Indian Economic Development Chapter 3 Liberalisation, Privatisation And Globalisation : An Appraisal

The World Trade Organisation was founded in 1995 as the successor organisation to the General Agreement on Tariffs and Trade (GATT).

An economic policy which gives relaxations to enable entrepreneurs to make their decisions themselves and open freedom to economic activities at all levels is termed as policy of economic liberalisation.

Privatisation may be defined as transfer of ownership and control from the public sector to the private sector.

Globalisation means the integration of economies worldwide through trade, financial flows, technology spillovers and information networks. It means the unification or integration of domestic economy with the rest of the world through trade, capital and technology flows.

It emphasized a shift towards private sector because public sector undertaking were not forming well and a number of them were running into losses.

The rate of growth of private sector industries was slow before 1991 because restrictions and strict regulations were hindering the growth of private sector industries.

The reason was the protection of domestic industries from foreign competition.

India had to face the serious balance of payment position because imports were more than exports.

Abolition of system of industrial licensing and controls.

Under the MRTP Act, no company was allowed to increase its investment beyond 100 crores or set up a new unit.

Delicensing of industries and amendment in MRTP Act.

Sale of part of government shareholding in public sector undertakings to financial institutions, mutual funds and general public.

It refers to investment directly undertaken by the foreign companies and nationals in various sectors of the economy.

It indicates the borrowing requirements of the government.

Tax concessions and subsidies to exporters.

The new economic policy was adopted in 1991.

It was just enough to pay for two weeks of imports.

Private sector was subject to a number of restrictions and the licensing policy did not favour the growth of private sector.

Industrial policy 1991 aimed at privatisation, globalisation and liberalisation of the economy. It is different from previous policies because it assigns more importance to private sector, stressing on delicensing, disinvestment and reduces restrictions on imports.

Changes in fiscal, monetary exchange rate and wage income policy and reforms in trade policy, industrial policy, public sector, administed prices and tariff policy.

An attribute of a currency which is freely exchangeable for another currency or for gold is called free convertibility.

The most important function of Reserve Bank of India is to interfere in banks lending operations, capital adequacy and accounting norms for safeguarding the interests of the account holders and to regulate the total volume of lending and interest rates in public interest.

RBI is the Central Bank of India. It controls the commercial banks in various ways. It grants permission for banking activity It frames the policies regarding interest rate, volume of lendihg and safeguards the interests of account holders.

A fall in the fixed exchange rate between one currency and the others is called devaluation. To increase exports of the country, devaluation of Indian currency was adopted from time to time.

To keep a check on the growth of imports, tariffs are imposed.

A more liberal and productive foreign investment policy has been initiated to attract more foreign direct investment. That is why there is no restriction on flow of capital from one country to another.

The sale of goods related to war material is called strategic sale. Such type of commodities are under the government control in India.

The restrictions related to the quantity of goods purchased from other countries as in the case of readymade garments where USA is using these restrictions while purchasing from India and China.

By economic reforms we mean a change in the set of policies from one period to another.

The economic reforms programme was introduced in the Indian Economy in 1991.

The components of new economic policy are (i) Liberalisation, (ii) Privatisation and (iii) Globalisation.

The main aim of new economic policy is to make our production units more efficient and highly productive.

1. Defence equipment, 2. Atomic energy generation and 3. Railway transport.

Industrial sector growth has slowed down due to availability of cheaper imports and lower investment.

The objective of the WTO is to establish a rule based trade regime to ensure optimum, utilisation of world resources.

The Indian economy was facing the problems of decling foreign exchange, growing imports without matching rise in exports and high inflation.

India changed its economic policies in 1991 due to a financial crisis and pressure from international organisations like the World Bank and IMF.

The service sector registered growth during the reforms.

Major external reforms included foreign exchange, degradation and import liberalisation.

Licenses are still necessray for the following six industries:

(i) Alcohol, (ii) Cigarettes, (iii) Hazardous Chemicals, (iv) Industrial Explosives, (v) Electronics, (vi) Aerospace and drugs.

During the period between 1st and 6th five year plans, public sector was assigned the leading role in the process of growth and development.

Fiscal deficit means difference between the total expenditure and total receipts minus loans.

On account of continuous increase in its non-development expenditure.

Balance of payments is the difference between total receipts and total payments of a country on account of its economic transactions with the rest of world.

Payment for imports and receipts for exports are the two principal items of balance of payments.

Sources of foreign exchange are (i) Earning by exporting goods and service and (ii) Remittance by NRIs.

Problem of adverse balance of payments arise when receipts of foreign exchange fall short of their payments.

Fiscal policy refers to revenue and expenditure policy of the government.

(i) Income tax (ii) Wealth tax

Devaluation implies lowering the value of one’s currency in relation to other currencies of the world.

The objectives of New Economic Policy are:

(i) To reduce the domestic inflation rate.

(ii) To improve the efficiency and productivity of the economy.

(iii) To put the economy back on the path of sustainable growth with social justice.

(iv) To improve the balance of payment situation.

(a) Current Account consists of two sub-groups (a) Merchandise or the Trade Account (b) Invisible Account. In the trade or merchandise account, only transactions relating to physical goods are entered. The invisible account comprises the services account. The services account records all the services rendered and received by residents of the nation. It includes banking and insurance charges, interest and loans, tourist's expenditure, transport charges etc.

Capital Account : Capital Account deals with the financial transactions of all kinds of short term and long-term international capital transfers. It deals with the payments of debts at international level. Main terms of capital account are listed below.

(a) Private loans, (b) Movement of banking capital, (c) Official capital transactions, (d) Reserve monetary gold and special drawing rights (SDR), (e) Gold movement, (f) Miscellaneous.

(b) Import Substitution and Export Promotion:

Ans. Import Substitution : It implies indegenous production of raw material, intermediate goods and final consumer and capital goods that had been imported. Import substitution was the major objective of India's foreign trade policy during first fifteen years of economic planning. The progress of import substitution in the country has been quite satisfactory. Indigenous production of capital goods has also expanded very fast and the country became self sufficient in their production too. In order to protect the domestic industries, there were quantitative restrictions on imports. This was encouraged through tight control over imports and by keeping the tariffs very high.

Export Promotion : It is a multidimensional activity. Export promotion measures adopted by the government have embraced a number of areas like prodcution for export, quality control, packaging, export credit and finance, export incentives and assistance, export marketing etc.

BPO stands for Business Process Outsourcing Voice based business processes BPO is becoming popular day by day. Outsourcing means a company going out to a source outside the company to buy a regular service that formerly used to be provided departmentally and internally like legal advice, computer service, advertisement, security, each provided by respective departments of the company. As a form of economic activity, outsourcing has intensified. In recent times by the growth of fast modes of communications and information technology, many services have come order BPOs such as record keeping, accountancy, banking, music recording, film editing, book transcription. Clinical advice or even teaching are being outsourced by companies in developed countries to India. Many multinational companies are outsourcing their services to India at cheaper cost with reasonable degree of skill and accuracy.

The following PSUs are partly privatised:

1. Oil and Natural Gas Commission.

2. Steel Authority of India.

3. Shipping Corporation of India.

4. National Aluminium Corporation.

5. Hindustan Machine Tools Limited.

As a form of business activity, outsourcing has intensified by the growth of fast modes of communications and particularly information technology. Many of the services such as voice based business processes like record keeping, banking services etc. are being outsourced by companies in developed countries to India. Most of the multi-national corporationsare outsourcing their services to India, where they can be performed at a cheaper cost with reasonable degree of skill and accuracy. India where wages are low and skilled workers are plentiful is able to take advantage of the competitiveness of her manpower.

The developed countries are opposing it because due to outsourcing the unemployment is increasing in those cuntries where the wage rates are higher. India is gaining in it. Several lakhs young people have got employment in call centres.

India has certain advantages. Lie cheap, trained and educated labour force. English speaking people are in large number, who are ready to work at cheaper rates than in other countries. Hence, India is able to take advantage of the competitiveness of its manpower.

New Industrial policy has a new approach to public enterprises. Under this policy, only a few core industry groups are reserved for public sector.

During the initial stage of planning, public sector was justifiable because huge amount of investment was required in heavy and basic industries. The private enterprises did not possess that kind of resources. Those who argue for privatisation say that most of Public Sector Enterprises are incurring losses, they suffer from inefficiency and lack of accountability and are sick. These enterprises have not solved the problems which they were expected to solve. They have become problems themselves, so they should be privatized. Profit-making enterprises should not be privatized.

India has been benefitted from the process of economic reforms and liberalisation, the rate of economic growth is increasing. The rate of growth of GDP was 5.6% during 1981-82 to 1990-91. During this period, the rate of growth in service sector was 6.7%. After adopting the new economic policy while the growth rate was 6.4%, the growth rate in service sector was 8.2 percent. So it is clear that the liberalisation and privatisation policy are responsible for the fast growth rate in service sector. For the period 2002-07, the projected growth rate in service sector is 8.0%

During the last decade after adopting the new economic policy public expenditure is decreasing. Due to the wave of privatisation the government is not investing in public sector enterprises. The government has realised that they do not have the resources enough to invest in the public enterprises. So the private sector is being encouraged and allowed to operate in the areas reserved exclusively for the public sector. Several public sector enterprises have been sold during the period 1991-2005. Disinvestment policy is in process. That is why the public expenditure is decreasing.

High procurement prices give farmers the incentive to produce more. To support the high prices, the Food Corporation of India (FCI) has to buy more and stocks of food grains rise. The government has to finance the maintenance of the addition to stock. The massive food grain stocks with the government should be utilized for poverty alleviation programmes financed though investment in food stocks will help in increasing the supply of the food grains.

The World Trade Organisation (WTO) was founded in 1995 as the successor organisation to the General Agreement on Tariffs and Trade. WTO is expected to establish a rule based trading regime in which member countries cannot place arbitrary restrictions on trade. The purpose was to enlarge production and trade of services to ensure optimum utilisation of world resources and to protect environment. The WTO agreement covers trade in goods and services both through removal of tariff as well as non-tariff barriers and providing greater market access to all member countries.

India is a developing country. It does not have the access to developed countries market because of high non-tariff barriers. Although all quota restrictions on export of textiles and clothing have been removed but the developed countries have not removed their quota restriction on import of textiles from India. On the other hand, the government started to reform the power sector. The most important impact of these reforms is high hike in power tariff. The impact of high tariff on power energy has been very serious. The power producers have failed in providing quality power to powerloom industry. The wages of the powerloom workers are linked to the production of cloth. Power cuts means cut in wages of weavers. This has led to crises in the livelihoods of the weavers. In such a situation, we cannot say that there is a scope in handloom exports.

Liberalisation : It means removing unnecessary trade restrictions and making the economy more competitive. New economic policy liberated the private sector from strict control and licensing.

Restriction : If restrictions are imposed on economic activities by government policies, it is called the policy of restriction. No real economy is completely free of restrictions when these restrictions are removed.

The main objectives of new industrial policy are:

(i) To generate more employment opportunities.

(ii) To render public sector profitability.

(iii) To grant more freedom to private sector.

(iv) To maintain continuity and increased production.

Monetary measures play an important role in the development of a country. Under the new economic policy, several steps have been taken. On the recommendations of Narasimham Committee, following measures have been adopted:
(i) Abolition of direct credit programmes.

(ii) Free determination of interest rate.

(iii) Reconstitution of banking system.

(iv) More freedom to banks.

(v) Improvement in banking system.

(vi) Reduction in liquidity ratio.

The main causes of Globalisation are as follows:

(i) Rapid growth of research and development.

(ii) Removal of artificial barriers to the movement of goods, services and capital.

(iii) Spreadout of the manufacturing processes by the large companies.

(iv) Deregulation of money market.

(v) Improvement in communication media and information technology.

After the economic crisis of 1991, the government implemented new industrial policy, new licensing policy, trade policy and foreign investment policy. When India accepted the Dunkel proposals and the membership of WTO, the globalisation of Indian economy became quite by imperative. Multinational companies have started infiltrating in all segments of Indian economy. The government removed the restrictions on imports and reduced the tariff rates. Economic activities are now to be governed both by the domestic market as well as the world market.

Since independence, India followed the Mixed economy framework by combining the advantages of the market economic system with those of the planned economic system. However, over the years, this policy resulted in the establishment of a variety of rules and laws which were aimed at controlling and regulating the economy which instead ended up hampering the process of growth and development. In 1991, India met with an economic crisis relating to its external debt. i.e. the government was not able to make repayments on its borrowings from abroad. Foreign exchange reserves dropped to levels that were not sufficient for even a fortnight. The prices of essential goods touched a new height All this led the government to introduce reforms in India.

Strategic Sale : When the shares of Public Sector Undertakings (PSUs) mainly Navarators are sold to public, it is called Strategic Sale.

Minority Sale : When shares of ordinary (small) public sector undertakings are sold to public, it is known as Minority sale. In this type of sale, the government keeps some kind of control with itself.

The trade between two countries is called bilateral trade and between more than two countries. It is called multi-lateral trade.

The barriers related to export and import duty are called tariff barriers and which are related to quota etc. are called non-tariff barriers to check the imports from other countries.

In 1996, in order to improve efficiency and to infuse professionalism, and enable the public sector undertaking to compete more effectively in the liberalised global environment, the Government chose Nine Public Sector Undertakings (PSUs) and declared them as navaratanas. They were given greater managerial and operational autonomy in taking various decisions to run the company efficiently and thus increase their profits.

The granting of navaratanas status resulted in better performance of these companies.

Gradually, the government has decided to help these Navaratanas in becoming independent so that they can expand themselves in the global markets and raise resources by themselves from financial markets.

Following public sector undertakings have been declared navaratnas:

(i) Indian Oil Coproration (IOC).

(ii) Bharat Petroleum Corporation Ltd. (BPCL).

(iii) Hindustan Petroleum Corporation Ltd. (HPCL).

(iv) Oil and Natural Gas Corporation Ltd. (ONGC).

(v) Steel Authority of India (SAIL).

(vi) Indian Petrochemical Corporation Ltd. (IPCL).

In India, regulatory mechanisms were enforced in the following four ways:

1. Industrial licensing under which every entrepreneur had to get permission from government official to start a firm, close a firm or to decide the amount of goods that could be produced.

2. Private sector was not allowed in many industries.

3. Some goods could be produced only in small scale industries.

4. Control on price-fixation and distribution of selected indsutrial products.

The reforms have not been able to benefit agriculture, where the growth rate has been increasing. The most important phenomenon is the existence of large food stocks in the country, with more than 250 million people below the poverty line. Per capita availability of food grains and nutritional quality have been declining despite mounting stocks of food grains. The prices of food grains are increasing not because of physical shortage of food grains but the policy of curtailing the food grain subsidy and increasing the prices at which food grains were supplied through public distribution system (PDS). Cuts in subsidies given to the food grain producers also raised prices of food grains. The burden of such cuts is passed on to the consumers. The government sets high prices at which consumers cannot afford to buy the food grains because they do not have adequate purchasing power. Higher prices also reduce the demand and the poor consumers are hurt. High procurement prices give farmers the incentive to produce more. To support the high prices, food corporation of India has to buy more and the stocks of food grains rise. When the government reduces the expenditure, irrigation and road linkage facilities also suffer. Research and development in agriculture is also lagging behind. There is a shift from production for the domestic market towards production for the export market. Cash crops are produced for exports at the cost of production of food grains.

The main components of new economic policy are as follows:

(i) New Industrial Policy : Following steps have been taken in the new industrial policy:

(a) Concession from Monopolies Act.

(b) Liberalisation.

(c) Expansion of Private Sector.

(d) Contraction of Public Sector.

(e) Foreign technology agreements.

(f) Foreign direct investment.

(ii) New Trade Policy : The objective of new trade policy is to liberate foreign trade from several restrictions to make it more competitive. The main features of this policy is globalisation of Indian economy and free interaction of the economy with developed countries of the world in the field of production, trade and finance. It is to encourage foreign trade and investment by removing all restrictions.

(iii) New Fiscal Policy : The objective of the new fiscal policy is to bring down fiscal deficit. Taxation system has been made more scientific and rational. Maximum rate of income tax has been reduced from 50 percent to 30 percent.

(iv) New Monetary Policy : On the recommendations of Narasimham Committee, significant monetary reforms has been introduced. Liquidity ratio have been reduced. Banking system has been reformed and more freedom has been given to the banks. There was a focus of financial reforms to make available credit to the producers at low rate of interest.

(i) Decreasing Role of Public Sector : In the new industrial policy only four industries are reserved for public sector. They are defence equipment, atomic energy, mining, minerals and railway transport.

(ii) Expansion of Private Sector : In New Industrial Policy, the role of public sector is reduced and the private sector is allowed to increase capacity. As a result of expansion of privatisation, productivity and efficiency are likely to increase.

(iii) Liberalisation : In new industrial policy, liberalisation policy has been adopted in place of controlled economy. Except six industries, all other kinds of industrial licenses have been abolished. Producers are now free to decide what goods are to be produced, on the basis of market demand.

(iv) Concessions from Monopolies Act : Companies included in Monopolies Act have been given large scale concessions. In respect of MRTP Companies, the capital investment limit, fixed earlier, has been removed.

(v) Foreign Direct Investment : Foreign direct investment limit has been increased from 40 percent to 51 percent.

(vi) Foreign Technology Agreement : In the new industrial policy high priority industries need not seek approval to enter into foreign technology agreement.

1. As a result of economic reforms, the growth rate of the economy has also gone up. Production of both agricultural and industrial sector has increased.  

2. Indian economy is marked by a number of inefficiences. The new economic policy will improve the efficioncy. New economic policy will create pressures of competition which help in improving efficiency level.               

3. As a result of new economic policy, export growth rate has increased, foreign direct investment has risen, and the ratio of external debt to GDP has also fallen. 

4. It is expected that fiscal deficit will come down and inflation rate will remain under control. 

5. The new economic policy has helped to tide over the immediate balance of payment crisis. 

1. The main criticism of this policy is that it has neglected agriculture sector. It is wrong to think that Indian economy can be developed entirely on the basis of industrialisation.

2. It is said that Indian government has stressed on liberalisation and globalisation under the pressure from international monetary fund and World Bank who are trying to impose their own conditions of lending.

3. More dependence on foreign debt will put India into debt trap.

4. New economic policy has given more importance to foreign technology. The govenrment has allowed the imports of technology. Superior technology is the monopoly of multinationals. It is the capital intensive technology. It will hurt the indegenious know-how.

5. The new policy has encouraged the production of comforts and luxuries. Demonstration effect would multiply the demand of luxury goods.

6. Essential commodities will be in shortage. Unemployment will increase because of new economic policy.

The World Trade Organisation was founded in 1995 as the successor organisation to the General Agreement on Tariffs and Trade (GATT). GATT was established in 1948 with 23 countries to provide equal opportunities to all countries in international market for trading purpose. WTO is expected to establish a rule-based trading. The purpose regime to enlarge production and trade of services to ensure optimum utilisation of world's resources and to protect environment. The WTO agreements cover trade in goods as well as services to facilitate international trade through removal of tariff and non-tariff barriers and providing greater market access to all member countries.

As a member of WTO, India has been in the forefront of framing fair global rules, regulations and safeguards and advocating the interest of developing world. India is committed to liberalise its trade regime in accordance with the consensus on other reforms. 

India has benefitted from the process of economic reforms and liberalisation. The rate of economic growth is now predicted to be about 8% per year compared to 3-4% in the last decade. India's total foreign exchange reserve is increasing. Now India is a successful exporter in autoparts, engineering goods, information technology, software and textiles.

The table below shows that GDP growth rate is increasing. Agricultural growth rate has gone down : Service sector has developed by 7.8%.

Table 3.2 : Growth of GDP in %

Globalisation : It means the integration of economies worldwide through trade, financial flow, technology and information network. It refers to the growing economic interdependence of countries worldwide through the cross-border transactions in goods and services.

Components of Globalisation:

(i) Free flow of technology.

(ii) Free movement of labour force among different countries of the world.

(iii) Free flow of capital among different countries.

(iv) No restrictions on foreign investment.

(v) Reduction in trade barriers.

Industrial sector has performed poorly in the reform period mainly because of following reasons:
1. Because of the New Economic Policy of 1991, and other reforms India was forced to open its economy for Multinational Corporations and other economies. In the web of globalisation, superior quality goods and services started dominating the economy which seriously hampered the growth of local industrial production.

2. Shortage of electricity and other essential raw materials adversely affect the quality of goods produced and also pose hurdles in the timely availability of goods and services.

3. India has lifted all control and quota restrictions on the exports of readymade clothes under 'Multifibre Agreement' but USA is not reedy to lift quota restrictions on imports of readymade clothes (textiles) from India and China.

In the light of social justice and welfare, economic reforms have resulted in the growth of GDP from 6.1 to 8% during 10th five year plan. It has also caused the growth of small scale industries. India is becoming pioneer producer in the field of engineering goods, telecommunication, readymade clothes etc. inflation has also been controlled. However, economic reforms have adversely affected the growth of agriculture sector. It has resulted in widening the inequalities among people, or states. Further, it has increased the income and quality of consumption of only high income groups and the growth has been concentrated only in some select areas in the services sector such as telecommunication, information technology and finance, entertainment, travel and hospitality services and real estate and rather than vital sectors such as agriculture and industry which provide employment and livelihood to millions of people in the country

1. Growing Unemployment : Though the GDP growth rate has increased in the reform period, scholars point out that the reform led growth has not generated sufficient employment opportunities in the country. Employment opportunities have been created at the upper end of the scale. Technologists, management personnel, engineers and other high skilled personnel are in great demand. But employment opportunities at the lower end for unskilled personnel are missing. The poor unskilled labour forces continue to work in low-productivity jobs drawing low irregular wages.

2. Neglect of Agriculture : During the reform period agriculture sector has been neglected. The growth of agriculture sector has declined whereas the growth of service sector has gone up. During the last 16years (1990-91 to 2005-2006) of economic reforms, the rate of food-grains has been less than the rate of growth of population. Decline of the growth of agriculture sector implies a setback to the principal source of livelihood of masses in India. Indeed neglect of agriculture implies spread of poverty.

3. Growing Personal Disparities : Growth has come to be concentrated to a few areas and regions. They are experiencing unprecedented prosperity. But a large part of the country remains untouched by these. As a result personel, disparities are increasing.

4. Infrastructural inadequacies : Infrastructure facilities remained inadequate.

5. Wide-spread Poverty : Though the standard of living has improved with the growth rate, but still poverty is wide-spread in the country. About one-forth of the total population ie.about 260 million persons are not a position to earn even bare means of subsistence.

Differentiate between Tariff and Quota:

These are differences between Direct Taxes and Indirect Taxes:

Laissez faire system refers to a system in which there is no intervent by the state in the functioning of an economy.

In the context of public sector enterprises in India 'Navratans' refers to nine such industries which are compared with nine courties in the court of king Vikramaditya who were men of eminence and rare wisdom.

Foreign direct investment (FDI) refers to investment by foreigners in the terms of their business establishments in India. It implies ownership and control of business.

FII refers to investment in Indian companies by the foreign banking and non banking institutions.

Foreign investment includes FDI and FII.

The basic problem that forced us to have a u-turn in our polices in 1991 was economic crisis relating to its external debt. By the end of June,1991 the country encountered an unprecedented economic crisis. The situation was so alarming that our reserves of foreign exchange were merely enough to pay for two weeks imports. New loan were not available. Large amounts were being withdrawn from the acounts of Non Resident Indians (NRIs). The crisis was further compounded by rising prices of essential goods. Industrial growth was scraping the bottom. Faith of international community in Indian economy was shaken. All these led the government to introduce a new set of policy measures which changed the direction of our developmental strategies.

(a) Obvious gains of privatisation:

(1) Privatisation promotes consumer's sovereignty.

(2) Privatisation results into high productivity.

(3) It promotes diversification of production.

(4) It leads to upgradation and modernisation of enterprises.

(b) Imperative losses:

(i) Weaker sections of society suffer deprivation in privatisation.

(ii) Social interest in ignored.

Outsourcing refers to the system of hiring business services from the outside world. These sources include call-centres, transportation, clinical advice etc.

Privatisation:Privatisation implies shedding of ownership or management of a government owned enterprise. It is the transfer of a function, activity or organisation from the public sector to private sector.

Various ways of privatisation:There are two ways of privatisation:

(i) By withdrawal of the government from ownership and management of public sector companies and (ii) by outright sale of public sector companies.

Difference between privatisation and nationalisation:In privatisation, there is transfer of an organisation from government sector to private sector, whereas in nationalisation, there is transfer of an organisation from private sector to public sector.

The Navratnas are as under:

1. Indian Oil Corporation Ltd. (IOCL)

2. Bharat Petroleum Corporation Ltd.

(BPCL)

3. Hindustan Petroleum Corporation Ltd.

(HPCL)

4. Oil and Natural Gas Corporation Ltd.

(IONGC)

5. Steel Authority of India Ltd. (SAIL)

6. Indian Petrochemicals Corporation Ltd.

(IPCL)

7. Bharat Heavy Electricals Ltd. (BHEL)

8. National Thermal Power Corporation Ltd.

(NTPC)

9. Mahanagar Telephone Nigam Ltd.

(MTNL)

10. Gas Authority of India Ltd. (GAIL)

11. Videsh Sanchar Nigam Ltd. (VSNL)

Siricilla is a small town in Andhra Pradesh. It is house of powerlooms. Most of the people living in Siricilla are powerloom workers. Their wages are linked to the production of cloth. Power cut means cut in wages of weavers. This led to a crises in the livelihood of the weavers and fifty powerloom workers committed suicide.

The two components of NEP 1991 are : (i) macro-economic stabilisation and (ii) structural measures.

IMF, 2. World Bank and 3. WTO.

7 billion.

World Bank and IMF expected India to liberalise and open up the economy by removing restrictions on the private sector, reduce the role of government in many areas and remove trade restrictions between India and other countries.

Stock exchange is that market where shares etc. are purchased and sold.

Foreign exchange markets are those markets where foreign exchange is sold and purchased.

Some of profit making public sector undertakings have been given the status of ‘Navratans’ in order to improve efficiency, infuse professionalisation and enable them to competed more effectively in the liberalised global environment.

Navratnas were granted greater managerial and operational autonomy in taking various decisions to run the company efficiently and thus increase their profit.

The granting of Navratna status results in better performance of these companies.

These are 97 mini-ratnas.

Foreign exchange reserve means the reserve which is maintained by a country to import control and other important items.

They were only 1.8 billion dollars which was sufficient for not more than two weeks.

Inflation means continuous increase in prices.

(i) Fiscal deficit, (ii) Revenue deficit and (iii) Deficit of current account of balance of payment.

Fiscal deficit means difference between total expenditure of government and total receipts (excluding borrowings) of government. It is equal to total loan taken by government.

Main cause of increasing fiscal deficit was heavy increase in non-development expenditure.

Multilateral trade agreement involves more than two countries, whereas bilateral trade agreement involves only two countries.

These are difference between first generation reforms and second generation reforms:

These are difference between stabilisation measures and structural reform measures:

The statement means that the loan of seven billion dollar was tied up with the reform policies i.e. liberalisation, privatisation and globalisation. In other words, loan was given on the following terms and conditions :

1. India will adopt the policy of liberalisation and will open up the economy by removing restrictions on private sector.

2. It will remove restrictions on the private sector.

3. It will remove the role of the government in many areas.

4. It will remove trade restrictions between India and other countries.

The scholars say that instead of facilitating Navratna enterprises in their expansion and enabling them to become global players, the government partly privatised them through disinvestment.

Liberalisation and Privatisation are strategy relating policies and Globalisation is the result of two policies i.e. liberalisation and privatisation.

Three multinational financial institutions:

Aims of structural reform policies are:

1. To improve the efficiency of the economy.

2. To increase the international competitiveness by removing the rigidities in the various segments of an economy.

The aims of stabilisation measures are:
(i) To correct some of the weakness that have developed in the balance of payments.

(ii) To bring inflation under control.

(i) Liberalisation, (ii) Privatisation and (iii) Globalisation.

(i) Korea, (ii) Singapore and (iii) Thailand.

1. Commercial Banks

2. Investment Banks

3. Foreign Exchange Market

Reserve Bank of India.

Under liberalisation, there was a substantial shift in role of RBI. Earlier it was a regulator. As a regulator it itself fixed the interest rate structure for the commercial banks. After liberalisation, it became a facilitator. As a facilitator it facilitates free play of the market prices and leave it to the commercial banks to decide their interest rate structure.

A.

1995

B.

Geneva

A.

1935

B.

World Trade Organisation

B.

1991

B.

Three elements

C.

Fifty

C.

Urban concentration

C.

Drift from monopoly market to competitive market.

C.

Emphasis on simple and moderate tax structure.

C.

The Reserve Bank of India