LIBERALIZATION PRIVATIZATIONGLOBALIZATION

A PRESENTATION ON :

1

Introduction

Reasons for implementing LPG

Narasimha Rao Committee Decision

Liberalization

Privatization

Globalization

CONTENTS

2

July 1991,India has taken a series of measures to structurethe economy and improve the investments. The neweconomic policy that was introduced effected changes inseveral areas.

The policy has salient features which are: -

1.Liberalization

2.Extending Privatization

3.Globalisation of the economy

“LPG”

INTRODUCTION

3

THE MASTERMINDS

4

Excess of consumption and expenditure over

revenue resulting in heavy government borrowings.

Growing inefficiency on the use of resources.

Over protection provided to the Indian industries.

Mismanagement of the firm and the economy.

Reasons for Implementing LPG

5

Increase in losses for public sector enterprises.

Various distortions like poor technological

development, shortage of foreign exchange and

borrowing from abroad.

Low foreign exchange reserves.

Inflation

6

Contd..

Narasimha Rao Committee Decision

Promoting FDI (Foreign Direct Investment) by means

of raising the highest capital.

Cutting down duties from a mean level of 85 per cent

to 25 per cent, and withdrawing quantitative

regulations.

The rupee or the official Indian currency was turned

into an exchangeable currency on trading account.

Reorganization of the methods for sanction of FDI.

7

Contd..

Launching of the National Stock Exchange in 1994 in

the form of a computerized share buying and selling

system.

In 1992, the equity markets of the country were made

available for investment through overseas corporate

investors.

The companies were allowed to raise funds from

overseas markets through issuance of GDRs or Global

Depository Receipts.

8

LIBERALIZATION

Liberalization refers :

• To fewer government regulations and restrictions.

• Relaxation of the previous government restriction in the area

of social and economic policies.

• In short it means, government has removed the tariff,

subsidies and other restriction on the flow of goods and

services between the countries.

9

The Path for Liberalization

Relief for foreign investors.

Devaluation of Indian rupees.

New industrial Policy.

New trade policy.

Removal of Import Restrictions.

Freedom to import technology.

MRTP relaxation.

10

Advantages

Industrial licensing

Increase in the foreign investment.

Increase in the foreign exchange reserve.

Increase in the consumption and Control over price.

Check on corruption.

Reduction in dependence on external commercial

borrowings.

11

Disadvantages

Loss to domestic units.

Increase in unemployment.

Increased dependence on foreign nations.

Unbalanced development.

12

PRIVATIZATION

Privatization 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.

• In short, it is opening up of an industry that has been

reserved for public sector to the private sector.

• It also replaces government monopolies with the

competitive pressures.

• Encourages efficiency, quality and innovation in the

delivery of goods and services.

13

Need for Privatization

Though the PSUs have contributed heavily to develop

the industrial base of the country, they continue, even

today, to suffer from a number of shortcomings which

are identified below very briefly :-

A sizable number of PSUs have been incurring and

reporting losses on a continual basis;

Multiplicity of authorities to whom the PSUs are

accountable;

14

Contd..

Delay in implementation of projects.

Ineffective management.

Widespread inefficiency in management.

Many PSUs are over-staffed resulting in lower labour

productivity, bad industrial relations.;

The sick units were causing a big drain on the

resources of the state.

15

Different ways of Privatization

Liberalization Approach.

Relative Share Enlargement Approach.

Association of Private Sector Management Approach.

Transfer of Minority Equity Ownership Approach.

Transfer of Complete Ownership Approach.

16

Advantages

Privatization helps to reduce the burden on the

Government.

It will help profit making public sector unit to modernize

and diversify their business.

It will help in making public sector unit to be more

competitive.

It will help to improve the quality of decision making.

Help in reviving sick units which are a liability.

Increase the foreign investment.

Increase in efficiency.

17

Disadvantages

Exploitation of labour.

Abuse of power by Executives.

Unequal distribution of wealth and income.

Lack of job security.

Ignores weaker sections.

Ignores the national importance.

18

Examples of Privatization in India

Lagan Jute Machinery Company Limited (LJMC)

Videsh Sanchar Nigam Limited (VSNL)

Hindustan Zinc Limited (HZL)

Hotel Corporation Limited of India (HCL)

Bharat Aluminum Company Limited (BALCO)

19

Industries reserved for Public Sector

Hazardous Chemicals

Chemical Fertilizers

Atomic Energy Defense

Indian Railways

20

GLOBALIZATION

The term globalization means “International

Integration.”

It is a process through which the diverse world is

unified into a single society.

Opening up of world trade, development of advanced

means of communication, internationalisation of

financial markets, growing importance of MNCs,

population migrations and more generally increased

mobility of persons, goods, capital, data and ideas.

21

22

Globalization – what’s really new?

New Trade and Production Patterns

New trade pattern: Developing countries ,

Don't just have to trade their raw materials to the West

and get finished products in return;

They can become big-time producers as well.

New production pattern: Global product network :

Companies can locate different parts of their production,

research and marketing in different countries

23

Globalization – what’s really new?

New markets

Growing global markets in services

People can now offer and trade services globally --

from medical advice to software writing to data

processing -- that could never really be traded

before.

W-2, W-4, 1099

bonuses & stock

statements

Indian accountantWorld tax

payers24

Globalization – what’s really new?

New rules and norms

Market economic policies spreading around the world,

with greater privatization and liberalization than in

earlier decades.

ex: BRICS

25

Globalization – what’s really new?

New rules and norms

Multilateral agreements in trade, taking on such new

agendas as environmental and social conditions.

New multilateral agreements – for services, intellectual

property , communications – more binding on national

governments than any previous agreements.

26

Foreign Direct Investment (FDI)

Foreign Direct Investment is :

• A category of cross border investment;

• It is made by a resident in one economy(direct

investor) in an enterprise in another economy;

• The objective is to establish a ‘lasting interest’;

• The motivation of direct investor is to build a strategic

long term relationship;

• It is undertaken according to the FDI policy issued by

the Government of India based on FEMA provisions.

27

How is FDI done?

28

There are two routes for a foreign investor to invest in

the equity of an Indian Company, they are :

1. Automatic Route

No approval is required from Government or RBI to

invest in Indian companies if the activities are

mentioned in FDI policy.

2. Government Route

If the activities in which the investor wishes to

invest is not covered under ‘Automatic Route’,

requires prior approval from Government.

Estimated Inflow of FDI

29

FDI Inflow estimate from October to March 2014 :

Year Oct-March(in

US $ Million)

% of

increase/dec

rease

2012-139,577 45%

2013-1411,705 22%

2014-15 14,956* 28%

* Estimated , Source

GOI

FDI inflows in India

0

5

10

15

20

25

30

35

40

2011-12 2012-13 2013-14 2014-15 2015-16

Inflow(US$ billion)

Inflow(US$ billion)

30

2015-16 Estimated, Source GOI

Foreign Market Entry Strategies

Exporting.

Licensing / Franchising.

Joint Venturing.

Merger and Acquisition.

Fully Owned Manufacturing facilities.

Liaison Offices.

31

Major Destinations of India's Exports

64.90

12.53

9.76

4.764.07 4.00

Exports (In Billion $)

USA

UAE

China

Hong Kong

Singapore

Rest of the world

32 Source : Dept of Commerce, GOI

Major Sources of India’s Imports

64.8111.33

8.12

6.47

4.964.31

Import(in $)

China

Saudi Arabia

UAE

USA

Switzerland

Rest of world

33 Source : Dept of Commerce, GOI

Export target and Achievement

0

50

100

150

200

250

300

350

400

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Chart Title

Target Achieved34 Source : Dept of Commerce, GOI

Advantages

Free flow of capital and increase in the total capital

employed.

Free flow of technology.

Increase in industrialization.

Spread of production facilities throughout the globe.

35

Contd..

Balanced development of world economies.

Increase in production and consumption.

Commodities at lower price with high quality.

Increase in jobs and income.

Higher Standard of living.

36

Disadvantages

Loss of domestic industries.

Exploits Human resource.

Decline in income to home country.

Unemployment.

Transfer of natural resources.

Leads to commercial and political colonialism.

Widening gap between rich and poor

Dominance of foreign institutions

37

What is in Store for India?

The present Government is Pro Industrialist and has

started many schemes for improvement of various

sectors. Eg : Make in India.

The Government is signing various trade deals with

developed nations like Japan, U.S.A, Russia.

It is offering easy registration of industries in India in

order to boost the Manufacturing sector.

India is set to become the manufacturing hub of Asia.

The concept of ‘Vasudaiva Kutumbakam’ has much in

store for Future India.

38

Contd..

39

FDI in Insurance to be raised to 49% from the current

26% cap.

FDI in Defense to be raised to 49% or 72% or even

100%.

Employment opportunities.

Estimated GDP growth of 4.7% in FY 14, 5.6% in FY

15 and 6.5% in FY 16.

Wholesale Price Index stands at 1.77% and Retail

Price Index stands at 5.52% as on October.

Contd..

40

Increase in FDI can increase Inflation.

The PSU’s may not be able to withstand the

competition to be faced as more number of foreign

players are entering the Indian economy.

Chances of not being able to tackle the widening

Current account deficit and BOP situation.

Make in India cannot solve all the problems, a more

wider concept of “Make in India, Make for India”

needs to be implemented.

THANK YOU

41

Team members :

• Shravan Rao

• Nikitha Baliga

• Madhusudhan Kamath

• Sr. Juliet Reena

• Mohd. Rameez

• Mohd. Samsheer

• Nishitha

• Shubha

• Venessa Pinto

• Narasimha Kamath