Liberalisation Privatisation and Globalisation Part - II

 

           Liberalization

          This article represents the 2^nd part of LPG system in India.

          In this part Liberalization topic will be discussed.

     “Liberalization” is defined as the process of removing barriers on trades and provide freedom from direct and physical control imposed by central government.

             

       It was introduced by Indian government in 1991 to eliminate trade restrictions and to open various sectors of economy.

Reforms under Liberalization-

             

 

Ø Industrial Sector Reforms – Many restrictions on private sector industries were removed as like –

§  Numbers of reserved industries for public sector was reduced to 8 from 17

§  Allocation of resources was determined by market forces rather than directive policies of government.

§  Prices of industrial products were determined by market forces.

Ø Financial Sector Reforms – many financial reforms have been introduced as like –

§  RBI role was shifted from regulator to facilitator

§  Private sector Banks were established

Example – ICICI, KOTAK Bank, HDFC Bank etc

§  FDI(Foreign Direct Investment) and FPI (Foreign Portfolio Investment) were allowed in various sectors of Indian economy

§  Banks were allowed to generate resources from domestic and international markets

§  Insurance, Money and Capital Markets reforms were taken.

§  New financial institutional regulators were established like – SEBI, IRDAI, PFRDA, BSE, NSE etc.

Ø Tax Reforms –

§  Income tax and corporate taxes were reduced to curb Malpractices of Tax evasion.

§  Indirect taxes were reformed

§  Taxing procedure were simplified.`

Ø Forex Reforms –

§  Devaluation of rupee against foreign currency

§  Exports were increased to build up Forex resources

§  Government intervention was minimized in determining exchange rates.

Ø Trade and Investment Policy Reform –

§  Quantitative restrictions on Import were eased

§  Import licensing was abolished except hazardous and environmentally sensitive areas

§  Export duties were removed to increase competitiveness of Indian goods in global market.

§  Trade norms of WTO (World Trade Organization) were started to follow

§  FDI / FPI norms were liberated gradually.

Ø Disinvestment – Government started disinvesting its shares in PSUs (Public Sector Units) through 2 approaches –

§  Minority disinvestment, by retaining majority stakes and keeping ownership and management control with them.

§  Strategic disinvestment, by retaining stakes below 51% and transferring ownership and management control to private entities.

Advantages of Liberalisation –

Ø FDI and FPI were increased

Ø licensing system were abolished

Ø Monopoly of public sectors were reduced

Ø Employment opportunities were increased

Ø Forex Reserve of country were increased, BoP were improved and Fiscal Deficit of Indian economy were reduced.

Ø Tariff and Non-tariff barriers of trade were removed.

Ø Technological Advancement of industries were introduced

Ø Linkage of Indian economy with Global economy i.e. Globalization of Indian economy

Ø Industrial recession was reduced and increase in global competitiveness of Indian industries.

 

Disadvantages of Liberalization –

Ø Global dependencies were increased for Forex reserves and Technological advancement.

Ø Impact of global recession on Indian economy

Ø Loss of Human resources due to introduction of advanced technology which led problem of unemployment.

Ø Domestic industries unable to cope with cheaper foreign products

Ø Increase in regional disparities led regional imbalances and inequalities.

Ø Damage to small scale and cottage industries.

Ø Weaponization of Global supply chain – dependency on some foreign countries for raw materials used by them as weapon to prove their interest. Example – China

        In spite of some disadvantages, Liberalization process has been proved very fruitful for economic growth & development of nation which has further improved country’s socio-economic indices.

-  By Pooja Gupta