Introduction: Liberalization, Privatisation and Globalisation | Economics Class 12 - Commerce PDF Download

The government started various policies grouped under three categories: liberalisation, privatisation, and globalisation. These economic strategies were introduced in 1991 due to a financial crisis and pressure from international organisations like the World Bank and IMF. India sought help from these banks for development, which led to easing trade restrictions for the private sector and enhancing international trade. The Indian Government accepted the terms set by these lending agencies and launched the New Economic Policy (NEP), which included a wide range of reforms. We can classify these measures into two main groups:

Types of Reforms

• Structural Reforms: These are long-term changes aimed at improving the economy and boosting international competitiveness by eliminating rigidities in various sectors.
• Stabilisation Measures: These short-term actions aimed to correct weaknesses in the balance of payments and control inflation. This means ensuring enough foreign exchange reserves and managing rising prices.
• Various Long-Term Structural Reforms were categorized as:
  i) Liberalization
  ii) Privatization 
  iii) Globalization

Let's understand each terminology in detail-

Liberalisation

The main purpose of liberalisation was to remove restrictions that hindered the country's growth. It aimed to open up various sectors of the economy, allowing private companies to operate with fewer constraints.

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Objectives of Liberalisation Policy

• To increase competition among domestic industries.
• To promote foreign trade through controlled imports and exports.
• To enhance foreign capital and technology.
• To expand the country’s global market reach.

Privatisation

This is the second policy of the LPG framework, involving the transfer of ownership or management of government-owned enterprises. The agreement to reduce the public sector's role and to involve the private sector through disinvestment and liberalisation is key to understanding privatisation. Government companies can become private in two ways:

• Through disinvestment, where the government sells its share in public enterprises.
• By allowing private companies to manage public enterprises.

Forms of Privatization

• Strategic Sale: This refers to the complete transfer of government-owned assets to the private sector, known as denationalization.
• Partial Privatization: This occurs when the private sector holds more than 50% but less than 100% of a previously public company, granting them significant control and autonomy.
• Deficit Privatization: This is when the government sells off 5-10% of its share capital to address budget deficits.

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Objectives of Privatization

• Enhance the financial position of the government.
• Reduce the burden on public sector companies.
• Generate revenue through disinvestment.
• Boost the efficiency of government organisations.
• Deliver better goods and services to consumers.
• Foster healthy competition in the marketplace.
• Attract foreign direct investments (FDI) into India.
• Facilitate modernisation and improve financial discipline within public sector undertakings (PSUs).

Globalization

• Globalization refers to the process of linking a nation's economy with the global market.
• The focus during globalization is on foreign trade and investments from private and institutional sectors.
• This is the final aspect of the LPG (Liberalization, Privatization, Globalization) policy to be implemented.
• Globalization aims to create a world that is interdependent and integrated through various strategic policies.
• It seeks to establish a borderless world where the needs of one country can be satisfied through resources from others, forming a vast economy.

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Outsourcing as an Outcome of Globalization

• Outsourcing is a key result of globalization, where companies hire professionals from other countries for tasks previously done internally.
• This approach allows businesses to complete work at competitive costs by utilising skilled professionals worldwide.
• Commonly outsourced services include legal advice, marketing, and technical support.
• The rise of information technology has greatly increased the outsourcing of work across borders.
• In India, numerous Business Process Outsourcing (BPO) companies have emerged, offering services like accounting, clinical advice, banking, and education to developed nations.
• Benefits of outsourcing include access to high-quality services at lower costs than domestic options.