LIBERALIZATION,

PRIVATIZATION AND
GLOBALIZATION
Learning Outcome
The students will be able to
• develop an insight about the concepts of liberalization, globalisation and
privatisation
• analyse and appreciate the interrelationship between liberalization,
globalisation and privatisation
 Economic Reforms in India commenced during the year
1985 after Rajiv Gandhi took over as Prime Minister. The
Prime Minister in his first national broadcast said: “The
public sector has entered into too many areas where it
should not be. We shall open the economy to the private
sector in several areas hither to restricted to it.”
Consequently, a number of measures were taken to remove
controls, open areas to private sector players. This may be
described as the first phase of liberalization.
Introduction
•India’s New Economic Policy was
announced on 24th July, 1991
known as the LPG
or Liberalization, Privatization
and Globalization model.
•This led to the overall economic
growth of the country in a
significant manner.
 LPG- Introduction

LPG phenomenon There was decline That is when the

was first initiated in in the country’s government decided
to introduce the New
the Indian Economy • export earnings Industrial Policy
in 1991 by the union • national income (NIP) in 1991 to start
finance minister Dr. • industrial output liberalizing the Indian
Manmohan Singh economy
 Economic Crisis of 1991 and Indian
Economy Reforms
The continued spending on development programmes of the government did not generate additional revenue.

The government was not able to generate sufficient funds from internal sources such as taxation.

Expenditure on areas like social sector and defence do not provide immediate returns, so there was a need to
utilise the rest of its revenue in a highly effective manner, which the government failed to do.

The income from public sector undertakings was also not very high to meet the growing expenditures.

Foreign exchange borrowed from other countries and international financial institutions was spent on
meeting consumption needs and to make repayments on other loans.

No effort was made to reduce such increased spending and sufficient attention was not given to boost exports
to pay for die growing needs.
Emergence of New Economic Policy
(NEP)
Finally, India approached International Bank for
Reconstitution and Development, popularly known as
World Bank and International Monetary Fund (IMF) and
received $ 7 million as loan to manage the crisis.
International agencies expected India to liberalize and
open up economy by removing restrictions on private
sector and remove trade restrictions between India and
other countries.
The measures adopted in
the New Economic Policy
can be broadly classified
into two groups i.e.,

Stabilization Measures They are short-term

measures which were intended to correct some
weakness that have developed in the Balance of
Payments and to bring Inflation under control.

Structural Reforms They are long-term measures, aimed at improving

the efficiency of the economy and increasing its international
competitiveness by removing the rigidities in various segments of the
Indian economy. For E.g. LPG
 Need for LPG
Initiate rapid economic growth to raise the standard of living, become self-reliant and set
up a strong industrial base with emphasis on heavy and basic industries;

Achieve balanced regional development by establishing industries across the country;

Reduce inequalities of income and wealth;

Adopt a socialist pattern of development — based on equality and prevent exploitation of

man by man employment and poverty stalking the land;
MCQ
LPG was an outcome of which year’s economic policy of India?
A. 1993
B. 1994
C. 1992
D.1991
 Objective of LPG

To increase To
To increase
foreign To decrease encourage
competition To expand
capital the debt export and
among the size of
formation burden of import of
domestic the market.
and the country. goods and
industries.
technology. services.
 Liberalization

Liberalization means elimination of state control over economic activities

It is commonly known as free trade. It implies removal of restrictions and

barriers to free trade.

Liberalization refers to freedom to business enterprises from excessive government control and
they are given freedom to make their own decisions regarding production, consumption,
pricing, marketing, borrowing, lending & investments.
The fruits of liberalization With this, India became
reached their peak in the second fastest
2007, when India growing major economy
recorded its highest GDP in the world, next only to
growth rate of 9%. China.
Era’s of Liberalization:
• Pre-Liberalization Era (before 1991)
• Post-Liberalization Era (after 1991)
MCQ
GDP is _____________________
A.Gross national participation
B.Gross national productivity
C.Gross national product
D.Gross national position
 Features of Liberalization
• NIP’1991 abolished licensing for most
industries except 6 industries of strategic
significance. They include
• Alcohol,
1. Abolition of • Cigarettes,
Licensing • Industrial explosives,
• Defense products ,
• Drugs and pharmaceuticals,
• Hazardous chemicals and certain others
reserved for the public sector.
 • Automatic approvals were given for
Foreign Direct Investment (FDI) to flow
into the country. FDI including sectors
2.Liberalization
such as
Of Foreign • Hotel and tourism,
Investment • Infrastructure,
• Software development .etc.
• Use of foreign brand name or trade
mark was permitted for sale of goods
 • No requirement for obtaining approval
from the Central Government for setting
up industries anywhere in the country
except those specified under compulsory
3. Relaxation Of licensing or in cities with population
Location
Restrictions exceeding1 million.
• Polluting industries were required to be
located 25 kms away from the city
peripheries if the city population was
greater than 1 million.
 • Freedom in deciding the scale of business
activities i.e., no restrictions on expansion or
contraction of business activities,
• Removal of restrictions on the movement of
goods and services,
4. 0ther • Freedom in fixing the prices of goods and
Features Of services,
Liberalization • Reduction in tax rates and lifting of unnecessary
controls over the economy,
• Simplifying procedures for imports and exports,
• Making it easier to attract foreign capital and
technology to India.
• Free flow of foreign investment.
MCQ
•Eliminating government set restrictions or barriers is
called:
•(a) Free trade
•(b) Favorable trade
•(c) Investment
•(d) Liberalization
 Impact of Liberalization
Increase in employment

Arrival of new technology/ development of technology

Development of infrastructure

Identity at world level

Increase our currency value

GDP growth’

Increase consumption and adaptation of new lifestyle

Increment of competition

Increment in foreign investment

 Privatisation

Privatisation refers to the participation of

private entities in businesses and services and
transfer of ownership from the public sector
(or government) to the private sector as well.
 Methods For Privatisation
1. Sale of the entire • Government sells the entire psu to private sector
entity:
2. IPO (Initial Public • Government issues shares to
Offering) :
3. Management • Government transfers control to a new company
Control: for a better control

• selling of the share to the employees when the psu

4. Sale to employees: is for sale
MCQ
• ___________ means sale or liquidation of assets by the
government, usually Central and state public sector
enterprises, projects, or other fixed assets.

A.Disinvestment
B.Liberalization
C.Globalization
D.Selling
 Princess Diana’s Death

An English princess with an Egyptian boyfriend

crashes in a French tunnel, driving a German
car with a Dutch engine, driven by a Belgian
who was drunk on Scottish whiskey, followed
closely by Italian photographers on Japanese
motorcycles; treated by an American doctor,
using Brazilian medicines.
 Globalization

Refers to the integration of the economy of the nation with the

world economy.

Implies collection of multiple strategies that are directed at

transforming the world towards greater interdependence and
integration and includes the creation of networks and pursuits
transforming social, economic and geographical barriers.
 According to the World Health
Organization (WHO)
Globalization can inter-relatedbe defined as ” the increased
interconnectedness and interdependence of people and countries. It is
generally understood to include two elements: the opening of
international borders to increasingly fast flows of goods, services, finance,
people and ideas; and the changes in institutions and policies at national
and international levels that facilitate or promote such flows.”
 Effect of Globalization in India

The growth of foreign investment in the field of corporate,

retail, and the scientific sector is enormous in the country.

It also had a tremendous impact on the social, monetary,

cultural, and political area.

In recent year, Globalization has increased due to

improvements in transportation and information technology.
 Effects of Globalization
Increased investments in Indian markets by MNCs have led to the growth of the Indian economy. In many
fields such as automobiles, smartphones, soft drinks, fast foods and garments, MNCs have created a vast
choice of products for consumers.

Local companies supplying raw materials to MNCs have developed and prospered. Many Indian companies
such as Tata Motors and Ranbaxy have become multinational companies themselves.

Globalization has opened many new opportunities for companies in the service sector, especially IT
companies. These companies offer their cheap but efficient consulting services to many nations. This has also
created millions of jobs in India.

Technology has been transferred to developing countries. It has enabled the production of quality goods in the
international market.

Outsourcing is the major outcome of the globalization process.

 Globalisation in action,
Case study: The Smartphone
(iPhone 4S), a globalised product
 Impact of Globalization

Outsourcing, the
principal result of
the Globalization.

In outsourcing, a company recruits regular service from outside sources, often from other nations,
which was earlier implemented internally or from within the nation (like computer service, legal
advice, security – each presented by individual departments of the corporation, advertisement).

Outsourcing has increased, in recent times, because

of the increase of quick methods of communication,
especially the growth of Information Technology (IT).

Many of the services such as voice-based business processes (commonly known as BPS, BPO or call
centres), accountancy, record keeping, music recording, banking services, book transcription, film
editing, clinical advice or teachers are being outsourced by companies in advanced countries to India.
 Main organizations facilitating globalization

Some of the • International Monetary

international Fund (IMF)
organizations
• World Bank
which facilitate
the process of • World Trade Organization
globalization: (WTO)
Thank You