In India, economic liberalisation is initiated in 1991 with the goal of making the economy more market-oriented and expanding the role of private and foreign investment. In simple words, liberalisation refers to a relaxation of government restrictions in the areas of social, political and economic policies. In the context of economic policy, liberalization refers to lessening of government regulations and restrictions for greater participation by private entities. Specific changes embrace a reduction in import tariffs, deregulation of markets, discount of taxes, and larger overseas funding.
It led to a free market system where there were reduced restrictions and interference by the government. With the New Industrial Policy’ 1991, the Indian Government intended to integrate the country’s economy with the world economy, improving the efficiency and productivity of the public sector. To accomplish this objective, existing government features of liberalisation regulations and restrictions on industry were removed. The focus on self-reliance and lack of investment in R&D acted as obstacles to technological development and hence led to the production of inferior quality of goods. There is strong belief that foreign merchandises are superior to Indian goods is still predominant in Indian society.
Under New Economic Policy 1991, major reforms were initiated, which were comprehensive. Money borrowed from foreign Governments/ multinational institutions was spent for meeting the consumption needs of the government. Government’s expenditure was much higher than revenue during the 1980s and continued spending on development programs did not generate additional revenue. Till today, small scale and cottage industries are facing ______ problems. The aim was also to promote the efficiency of the local industries and the adoption of modern technologies.
- Liberalization of autocratic regimes may precede democratization.
- It created numerous jobs and enabled a technological revolution in the country.
- This is in tune with the protection offered by the developed countries also, during their early stages of development.
- The reforms have transformed the education sector with a huge talent group of qualified specialists which are available to share their knowledge and competence.
- Economic liberalisation refers to a situation where inessential restrictions and controls are removed from a country’s economy to ensure that businesses and enterprises can maximise their contribution.
- In India, massive Privatization was done in the decade of 1980s when Rajiv Gandhi assumed office as the Prime minister of India.
The low wage rates and availability of English-speaking skilled manpower in India have made it a destination for global outsourcing in the post-reform period of India. It involves the creation of networks and activities transcending economic, social, and geographical boundaries. Thus, happening in one country can be influenced by happening in another country. Globalisation is the outcome of the policies of liberalization and privatization.
In addition to this, the uncertain political situation in the country only added fuel to the fire. There were three Prime Ministers, namely Vishwanath Pratap Singh (December 1989 – November 1990), Chandra Shekhar (November 1990 – June 1991), and P. V. Narasimha Rao (June 1991 – May 1996) within the span of one and a half years. An unstable government meant that there were no proper strategies in place to handle the situation. This led to India approaching the IMF and the World Bank for emergency lending. But the lending was not so easy as certain conditions were placed before the government that had to be fulfilled.
The main trust of the new economic policy is “liberalization”. The principle of this policy is that greater freedom is to be given to the businessperson of any industry, trade or business and that governmental control on the same be reduced to the minimum . In India, the concept of economic liberalization was introduced to attain several objectives – industrialization, expansion in the role of private and foreign investment, and introducing a free market system. Restrictions were relaxed for private companies to enter several core industries, which were previously reserved for the public sector. The industrial coverage formally designates the spheres of exercise of the general public and the private sectors.
Disproportionate growth – Globalization can lead to disproportionate growth within the country. The states or cities that have the infrastructure that is developed in order to enable ease of trade usually reap the most benefits arising from increased trade. This causes some states or cities to grow faster than other cities.
The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to give it a new thrust on market orientation. As we have discussed in the introduction, the country was going through economic turmoil during the 1980s. The reasons that led to this will be discussed in this section. Improves decision-making – The increased autonomy given to managers would help them make better decisions thereby improving their decision-making skills.
In order to test the competitiveness of domestic businesses, economic borders were opened. The social sectors of health and education have lagged behind and not kept pace with our economic progress. Protectionist policies adopted by developed countries have not resulted in level playing fieldand affected the export income of developing countries like India. Reforms under lead to an increase in the average GDP growth rate from 2.9 per cent in the 1970s to 5.6 per cent, although they failed to fix systemic issues with the Licence Raj. The reform was prompted by a balance of payments crisis that had led to a severe recession and also as per structural adjustment programs for taking loans from IMF and World Bank. Protectionist policies adopted by developed countries have not resulted in level playing field and affected the export income of developing countries like India.
Impact of globalization
The companies had the liberty to decide the size and scale of production along with the price of its products. As a response to it, the then finance minister of India, Dr. Manmohan Singh, introduced economic liberalization in India. India CSR is the largest media on CSR and sustainability offering diverse content across multisectoral issues on business responsibility. • Privatization results in high employee turnover and a lot of investment is required to train the lesser-qualified staff and even making the existing manpower of PSU abreast with the latest business practices . • Privatization has a positive impact on the financial health of the sector which was previously state dominated by way of reducing the deficits and debts . India’s IT services have turn out to be globally competitive as many firms have outsourced sure administrative functions to nations where costs are lower.
Stabilization measures are short-term policies and these included a slew of fiscal reforms and inflation control strategies. Structural measures are long-term policies and these drastically affect the economy in the long run. These included liberalization, privatization, and globalization. Several reforms were introduced in order to revive the economy. Due to the international and national issues we’ve talked about in the previous section, money started flowing out of the economy. At that time, India did not have the resources or the technical know-how to substitute the goods it was importing.
It is important to note that not everyone from the poor had their lives improved due to the reforms and the majority of them didn’t feel the changes like the middle class or the rich did. Uneven growth – The agricultural sector was one of the sectors that was sidelined in the process. There was growth in support services but nothing much was done that affected this sector directly. Earlier, some items were reserved for them exclusively to produce. But after liberalization, big private players started producing better and cheaper substitutes for these goods.
Subsequently, the government gave more managerial and operational autonomy by declaring them as Navaratnas, Minratnas etc. However, the privatization of public sector enterprises could not take place on the desired lines, and probably this is one of the failures of the Government’s New Economic Policy of 1991. DisinvestmentDisinvestment and Privatization are two different terms in a technical sense, though both involve the sale of the Government’s share in the Public Sector Undertakings. The term privatization is used for a stake sell in which there is a transfer of 51% or more equity to the private players.
Features of liberalization
Gradually, these small-scale industries lost their charm and are currently fighting to survive in the market. A sharp fall in the forex reserve meant that India was no longer able to pay for imports of essential goods. Imports had increased by 2.3% of GDP, while exports had increased by a mere 0.3% of GDP. By 1991, there were 246 PSUs and most of them were making huge losses. A lot of resources were used to set up these PSUs but they couldn’t make profits. Reviving sick units – Transferring ownership, management, and control to private players helps the loss-making PSUs go through a restructuring process, thereby increasing their chances of revival.
At one stage, there was not sufficient foreign exchange to pay the interest that needs to be paid to international lenders. The only industries which arenow reserved for the public sector are defense equipment, atomic energy generation, and railway https://1investing.in/ transport. Some goods could be produced only in small-scale industries and controls on price fixation and distribution of selected industrial products. Reduction in the role of RBI from the regulator to facilitator of the financial sector.
It has been observed that India, in the period of economic reforms, is at the intersection. On one side, India is gaining economic wealth and credit, but on other side, social inequality is developed. Currently, as India is one of the fastest growing economies in the world, the social aspects have been ridden roughshod by the economic benefits.
To resolve the balance of payments crisis, the rupee was devalued against foreign currencies
It is well recognised in management literature that liberalization entails elimination of state control over economic activities. It implies greater sovereignty to the business enterprises in decision-making and removal of government interference. It was believed that the market forces of demand and supply would automatically operate to bring about greater efficiency and the economy would recover.
The cumulative effect was that our economy started slipping into stagnation, and by the end of June 1991, we landed into an unprecedented economic crisis. The situation was so alarming that our reserves of foreign exchange almost dried up and were barely enough to pay for two weeks’ imports. Economic liberalisation refers to a situation where inessential restrictions and controls are removed from a country’s economy to ensure that businesses and enterprises can maximise their contribution.