Pros and Cons of Liberalisation, Privatisation, Globalisation, LPG in developing and developed countries

Discuss the pros and cons of Liberalisation, Privatisation and Globalisation (LPG) in developing and developed countries. Outline the socio – economic issues arising out of LPG in India by citing suitable examples.

The main aim of liberalisation was to dismantle the excessive regulatory framework which acted as a shackle on freedom of enterprise. Over the years, the country had developed a system of “license-permit raj.” The aim of the new economic policy was to save the entrepreneurs from unnecessary Harassment of seeking permission from the Babudom (the bureaucracy of the country) to start an undertaking.

Similarly, the big business houses were unable to start new enterprises because the Monopolies and Restrictive Trade Practices (MRTP) Act had prescribed a ceiling on asset ownership to the extent of Rs. 90 crores. In case a business house had assets of more than Rs.90 crores, its application after scrutiny by the MRTP Commission was rejected. It was believed that on account of the rise in prices this limit had become outdated and needed a review.

The major purpose of liberalisation was to free the large private corporate sector form bureaucratic controls. It, therefore, started dismantling the regime of industrial licensing and controls.

On April 14, 1993, the Cabinet Committee on Economic Affairs decided to remove three more items form the list of 18 industries reserved for compulsory licencing. The three items were: motor cars, white goods (which include refrigerators, washing machines, air-conditioners, microwave ovens etc.) and raw hides and skins and patent leather. In the case of cars and white goods (which include refr4igerators, washing machines, air-conditioners, microwave ovens etc.) and raw hides and skins and patent leather. In the case of cars and white goods, the basic purpose of de-reservation was to increase investment in industries in procuring cars and white goods so that the demand of the large middle class ranging from 100 to120 million can be satisfied.
The list of industries in which industrial Licensing is compulsory:

1. Distillation and brewing of alcoholic drinks
2. Hazardous chemicals
3. Sugar
4. Animal fats and oils
5. Cigars and Cigarettes of tobacco and manufactured tobacco substitutes
6. Petroleum (other than crude) and its distillation products
7. Coal and Lignite
8. Paper and newsprint except bagasse-based units
9. Tanned or dressed fur skins
10. Raw hides and skins, leather, chamois leather and patent leather
11. Plywood, decorative veneers, and other wood based products
12. Asbestos and asbestos-based products
13. Industrial explosives
14. Drugs and Pharmaceuticals
15 . Electronics, aerospace and defense equipment: all types


Globalisation intends to integrate the Indian economy with the world economy. Globalisation is considered to be an important element in the reforms package. It has four parameters:
(i) Reduction of trade Anomalies so as to permit free flow of goods and services across national frontier
(ii) To Create, to ion of an environment in which free flow of capital can take place; % in
(iii) Creation of an environment permitting free flow of technology among nation-states; and
(iv) Creation of an environment in which free movement of labour can take place in different -countries
The definition of globalisation to only three components, viz., unhindered trade flows, capital flows and technology flows. They insist that the developing countries accept their definition of globalisation and conduct the debate on globalisation within the boundaries set by them. But several economists and social thinkers in developing movement is to integrate the world into one global village, then the four the component of unrestricted movement of labour cannot be left out. But whether the debate about globalisation is carried out at the World Trade Organisation (WTO) or at any other international forum, there is a deliberate effort to black out ‘labour flows’ as an essential component of globalisations.
To purpose the objective of globalisation, the following measures have been taken:
(i) Reduction of import duties: There has been a considerable reduction in import duties during the last years. The maximum rate was reduced from 5 years. The maximum rate was reduced from 150% in 1991-92 to 110% in 1992, to 85% in 1993-94, and 50% in 1995-96 Custom duties on imports of capital goods were reduced to 80% in July 1991, to 55% in 1992 and to 25% in 1995. Tariffs on imports of raw materials and manufactured intermediates have also been reduced. Besides this, the government has attempted to rapidly dismantle quantitative restriction on imports and exports. It has also undertaken adjustment of exchange rate so as to remove over-valuation of currency. This has helped in stepping up exports.
(ii) Encouragement of foreign invest5ment: The government has taken a number of measured to encourage foreign investment. The main measures taken in this regard are:
(a) Approval would be given for direct investment up to 51 per cent foreign equity in high priority industries as per Industrial Policy of 1991. There shall be no bottlenecks of any kind in the process. Such clearances will be given if foreign equity covers the foreign exchange requirements for imported capital goods.
On the 31st of December 1996 the Cabinet gave its assent to a new list of industries whereby joint ventures with up to 74 per cent foreign equity would be cleared automatically. Among the industries listed for the purpose are: Mining services such as oil and gas field services, basic metals and alloy industries, other manufacturing industries related to the item based on solar energy like solar energy like solar cells, cookers, air and water heating systems, small hydro-equipment, construction and maintenance of roads, bridges, tunnels, pipelines, ropeways, ports, harbors and runways, electric generation and transmission and other infrastructure. The basic purpose of this move is to facilitate direct foreign investment in India.
(b) To provide access to international markets, majority foreign equity holding up to 51% equity would be allowed for trading companies primarily engaged in export activities.
(iii) Encouragement to foreign technology agreement: The Industrial Policy of 1991 undertook the following measures:
(a) Automatic permission will be given for foreign technology agreements in high priority industries up to a lump sum payment of Rs. 1 crores, 5% royalty for domestic sales and 8% for exports, subject to total payments of 8% sales over a 10 year period from the date of the agreement or 7 years from commencement of production.
(b) In respect of other industries, automatic permission would be given if no free foreign exchange is required for any payments.
(c) No permission will be necessary for hiring of foreign technicians and foreign testing of indigenously developed technologies.

Privatisation is the process of involving the private sector in the ownership or operation of a state owned or public sector undertaking. It can take three forms; (I) Ownership measures; (ii) Organisational measures; and (iii) Operational measures.
(i) Ownership measures: The degree of privatisation is judged by the extent of ownership transferred form the public enterprises to the private sector. Ownership may be transferred to an individual, co-operative or corporate sector. This can have three forms:
(a) Total denationalisation implies 100 per cent transfer of ownership of a public enterprise to private sector.
(b) Joint venture implies partial transfer of a public enterprise to the private sector. It can have several variants – 25% transfer to private sector in a joint venture implies that majority ownership and control remains with the public sector. 51% transfer of ownership to the private sector shifts the balance in favour to the private sector, through the public sector retains a substantial stake in the undertaking. 74% transfer of Ownership to the private sector implies a dominant share being transferred to private sector. In such a situation, the private sector is in a better position to change the character of the enterprise.
(c) Liquidation implies sale of assets to a person who may use them for the same purpose or some other purpose. This solely depends on the preference of the buyer.
(d) Workers’ co-operative is a special form of denationalisation. In this form, ownership of the enterprises is transferred to workers who may form a co-operative to run the enterprise. In such a situation, appropriate provision of bank loans is made to enable workers to buy the shares of the enterprise. The burden of running the enterprises rests on the workers in a workers’ co-operative. The workers become entitled to ownership dividend besides getting wages for their services.
Organisational measures include a variety of measures to limited state control. They include:
(a) A holding company structure may be designed in which the government limits its control to top-level major decisions and leaves a sufficient degree of autonomy for the operating companies in their day-to-day operations. A big company like the Gail Authority of India (GAIL) or RAM Heavy Electrical Limited (RHEL) may acquire a holding company status, thereby transferring a number of functions to its smaller units. In this way, a decentralised pattern of management emerges.
(b) Leasing: In this arrangement, the government agrees to transfer the use of assets of a public enterprise to a private bidder for a specified period, say of 5 years. While entering into a lease, the bidder is required to give an assurance of the quantum of profits that would be made available to the state. This is a kind of tenure ownership. The government reserves the right to review the lease to the same person or to grant the lease to another bidder depending upon the circumstances of the cases.
(c) Restructuring is of two types: financial restructuring and basic restructuring.
(1) Financial Restructuring implies the writing off of accumulated losses and rationalisation of capital composition in respect of debt-equity ratio. The main purpose of this restructuring is to improve the financial health of the enterprise.
(2) Basic Restructuring is said to occur when the public enterprise decides to shed some of its activities to be taken up by ancillaries or small-scale units.
(ii) Operational measure: The efficiency of public sector enterprises depends upon the organisational structure. Unless this structure grants a sufficient degree of autonomy to the operators of the enterprise or develops a system of incentives, it cannot raise its efficiency and productivity. These measures include: (a) grant of autonomy to public enterprises in decision making, (b) Provision of incentives for workers and executives consistent with increase in efficiency and productivity, (c) freedom to acquire certain inputs from the markets with a view to reducing costs, (d) development of proper criteria for investment planning, and (e) permission of public enterprises to raise resources from the capital market to execute plans of diversification/expansion. The basic purpose of operational measures is to infuse the spirit of private enterprise in public enterprises so that government control is effectively reduced and private initiative is promoted.
This is the broader view in which privatisation of the economy can be effected. The basic purpose is to limit the areas of the public sector and to extend the areas of private sector operation, including heavy industries and infrastructure.

The Principle Measures Initiated By The Government To Liberalise The Indian Economy

The structural change in economic growth (change in sectoral shares of the national income) in the Indian economy. This is evident in the form offer shift in the sectoral composition of production (income), diversification of activities and a gradual transformation of a feudal and colonial economy in to a modern industrial economy.

Historical Overview
While the share of agriculture and activities fell from 55% during the first plan period to 32% during the seventh plant period the sharing of manufacturing rising from 12% during the first plan period to 18% during the seventh plan period.
The share of service sector increase from 28% to 38% the expansion of service sector has not only been reducing for employment generation but also for greater efficiency of the system and better quality of life.
Thus express structural changes have taken place in the Indian economy during the period 1952-90 when we go by sectoral partition of life. Thus by income criterion structural change in the Indian economy has been very graceful.
Now, Let us consider structural changes by liberalise criterion. It is normally accepted that one of the structural changes that occur in the course of economic development in a progressive shift of labour from agriculture and allied activities to secondary activities.
The interesting fact about these structural shifts in economic activities for our purpose is not so much the ultimate decline in the significance of agriculture (in relative terms) as the rate at which it occurred.
Indian Experience
The above Historical Experience knows us that the sectoral redistribution of the active population is a time taking process. Dislike structural change based on income criterion, structural change based on employment in a slow process. This is demo by Indian Experience also. The work force engaged in primary sector (agriculture, live stock, fishing, hunting, plantations, etc.) reduce from 71% in 1901 and in 1981 68%.

This percentage is also declining to 1990-91 and is declining to 66%. If we take agriculture alone in the primary sector, the decline between 1901 and 1981 was from 66.6% to 66.50 by 1991 the percentage was 65.
If we go by employment criterion structural change in the Indian economy has not been expressful.
The share of secondary sector(manufacturing, construction and mining and quarrying) increase from 12% in 1901 to 13% in 1981. The percentage was 12 by 1991.

Two Structural Features

The Indian economy two structural features clearly from the above account:
1) Liberalise agriculture continues to be important in the Indian economy. A little more than 30% of national income occurred in the agricultural sector.
2) There is only little structural change in economy when we go by the employment criterion. Agriculture still accounted for more than 65% of work force in early 90’s.
The under developed nature of the Indian economy became evident when we distinguish the employment structure of the Indian economy with that of a developed country Japan agriculture in Japan in 1986 accounted for only 7% of total labour force.