THE NEW INDUSTRIAL

POLICY- 1991

LIBERALISATION
PRIVATISATION
GLOBALISATION

CONTENTS
Introduction
Reasons for implementing LPG
Liberalization
Privatization
Globalization

Introduction
July 1991,India has taken a series of measures to
structure the economy and improve the BOP
position. The new economic policy introduced
changes in several areas.
The policy have salient feature which are: 1.Liberlisation (internal and external)
2.Extending Privatization
3.Globalisation of the economy
Which are known as LPG. (libearlisation privatisation
globalisation)

Reasons for implementing LPG

Excess of consumption and expenditure over
revenue resulting in heavy govt. borrowings.
Growing inefficiency on the use of resources.
Over protection to industries.
Mismanagement of the firm and the
economy.
Increase in losses for public sector
enterprises.
Various distortion like poor technological
development, shortage of foreign exchange
and borrowing from abroad.
Low foreign exchange reserves.
Inflation
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Liberalization
Liberalization is a very broad term that usually
refers to fewer government regulations and
restrictions in the economy.
Liberalization refers to the relaxation of the
previous government restriction usually in area of
social and economic policies. When government
liberalized trade , it means it has removed the
tariff ,subsidies and other restriction on the flow of
goods and services between the countries.

The Path of liberalization

Relief for foreign investors

Devaluation of Indian rupees
New industrial Policy
New trade policy
Removal of import Restrictions
Liberalization of NRI remittances
Freedom to import technology
Encouraging foreign tie-ups
MRTP relaxation
Privatization of public sector
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Advantages of liberalization
Industrial licensing
Increase the foreign investment.
Increase the foreign exchange reserve.
Increase in consumption and Control over
price.
Check on corruption.
Reduction in dependence on external
commercial borrowings

Disadvantages of Liberalization
Increase in unemployment.
Loss to domestic units.
Increase dependence on foreign
nations
Unbalanced development

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.
Privatization is opening up of an industry that
has been reserved for public sector to the private
sector.
Privatization means replacing government
monopolies with the competitive pressures of the
marketplace to encourage efficiency, quality and
innovation in the delivery of goods and services.
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Need for Privatisation.

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.
Consequently, a large number of PSUs have
already been referred of loss giving units;
Multiplicity of authorities to whom the PSUs are
accountable;
Delay in implementation of projects leading to
cost escalation and other consequences;
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 Ineffective and widespread inefficiency on

management;
With a view to provide opportunities for more and
more unemployed youths, more number of people,
than required, were recruited and therefore, many
PSUs are over-staffed resulting in lower labour
productivity, bad industrial relations, etc.;
A number of sick companies (40 companies) which
were in the private sector was taken over by public
sector mainly to protect the employees. These sick
units are causing a big drain on the resources of the
state; etc.
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Different Ways in privatization

Liberalization Approach
Relative Share Enlargement Approach
Association of Private Sector
Management Approach
Transfer of Minority Equity Ownership
Approach
Transfer of Complete Ownership
Approach

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Advantages of Privatization
Privatization helps to reduce the burden on
Govt.
It will help profit making public sector unit to
modernize and diversify their business.
It will help in making public sector unit more
competitive.
It will help to improving the quality of decision
making, because the decisions are free from
any political interference.
Privatization may help in reviving sick units
which are the liability of the public sector.
Industrial growth.
Increase the foreign investment.
Increase in efficiency.

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Disadvantages of Privatization

Industrial sickness.
Lack of welfare.
Class struggle.
Increase in inequality
Opposition by employees.
Problem of financing.
Increase in unemployment.
Ignores the weaker sections.
Ignores the national importance

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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)

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Globalization
Globalization implies integration of the
economy of the country with the rest of the
world economy and opening up of the
economy for foreign direct investment by
liberalizing the rules and regulations and by
creating favorable socio-economic and
political climate for global business.

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According to IMF: -The growing

economic interdependence of countries
worldwide through increasing volume
and variety of cross border transaction
in goods and services and of
international capital cash flows, and
through the more rapid and
widespread diffusion of technology.

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Features of Globalization
Opening and planning to expand business
throughout the world.
Erasing the difference between domestic
market and foreign market.
Buying and selling goods and services
from/to any countries in the world.
Locating the production and other physical
facilities on a consideration of the global
business dynamics ,irrespective of national
consideration.

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 Basing product development and production

planning on the global market consideration.
Global sourcing of factor of production i.e.
raw-material, components ,
machinery,technology,finance etc. are obtained
from the best source anywhere in the world.
Global orientation of organizational structure
.and management culture

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Foreign market entry strategies

Exporting
Licensing/Franchising
Contract manufacturing
Management contract
Assembly operations
Fully owned manufacturing facilities
Joint venturing
Merger and acquisition
Strategic alliance
Countertrade

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Pros and Cons of Globalisation

Globalization have several benefits ,these are: 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.
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.
Balanced human development
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Negative effects of
Globalization
Loss of domestic industries
Exploits Human resource
Decline in income
Unemployment
Transfer of natural resources
Lead to commercial and political
colonism
Widening gap between rich and
poor
Dominance of foreign institutions

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CONCLUSION
Economic liberalization has increased
the responsibility and role of the private
sector. At the same time, it has reduced
the control of the government on
economy affairs. It is expected that the
reforms would liberalize the Indian
economy enough to create a conducive
environment for rapid economic
development.

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 The process of reforms according to many

economists and social scientists is not fast
enough to achieve the goals. Jeffrey Sachs,
director of Harvard Universitys center for
international development and a noted
economist, pointed out that the reform
process in India had a long way to go. He
feels that without a focus on the twin
pillars of social and economic strategies,
the future would be bleak for India,
especially in the context of competition all
around.

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 The government, however, is reluctant to give up

its role of owning and controlling economic
activities. At the same time its inability to spend
for providing minimum health and education
services. It is eager to spend on higher education
without spending enough on primary and
secondary education. It has failed in providing a
corruption free administration, an essential
precondition for increasing competitiveness.
Success of the economic reforms depends upon
the commitment of all concerned people,
political parties, bureaucracy, and government
to the socio economic progress of the country.
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