Kerala Plus One Economics Notes Chapter 3 Liberalisation, Privatisation and Globalisation: An Appraisal
Background of the economic reforms
India introduced economic reforms in 1991. It was due to several reasons. Important among them are:
- Policies such as MRTP and FEMA prevented large scale domestic and foreign investments.
- Reserving certain sectors exclusively for public sector prevented private investment less attractive for such sectors.
- Gulf war and subsequent events created severe foreign exchange crisis in our country.
- Import bill of petroleum products increased alarmingly leading to BoP deficit.
- Political instability.
Liberalisation
Liberalization implies liberating trade from unwanted government controls and restrictions. Indian economy prior to the nineties was following a restrictive policy and excessive government interferences in all economic activities. This interference created the license-permit-raj as indicated earlier. This has led to extensive corruption, red-tapism, undue delay and inefficiency. Most of the policies such as licensing system, FERA, MRTP hindered economic growth and industrialisation. The aim of liberalization policy was very comprehensive, promoting economic growth by reducing factors hindering it and makes the economy very competitive at international standards.
Liberalisation policies included reforms in the following sectors.
- Industrial sector reforms
- Financial sector reforms
- Tax reforms
- Foreign exchange reforms
Privatisation
Privatisation refers to any process that reduces the participation of the state/public sector in economic activities of a country. In other words the conversion of ownership or management of a government-owned enterprise into private enterprise is known as privatization or denationalization. India started privatisation as part of the Structural Adjustment Programme (SAP). The process of privatisation can take place either by the withdrawal of government ownership and management of public sector companies or by outright sale of public sector companies (disinvestment).
Aims of disinvestment:
- Better performance of public sector units (PSUs) through better management techniques
- Enforcing financial discipline and improving financial performance
- Enhancing the ability of companies to raise financial resources from market
- Raising revenue of the government from sale of equity
- A strong impetus to the flow of FOI (Foreign Direct Investment)
Globalisation
Globalisation is a complex phenomenon. The term globalisation indicates the opening up of domestic economy forthe world market, or integration of an economy with global economy. It involves creation of network and activities transcending economic, social and geographical boundaries. It attempts to establish links in such a way that the happening in India can be influenced by events happening miles away. Integration of economies is possible through interlinking domestic market with world market through foreign trade. Therefore, it is treated as a very complex phenomenon.
Outsourcing
Outsourcing is an important feature of globalisation. It is practice where a company hires regular service from external sources mostly from other countries which previously provided internally or within the country.
World Trade Organisation (WTO)
WTO was founded in 1995 replacing GATT. GATT was established in 1948. Following are the aims of WTO.
- Provides equal opportunities to all participating nations in international trade.
- To ensure optimum utilization of world resource and protect the environment.
- Remove of tariffs (tax) and non-tariffs (quota). This leads to removal of restrictions on trade thereby facilitating free-entry and free exit of goods
- To encourage multi-lateral trade (more than two nations) rather than bilateral trade (two countries).
- Extension of trade by including trade in services like banking, insurance communication.
- To include Trade-Related Intellectual Property Rights (TRIPs), commonly known as Patent Rights and Trade-Related Investment Measures (TRIMs) within the span of international trade.