LIBERALIZATION, PRIVATIZATION AND GLOBALIZATION

1.What is economic reforms?

2.what is liberalization?

3.what is privatization?write the Advantages and disadvantages of privatization.

4.what is globalization? Write the Advantages and disadvantages of globalization.

5.what is meant by second generation reform?

LIBERALIZATION:

Liberalization means elimination of state control over economic activities.
Liberalization occurs when something which used to be banned is no longer banned,orwhen government regulations are relaxed. Economic liberalization is the reduction of state involvement in the economy.The basic aim of liberalization was to put an end to those restrictions which became hindrances in the development and growth of the nation. The loosening of government control in a country and when private sector companies’ start working without or with fewer restrictions and government allow private players to expand for the growth of the country depicts liberalization in a country.
The major aspects of liberalization in India are:

1. Pricing of goods to be done by producers. providing more opportunity to private Enterprises and capital.
   Removal of restrictions on movements of good and services.
   Liberalization of capital and money market. tax rates have been reduced and rationalised.
2. Liberalization of foreign investment:
   Prior approval was required by foreign companies ,but now it done automatically approvals were given for foreign direct investment to flow into the country.
3. Abolition of licensing:
   NIP 1991 abolished licensing for most industries except five industry of strategic significance.
4. Liberalization of foreign Technology imports:
   When projects for imported capital good are required ,automatic licence would be given for foreign Technology imports upto 2 million US dollar.
5. Relaxation of locational restrictions:
   No more requirement is needed for obtaining approval from the central government for setting up Industries anywhere in the country except those specified under compulsory licensing or in cities with population exceeding one million.
6. Public sector reforms:
   Greater autonomy was given to the PSUs
   through the MOUs.
7. Phased manufacturing programs:
   Under PMP any Enterprise had to progressively substitute imported inputs, components with domestically produced inputs under local content policy.
8. Foreign exchange Regulation Act was liberalized in 1993 and later foreign exchange management Act 1999 was passed to enable foreign currency transactions.
9. .MRTP Act:
   Monopolies and restrictive trade practices act has been abolished.

PRIVATIZATION:

Privatization is the transfer of control of ownership of economic resource from the public sector to the private sector.
It is also sometimes used as a synonym for deregulation when a heavily regulated private company or industry becomes less regulated.The second such type of privatization is the demutualization of a mutual organization, cooperative, or public-private partnership in order to form a joint-stock company.
The main aspect of privatization in India are as follows:

1. Denationalization : it is the complete transfer of ownership of a public Enterprise.
2. Joint venture: its partial introduction of private ownership .
3. .disinvestment policies: it is a sale of a part of equity of a public company. 4.restriction on further expansion of PSUs.
4. Deservation of public sector:
   Out of 17 reserved industries, only 3 are reserved-1. Atomic energy, 2.atomic energy minerals and ,3.railways . Reserve products for SSI has been gradually reduced to zero.
5. Transfer of Management and control, franchise contract ,lease,etc.
6. Autonomy of public sector:
   Greater autonomy was granted to nine PSUs is referred to as navratnas to take their own decisions.
   ☆ Advantages of privatization:
   1.No massive Subsidy to loss making units.
7. Benefits to tax payers as lower subsidy May lower tax rates.
8. 3.may lead to better quality and lowest price as a result of competitions.
9. May brings about a radical structural changes in economy provide Momentum in the competitive sectors.
10. Privatization can provide the necessary impetus to the underperforming PSUs.
11. May lead 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.
    ☆ disadvantages of privatizations:
12. There is lack of transparency in private sector and stakeholders to not get the complete information.
13. Private sector focuses more on Profit maximization and less on social objectives unlike public sectors that initiate socially viable adjustment in case of emergencies and Criticalities.
14. Privatization escalates inflation in general.
15. Privatization has provided the unecessary support to the corruption and illegitimate ways of accomplishment of licences.
16. There is no guarantee that privatization would improve the productivity of PSUs.
17. International Agencies may find difficult to finance private sector.

GLOBALIZATION:

Globalization essentially means integration of the national economy with the world economy.globalization is considered by some as a form of capitalist expansion which entails the integration of local and national economies into a global, unregulated market economy.
Globalization has grown due to advances in transportation and communication technology. With the increased global interactions comes the growth of international trade, ideas, and culture.
The steam locomotive, steamship, jet engine, and container ships are some of the advances in the means of transport while the rise of the telegraph and its modern offspring, the Internet and mobile phones show development in telecommunications infrastructure. All of these improvements have been major factors in globalization and have generated further interdependence of economic and cultural activities around the globe.
The concept of globalisation has been explained by the International Monetary Fund as the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services and of international capital flows and also through the more Rapid and wide spread and diffusion of Technology .
the main elements of globalisation are:
1.the FDI policy of the GOI encouraged the inflow of foreign capital by alloying 100 percent foreign equity in certain projects under the automatic route.

1. To open the domestic markets from inflow of foreign goods ,India reduced customs duties on imports.
2. Outsourcing is one of the important outcomes of the globalisation process.
   ☆ Advantages of globalization:
   For developing countries
3. trade: they have potential to increase their share in world trade.
4. Labour may move towards developed countries.
5. Free flow of capital and Technology enables developing countries to speed up the process of industrialisation and lay the path for faster economic process.
6. They may be declined in the number of people living below the poverty line
7. Spread of Technology main benefit developing countries.
   For developed countries:
   1.They find better investment opportunity. 2.they get new market for their products.
   ☆ disadvantage of globalisation:
8. Development of indigenous Technology may take a back seat.
9. Domestic companies are unable to with stand competition from efficient MNCs.
10. Globalization poses certain risk for any country in the form of business cycles fluctuations in international prices etc.
11. It leads to overcrowding of cities and puts pressure on the amenities and facilities available in urban areas.
12. It increase the disc parties in the income of the rich and poor. SECOND GENERATION REFORM:

THE term `second generation reform’ is being increasingly used in India by ministers, mandarins and the media to refer to a general continuation of the process of economic reform and liberalisation initiated by the Centre at the behest of the Internation al Monetary Fund in the early 1990s.
Second generation reform does, of course, involve a continuation of economic reform as construed by the IMF _ but the term has a set of very specific connotations which, for reasons hinted at but not spelt out in this article, have not been identified as such in public discourse.
☆ background:
First generation reform were:

1. Crisis driven.
2. Advocated for Agro export, but much of it is dependent on external factors ,that is developed country protective Tariff and nonTariff barriers .India continued to struggle at the world trade organisation to reduce these barriers.
3. It first strategy was to focus on Industries but inter relation between industry and Agriculture was forgotten strategy failed to create enough job opportunity and bring equality in society.

Philosophy of second generation reform:

Growth is not an end in itself but a vehicle to increase employment and raise living standard.
for this a sustainable equitable and job creating growth path was targeted.
☆ development strategy:

1. Decrease BPL population .
2. A higher rate of growth of GDP .
   3.enlarge the employment potential.
3. Reduce regional disparties.
4. Provide social service Especially to poor peoples.
5. While the first generation Reform was based on executive and administrative measure ,the second generation reforms required legislative actions.

☆ important features:

1. Enlarge the base of Reform to agriculture and SSIs.
2. It is development driven.
3. Central and state government to work in harmony.
4. Shift Emphasis from corporate sector to agriculture, agro based industries ,SSI and on improving infrastructure and social sector like health education ,food security, poverty etc.

☆ fiscal strategy adopted:

1. Reduce revenue Deficit to zero.
2. Reduce fiscal deficit to a limit of 3 percent for the centre and 2 percent for the state.
3. Reduced subsidy on non merit goods and hidden subsidy benefiting more to well-to-do people.
4. Race capital expenditure in rural infrastructure and stimulate growth in agriculture.
5. Create environment of better cost recoveries on social services, that is irrigation, power, roads,etc.

☆ major reforms undertaken:

1. Competition Act 2002 was passed.
2. Reduction in corporate tax rate from the existing level of 36.75 percent to 30 percent for domestic companies and to 35 percent for foreign companies.
3. Fiscal responsibility and budget management Act 2003 was passed.
4. RBI released guidelines was invented applications for setting up payment banks and local area banks.
5. Commercial banks were allowed to raise capital from the market to meet capital adequacy norms by diluting the government stake up to 52 percent.
6. Ujwal DISCOM Assurance Yojana or UDAY provide for the financial turnaround and revival of power distribution companies.
   ☆ challenges to overcome:
7. Failure in increasing labour intensive manufacturing.
8. Slow infrastructure development.
9. Slow social sector development .
   4.not taking advantage of demographic dividend.
10. Lack of labour reform.
11. Governance failures.
12. Fertilizer and food subsidies pose yet another challenge.
13. The combined deficit at the centre and state exceeds 10 percent of GDP. given an already High debt to GDP ratio of nearly 60 percent this deficit is unsustainable. it is also crowding out private investment.
14. Financial sector reforms particularly the Reform of Banking remain a distant goal.
15. Economic reform of the last decade have Virtually bypassed agriculture.