATION

LIBERALISATION

Liberalization of the economy means to

free it from direct or physical controls
imposed by the government.
It is the process of liberating the economy
from various regulatory & control
mechanism of the state & of giving greater
freedom to private enterprises.

MEASURES TAKEN FOR

LIBERALISATION

Abolition of industrial licensing & registration

Concession from Monopolies Act
Freedom from expansion & production to industries
Increase in investment limit of the small industries
Freedom to import capital goods.
Freedom to import technology
Free determination of interest rates
Action plan for information technology & software
development

PRIVATISATION

Privatization means allowing the private

sector to set up more & more of industries
that were previously reserved for public
sector.
Privatization is not merely the transfer of
ownership of government or publicly
owned assets into private hands
it also refers to a process in which major
economic decisions concerning production,
exchange, distribution & consumption are
entrusted to the market force& decisions
are taken by a large number of individual &
private economic units.

There is need of privatization

because of inefficiency of public
sector.

Privatization is of three forms:

Change in Ownership

Total Nationalization
Joint venture
Liquidation
Workers cooperative

Organizational measures
A Holding company Structure
Leasing
Restructuring

Operational Measure

CAUSES OF PRIVATISATION

Disintegration of Socialist
economies
Inefficient public Sector
Uneconomic Price Policy
Burden on Government

OBJECTIVES
OF PRIVATISATION

To increase efficiency & competitive

power of the enterprises
To earn more & more foreign currency
To make optimum use of economic
resources & diffuse their ownership
To
achieve
rapid
industrial
development of the country.

MEASURES FOR PRIVATISATION

Contraction of Public sector

Disinvestment of Existing Public sector
industries
Sale of shares of public enterprises
Increase in private sector enterprises
Conversion of loans into share is not
necessary
Sick Industries

ADVANTAGES OF
PRIVATISATION

Reduction in economic burden

Increase in efficiency
Reduction in sense of responsibility
Scientific management
Reduction in political interference
Encouragement of new inventions

DISADVANTAGES OF
PRIVATISATION

Industrial sickness
Lack of social welfare
Class struggle
Increase in inequality
Increase in unemployment
Ignores weaker sections

GLOBALISATION

Process of removal of restrictions on foreign

trade,investment,innovations
in
communication and transport system.
Process of international integration of product,
technologies,human
resources,capital,information & cultures.
Process
associated
with
increasing
openess,growing economic independence and
deepening economic integration in world
economy.

FEATURES OF
GLOBALISATION

Business expands throughout the world.

Goods & services are bought and sold
from/to any country.
Difference between domestic & foreign
market comes to an end.
Products are planned & developed keeping in
mind market of entire world.
Manufacturing & distribution of goods can be
made in any part of world.
Outsourcing of goods & services can be
made in entire world.

SOURCES OF
GLOBALISATION

Increased international trade

Growth of MNCs
The internationalisation of finance.
Technological Advancement.
Decline in trade barriers to free
flow of goods,services & capital.

GLOBALISATION
INDICATORS

Foreign Direct Investment

Foreign Portfolio Investment
Trade
Global Governance By
International Organisation like
WTO
Business Restructuring.

PROCESS OF
GLOBALISATION
STAGE1 Domestic company exports to foreign
countries through dealers & distributors of home
country.
STAGE 2 Domestic Company exports to foreign
country directly on its own.
STAGE3
Domestic
Company
becomes
an
international company by establishing production
& marketing operations in foreign countries.
STAGE4 Company take over foreign company in
foreign country having all facilities like R&D etc
STAGE5 Company becomes true foreign company
serving need of foreign customers.

FOREIGN MARKET ENTRY

STRATEGIES

Exporting
Licensing/Franchising
Contract manufacturing
Management contract
Assembly operations
Joint Venturing
Fully owned manufacturing facilities
Counter trade
Mergers & Acquisition
Strategic alliance
Third country location

ESSENTIAL CONDITIONS
FOR GLOBALISATION

Business Freedom
Facilities
Government Support
Resources
Competitiveness
Orientation.

LEVELS OF
GLOBALISATION

World Level Globalisation

Country Level Globalisation
Industry Level Globalisation
Firm Level Globalisation

GAINS & OPPORTUNITIES

FROM GLOBALISATION

Competitive & learning effects

Technological Gains
Larger Markets
Greater Specialization
Price Stabilization
International investment Inflow
Increase in consumption & production level
Increase in employment opportunities in
developing countries
Reduction in Cultural Difference

RISKS & THREATS OF

GLOBALISATION

Vanishes Domestic Business

Decline in demand of domestic
product
Widens gap between rich & poor
Developed countries exploit resources
of developing countries
Foreign companies violates laws of
host country

OBSTACLES TO
GLOBALISATION

Government Policy & Procedures

High Cost
Poor infrastructure
Obsolescence
Resistance to change
Poor quality image
Supply problems
Small size
Lack of experience
Limited R & D and Marketing Research
Growing Competition
Trade Barriers

FACTORS FAVOURING
GLOBALISATION

Human resource
Wide base
Growing Entrepreneurship
Growing Domestic Market
Niche Market
Expanding Market
Transnationalisation of world economy
NRIs
Economic Liberalization
Competition