July 1991,India has taken a series of measures to
structure the economy and improve the BOP
position. The new economic policy introduced
changes in several areas.
The policy have salient feature which are: -
1.Liberlisation (internal and external)
3.Globalisation of the economy
Which are known as “LPG”. (libearlisation privatisation
Reasons for implementing LPG
Excess of consumption and expenditure over
revenue resulting in heavy govt. borrowings.
Growing inefficiency on the use of resources.
Over protection to industries.
Mismanagement of the firm and the
Increase in losses for public sector
Various distortion like poor technological
development, shortage of foreign exchange
and borrowing from abroad.
Low foreign exchange reserves.
Liberalization is a very broad term that usually
refers to fewer government regulations and
restrictions in the economy.
Liberalization refers to the relaxation of the
previous government restriction usually in area of
social and economic policies. When government
liberalized trade , it means it has removed the
tariff ,subsidies and other restriction on the flow of
goods and services between the countries.
The Path of liberalization
• Relief for foreign investors
• Devaluation of Indian rupees
• New industrial Policy
• New trade policy
• Removal of import Restrictions
• Liberalization of NRI remittances
• Freedom to import technology
• Encouraging foreign tie-ups
• MRTP relaxation
• Privatization of public sector
Advantages of liberalization
• Industrial licensing
• Increase the foreign investment.
• Increase the foreign exchange reserve.
• Increase in consumption and Control over
• Check on corruption.
• Reduction in dependence on external
Disadvantages of Liberalization
• Increase in unemployment.
• Loss to domestic units.
• Increase dependence on foreign
• Unbalanced development
Privatization means transfer of ownership and/or
management of an enterprise from the public
sector to the private sector .It also means the
withdrawal of the state from an industry or
sector partially or fully.
Privatization is opening up of an industry that
has been reserved for public sector to the private
Privatization means replacing government
monopolies with the competitive pressures of the
marketplace to encourage efficiency, quality and
innovation in the delivery of goods and services.
Need for Privatisation.
Though the PSUs have contributed heavily to
develop the industrial base of the country, they
continue, even today, to suffer from a number of
shortcomings which are identified below very
• A sizable number of PSUs have been incurring
and reporting losses on a continual basis.
Consequently, a large number of PSUs have
already been referred of loss giving units;
• Multiplicity of authorities to whom the PSUs are
• Delay in implementation of projects leading to
cost escalation and other consequences; 10
• Ineffective and widespread inefficiency on
• With a view to provide opportunities for more and
more unemployed youths, more number of people,
than required, were recruited and therefore, many
PSUs are over-staffed resulting in lower labour
productivity, bad industrial relations, etc.;
• A number of sick companies (40 companies) which
were in the private sector was taken over by public
sector mainly to protect the employees. These sick
units are causing a big drain on the resources of the
Different Ways in privatization
• Liberalization Approach
• Relative Share Enlargement Approach
• Association of Private Sector
• Transfer of Minority Equity Ownership
• Transfer of Complete Ownership
Advantages of Privatization
• Privatization helps to reduce the burden on
• It will help profit making public sector unit to
modernize and diversify their business.
• It will help in making public sector unit more
• It will help to improving the quality of decision
making, because the decisions are free from
any political interference.
• Privatization may help in reviving sick units
which are the liability of the public sector.
• Industrial growth.
• Increase the foreign investment.
• Increase in efficiency.
Disadvantages of Privatization
• Industrial sickness.
• Lack of welfare.
• Class struggle.
• Increase in inequality
• Opposition by employees.
• Problem of financing.
• Increase in unemployment.
• Ignores the weaker sections.
• Ignores the national importance
Examples of privatization in India
• Lagan Jute Machinery Company
• Videsh Sanchar Nigam Limited (VSNL)
• Hindustan Zinc Limited (HZL)
• Hotel Corporation Limited of India
• Bharat Aluminum Company limited
Globalization implies integration of the
economy of the country with the rest of the
world economy and opening up of the
economy for foreign direct investment by
liberalizing the rules and regulations and by
creating favorable socio-economic and
political climate for global business.
According to IMF: -”The growing
economic interdependence of countries
worldwide through increasing volume
and variety of cross border transaction
in goods and services and of
international capital cash flows, and
through the more rapid and
widespread diffusion of technology.”
Features of Globalization
• Opening and planning to expand business
throughout the world.
• Erasing the difference between domestic
market and foreign market.
• Buying and selling goods and services
from/to any countries in the world.
• Locating the production and other physical
facilities on a consideration of the global
business dynamics ,irrespective of national
• Basing product development and production
planning on the global market consideration.
• Global sourcing of factor of production i.e.
raw-material, components ,
machinery,technology,finance etc. are obtained
from the best source anywhere in the world.
• Global orientation of organizational structure
.and management culture
Pros and Cons of Globalisation
Globalization have several benefits ,these are: -
Free flow of capital and increase in the total
Free flow of technology.
Increase in industrialization.
Spread of production facilities throughout the
Balanced development of world economies.
Increase in production and consumption.
Commodities at lower price with high quality.
Increase in jobs and income.
Higher Standard of living.
Balanced human development
Negative effects of
• Loss of domestic industries
• Exploits Human resource
• Decline in income
• Transfer of natural resources
• Lead to commercial and political
• Widening gap between rich and
• Dominance of foreign institutions
Economic liberalization has increased
the responsibility and role of the private
sector. At the same time, it has reduced
the control of the government on
economy affairs. It is expected that the
reforms would liberalize the Indian
economy enough to create a conducive
environment for rapid economic
• The process of reforms according to many
economists and social scientists is not fast
enough to achieve the goals. Jeffrey Sachs,
director of Harvard University’s center for
international development and a noted
economist, pointed out that the reform
process in India had a long way to go. He
feels that without a focus on the “twin
pillars” of social and economic strategies,
the future would be bleak for India,
especially in the context of competition all
• The government, however, is reluctant to give up
its role of owning and controlling economic
activities. At the same time its inability to spend
for providing minimum health and education
services. It is eager to spend on higher education
without spending enough on primary and
secondary education. It has failed in providing a
corruption free administration, an essential
precondition for increasing competitiveness.
Success of the economic reforms depends upon
the commitment of all concerned – people,
political parties, bureaucracy, and government –
to the socio economic progress of the country.