ECONOMIC REFORMS
Economic reform usually refers to deregulation, or at times to reduction in the size of government, to remove distortions caused by regulations or the presence of government, rather than new or increased regulations or government programs to reduce distortions caused by market failure.
MAJOR ECONOMIC REFORMS
LIBERALIZATION
Liberalization is the process or means of the elimination of control of the state over economic activities. It provides a greater autonomy to the business enterprises in decision-making and eliminates government interference.
OBJECTIVE OF LIBERALIZATION
- To boost competition between domestic businesses
- To promote foreign trade and regulate imports and exports
- To improve the technology and foreign
- To develop a global market of a country
- To reduce the debt burden of a country
- To unlock the economic potential of the country by encouraging the private sector and multinational corporations to invest and expand.
- To encourage the private sector to take an active part in the development process
- To reduce the role of the public sector in future industrial development
- To introduce more competition into the economy with the aim of increasing efficiency
POSITIVE IMPACT OF LIBERALISATION IN INDIA
- DIVERSITY FOR INVESTORS : The investors will be benefitted by investing a portion of their business into a diversifying asset class.
- IMPACT ON AGRICULTURE : In this area, the cropping designs have experienced a huge change, but the impact of liberalisation cannot be accurately measured. Government’s restrictions and interventions can be seen from the production to the distribution of the crops.
NEGATIVE IMPACT OF LIBERALISATION IN INDIA
- THE WEAKENING OF THE ECONOMY : An enormous restoration of the political power and economic power will lead to weakening the entire Indian economy.
- TECHNOLOGICAL IMPACT : Fast development in technology allows many small scale industries and other businesses in India to either adjust to changes or shut their businesses.
- MERGERS AND ACQUISITIONS : Here, the small businesses merge with the big companies. Therefore, the employees of the small companies may need to enhance their skills and become technologically advanced.This enhancing of skills and the time it might take, may lead to non productivity and can be a burden to the company’s capital.
PRIVATIZATION
This is the second of the three policies of LPG. It is the increment of the dominating role of private sector companies and the reduced role of public sector companies. In other words, it is the reduction of ownership of the management of a government-owned enterprise. Government companies can be converted into private companies in two ways:
- By disinvestment
- By withdrawal of governmental ownership and management of public sector companies.
FORMS OF PRIVATIZATION
- DENATIONALIZATION OR STRATEGIC SALE: When 100% government ownership of productive assets is transferred to the private sector players, the act is called denationalization.
- PARTIAL PRIVATIZATION OR PARTIAL SALE : When private sector owns more than 50% but less than 100% ownership in a previously construed public sector company by transfer of shares, it is called partial privatization. Here the private sector owns the majority of shares. Consequently, the private sector possesses substantial control in the functioning and autonomy of the company.
- DEFICIT PRIVATIZATION OR TOKEN PRIVATIZATION : When the government disinvests its share capital to an extent of 5-10% to meet the deficit in the budget is termed as deficit privatization.
CRISIS OF 1991 AND INDIAN ECONOMIC REFORMS
OBJECTIVES OF PRIVATIZATION
- Improve the financial situation of the government.
- Reduce the workload of public sector companies.
- Raise funds from disinvestment.
- Increase the efficiency of government organizations.
- Provide better and improved goods and services to the consumer.
- Create healthy competition in the society.
- Encouraging foreign direct investments (FDI) in India.
GLOBALIZATION
It means to integrate the economy of one country with the global economy. During Globalization the main focus is on foreign trade & private and institutional foreign investment. It is the last policy of LPG to be implemented.
Globalization as a term has a very complex phenomenon. The main aim is to transform the world towards independence and integration of the world as a whole by setting various strategic policies. Globalization is attempting to create a borderless world, wherein the Need of one country can be driven from across the globe and turning into one large economy.
OUTSOURCING AS AN OUTCOME OF GLOBALIZATION
The most important outcome of the globalization process is Outsourcing. During the outsourcing model, a company of a country hires a professional from some other country to get their work done, which was earlier conducted by their internal resource of their own country.
The best part of outsourcing is that the work can be done at a lower rate and from the superior source available anywhere in the world. Services like legal advice, marketing, technical support, etc. As InformationTechnology has grown in the past few years, the outsourcing of contractual work from one country to another has grown tremendously. As a mode of communication has widened their reach, all economic activities have expanded globally.
Various Business Process Outsourcing companies or call centres, which have their model of a voice-based business process have developed in India. Activities like accounting and book-keeping services, clinical advice, banking services or even education are been outsourced from developed countries to India.
WHAT ARE THE BENEFITS OF GLOBALIZATION
The most important advantage of outsourcing is that big multi-national corporate or even small enterprises can avail good services at a cheaper rate as compared to their country’s standards. The skill set in India is considered most dynamic and effective across the world. Indian professionals are best at their work. The low wage rate and specialized personnel with high skills have made India the most favourable destination for global outsourcing in the later stage of reformation.