LPG

Liberalization , Privatization and Globalization

July 1991,India has taken a series of measures to restructure its economy . The
policy have salient features which are:
1.Liberlisation (internal and external)
2.Extending Privatization
3.Globalisation of the economy
Which are known as “LPG”
Reasons for implementing LPG
 Reasons for implementing LPG
 Excess of consumption and expenditure over revenue resulting in heavy govt. borrowings.
 Growing inefficiency on the use of resources.
 Mismanagement of the firm and the economy.
 Increase in losses for public sector enterprises.
 Various distortion like poor technological development, shortage of foreign exchange and
borrowing from abroad.
 Low foreign exchange reserves.
 Inflation 
A Balance of Payments crisis in 1991 which pushed the country to near bankruptcy.
 The Rupee devalued and economic reforms were forced upon India.
 India central banks foreign exchange reserves had reduced to the point that India could
barely finance three weeks’ worth of imports.
Liberalization

  Liberalization: • Liberalization is a very broad term that usually refers to

fewer government regulations in the economy. •Abolition of industrial
licensing and registration. •Freedom for expansion and production. • Increase
in the investment limit of the small industries. • Freedom to import capital
goods. • Freedom to import technology. • Free determination of interest
rates.
 Impact of these reforms: • Average annual growth of services shifted to 8.1%
during 1991- 2001 from 6.9% during 1981-1991. • A rate of growth that will
double average income in a decade. • Rapid Growth in communication services,
financial services. • Exports of information technology enabled services
particularly strong. 
Liberalization

 Liberalization
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.
BEFORE LIBERALIZATION

BEFORE LIBERALIZATION
 The low annual growth rate of the economy of India before 1980, which
stagnated around 3.5% from 1950s to 1980s, while per capita 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
 After liberalization India became second world of development and became
the 7 largest economies. It contributed 1.3 trillion in the world’s GDP. Dr.
Manmohan Singh, former finance minister opened the way of free economy in
the country which lead to the great development of country.
Advantages of liberalization

  Advantages of liberalization
• Industrial licensing
• Increase the foreign investment.
• Increase the foreign exchange reserve.
• Increase in consumption and Control over price.
• Check on corruption.
• Reduction in dependence on external commercial borrowings
Disadvantages of Liberalization

 Disadvantages of Liberalization
• Increase in unemployment.
• Loss to domestic units.
• Increase dependence on foreign nations
• Unbalanced development
 Privatization

  Privatization: Privatization means transfer of ownership and/or management

of an enterprise from the public sector to the private sector . Privatization is
opening up of an industry that has been reserved for public sector to the
private sector. to encourage efficiency, quality and innovation in the delivery
of goods and services
 Need for Privatization. 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 briefly :- • 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 accountable; • Delay in
implementation of projects leading to cost escalation and other consequences;
Ineffective and widespread inefficiency on management; • 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 labor 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 state; etc
Advantages of Privatization

 Advantages of Privatization • Privatization helps to reduce the burden on

Govt. • It will help profit making public sector unit to modernize and diversify
their business. • It will help in making public sector unit more competitive. •
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
 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
Globalization

 Globalization
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

 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
consideration.
Foreign market entry strategies

 Foreign market entry strategies  Exporting  Licensing/Franchising 

Contract manufacturing  Management contract  Assembly operations  Fully
owned manufacturing facilities  Joint venturing  Merger and acquisition 
Strategic alliance  Countertrade
 Pros and Cons of Globalization

  Pros and Cons of Globalization

Globalization have several benefits ,these are: -  Free flow of capital and
increase in the total capital employed.  Free flow of technology.  Increase in
industrialization.  Spread of production facilities throughout the globe. 
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 Globalization

 Negative effects of Globalization • Loss of domestic industries • Exploits

Human resource • Decline in income • Unemployment • Transfer of natural
resources • Widening gap between rich and poor • Dominance of foreign
institutions