India adopted economic reforms known as Liberalization, Privatization, and Globalization (LPG) in the early 1990s to address a severe economic crisis characterized by high inflation, declining GDP growth and foreign exchange reserves. The reforms aimed to transform India's predominantly agrarian economy into a modern developed one by deregulating industries, reducing trade barriers, and opening the economy to private and foreign investment. This led to increased exports and foreign investment in India, strengthening the economy and making it less vulnerable to external shocks. However, critics argue that globalization prioritizes profits over social objectives and public sector transparency.
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Librelization, Privatization and Globalization
India adopted economic reforms known as Liberalization, Privatization, and Globalization (LPG) in the early 1990s to address a severe economic crisis characterized by high inflation, declining GDP growth and foreign exchange reserves. The reforms aimed to transform India's predominantly agrarian economy into a modern developed one by deregulating industries, reducing trade barriers, and opening the economy to private and foreign investment. This led to increased exports and foreign investment in India, strengthening the economy and making it less vulnerable to external shocks. However, critics argue that globalization prioritizes profits over social objectives and public sector transparency.
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INTRODUCTION
India's post-independence development strategy showed all
the signs of stagnation, but the economy started showing the sign of recovery in the early nineties when the government adopted the new economic model known as Liberalization, Privatization and Globalization (LPG) to meet a grave economic crisis; characterized by unprecedented adverse balance of payment problem, inflation, decline in the foreign exchange reserve and the Gross Domestic Product (GDP) growth rate. The objective of the economic reforms adopted by the Indian Government was to transform a backward and predominantly agrarian economy, lacking in basic infrastructure, into a modern developed economy. New Economic Policy 1991 India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The credibility of country's economy reached the sinking level and no country was willing to advance or lend to India at any cost. The country ran out of foreign exchange reserves. To face the crisis situation, the government decided to bring about major economic reforms to revive Indian economy. These reforms were popularly known as 'structural adjustments' or 'liberalization' or 'globalization'. The government announced a New Economic Policy on July 24, 1991. The new policy deregulates industrial economy in a substantial manner. OBJECTIVES 1. Utilizing fully the indigenous capabilities of entrepreneurs. 2. Fostering research and development efforts for the development of indigenous technologies. 3. Raising investments. 4. Improvement in efficiency and productivity. 5. Controlling monopolistic power. 6. Assigning the right areas for the public sector undertakings. 7. Ensuring welfare as also skills and facilities to the workers to enable them to face new technologies 8. Retaining the capacity to earn our own foreign exchange through exports. 9. To achieve self-reliance CONCEPT OF LIBRALIZATION Liberalization is understood to be the situation of the political economy where the means of production will be in the hands of the market and the economic efficiency is measured in terms of market-defined objectives. Major economic activities are opened for private participation keeping only key issues of welfare and other regulatory mechanism with the state. This opening up of various sectors for private participation and allowing them to manage the businesses for maximizing the profits will clearly underline the freedom available for the market to have their own labour participation practices and deployment of human resources. Liberalisation thus aims minimizing the labour participation and downsizing the workforce in the industry in the name of removing the dead wood to maximize efficiency. POSITIVE IMPACTS 1. Liberalization was reinforced by the conclusion of the Uruguay round of multi-lateral trade negotiation in 1994 and the establishment of WTO. 2. The expansion of regional integration efforts also stimulates the trend towards liberalization. 3. Liberalization policies have significantly widened the effective economic space available to producers and investors. Notes www.iasscore.in Indian Economy . 4. Producers and investors behave as if the world economy consisted of a single market and production platforms with regional or national sub-sections rather than as a set of national economies linked by trade and investment flows. 5. However, liberalization is also endangered by the rise of national protectionism and the use of economic sanctions by the leading economic powers. NEGATIVE IMPACTS The economic reforms of the 1990s swept away the oppressive licensing controls on industry and foreign trade, allowed the market to determine the exchange rate, drastically reduced protective customs tariffs, opened up to foreign investment, modernised the stock markets, freed interest rates, strengthened the banking system and began privatisation of public enterprises. Airline, telecom, TV broadcast and insurance were opened for private players. The consequences have been far- reaching. First, the opening up of foreign trade and investment (and a competitive exchange rate) boosted exports, services and inward remittances enormously; today they account for 20 per cent of the GDP compared to 10 per cent in 1990. Flourishing external commerce and rising foreign investment dethroned the baleful deity of "foreign exchange scarcity", which had justified four decades of dreadful economic policy and draconian, corruption-spawning controls. Today's open economy is more productive and more resilient to shocks like high oil prices. With over $140 billion of forex reserves, strong exports and low external debt, the recent surge in global oil prices has not derailed the economy's forward momentum. CONCEPT OF PRIVATISATION Privatization is a process that reduces the involvement of the state or the public sector in the economic activities. Privatization implies many on the government sectors are sold or given to private individual hands to run them. Privatization is frequently associated with industrial or service-oriented enterprises, such as mining, manufacturing or power generation, but it can also apply to any asset, such as land, roads, or even rights to water. In recent years, government services such as health, sanitation, and education have been particularly targeted for privatization in many countries." In recent years, privatization has been suggested as a measure to cure problems related to the public sector such as mounting losses, low profitability, and underutilization of capacity, etc. There has been rising interest in privatization process in the developing countries in the recent past. Privatization is an essentially effective tool for restructuring and reforming the public sector enterprises running without significant aim and mission as private sector is perceived to be fundamentally more self motivated, prolific and reliable for superior quality of products and services. POSITIVE IMPACTS 1. Microeconomic Advantages a. State owned enterprises usually are outdone by the private enterprises competitively. When compared the latter show better results in terms of revenues and efficiency and productivity. Hence, privatization can provide the necessary impetus to the underperforming PSUs. b. Privatization brings about radical structural changes providing momentum in the competitive sectors. c. Privatization leads to adoption of the global best practices along with management and motivation of the best human talent to foster sustainable competitive advantage and improvised management of resources. 2. Macroeconomic Advantages a. 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. b. The net transfer to the State owned Enterprises is lowered through privatization. c. Helps in escalating the performance benchmarks of the industry in general. d. it can initially have an undesirable impact on the employees but gradually in the long term, shall prove beneficial for the growth and prosperity of the employees. e. Privatized enterprises provide better and prompt services to the customers and help in improving the overall infrastructure of the country. NEGATIVE IMPACTS Privatization in spite of the numerous benefits it provides to the state owned enterprises, there is the other side to it as well. Here are the prominent disadvantages of privatization: 1. Private sector focuses more on profit maximization and less on social objectives unlike public sector that initiates socially viable adjustments in case of emergencies and criticalities. 2. There is lack of transparency in private sector and stakeholders do not get the complete information about the functionality of the enterprise. 3. Privatization has provided the unnecessary support to the corruption and illegitimate ways of accomplishments of licenses and business deals amongst the government and private bidders. Lobbying and bribery are the common issues tarnishing the practical applicability of privatization. 4. Privatization loses the mission with which the enterprise was established and profit maximization agenda encourages malpractices like production of lower quality products, elevating the hidden indirect costs, price escalation etc. 5. Privatization results in high employee turnover and a lot of investment is required to train the lesserqualified staff and even making the existing manpower of PSU abreast with the latest business practices. CONCEPT OF GLOBALISATION Broadly speaking, the term 'globalization' means integration of economies and societies through cross country flows of information, ideas, technologies, goods, services, capital, finance and people. Cross border integration can have several dimensions - cultural, social, political and economic. The Policies and developments in many countries including India are influenced by the globalization. Globalization is not only a movement of ideas, information, capitals, people, technologies, goods and services, and labour across the nation-states but has serious implications on socio-economic and political sphere of life. Limiting ourselves to economic integration only, one can see the three channels of globalization (a) trade in goods and services, (b) movement of capital and (c) flow of finance and (d) movement of people. The globalization through economic integration has been presented as the best, natural and universal path towards development of mankind (e) The integration of the national economy with that of the global economy. (f) The conversation of a national market into an international one, which facilitates the international mobility of factors like production or commodities. POSITIVE IMPACTS 1. Multilateral agreements in trade, taking on such new agendas as environmental and social conditions. 2. New multilateral agreements for services ,Intellectual properties, communications, and more binding on national governments than any previous agreements. 3. Market economic policies spreading around the world, with greater privatization and liberalization than in earlier decades. 4. Growing global markets in services. People can now execute trade services globally -- from medical advice to software writing to data processing , that could never really be traded before. 5. Physical and geographical boundaries are crumbling and the world is becoming a global village. Nation states today no longer have to play market-making role, so wool, wine, perfumes can belong to any market anywhere in the world. 6. With nation states and nationalities disappearing, ethnicities and national loyalties are fading out. Customers are only concerned about the products quality, price, design, value and appeal. NEGATIVE IMPACTS 1. Adverse Impact on Autonomy of State Globalization is also known to constrain the authority and autonomy of the state. Free trade limits the ability of states to set policy and protect domestic companies. Capital mobility makes generous welfare states less competitive; global problems exceed the grasp of any individual state; and global norms and institutions become more powerful. 2.Adverse Impact on Culture Globalization leads to cultural homogeneity: and diminish difference; global norms, ideas or practices overtake local mores. Many cultural flows, such as the provision of news, reflect exclusively western interests and control; and the cultural imperialism of the United States leads to the global spread of American symbols 3. Change in Structure of Trade India's share in trade of agriculture products with developed countries has declined. These countries are getting many subsidies by WTO. On the other hand, developing countries are rejected on the bans of sanitary and phytosanitary consideration. Bankruptcy of many Employment Generating Firms Globalization has rendered many companies and their operations redundant. So either they are closed, wholly or partly, or are hived off or their ancillary units are declared sick. CONCLUSION The present endeavor is an effort to find out civil society's responses to foreign direct investment particularly in Indian context. The study explores the role and reactions of nongovernmental organizations vis-a-vis multinational companies. When state is rolling back, under liberalisation, NGO's have to fulfill the gap between state and individual. In a developing country like India, there are numerous gaps left by the government in the development sector, sometimes deliberately and sometimes because of lack of funds and awareness. These are the gaps that many NGOs are trying to fill in modern India. They have come up to work in areas like education, healthcare, rescue and relief operations in natural calamities, where the government's effort had proved inadequate. The relationship between state and market in 21st century is m great debate. The effectiveness of the state and market in economic intervention depends on the nature of the state and the structure o.f market. Since their inception, state has always tried to intervene in market. Till World--War II, state and market were rival to each other. But in the era of globalization, the role of the state as producer and distributor of resources has diminished. Its role as regulator has been increased. Further, liberalization and privatization has reduced the welfare activities of the state.