Liberalisation vs Privatisation vs Globalisation in India

The financial crisis in India during the late 1980s arose from inefficient economic management and excessive government spending. To meet challenges like unemployment, poverty, and population growth, the government had to borrow heavily from internal and external sources. However, spending on non-revenue-generating sectors such as defence and social programs, coupled with low income from public sector undertakings, worsened the fiscal deficit. Imports, especially petroleum, grew rapidly while exports stagnated, depleting the foreign exchange reserves. Much of the borrowed foreign exchange was used for consumption rather than productive investment, and no efforts were made to reduce spending or boost exports.

INTRODUCTION TO LPG REFORMS

The economic situation resulted in rising prices and unsustainable debt in India. To tackle this crisis, India sought $7 billion in loans from the World Bank and IMF, which required liberalising the economy, reducing government control, and removing trade barriers. In response, the government announced the New Economic Policy (NEP), introducing reforms to create a competitive environment and encourage private sector growth. Broadly, the NEP focused on liberalisation, privatisation, and globalisation to reshape India’s economic framework.

LIBERALISATION

Before 1991, excessive rules and regulations hindered India’s economic growth, prompting the introduction of liberalisation to remove such restrictions and open up various sectors. The following reforms were introduced in various sectors as a part of liberalisation measures:

1.      Deregulation of the Industrial Sector

In the industrial sector, reforms abolished licensing for most industries, except for hazardous products, and reduced public sector reservations, allowing market forces to determine prices.

2.      Financial Sector Reforms:

Financial sector reforms reduced the Reserve Bank of India’s regulatory role, enabled private and foreign banks to operate more freely, and permitted Foreign Institutional Investors (FIIs) to invest in Indian markets.

3.      Tax Reforms

Tax reforms lowered high direct tax rates on individuals and corporations, simplified procedures to improve compliance, and introduced the Goods and Services Tax (GST) in 2016 to create a unified national market.

4.      Foreign Exchange Reform

In the external sector, the rupee was devalued in 1991 to boost foreign exchange inflows, leading to a market-driven exchange rate.

5.      Trade and Investment Policy Reforms

Trade and investment reforms removed quantitative import restrictions, reduced tariffs, and abolished most import licensing to enhance competitiveness and attract modern technology. Export duties were removed to strengthen India’s position in global markets. These policy changes shifted the focus from state control to private initiative and global integration.

PRIVATISATION

Privatisation means transferring ownership or management of government enterprises to the private sector, either through outright sale or by disinvestment, where part of the equity of public sector enterprises (PSEs) is sold to the public. The government aimed to improve financial discipline, modernise enterprises, and utilise private capital and expertise to enhance efficiency. Privatisation was also expected to attract foreign direct investment (FDI) and reduce dependence on government support. Alongside disinvestment, greater autonomy was granted to select PSUs by conferring maharatna, navratna, and miniratna status. These steps sought to make public enterprises more competitive, profitable, and globally integrated.

GLOBALISATION

Globalisation generally refers to the integration of a country’s economy with the world economy. It results from policies aimed at greater interdependence and the creation of a borderless world. One major outcome of this process is outsourcing, where companies hire services from external or foreign sources that were previously provided internally. Services such as legal advice, advertising, computer support, security, and even education are now commonly outsourced. Many services, including call centres (BPO), accounting, banking, music recording, film editing, and clinical advice, are outsourced by developed nations to countries like India. Through modern telecommunication links and the Internet, data in the form of text, voice, or visuals can be transmitted instantly across continents. India has become a preferred outsourcing hub because of its low wage rates and availability of skilled manpower.

COMPARATIVE ANALYSIS: LIBERALISATION VS PRIVATISATION VS GLOBALISATION

The comparative analysis of LPG measures introduced in India can be tabulated as below :