Liberalization, Privatisation Global is at Ion

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Liberalization

Economic liberalization is a very broad term that usually refers to fewer

government regulations and restrictions in the economy in exchange for greater

participation of private entities.

The Government of India started the economic liberalization policy in 1991.

Even though the power at the center has changed hands, the slackened till date.

Before 1991, changes within the industrial sector in the country were modest tosay the least. The sector accounted for just one- fifth of the total economic

activity within the country. The sectoral structure of the industry has changed,

albeit gradually. Most of the industrial sector was dominated by a select band of

family-based conglomerates that had been dominant historically. Post 1991, a

major restructuring has taken place with the emergence of more technologically

advanced segments among industrial companies. Nowadays, more small and

medium scale enterprises contribute significantly to the economy. By the mid-

90s, the private capital had surpassed the public capital. The management system

had shifted from the traditional family based system to a system of qualified andprofessional managers. One of the most significant effects of the liberalization era

has been the emergence of a strong, affluent and buoyant middle class with

significant purchasing powers and this has been the engine that has driven the

economy since. Another major benefit of the liberalization era has been the shift

in the pattern of exports from traditional items like clothes, tea and spices to

automobiles, steel, IT etc. The made in India brand, which did not evoke any sort



of loyalty has now become a brand name by itself and is now known all over the

world for its quality. Also, the reforms have transformed the education sector

with a huge talent pool of qualified professionals now available, waiting to

conquer the world with their domain knowledge.

Privatization

The public sector accounts for about 35 percent of industrial value added in India,

but although privatization has been a prominent component of economic reforms

in

many countries, India has been ambivalent on the subject until very recently.

Initially, the government

adopted a limited approach of selling a minority stake in public

sector enterprises while

retaining management control

with the governmen t, a policy

described as ³disinvestment´ to

distinguish it from privatization.

The principal motivation was to

mobilize revenue for the budget,

though there was someexpectation that private

shareholders would increase the

commercial orientation of public

sector enterprises.

This policy had very limited success. Disinvestment receipts were

consistently below budget expectations and the average realization in the first

five years was less than 0.25 percent of GDP compared with an average of 1.7

percent in seventeen countries reported in a recent study (see Davis et.al. 2000).There was clearly limited appetite for purchasing shares in public sector

companies in which government remained in contr0ol of management.



In 1998, the government announced its willingness to reduce its

shareholding to 26 percent and to transfer management control to private

stakeholders purchasing a substantial stake in all central public sector enterprises

except in strategic areas.

The first such privatization occurred in 1999, when 74 percent of the equity

of Modern Foods India Ltd. (a public sector bread-making company with 2000

employees), was sold with full management control to

Hindustan Lever, an Indian subsidiary of the Anglo-Dutch multinational Unilever.

This was followed by several similar sales with transfer of management: BALCO,

an aluminium company; Hindustan Zinc; Computer Maintenance Corporation;

Lagan Jute Machinery Manufacturing Company; several hotels; VSNL, which was

until recently the monopoly service supplier for international

telecommunications; IPCL, a major petrochemicals unit and Maruti Udyog,India¶s largest automobile producer which was a joint venture with Suzuki

Corporation which has now acquired full managerial controls.

Globalization

The term globalization refers to the integration of economies of the world

through uninhibited trade and financial flows, as also through mutual exchange of

technology and knowledge. Ideally, it also contains free inter-country movement

of labor.

In context to India, this implies

opening up the economy to foreign direct

investment by providing facilities to foreign

companies to invest in different

fields of economic activity in India,

removing constraints and obstacles to the

entry of MNCs in India, allowing Indian

companies to enter into foreigncollaborations and also encouraging them

to set up joint ventures abroad; carrying

out massive import liberalization programs

by switching over from quantitative

restrictions to tariffs and import duties,



therefore globalization has been identified with the policy reforms of 1991 in

India.

Over the years there has been a steady liberalisation of the current account

transactions, more and more sectors opened up for foreign direct investmentsand portfolio investments facilitating entry of foreign investors in telecom, roads,

ports, airports, insurance and other major sectors

The Indian tariff rates reduced sharply over the decade from a weighted average

of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the

late nineties it touched 35.1% in 2001-02. India is committed to reduced tariff

rates.

The liberalization of the domestic economy and the increasing integration

of India with the global economy have helped step up GDP growth rates, which

picked up from 5.6% in 1990-91 to a peak level of 9.6 % in 2006- 07. A Global

comparison shows that India is now the fastest growing just after China.

This is major improvement given that India is growth rate in the 1970s was

very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea, and

Mexico was more than twice that of India. Though Indias average annual growth

rate almost doubled in the eighties to 5.9% it was still lower than the growth ratein China, Korea and Indonesia. The pickup in GDP growth has helped improve

Indias global position. Consequently India position in the global economy has

improved from the 8th position in 1991 to 4th place in 2001 when GDP is

calculated on a purchasing power parity basis.

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Liberalization, Privatisation Global is at Ion