Globalization, Liberalisation and

Privatisation
 Globalization
The term globalization can be used in different contexts. The
general usages of the term Globalization can be as follows:
1. Interactions and interdependence among countries.
2. Integration of world economy.
3. Deterritorialization.
By synthesising all the above views Globalization can be
broadly defined as follows:
“It refers to a process whereby there are social, cultural,
technological exchanges across the border.”
 The term Globalization was first coined in 1980s. But
even before this there were interactions among
nations. But in the modern days Globalization has
touched all spheres of life such as economy, education.
Technology, cultural phenomenon, social aspects etc.
The term “global village” is also frequently used to
highlight the significance of globalization. This term
signifies that revolution in electronic communication
would unite the world.
Undoubtedly, it can be accepted that globalization is
not only the present trend but also future world order.
 Effect of Globalization on India
Globalization has its impact on India which is a
developing country. The impact of globalization can
be analysed as follows:
1. Access to Technology:
Globalization has drastically, improved the access to
technology. Internet facility has enabled India to
gain access to knowledge and services from around
the world. Use of Mobile telephone has revolution
used communication with other countries.
2. Growth of international trade:
Tariff barriers have been removed which has resulted in the
growth of trade among nations. Global trade has been
facilitated by GATT, WTO etc.
3. Increase in production:
Globalization has resulted in increase in the production of a
variety of goods. MNCs have established manufacturing
plants all over the world.
4. Employment opportunities:
Establishment of MNCs have resulted in the increase of
employment opportunities.
5. Free flow of foreign capital:
Globalization has encouraged free flow of
capital which has improved the economy of
developing countries to some extent. It has
increased the capital formation.
 Negative effect of globalization
Globalization is not free from negative effects. They can be
summed up as follows:
1. Inequalities within countries:
Globalisation has increased inequalities among the
countries. Some of the policies of Globalization
(liberalisation, WTO policies etc.) are more beneficial to
developed countries. The countries which have adopted
the free trade agenda have become highly successful. E.g.:
China is a classic example of success of globalization. But a
country like India is not able to overcome the problem.
2. Financial Instability:
As a consequence of globalization there is
free flow of foreign capital poured into
developing countries. But the economy is
subject to constant fluctuations, on account of
variations in the flow of foreign capital.
3. Impact on workers:
Globalization has opened up employment
opportunities. But there is no job security for
employees. The nature of work has created
new pressures on workers. Workers are not
permitted to organise trade unions.
4. Impact on farmers:
Indian farmers are facing a lot of threat from
global markets. They are facing a serious
competition from powerful agricultural
industries quite often cheaply produced agro
products in developed countries are being
dumped into India.
5. Impact on Environment:
Globalization has led to 50% rise in the
volume of world trade. Mass movement of
goods across the world has resulted in gas
emission. Some of the projects financed by
World Bank are potentially devastating to
ecological balance. E.g.: Extensive import or
export of meat.
6. Domination by MNCs:
MNCs are the driving force behind
globalization. They are in a position to dictate
powers. Multinational companies are
emerging as growing corporate power. They
are exploiting the cheap labour and natural
resources of the host countries.
7. Threat to national sovereignty:
Globalizations results in shift of economic
power from independent countries to
international organisations, like WTO United
Nations etc. The sovereignty of the elected
governments are naturally undermined, as the
policies are formulated in favour of
globalization. Thus globalization has its own
positive and negative consequences.
According to Peter F. Drucker Globalization for
better or worse has changed the way the
world does business. It is unstoppable. Thus
Globalization is inevitable, but India should
acquire global competitiveness in all fields.
 Liberalisation
It is an immediate effect of globalization.
Liberalisation is commonly known as free trade. It
implies removal of restrictions and barriers to free
trade. The economy of India had undergone
significant policy shifts in the beginning of the
1990s. This new model of economic reforms is
commonly known as the LPG or Liberalization,
Privatization and Globalization model.
India has taken many efforts for liberalisation which
are as follows:
 Reasons for liberalization
• Large and growing fiscal imbalances.(Gross fiscal
deficit rose to 12.1% of GDP in 1991)
• Growing inefficiency in the use of resources.
• Low foreign exchange reserves.($1.2 billion in
January 1991)
• High inflation rate.(13.87% in year 1990-91)
• The low annual growth rate of Indian economy
stagnated around 3.5% from 1950s to 1980s,
while per capita income averaged 1.3%.
• New economic policy 1991
The Objectives of the new economic policy.
1. To achieve higher economic growth rate.
2. To reduce inflation.
3. To rebuild foreign exchange reserves.
• FEMA:
Foreign exchange Regulation Act 1973 was
replaced and Foreign exchange Management
Act was passed. The enactment has
incorporated clauses which have facilitated
easy entry of MNCs.
• Joint ventures with foreign companies. E.g.:
Maruti Suzuki.
• Reduction of import tariffs.
• Removal of export subsidies.
• Full convertibility of Rupee on current
account.
• Encouraging foreign direct investments.
 The effect of liberalisation is that the
companies of developing countries are facing
a tough competition from powerful
corporations of developed countries.
The local communities are exploited by
multinational companies on account of
removal of regulations governing the activities
of MNCs.
 Privatization
Post-independence India had adopted a very
conservative economy that was practically shut to
the outside world. But as time went by, Indian
leaders and economists recognized the need to
merge with the global economy. So in 1991, India
went through some very major economic reforms.
Let us focus on one such aspect of the reforms –
privatization in India.
In the event of globalization, privatisation has
become an order of the day. Privatisation can
be defined as the transfer of ownership and
control of public sector units to private
individuals or companies. It has become
inevitable as a result of structural adjustment
programmes imposed by IMF.
• Objectives of Privatization:
1. To strengthen the private sectors.
2. Government to concentrate on areas like
education and infrastructure.
3. In the event of globalization the government felt
that increasing inefficiency on the part of public
sectors would not help in achieving global
standards. Hence a decision was taken to
privatize the Public Sectors.
 Causes of Inefficiency of Public Sectors:
• Bureaucratic administration
• Out dated Technology
• Corruption
• Lack of accountability.
• Domination of trade unions
• Political interference.
• Lack of proper marketing activities.
 Ways of Privatization
• Divestiture or privatization of ownership through the
sale of equity.
• Contracting: Government may contract out services
they have planned and specified, to other
organizations that produce and deliver them.
Contracting is common in public works, and many
specialized services including defense.
• Franchising: Authorizing the delivery of certain
services in designated geographical areas; is
common in utilities and urban transport.
• Another option for the government is to
withdraw from the provision of certain goods
and services leaving them wholly or partly to
the private sector.
• Privatization may take the form of
privatization of management using leases and
management contracts.
 Advantages of Privatization
• Efficiency
• Absence of political interference
• Quality service.
• Systematic marketing
• Use of modern Technology
• Accountability
• Creation of competitive environment.
• Innovations
• Research and development
• Optimum utilisation of resources
• Infra structure.
 Disadvantages of Privatization
• Exploitation of labour.
• Abuse of powers by executives.
• Unequal distribution of wealth and income.
• Lack of job security for employees.
• Privatization has become inevitable in the
present scenario. But some control should be
exercised by the government over private
sectors.
 Market Freedom
A free-market economy is one in which the prices of goods and
services are determined by the market forces of demand and supply,
with no government intervention.
• Consumers are free to choose which products / services they wish
to buy
• Companies are free to decide which resources they wish to employ
and how much of each they need
• Individuals have the freedom to dedicate their time to the career of
their choice
• People are free to start their own business as they desire
• All means of production are private property
• Govt. has little/no role in the functioning of the economy
 Advantages of a Free-Market Economy

• Freedom of choice
• Economic growth
• Freedom to innovate
• Optimum utilization of resources
• Better quality products
• Lower prices
• No corruption
 Importance of Free Markets
• Encourage individual responsibility for
decisions
• Lead to political freedom
• Are more efficient in use of scarce resources
• Provide incentives to companies to produce
goods and services that the public wants
Living with Freedom