NATIONAL LAW INSTITUTE UNIVERSITY

Project work
On
Liberalisation Privatisation & Globalisation
In Present Indian Economy

Submitted to : Submitted by :
Mr. Rajesh Gautam Rishabh Chawla
Roll no. 2013BA.LLB.03

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 ACKNOWLEDGMENTS

I take immense pleasure in thanking Prof.Surya Prakash sir, Director and Prof.Rajesh Gautam
sir our respected teacher for having permitted me to carry out this project work. I express my
gratitude to them for giving me an opportunity to explore the world of information
concerning my project topic.

Words are inadequate in thanking my seniors and batch mates for their support and
cooperation in carrying out the project work. I would also like to thank my friend Drona Negi
to help me in my understanding of the topic.

Finally, I would like to thank my family members for their blessings and wishes for the
successful completion of the project.

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 TABLE OF CONTENTS
Topic Page
1. Introduction ………………………………………………………………………………………………… .4
2. Reasons for implementation for LPG……………………………………………………………… .5
3. Features of LPG……………………………………………………………………………………………... .6
4. Introduction to liberalization…………………………………………………………………………. .7
5. Introduction to privatization………………………………………………………………………….. .8
6. Introduction toglobalization……………………………………………………………………….... 10
7. Literature Reviews……………………………………………………………………………………….13
8. Conclusion………………………………………………………………………………………………….16
9. Reference …………………………………………………………………………………………………….17
10. Bibliography ……………………………………………………………………………………………….17

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 INTRODUCTION

The economy of India is the tenth largest in the world by nominal GDP  and the third largest
by purchasing power parity (PPP).The country is one of the G-20 major economies and a
member of BRICS. On a per capita income basis, India ranked 140th by nominal
GDP and129th by GDP (PPP) in 2011, according to the IMF.

After the independence-era Indian economy (before and a little after 1947) was inspired by
the Soviet model of economic development, with a large public sector, high import duties
combined with interventionist policies, leading to massive inefficiencies and widespread
corruption. However, later on India adopted free market principles and liberalized its
economy to international trade under the guidance of Manmohan Singh, who then was
the Finance Minister of India under the leadership of P.V. NarasimhaRao the then Prime
Minister  who eliminated License Raj a pre- and post-British Era mechanism of strict
government control on setting up new industry. Following these strong economic reforms,
and a strong focus on developing national infrastructure such as the Golden
Quadrilateral project by AtalBihari Vajpayee the then Prime Minister the country's economic
growth progressed at a rapid pace with very high rates of growth and large increases in the
incomes of people.

India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing
economies in the world. India has recorded a growth of over 200 times in per capita income
in a period from 1947 (Rs 249.6) to 2011. The growth was led primarily due to a huge
increase in the size of the middle class consumer, a large labour force, growth in the
manufacturing sector due to rising education levels and engineering skills. India is
the nineteenth largest exporter and tenth largest importer in the world. Economic growth rate
stood at around 6.5% for the 2011–12 fiscal year.

The introduction of the new trade reforms was a great success not only for the government
but also for the country as a whole .

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 REASONS FOR IMPLEMANTING LPG

 The excess of conception and expenditure over revenue resulting in heavy government
borrowings.

 Growing inefficiency in the use of resources.

 Over protection to industries.

 Mismanagement of the firms and the economy.

 Mounting losses of public sector enterprises.

 Various distortions like poor technological development shortage of foreign

exchanges; and imprudent borrowings and abroad and mismanagement of foreign
exchange reserves.

 Low foreign exchange reserves.

 Burden of national debts.

 Inflation.

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 FEATURES OF LPG

GIVEN BELOW ARE THE SALIENT HIGHLIGHTS OF THE

LIBERALIZATION , PRIVATIZATION AND GLOBALIZATION POLICY IN
INDIA:

• FOREIGN TECHNOLOGY AGREEMENTS

• FOREIGN INVESTMENT

• MRTP ACT, 1969 (AMENDED)

• INDUSTRIAL LICENSING

• DEREGULATION

• BEGINNING OF PRIVATIZATION

• OPPORTUNITIES FOR OVERSEAS TRADE

• STEPS TO REGULATE INFLATION

• TAX REFORMS

• ABOLITION OF LICENSE RAJ OR PERMIT RAJ

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 INTRODUCTION TO LIBERALISATION

The main aim of liberalization was to dismantle the excessive regulatory framework which
acted as a shackle on freedom of enterprise. Over the years, the country had developed a
system of “license-permit raj.” The aim of the new economic policy was to save the
entrepreneurs from unnecessary Harassment of seeking permission from the Babudom (the
bureaucracy of the country) to start an undertaking.

Similarly, the big business houses were unable to start new enterprises because the
Monopolies and Restrictive Trade Practices (MRTP) Act had prescribed a ceiling on asset
ownership to the extent of Rs. 90 crores. In case a business house had assets of more than
Rs.90 crores, its application after scrutiny by the MRTP Commission was rejected. It was
believed that on account of the rise in prices this limit had become outdated and needed a
review.

This was a scheme launched in the year 1991 .Pre 1991 the situation was such that there was
a period of rationing .Things were not same as it was after 1991 .Limited goods were
available in the market .We were not allowed to purchase goods at large quantity .The
liberalization was basically introduced to increase production and productivity and to expand
the market of goods and services abroad.

Under liberalization the measures included reduction and rationalization of customs duty and
excise duty and ready access to foreign goods and services. The major purpose of
liberalization was to free the large private corporate sector form bureaucratic controls. It,
therefore, started dismantling the regime of industrial licensing and controls.

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 INTRODUCTION TO PRIVATIZATION:

It refers to the transfer of assets or service functions from public to private ownership or
control and the opening of the hitherto closed areas to private sector entry. Privatization can
be achieved in many ways – franchising, leasing, contracting and divesture.

Privatization offers both opportunities and threats to the economy. We have to privatize in
such a manner that we make the maximum opportunities while at the same time minimizing
the threats to the economy.

Conditions for Privatization:

 Liberalization and de-regulations of the economy is an essential Pre-request if

privatization is to take off and help realize higher productivity and profits.
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 Capital markets should be sufficiently developed to able absorb the disinvested public
sector shares.

Privatization basically means transfer of total ownership from public to private sector and
this transformation of public assets into private asset is known as disinvestment. We will be
discussing the concept of disinvestment.

Disinvestment:

Disinvestment means disposal of public sector’s unit’s equity in the in the market or
in other words selling of a public investment to a private entrepreneur. It means
selling of a public investment to a private entrepreneur. It means selling of
government shares in one PSU to other PSUs or private sectors or Banks. In India
disinvestment has progressed slowly. It has been carried slowly. It has been carried

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 out in a hasty, unplanned and hesitant manner. As a result, the progress has been quit
poor.

Privatization and Disinvestment in India:

 Privatization in India is generally is in the form of disinvestment of equity. In general,

here privatization has not led to 100% transfer of control from public sector to private
sector unit. Only in exceptional cases 100% privatization has taken place.

Examples of Privatization in India;

 Lagan Jute Machinery company limited (LJMC).

 Modern food industries limited(MFIL)

 Bharat Aluminum company limited (BALCO)

Methods of Disinvestments;

 Initially , equity was offered to retail investors through domestic public issues. This
was followed by issuance of the Global Depository Receipts (GDRs) to tap the
overseas markets.

 Other methods includes cross-holding (the government simply selling parts of its
shares in one PSU to other PSUs),Warehousing (Government’s own financial
institutions buying government’s stake in select PSUs and holding them until and
third buyer emerged.) and retaining golden shares (retaining government’s stake up to
26% in the PSU to protect its interest.
 Of late ,the government was pursuing the strategic sale method.under this sells a
major portion of stakes to a strategic buyer and also gives control over the
management.

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  Presently the government has decided to call of the disinvestment of shares through
strategic sales in 13 profit making central public sector enterprise. It is considering the
public offer route to sell minority stakes in these enterprises., of late(in 2005-06), it
has resorted to ‘Differential Principal Methods’.

INTRODUCTION TO GLOBALISATION

Globalization means integrating the domestic economy with the world economy. It is a
process which draws countries out of their insulation and makes then join the rest of the
world in its march towards a new world economic order. This makes different countries to
interact with each other and sell their product in the world market. This provides a major
benefit to all the consumers through out the world as the consumer can get a large variety of
goods to deal with and also get this things at a very low cost.

It involves increasing interaction among the national economic system, more integrated
financial market ,economies of trade, higher factor mobility, free flow of technology and
spread of knowledge throughout the world.

Measures towards Globalization:

 Convertibility of Rupee to make the currency fully convertible I.g., allow it to

determine its own exchange rate in the international market without any official
intervention.

 Import Liberalization : as per the recommendation of the world Bank, free trade of all
items except negative list of imports and exports has been allowed.

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  Opening the economy to foreign Capital: The Government has taken a number of
measures to encourage foreign capital in India.Many facilities and incentives have
been offered to the foreign investors and non-resident Indians in the new economic
policy.

Effects of Globalization in Indian Economy:

 India’s share in the world “Export” which had fallen 0.53% in 1991 from 1.78%in
1950, has reverse trends and has improved to 1% in 2005.

 Our foreign currency reserves which had fallen to barley one billion U.S. dollars in
June, 1991 rose substantially to about 180 billion U.S. dollars in march 2007.

 Exporters are responding well to sweeping reforms in exchange rates and trade
policies. The average growth of export has been more than 20% per annum since
2002-03.

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  Export now finance nearly 65% of imports, compared to only 60% in the latter half of
the eighties.

 The current account deficit was over 3% of GDP in 1990-91. In 2004-05 and 2005-06,
we again had current account deficit of (-) 0.4 and (-) 1.1 percent respectively.

 Our external debt crises reduced from $8 billion to $3 billion from 1990-91 to 1996 –
2006 respectively.

 Market have started responding to the movement abroad.

 International confidence in India has been restored.

 Consumer are benefitted through large variety of consumer goods, improved quality
of goods and some cases and reduced price of consumer durables.

Effects of Globalization on Indian industries

 The customers started demanding more and more as they were aware of the new
technologies and trends in the market .

 Increased competition among local players as the new fimrs came from another
country which produced great competition to the existing players.

 There were great technological changes in the country after the period of reforms as
people brought new technologies in to the market to produce goods which lead to
greater need of capital in the country.

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 It started becoming a period of market orientation in which the producers had to first
access the market situation and create a good for sale in the market.

 This was a period when the government reduced their support to the public sector
enterprise and these very enterprises had to make funds of their own for their survival.

LITERATURE REVIEWS
1. Mondal Puja in her article revealed the condition of globalization privatization and
liberalization in India. Globalization has led to the practice of management across
culture. Modern business organisations have adopted Global management practices.
Efforts are being made by India to understand Japanese, Chinese style of
management. To strengthen the private sectors government to concentrate on areas
like education and infrastructure. It is an immediate effect of globalization.
Liberalisation is commonly known as free trade. It implies removal of restrictions and
barriers to free trade. MNCs are the driving force behind globalization. They are in a
position to dictate powers. Multinational companies are emerging as growing
corporate power. They are exploiting the cheap labour and natural resources of the
host countries.
2. Dr. Somalkar Prakash in his article IMPACT OF GLOBALIZATION ON INDIAN
ECONOMY revealed that The growing integration of economies and societies around
the world – has been one of the most hotly – debated topics in international economics
over the past few years. Rapid growth and poverty reduction in China, India, and other
countries that were poor 20 years ago, has been a positive aspect of
Liberalization Privatization and Globalization (LPG). But Globalization
has also generated significant international opposition over concerns that it
has increased inequality and environmental degradation. There is a need to
study the impact of globalization on developing countries from the viewpoint

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 of inward foreign direct investment. Attention should also be focused on the
role which some developing countries, particularly from parts of Asia and
Latin America, are playing as initiators of globalization through their own
MNCs.
India opened up the economy in the early nineties following a major crisis
that led by a foreign exchange crunch that dragged the economy close to
defaulting on loans. The response was a slew of Domestic and external
sector policy measures partly prompted by the immediate needs and partly
by the demand of the multilateral organizations. The new policy regime
radically pushed forward in favour of a more open and market oriented
economy.
3. Kumar Singla Surinder & Singh Kulwinder in their article IMPACT OF
GLOBALISATION: THE INDIAN EXPERIENCE revealed that Globalisation is the
new buzzword that has come to dominate the world since the nineties of the last
century with the end of the cold war and the break-up of the former Soviet Union and
the global trendtowards the rolling ball. Unlike how the presently developed
economies expanded and went global in their hoary past, the main reform initiatives in
India (like in many other developing countries), were undertaken after a fiscal and
foreign exchange crisis which brought it to the verge of default on the foreign loans.
Thus, the Indian globalisation is a result of the decadence within and the pressure
from without. The effects of globalisation on the Indian economy in the post-
globalisation years are clearly visible in the foreign sector - foreign exchange reserves,
international trade, inflow of foreign capital, etc. This paper explores the contours of
the on-going process of globalization. Throughout this paper, there is an underlying
focus on the impact of globalisation on the Indian economy.
4. Chandrasekaran Balakrishnan for The 2004 Moffatt Prize in Economics in his
article Impact of Globalisation on India revealed that India opened up the economy in
the early nineties following a major crisis that led by a foreign exchange crunch that
dragged the economy close to defaulting on loans. The response was a slew of
Domestic and external sector policy measures partly prompted by the immediate
needs and partly by the demand of the multilateral organisations. The new policy
regime radically pushed forward in favour of amore open and market oriented
economy. Major measures initiated as a part of the liberalisation and globalisation
strategy in the early nineties included scrapping of the industrial licensing regime,

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 reduction in the number of areas reserved for the public sector, amendment of the
monopolies and the restrictive trade practices act, start of the privatisation programme,
reduction in tariff rates and change over to market determined exchange rates. Over
the years there has been a steady liberalisation of the current account transactions,
more and more sectors opened up for foreign direct investments and portfolio
investments facilitating entry of foreign investors in telecom, roads, ports, airports,
insurance and other major sectors. The Indian tariff rates reduced sharply over the
decade from a weighted average of 72.5% in 1991-92 to 24.6 in 1996-97.Though
tariff rates went up slowly in the late nineties it touched 35.1% in 2001-02. India is
committed to reduced tariff rates. Peak tariff rates are to be reduced to be reduced to
the minimum with a peak rate of 20%, in another 2 years most non-tariff barriers have
been dismantled by march 2002, including almost all quantitative restrictions.
5. The Economic Times (june 15 2013) ; in its article about pros and cons of
privatization revealed that it will help in improving the quality of decision- making of
managers because their decision will be made without any political interference.
Privatization may help in reviving sick units which have become a liability on the
public sector. Without Government financial backing, capital market and international
market will force public sector to be efficient.
Privatization will encourage growth monopoly power in the hands of big business
house. It will result in greater disparities in income and wealth. Private enterprise may
not show any interest in buying shares of loss making and sick enterprises.
Privatization may result in lop-sided development of industries in the country. The
limited resources of the private individuals cannot meet some of the vital tasks which
alter the very character of the economy

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 CONCLUSION

As I went ahead with the study of the project I got to know more deeply on my topic
that is liberalization privatization and globalization. I also came across with the
current scenario of our country then analyzed the situation and came to a conclusion
that there is urgent need of economic reforms . The introduction of the new trade
reforms was a great success not only for the government but also for the country as a
whole. Mainly I came to a conclusion that what all were objectives were set as a
target for its implementation in bringing of LPG policy in India are partially
successful.

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 REFERENCES

www.JSTOR.com
www.IRDA.GOV.IN
www.wikipedia.com
www.FIPBINDIA.com

BIBLIOGRAPHY

NEWSPAPERS
MAGZINES
BOOKS :
a. LIBERALISATION PRIVATISATION AND GLOBALISATION by
Ramesh Chandra
b. TWO DECADES OF LPG by Dr. Francis Cherunilam

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