liberalisation, privatisation and globalisation: an appraisal

Get Started. It's Free
or sign up with your email address
liberalisation, privatisation and globalisation: an appraisal by Mind Map: liberalisation, privatisation and globalisation: an appraisal

1. 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 through a range of policies

2. Mounting government debts

3. Financial Sector Reforms (Banking Sector Reforms)

3.1. The role of RBI was reduced from regulator to facilitator of financial sector. This means that the financial sector was allowed to take decisions on many matters without consulting the RBI.

3.2. The reform policies led to the establishment of private sector banks, Indian as well as private.

3.3. Foreign investment limit in banks was raised to around 50 percent.

3.4. Those banks which fulfil certain conditions have been given freedom to set up new branches Without the approval of the RBI and rationalize their existing branch networks.

3.5. Foreign Institutional Investors (FII), such as merchant bankers, mutual funds and pension funds are now allowed to invest in Indian financial markets.

4. Industrial Sector Reforms

4.1. Reduction in Industrial Licensing: Industrial licensing was abolished for almost all products except alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace, drugs and pharmaceuticals.

4.2. De-reservation of public sector: The only industries which are now reserved for the public sector are a part of defence equipment, atomic energy generation and railway transport.

4.3. De-reservation of small-scale industries: Many goods produced by small-scale industries have now been de-reserved

4.4. Removal of price control: In many industries, the market has been allowed to determine the prices.

5. Fall in foreign exchange reserves

6. Aim of the policy was to create a more competitive environment in the economy and remove the barriers to entry and growth of firms.

7. Functions

7.1. To establish a rule-based trading regime in which nations cannot place arbitrary restrictions on trade.

7.2. To enlarge production and trade of services.

7.3. To ensure optimum utilisation of world resources.

7.4. To protect the environment.

7.5. To facilitate international trade (bilateral and multilateral) through removal of tariff as well as non- tariff barriers and providing greater market access to all member countries.

8. Classification of New Economic Policy

8.1. Stabalisation measures

8.1.1. short term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control.

8.2. Structural Reform Policies

9. need for economic reforms

9.1. Rising prices of essential goods

9.2. Financial crisis

9.3. Adverse Balance of Payments

10. New Economic Policy (1991)

10.1. Liberalisation

10.1.1. Involves deregulation and reduction of govt. controls from various sectors of the economy

10.1.2. Prior to 1991, there were large number of government restrictions on the entry and growth of private enterprises. Liberalisation was introduced to put an end to these restrictions and open various sectors of the economy.

10.2. privatisation

10.2.1. Transfer of ownership, management and control of PSEs to private sector.

10.2.2. purpose

10.2.2.1. improve financial discipline and facilitate modernisation.

10.2.2.2. It was also felt that private capital and managerial capabilities would be effectively utilized to improve the performance of the PSU’s.

10.2.2.3. It was felt that privatisation could provide strong impetus (encouragement) to the inflow of FDI.

10.2.3. Privatisation can be done by disinvestment and outright sale

10.2.3.1. Privatisation of the public sector undertaking by selling off part of the equity of PSEs to the private sector/ public is known as disinvestment.

10.2.3.1.1. Majority Disinvestment: A majority disinvestment is one in which the government, post disinvestment, retains a minority stake in the company i.e. it sells off a majority stake E.g. BALCO sale to Sterlite.

10.2.3.1.2. Complete privatisation: It is a form of majority disinvestment wherein 100% control of the company is passed on to a buyer. Example: Modern Bread, ITDC Hotels.

10.2.4. In order to improve efficiency of PSUs, infuse professionalism and enable them to compete more effectively in the liberalised global environment, the government choose nine PSUs and declared them as maharatnas, navratnas and miniratnas

10.2.4.1. Maharatnas - Indian Oil Corporation (IOCL), Steel Authority of India Limited (SAIL)

10.2.4.2. Navratnas - Hindustan Aeronautics Limited (HAL), Mahanagar Telephone Nigam Limited (MTNL)

10.2.4.3. Miniratnas - Bharat Sanchar Nigam Limited (BSNL), Airport Authority of India (AAI) and Indian Railway Catering and Tourism Corporation Limited (IRCTC).

10.3. globalization

10.3.1. Removing trade restrictions between India and other countries ie Integrating the domestic economy with the world economy.

10.3.2. Outsourcing: refers to the hiring of regular services by a company from external sources, mostly from other countries, which was previously provided internally or from within the country. E.g. legal advice, computer service, advertisement, security- each provided by respective departments of the company.

10.3.2.1. Some of the services outsourced to India include

10.3.2.1.1. Voice-based business processes (popularly known as BPO or call centres)

10.3.2.1.2. Record keeping

10.3.2.1.3. Accountancy

10.3.2.1.4. Banking services

10.3.2.1.5. Music recordings

10.3.2.1.6. Film editing

10.3.2.1.7. Book transcription

10.3.2.1.8. Clinical advice

10.3.2.2. factors for India being a hub for outsourcing

10.3.2.2.1. Availability of skilled manpower in India and

10.3.2.2.2. Low wage rates.

10.3.3. Effects of Globalisation

10.3.3.1. Positive effects

10.3.3.1.1. greater access to global markets

10.3.3.1.2. greater access to high (advanced) technology

10.3.3.1.3. increased possibility of large industries of developing countries to become important players in the international market

10.3.3.2. Negative effects

10.3.3.2.1. Globalisation is a strategy of the developed countries to expand their markets in other countries

10.3.3.2.2. It has compromised the welfare and identity of people belonging to poor countries.

10.3.3.2.3. Market-driven globalisation has widened the disparities among nations and people.

11. Reforms under NEP

11.1. Tax Reforms (or Fiscal Policy Reforms)

11.1.1. Since 1991, there has been a continuous reduction in the taxes on individual incomes as it was felt that high rates of income tax were an important reason for tax evasion.

11.1.2. The rate of corporation tax, which was very high earlier, has been gradually reduced.

11.1.3. Efforts have also been made to reform the indirect taxes, in order to facilitate the establishment of a common national market for goods and commodities.

11.1.4. In order to encourage better compliance on the part of taxpayers, many tax procedures have been simplified and the rates also substantially lowered.

11.1.5. Recently, the Indian Parliament passed a law, Goods and Services Act 2016, to simplify and introduce a unified indirect tax system in India. This law came into effect from July 2017. This is expected to a unified indirect tax system in India. This law came into effect from July 2017. This is expected to generate additional tax revenue for the government, reduce tax evasion and create ‘one nation, one tax and one market

11.2. Foreign Exchange Reforms

11.2.1. In 1991, as an immediate measure to resolve the balance of payment crisis, the rupee was devalued against foreign currencies. (Devaluation refers to reduction in the value of domestic currency with respect to foreign currency.) This led to increase in the inflow of foreign exchange by making exports cheaper and more competitive.

11.2.2. It also led to freeing the determination of rupee value in the foreign exchange market from government control. Now markets determine exchange rates based on the demand and supply of foreign exchange.

11.3. Trade and investment Policy Reforms

11.3.1. Dismantling of quantitative restrictions (Quotas) on imports and exports- Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed from April 2001

11.3.2. Reduction tariff rates– Export duties have been removed to increase the competitive position of Indian goods in the international markets and import duties have also been reduced.

11.3.3. Removal of licensing procedures for imports – Import licensing was abolished except in case of hazardous and environmentally sensitive industries.

12. Retrospects of NEP

12.1. Arguments in favour of NEP

12.1.1. Increase in GDP growth rate

12.1.2. Increase in foreign investment (FDI & FII)

12.1.3. Increase in foreign exchange reserves

12.1.4. India became a successful exporter of auto parts, IT software etc

12.1.5. Rising prices kept under control

12.2. Arguments against NEP

12.2.1. Increase in GDP without sufficient increase in employment opportunities

12.2.2. Agricultural growth rate has been decelerating

12.2.3. Industrial growth has recorded a slowdown

12.2.4. Disinvestment led to substantial loss to the government

12.2.5. Fiscal reforms adversely affected government tax revenue

12.2.6. The NEP has increased inequalities; growth has been concentrated in some selected areas

13. WTO - World Trade Organisation

13.1. Was founded in 1995 as the successor organisation to the General Agreement on Trade and Tariff (GATT). GATT was established in 1948 with 23 countries as the global trade organisation to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market for trading purposes.