16785liberalization privatization globalization

8/13/2019 16785Liberalization Privatization Globalization

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Liberalization, Privatization,Liberalization, Privatization,GlobalizationGlobalization

Prepared By: Mr. S.repared By: Mr. S. Manikandananikandan

Executive Officer BOS ICAIxecutive Officer BOS ICAIGeneral Economics General Economics


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GeneralEconomics:Liberalization,Privatization,Globa

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Reasons for implementing LPGExcess of consumption andexpenditure over revenue resultingin heavy government borrowings.Growing inefficiency in the use ofresources.Over protection to industryMismanagement of firms and theeconomyMounting losses of public sector

enterprises


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lization 3

Reasons for implementing LPGVarious distortions like poor

technological development shortage offoreign exchanges; and imprudentborrowings from abroad andmismanagement of foreign exchangereserves.Low foreign exchange reserves.Burden of national debt.Inflation.


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lization 4

LiberalizationLiberalization refers to relaxation ofprevious government restrictionsusually in areas of social andeconomic policies. Thus, whengovernment liberalizes trade itmeans it has removed the tariff,

subsidies and other restrictions onthe flow of goods and services

between countries .


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lization 5

PrivatisationIt refers to the transfer of assets orservice functions from public toprivate ownership or control and theopening of the hitherto closed areasto private sector entry. Privatisationcan be achieved in many ways-

franchising, leasing, contracting anddivesture.


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Conditions for privatisaton

Liberalisation and de-regulation ofthe economy is an essential pre-requisite if privatisation is to takeoff and help realize higherproductivity and profits .


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Conditions for privatisaton

Capital markets should besufficiently developed to be able toabsorb the disinvested public

sector shares.


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Arguments in favour of privatisation

It will help in improving the quality

of decision-making of managersbecause their decisions will be

made without any politicalinterference .


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Arguments in favour of privatisation

Privatisation may help in reviving sickunits which have become a liability on

the public sector.Without government financial backing,capital market and internationalmarket will force public sector to beefficient


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Arguments against privatisationPrivatisation will encourage growthmonopoly power in the hands of bigbusiness house. It will result in greater

disparities in income and wealth.Private enterprise may not show any

interest in buying shares of loss-making and sick enterprises .


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lization 12

Arguments against privatisationPrivatisation may result in lop-sideddevelopment of industries in the country.The limited resources of the private

individuals cannot meet some of the vitaltasks which alter the very character of theeconomy.The private sector may not uphold theprinciples of social justice and public

welfare.


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lization 13

Privatization

Privatization offers bothopportunities and threats to theeconomy. We have to privatize in

such a manner that we make themaximum opportunities while at

the same time minimizing thethreats to the economy.


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Disinvestment

Disinvestment means disposal of

public sectors unit's equity in themarket or in other words selling ofa public investment to a privateentrepreneur. It means selling ofgovernment share in one PSU toother PSUs or private sector orbanks.


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lization 15

Disinvestment

In India, disinvestment hasprogressed slowly. It has beencarried out in a hasty, unplanned

and hesitant manner. As a result,the progress has been quite poor .


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Privatization and Disinvestment in India

Privatization in India generally is in

the form of disinvestment of equity.In general, here privatisation has notled to 100% transfer of control frompublic sector to private sector unit.Only in exceptional cases, 100%privatization has taken place (e.g.Centaur Hotel).


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Example of Privatization in India

Lagan jute machinery companylimited (LJMC).Modern food industries limited(MFIL)

Bharat aluminium company limited(BALCO)

Hotel Corporation of India limited(HCI)

Hindustan Zinc limited (HZL)Paradeep Phosphates Limited (PPL)


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lization 18

Methods of Disinvestment

Initially, equity was offered to retailinvestors through domestic publicissues. This was followed by

issuance of the Global DepositoryReceipts (GDRs) to tap the

overseas markets.


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Other methods includes cross-holding(the government simply selling part ofits shares in one PSU to other PSUs),warehousing (governments own

financial institutions buyinggovernments stake in select PSUs andholding them until and third buyeremerged) and retaining golden share(retaining governments stake up to

26% in the PSU to protect its interest).


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Of late, the government waspursuing the strategic salemethod. Under this method, the

government sells a major portionof its stake to a strategic buyer and

also gives over the managementcontrol.


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Under strategic sales method,disinvestment price would bemarket based and not prefixed,PSUs shares sale would be underthe department of Disinvestmentand disinvestment would bedelinked from the union budgetexercise.


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Presently the government has decided tocall off the disinvestment of stake throughstrategic sale in 13 profit-making centralpublic sector enterprises. It is considering

the public offer route to sell minoritystakes in these enterprises. Of late (in2005-06), it has resorted to DifferentialPricing Method and sold the shares ofPSUs to public sector financial institution

and banks.


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lization 23

Globalisation

Globalisation means integrating

the domestic economy with theworld economy. It is a processwhich draws countries out of theirinsulation and makes them joinrest of the world in its marchtowards a new world economicorder.


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Globalisation

It involves increasing interaction

among national economic system,more integrated financial markets,

economies of trade, higher factormobility, free flow of technologyand spread of knowledgethroughout the world.


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Cases for Globalisation

It is argues that Globalisation of underdeveloped countries will improve theallocative efficiency of resource, reducethe capital output ratio and increase

labour productivity, help to develop theexport spheres and export culture,increase the inflow of capital, updatedtechnology that gives a boost to theaverage growth rate of the economy.


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It will help to restructure theproduction and trade pattern in acapital scarce, labour abundanteconomy in favour of labour-intensive goods and techniques.Foreign capital will be attracted andwith its entry, updated technologywill also enter the country.


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It is believed that the main effects of

integration will be felt in theindustrial and related sectors. Atresult cheaper and high qualityconsumer goods will bemanufactured at home. Besides,employment opportunities wouldalso go up.


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Cases against Globalisation

The globalisation process is in essence atremendous redistribution of economic

power at the world level which willincreasingly translate into a redistribution

of political power.One study reveals that in the globalisingworld the economics of the world areironically moving away from one anothermore than coming together.


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Cases against Globalisation

With the lightening speed at whichglobalisation is taking place, it is

increasing the pressure on economiesfor structural and conceptualreadjustments to a breaking point.It is becoming hard for the countries toask their public to go through the pains

and uncertainties of structuraladjustment of the sake of benefits yet tocome .


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Cases against GlobalisationGlobalisation is helping more thedeveloped economies than the developingeconomies.. Like India, it is argued that itis true that letting in Cokes and Pepsishave led to opening doors for INTEL, but

the sum total of their investment has beenvery less in relation to their investmentabroad. None of the multinationals has set

up manufacturing plants in India orsigned any technology transfer agreementwith any Indian company.


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Measures towards Globalisation

Convertibility of Rupee : To make thecurrency fully convertible i.e., allow it to

determine its own exchange rate in theinternational market without any officialintervention.Import Liberalisation : As per therecommendation of the World Bank, freetrade of all items except negative list ofimports and exports has been allowed .

M t d Gl b li ti


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Measures towards Globalisation

Opening the economy to foreign

capital : The government has taken anumber of measures to encourageforeign capital in India. Manyfacilities and incentives have beenoffered to the foreign investors andnon-resident Indians in the neweconomic policy .


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Effects of Globalisation of Indian economy

Indias share in the world exportwhich had fallen 0.53% in 1991from 1.78% per cent in 1950, hasreversed trends and has improvedto 1% in 2005.



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Our foreign currency reserves

which had fallen to barely onebillion U.S. dollars in June, 1991

rose substantially to about 180billion U.S dollars in March 2007 .

Eff t f Gl b li ti f I di


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Exporters are responding well tosweeping reforms in exchange rateand trade policies. The averagegrowth of export has been more than

20% per annum since 2002-03.Exports now finance nearly 65% of

imports, compared to only 60% in thelatter half of the eighties.

ff f l b l f d


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The current account deficit was over3% of GDP in 1990-91. In 2004-05 and

2005-06, we again had current accountdeficit of (-) 0.4 and (-) 1.1 per centrespectively.Our external debt crises reduced from$8 billion to $3 billion from 1990-91 to

1996-2006 respectively.Markets have started responding to

the movements abroad

Eff f Gl b li i f I di


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International confidence in India has beenrestored.

Consumer are benefited through largevariety of consumer goods, improvedquality of goods and in some cases andreduced price of consumer durable.Programmes of quality management andresearch and development aresystematically conducted by corporate

sector.

M i i i f f ili i l b li i


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Main organization for facilitating globalisation

There are many internationalorganisation which have facilitated theprocess of globalisation. We shall studythree main organisations here. These

areInternational Monetary Fund (IMF)

World BankWorld Trade Organisation (WTO)

International Monetary Fund


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IMF was organized in 1946 andcommenced its operation in March1947. The main objectives:

The elimination or reduction of

existing exchange control



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The establishment and maintenanceof currency convertibility with stableexchange rateThe widest extension of multilateraltrade and payments.The solving of short-term balance ofpayment problems faced by itsmember nations

Function of IMF


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Function of IMF

It functions as a short-term creditinstitutionIt provides machinery for the orderlyadjustment of exchange rates.It is a reservoir of the currencies ofall the members nation who canborrow the currency of other nations.

Function of IMF


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Function of IMF

It provides machinery forinternational consultations.

It monitors economic and financialdevelopment of its members andprovides policy advice aimed atcrisis preventions .

The World Bank


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The World Bank

The international Bank for Reconstructionand Development (IBRD) more popularlyknown as the world bank was formed as apart of the deliberations at Bretton woodsin 1945. The World Bank was floated in

order to give loan to members countries,initially for the reconstruction of their(world) war-ravaged economies, and laterfor the development of the economies ofthe poorer member countries .

Objectives of World Bank


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Objectives of World Bank

Investing in the people, particularlythrough basic health and education.Focusing on social development.Protecting the environmentSupporting and encouraging privatebusiness development.Promoting reforms to create a stable

macro-economic environment, conduciveto investment and long-term planning .

Functions of World Bank


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Functions of World Bank

To help its members countries in thereconstruction and developmental of theirterritories by facilitating the investment ofcapital for productive purposes.To encourage private foreign investment and

credit by providing guarantee of repayment ofthe private investors.To promote the long-term balanced growth ofinternational trade and the maintenance ofequilibrium in balance of payment of its

member countries.

The World Trade Organisation


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The World Trade Organisation

The WTO came in to existence on 1 st

January,1995. The WTO is a powerfulbody which broadly aims at makingthe whole world a big village wherethere is free flow of goods andservices and where there are nobarriers to trade.

Features of WTO


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Features of WTO

The WTO is the main organ

implementing the Multilateral Trade Agreements.

The WTO is global in itsmembership.It is the forum for negotiationsamong its member.

Features of WTO


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Features of WTO

It is a full-fledged internationalorganisation in its own right

The WTO has legal personality.

The decision-making under WTO iscarried out by consensus .

Functions of WTO


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Functions of WTO

The WTO shall facilitate theimplementation, administration andoperation of world trade agreements.

The WTO shall provide the forum fortrade negotiations among its

members countries.


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Multiple Choice Question


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Question 1The following are the ways ofprivatization:

divestituredenationalizationFranchisingall the above



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u t p e C o ce Quest o

Question 1The following are the ways ofprivatization:

divestituredenationalizationFranchisingall the above

Question 2


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Q

Which of the following factors cause manygovernments to undertake programmes of

public sector reforms, according to Prof.Samuel Paul?economic inefficiency in the productionactivities of the public sector ineffectiveness in the provision of goodsand servicerapid and in reasonable expansion of thebureaucracyall the above


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Question 3


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Q

Reasons for privatization are

inefficiency indifference andcorruptionindifference and corruptioninefficiency and irresponsibilityinefficiency, indifference,irresponsibility and corruption

Question 3


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Q

Reasons for privatization are

inefficiency indifference andcorruptionindifference and corruptioninefficiency and irresponsibilityinefficiency, indifference,

irresponsibility and corruption


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Question 4


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Globalization means

domestic liberalizationexternal sector liberalizationboth (a) and (b)none of the above

Question 5


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External sector liberalization meansrelaxing restriction on international flowof goods and servicesrelaxing restriction on production,investment and pricesincreasing the roll of market

relaxing restrictions on international flowof goods, services, technology andcapital.

Question 5


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External sector liberalization meansrelaxing restriction on international flow

of goods and servicesrelaxing restriction on production,investment and pricesincreasing the roll of marketrelaxing restrictions on international flowof goods, services, technology andcapital.

Question 6


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The main causes for economic reformsgrowing inefficiency in the use ofresourcesover production of industry

mismanagement of firms and theeconomyall the above

Question 6


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The main causes for economic reformsgrowing inefficiency in the use ofresourcesover production of industry

mismanagement of firms and theeconomyall the above

Question 7


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Industrial licensing was abolished for allprojects except for

12 industries14 industries18 industries20 industries

Question 7


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Industrial licensing was abolished for allprojects except for


Question 8


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How many industries are registeredunder the public sector?


Question 8


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How many industries are registeredunder the public sector?



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Question 9


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Up to-------------------------- direct foreigninvestment allowed in high priorityindustries

49%

55%51%

50%

Question 10


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How many percent of FDI were allowedin Banking sector?

30%49%60%51%

Question 10


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How many percent of FDI were allowedin Banking sector?

30%49%60%51%

Question 11


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The different facets of new economic reform can besummarized as

disinvestment in public sector, delicensing ofprivate industriesreducing agriculture subsidies and reducing tax

ratesliberalization, privatization and globalizationcontaining fiscal deficit and reducing moneysupply

Question 11


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The different facets of new economic reform can besummarized as

disinvestment in public sector, delicensing ofprivate industriesreducing agriculture subsidies and reducing taxratesliberalization, privatization and globalizationcontaining fiscal deficit and reducing money

supply

Question 12


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New Economic Reform aims at thefollowing objectives

privatization

liberalizationGlobalization

all the above

Question 12


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New Economic Reform aims at thefollowing objectives

privatization

liberalizationGlobalization

all the above

Question 13


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GeneralEconomics:Liberalization,Privatization,Globalization 76

Financial sector reforms mainly relate to

banking sector insurance sector both (a) and (b)transport sector

Question 13


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Financial sector reforms mainly relate to

banking sector insurance sector both (a) and (b)transport sector

Question 14


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Expand FRA

Foreign ratio agreementForeign rate agreementForward ration agreementForward rate agreement

Question 14


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Expand FRA

Foreign ratio agreementForeign rate agreementForward ration agreementForward rate agreement

Question 15


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The rupee was devalued twice in -----------------

June 1991 August 1991September 1991July 1991

Question 15


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The rupee was devalued twice in -----------------

June 1991 August 1991September 1991July 1991

Question 16


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Foreign Exchange Regulation Act waspassed in the year

1973197119721974


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Question 17


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Expand QRQuantitative RestrictionsQuota RestrictionBoth (a) and (b)None of the above

Question 18


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The QR were removed on ------------------720 items730 items710 items714 items

Question 18


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The QR were removed on ------------------720 items730 items710 items714 items

Question 19


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Expand SDRSecurities drawing rightsSpecial draw rightsSpecial drawing rightsNone of the above

Question 19


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Expand SDRSecurities drawing rightsSpecial draw rightsSpecial drawing rightsNone of the above


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Question 20


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Disinvestment meansdisposal of public sectors unitsequity in the marketrelaxation of previous government

social and economic policiestransfer of assetsnone of the above

Question 21

d


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Expand TRIPsTrade related intelligent propertyrightsTrade related intellectual property

rightsTrade related intellectual prosperity

rights All the above

Question 21

E d TRIP


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Expand TRIPsTrade related intelligent property

rightsTrade related intellectual property

rightsTrade related intellectual prosperityrights

All the above


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16785liberalization privatization globalization

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