Liberalisation, Privatisation AND Globalisation: An Appraisal

LIBERALISATION, PRIVATISATION
AND
GLOBALISATION: AN APPRAISAL
INTRODUCTION
In 1991, India met with an economic crisis relating to its external debt — the government was
not able to make repayments on its borrowings from abroad; foreign exchange reserves. All these
led the government to introduce a new set of policy measures.
BACKGROUND
Development policies required that even though the revenues were very low, the government had
to overshoot its revenue to meet challenges like unemployment, poverty and population
explosion. Moreover, the government was not able to generate sufficiently from internal sources
such as taxation. The income from public sector undertakings was also not very high to meet the
growing expenditure. At times, our foreign exchange, borrowed from other countries and
international financial institutions, was spent on meeting consumption needs. Neither was an
attempt made to reduce such profligate spending nor sufficient attention was given to boost
exports to pay for the growing imports.
In the late 1980s, government expenditure began to exceed its revenue by such large margins and
prices of many essential goods rose sharply.India approached IMF world bank (IBRD) and
received $7 billion as loan to manage the crisis by removing restrictions on the private sector,
reduce the role of the government in many areas and remove trade restrictions between India and
other countries.
India agreed to the conditionalities of World Bank and IMF and announced the New Economic
Policy (NEP). This set of policies can broadly be classified into two groups: the stabilisation
measures and the structural reform measures. Stabilisation measures are shortterm measures,
intended to correct some of the weaknesses that have developed in the balance of payments and
to bring inflation under control. On the other hand, structural reform policies 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.
LIBERALISATION
Liberalisation was introduced to put an end to restrictions which b became major hindrances in
growth and development.
DEREGULATION OF INDUSTRIAL SECTOR: Industrial licensing was abolished for almost
all but product categories. Many goods produced by small-scale industries have now been
dereserved. In many industries, the market has been allowed to determine the prices.
FINANCIAL SECTOR REFORMS: One of the major aims of financial sector reforms is to
reduce the role of RBI from regulator to facilitator of financial sector. The reform policies led to
the establishment of private sector banks Indian as well as foreign.
TAX REFORMS: Since1991, there has been a continuous reduction in the Direct taxes as it was
felt that high rates of income tax were an important reason for tax evasion. It is now widely
accepted that moderate rates of income tax encourage savings and voluntary disclosure of
income. The rate of corporation tax, which was very high earlier, has been gradually reduced.
Efforts have also been made to reform the indirect taxes, taxes levied on commodities, in order to
facilitate the establishment of a common national market for goods. In order to encourage better
compliance on the part of taxpayers many procedures have been simplified and the rates also
substantially lowered.
FOREIGN EXCHANGE REFORMS: In 1991, as an immediate measure to resolve the balance

of payments crisis, the rupee was devalued against foreign currencies. This led to an increase in
the inflow of foreign exchange. It also set the tone to free the determination of rupee value in the
foreign exchange market from government control.
TRADE AND INVESTMENT POLICY REFORMS: The trade policy reforms aimed at (i)
dismantling of quantitative restrictions on imports and exports (ii) reduction of tariff rates and
(iii) removal of licensing procedures for imports. Import licensing was abolished except in case
of hazardous andenvironmentally sensitive industries. Quantitative restrictions on imports of
manufactured consumer goods and agricultural products were also fully removed from April
2001. Export duties have been removed to increase the competitive position of Indian goods in
the international markets.
PRIVATISATION
Government companies are converted into private companies in two ways (i) by withdrawal of
the government from ownership and management of public sector companies and or (ii) by
outright sale of public sector companies. The purpose of the sale, according to the government,
was mainly to improve financial discipline and facilitate modernisation. The government has also
made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial
decisions.
GLOBALISATION
Globalisation attempts to establish links in such a way that the happenings in India can be
influenced by events happening miles away. It is turning the world into one whole or creating a
borderless world.
OUTSOURCING: In outsourcing, a company hires regular service from external sources, mostly
from other countries, which was previously provided internally or from within the country. The
low wage rates and availability of skilled manpower in India have made it a destination for
global outsourcing in the post-reform period.
WORLD TRADE ORGANISATION (WTO): India has kept its commitments towards
liberalisation of trade, made in the WTO, by removing quantitative restrictions on imports and
reducing tariff rates.
INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT

The post–1991 India witnessed a rapid growth in GDP on a continual basis for two decades.
India is one of the largest foreign exchange reserve holders in the world.
GROWTH AND EMPLOYMENT: Scholars point out that the reform-led growth has not
generated sufficient employment opportunities in the country.
REFORMS IN AGRICULTURE: The removal of fertiliser subsidy has led to increase in the cost
of production, which has severely affected the small and marginal farmers. This sector has been
experiencing a number of policy changes such as reduction in import duties on agricultural
products, removal of minimum support price and lifting of quantitative restrictions on
agricultural products; these have adversely affected Indian farmers as they now have to face
increased international competition. Moreover, because of export oriented policy strategies in
agriculture, there has been a shift from production for the domestic market towards production
for the export market focusing on cash crops in lieu of production of food grains.
REFORMS IN INDUSTRY: Industrial growth has also recorded a slowdown. This is because of
decreasing demand of industrial products due to various reasons such as cheaper imports,
inadequate investment in infrastructure etc
DISINVESTMENT: Critics point out that the assets of PSEs have been undervalued and
sold to the private sector. This means that there has been a substantial loss to the government.
Moreover, the proceeds from disinvestment were used to offset the shortage of government
revenues rather than using it for the development of PSEs and building social infrastructure in
the country.
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LIBERALISATION, PRIVATISATION

FOREIGN EXCHANGE REFORMS: In 1991, as an immediate measure to resolve the balance

INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT

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