India has vast natural resources and abundant manpower but our contribution in the world trade is less than 1%.
Liberalisation,
Privatisation And Globalisation (LPG)
Need For Liberalization:
India has vast natural resources
and abundant manpower but our contribution in the world trade is less than 1%.
India has low Per capita income and Net National product. To improve the same,
liberalization has been recommended. Under the direction of the former Prime
Minister P.V. Narashima Rao the economic reform process was resorted to improve
the position of the Indian economy in the world and to solve the problems of
trade deficit.
Path To Liberalization:
The Government has to release the
economy from the restrictive rules and regulations followed earlier. It was
appropriate on the part of the government of India to implement globalization
strategy to pave the way for economic liberalization.
The Liberalization, Privatization
and Globalization (LPG) model was developed in 1991 by the then finance minister
Dr. Manmohan singh under the direction of the Prime Minister Shri.P.V.Naraimha
Rao . Structural changes in the Indian economy were :
1.
End of the private sector: The
government decided to transfer the loss making public sector units to the
private, but there were no takers, therefore the government went for
disinvestment of the public enterprises including profit making units.
2.
Government permitted private
sector to set up individual units without license. 3.
The investment ceiling was lifted
and hence the private investment could go up to any level. 4.
The Government approved up to 51%
FDI. No permission was required for hiring foreign technicians and technology. 5.
Rehabilitation schemes to
reconstruct the sick public sector enterprises. (board for industrial and
financial reconstruction) BIFR was established. 6. Greater
autonomy was given to manage Public sector units. 7.
Economy was opened to other
countries to encourage exports. Therefore it encouraged private participation
and expected the rise in exports from India. Reasons For Implementing The
Policy Of Liberalization, Privatization And Globalization:
1.
Excess consumption and
expenditure over revenue have been experienced resulting in heavy government
borrowings. 2. Growing
in-efficiency in the use of resources. 3. Mismanagement
of firms and the economy. 4. Losses of
public sector enterprises. 5.
Various distortions like poor
technological development, shortage of foreign exchange, borrowing,
mismanagement of foreign exchange reserves etc., have distorted the Economic
growth. 6. Low
foreign exchange reserves. 7. Burden of
national debt and 8. Inflationary
pressure on the economy. Weakness Of LPG Model:
The major
weaknesses of India’s LPG model were: 1. Narrow
focus 2. Free
entry of MNCs 3. Agricultural
sector was bypassed 4. Facilitated
more imports 5. Capital
intensive developmentLiberalization:
Relaxation of government
restriction in social and economic policies was called as liberalization. Trade liberalization means removing the
tariff restriction on the flow of goods and services between countries.
Liberalization is a pre requisite for privatization. Capital market should be
developed to absorb the changes. In India the people were allowed to start
their business without getting license except in limited fields. Due to this, a
number of firms have been started domestically which increased the production
and expanded the market. Privatization:
Privatization means transfer of
assets or service functions from public to private ownership through franchising,
leasing, contracting and divesture. Disinvestment means disposal of public
sector units, equity to the private sectors. Privatization helps the public
sector to modernize, diversify and make their business more competitive. It
increases managerial efficiency of the organization and revives sick units. But
it may result in income inequality, causing difficulty in maintaining social
justice and public welfare. Privatization means sale of
nationalized industrial units to the private sector and transferring the
revenue available from the public sector to the private sector by adopting any
one of the following methods. 1. Sale of
part of nationalized industries to the private 2. Sale of
individual assets of Government bodies to the private 3.
Creation of competitive spirit of
the private sector to the state enterprises. Arguments In Favor Of Privatization:
1.
Cost: Private sector has productive
efficiency therefore their cost of
production have been less than the cost of the goods produced in the public
enterprises. 2.
Choice and quality: Private sector spends more on
R&D and they can produce more
variety with better quality and offer more choice to
the customers, due to their allocative efficiency. 3.
Innovation: Private sectors have efficiency
in innovating new models. 4.
The Invisible hand of the market: Free
market forces will ensure the
optimal allocation of resources. 5.
Wider share of ownership: The
ownership of the business is well spread
throughout the country and not held in one or in a few hands. 6.
Reduction in public borrowing and state spending: Privatization reduces the
government borrowings and spending. Problems Of Privatization
Privatization created more
monopoly in the market and inequality in pricing which had led to negative
externalities. Only through creation of competition and with regulatory
measures we can control and minimize the problems of privatization in the
economy. Why should government own and run firms?Lower cost: Public
sector organizations were productively efficient and have economies of scale.Better management: Government organizations have better management system than private.Control of monopolies: Public sector enterprises will reduce and control the monopoly market.Maximum benefit:
Government provides maximum of net social benefits and not profit.Greater control of the economy: Public sector can control the economy to a greater extent.Fair distribution of resources: The available resources are allocated in an effective manner. Apart from the above mentioned
reasons Public sector is more efficient than private organizations. Private
enterprises exploit workers and consumers more than the public sector
enterprises. Profit is not the sole motive for public sector enterprises.
Globalization
Globalization means integrating
the domestic economy with the world economy, moving towards a new world
economic order which leads to integrated financial markets and trade.
Globalization improves the effective allocation of resources and expenditure of
a country along with economic growth. Globalization has helped developed
countries more than the developing countries. Globalization has completely
transformed the way Indian business used to operate. Globalization is a process of
integration of the world into one market by removal of all the political,
geographical trade and business barriers among nations. Indian businesses
should formulate the following strategies to overcome the challenges posed by
globalization. 1.Behavioral strategy: continuous up
gradation of skills, knowledge and technology of Human Resource is important
for empowerment. Efforts should be made to develop a comprehensive version of
managerial strategy which helps to improve the decision making skills and
problem solving skills of the managers. 2.Operational strategy: producing quality
products and maintaining the international quality is essential in the
globalised market. Organizations must use various methods like TQM, JIT, Kaizen
and others to improve the operational efficiency. Therefore organizations
should plan a gradual transition in technological up gradation. 3.Marketing strategy: to maximize customer
satisfaction, to render better services, and to introduce e-marketing, net
marketing etc., Various marketing strategies should be followed to improve
retail environment. 4.Investment for growing FDI: Due
consideration should be given to the exchange rate, other risks like political
risk and economic risk. 5.Governance: the business situation changed
dramatically over the last few years. Quality is important for sustainable
development in this competitive environment. Business opportunities are more
with tough competition. Therefore good governance will maximize the value of
shareholders wealth.
6.Risk management strategy: international
business is complex in nature and it leads to various types of risks. Which can
be managed by insurance, letter of credit, joint ventures, but the top
management should consider broader business strategies to define and overcome
these risks. Effects Of Globalization On Indian Economy
1.
India’s share in the world export
have increased from .53% (1950) to 1 % (2005) 2. Foreign
exchange reserves had increased to $180billion (2007) 3.
Export growth has increased to a
maximum of 20 percent per annum. 4. Current account
deficit of 3% has reduced to 1.1%. 5.
Reduction in external debt crisis
from 8 billion in 1990 to $3billion in 2006 Benefits to consumers: Consumers were able to get large variety of goods with improved quality at a reasonable price. Globalizing - World Evidence:
1. Expanding
Trade 2. Increasing
capital flow 3. Rising
tourism and migration 4. Linking
of farthest corners of the world by new technology. Forces Of Globalization:
1.
Revolutionary changes have taken
place in the field of Information technology. 2. Advancement
in travel and transportation 3. Liberalization
of trade regimes 4. Emergence
of trading blocsUpshot Of Globalization:
1. Unprecedented
economic growth
2. Multi-locational
manufacturing
3. Surge in
international trade
4. Explosive
growth in capital movements
5. Increase
in labour movement
6. Emergence
of cultural commonalities
The Way Forward:
1. Build on
your strength
2. Develop a
global force
3. Achieve
excellence in areas of one’s comparative advantage
4. Build up
an effective regulatory system
5. Develop a
good social security network
Thus we can conclude by saying that globalization
is progressing well world over, whether we like it or not it is bringing
together different nations as one. We can see the evidence in the Indian
economy. Government of India has also taken many steps towards globalization
which has its own merits and demerits. It is evident that India has potential
to face the situation. This is the macroeconomic environment prevailing in
India as well as in other parts of the world.
Tags : Managerial Economics - Economic Environment And Transition In Indian Economy
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