Liberalization, Privatization & Globalization

1. Liberalization, Privatization & Globalization

2. Global Integration & Business Environment • The economic environment of business in India has been changing at a fast rate mainly due to the changes in the economic policies of the government and also due to global integration. • At the time of independence, the Indian economy was basically agrarian with a weak industrial base. To speed up the industrial growth and solve various economic problems, the government took several steps like state ownership on certain categories of industries, economic planning, reduced role of private sector, etc. • The Government adopted several control measures on the functioning of private sector enterprises. The development can be discussed under three heads: • Liberalisation • Privatisation • Globalisation

3. Liberalisation Liberalisation refers to the process of eliminating unnecessary controls and restrictions on the smooth functioning of business enterprises. It includes: • Abolishing industrial licensing requirement in most of the industries • Freedom in deciding the scale of business activities • Freedom in fixing prices of goods and services • Simplifying the procedure for imports and exports • Reduction in tax rates • Simplified policies to attract foreign capital and technology to India

4. Privatisation • Privatization, which has become a universal trend, means transfer of ownership and/or management of an enterprise from the public sector to the private sector. • It also means the withdrawal of the state from an industry or sector, partially or fully. Another dimension of privatization is opening up of an industry that has been reserved for the public sector to the private sector. The objects are: • To improve the performance of PSUs so as to lessen the financial burden on taxpayers • To increase the size and dynamism of the private sector, distributing ownership more widely in the population at large. • To encourage and to facilitate private sector investments, from both domestic and foreign sources • To generate revenues for the state • To reduce the administrative burden on the state • Launching and sustaining the transformation of the economy from a command to a market model

5. Benefits of Privatisation • It reduces the fiscal burden of the state by relieving it of the losses • Privatization enables the government to mop up funds • Privatization helps the state to trim the size of the administrative machinery • It enables the government to concentrate more on the essential state The functions of privatization are as follows • Accelerate the pace of economic developments as it attracts more resources from the private sector for development • It may result in better management of the enterprises • Privatization may also encourage entrepreneurship • Privatization may increase the number of workers and common man who are shareholders.

6. Globalisation • India’s economic integration with the rest of the world was very limited because of the restrictive economic policies followed until 1991. • Globalization has in fact become a buzzword with Indian firms now and many are expanding their overseas business by different strategies. • Globalization may be considered at two levels viz. at the macro level (i.e., globalization of the world economy) and at the micro level (i.e., globalization of the business and the firm). • Globalization of the world economy is achieved, quite obviously, by globalizing the national economies. Globalization of the economies and globalization of business are very much interdependent.

7. Reasons for Globalisation • Faster communication, speedier transportation, growing financial flows and rapid technological changes. • To set up overseas production facilities. • To find political stability. • To get technology and managerial know-how. • Companies often set up overseas plants to reduce high transportation costs. Some companies set up plants overseas so as to be close to their raw materials supply and to the markets for their finished products • The US, Canada and Mexico have signed the North American Free Trade agreement (NAFTA), which will remove all barriers to trade among these countries • The creation of the World Trade Organization (WTO) is stimulating increased cross-border trade

8. New Markets • Growing global markets in services – banking, insurance, transport. • New financial markets - deregulated, globally linked, working around the clock, with action at a distance in real time, with new instruments such as derivatives. • Deregulation of anti - trust laws and proliferation of mergers and acquisitions. • Global consumer markets with global brands