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  • International Business Management ReportInternationalBusinessManagement Report Prepared By : Arvind Bindal Anish Garg Amrit Aggarwal Ruchir Sood Shivang Saxena Indian Institute of Sunayna KhoudPlanning & Management Sumit Badoria Satbari, New Delhi Yash Rathore Page 1 of 37
  • International Business Management Report IndexS . NO T O PI C PAGE 1. C E RT I FI CA T E 3 2. A C K O W L E DG E M E NT 4 3. I NT RO D UC T I O N 5 4. L I B E RA L I ZA T I O N 7 5. P RI V AT I ZA T I O N 14 6. G L O B AL I ZA T I O N 20 7. C O N CL US I O N 26 8. B I B L I O G R A PH Y 37 Page 2 of 37
  • International Business Management Report C E RT I FI C AT EThis is to certify that the Project Report titled “ Drawbacks ofliberalization, Privatization, Globalization in Indian Business”submitted by : Name Roll No 1. ArvindBindal 22 2. YashRathore 3. RuchirSood 4. AnishGarg 13 5. AmritAggarwal 6. ArjunVij 7. ShivangSaxena 8. SunayanaKhound 9. SumitBadoriaembodies the work done by them On/Off campus is under mysupervision.Date: _____________Signature:_________________(Prof: PankajUpadhayay) Page 3 of 37
  • International Business Management Report ACKNOWLEDGEMENTThis project involved the collection and analysis ofinformation from a wide variety of sources and the effortsof many people beyond me. Thus it would not have beenpossible to achieve the results reported in this documentwithout their help, support and encouragement.I will like to express my gratitude to the following peoplefor their help in the work leading to this report:Prof: PankajUpadhayay: for their useful comments on thesubject matter and for the knowledge I gained by sharingideas with them. Page 4 of 37
  • International Business Management Report I NT RO D UC T I O N Rajiv G a n d hi ’s g o v er n me n t i n i ti a te d th e po l i c y ofl i b er a l i za ti o n s i nc e mi d - 8 0s . T he l i b er a l i za ti o n i ni t i a ti v es ha v eb e e n u n de r ta k en i n I n di a w i t h a v i ew to i n cr e a s e a p r o d u c ti o n,i m pr o v e q ua l i ty a n d g e t a c c es s t o ma r ke t f o r p r o d uc ts a nds er v i c e a br o a d. R a di ca l l i ber a l i za ti o n or g l o ba l i za ti o nm e a s ur es ha v e b e e n br o ug h t i n s i n ce J ul y 1 99 1 to m a k e t heI n d i a n ec o no my p r o g r es s i v e l y ma r ke t o r i e nt e d a nd i n te g r a te i tw i t h t h e e m er g i n g g l o ba l e co no m y s tr u ct ur e. T he s e m ea s ur esi n cl u de r e d u ct i o n a n d r a ti o na l i z a ti o n o f e x c i s e d uty a ndc u s to ms d ut i es , del i c e ns i ng of s ev er a l d r ug andp h a r ma c eu ti c a l p r o d uc ts , r ea dy a c c es s to i mp o r t o f r a wm a ter i a l a n d ca pi ta l g o o ds a n d s o o n. It has c r e a t ed an e n v i r o n me n t co n d uc i v e to ane n te r p r i s e, i n v es t m e nt a nd i nn o v a ti o n. I n di a n i n du s tr i es ha v es ta r te d to a ttr a c t f o r ei g n po r tf o l i o i nv es tm e nt a n d e q ui typ a r ti ci p a ti o n i n n ew v e n t ur es . T h e g o v er n me n t i s co m mi tt e dt o ma ke f o r ei g n p l a y er s f ee t a t e a s e t o i n v es t d i r ec tl y a ndb r i ng w i t h i t n ew t e c hno l o g y a nd m a r ke ti ng s ki l l s . Page 5 of 37
  • International Business Management Report T h er e ha s be e n i m p r es s i v e g r o w th i n F D I i nf l o w s t o I n di aw i t h th e i ntr o d uc t i o n o f po l i cy r ef o r ms . A s co m pa r e d to a n e a rt o t a l co n c e ntr a t i o n i n m a nu f a ct ur i ng ti l l 1 9 91 , t h e b u l k o f ne wi nf l o w ha s co m e i n th e e n er g y a nd s e r v i ce s e cto r . Page 6 of 37
  • International Business Management Report LIBERALIZATION LIBERALIZATIONT h e Ne w I n d u s t r i a l P o l i c y , 19 91 A n u m ber o f s i g n i f i c a n t e co no mi c c h a n g es i nt r o du c e d b ym a ny a n u m ber of co u ntr i es all the world o v er , t hee n co ur a g i n g r es u l ts o f t he l i b er a l i za ti o n m ea s ur e s i n tr o d u ce di n 1 9 80 s by t he G o v er n me n t o f I nd i a , a nd th e pr ec a r i o use co no mi c s i t u a ti o n th a t p r ev a i l e d d u r i ng t h e l a te r pa r t 8 0sh a v e en co ur a g ed a n d f o r c ed t he t h en Co ng r es s g o v er n me n t,w hi c h c a m e b a c k to po w er a t t h e c e nt r e , u n de r th e l ea d er s hi po f S hr i . P. V. N a r a s i mh a R a o — a no n - N e hr u f a mi l y me m be r , tot a ke s o m e bo l d m e a s ur es to r e j u v en a t e th e e co n o my a n d toa c c el e r a te t he pa c e o f dev el o p me n t. I n t hi s b a ck g r o u n d, t heG o v er n me n t o f In d i a a n no un c e d i ts N e w In d u s t ri a l Po l i c y (N IPo r I P ) o n J u l y 24 , 1 9 91 . T h e i m po r t a nt o bj e ct i v e s a r e: a ) T o co r r e c t t h e d i s to r ti o ns th a t m a y ha v e cr e pt i n, a n d c o ns o l i d a t e t h e s t r e n g t hs b ui l t o n t h e g a i ns a l r ea dy ma d e b ) T o ma i n ta i n s u s t a i n ed g r o w t h i n t h e p r o d u c ti v i ty a n d g a i nf ul em pl o y me n t c ) T o a t ta i n i n te r n a t i o na l co m pe ti ti v e n es s . T h er e f o r e , th e ba s i c ph i l o s o p hy o f t he N ew IP , 19 9 1 ha sb e e n t he co n ti nu i ty w i t h c ha n g e . B e c a u s e , t h e n e w po l i cyr e pr es e nts a r en ew e d i ni ti a ti v e t o w a r ds co ns o l i d a t i n g th e Page 7 of 37
  • International Business Management Reportg a i ns o f n a ti o n a l r e co ns tr u cti o n a t t hi s cr u ci a l s ta g e. B ut w ha ti s mo r e i m po r ta n t i s t he c ha n g e ( i n co n ti n ui t y w i t h c ha ng e ) —c h a ng e i n t he a t ti t u d e o f t he s ta t e t o w a r ds t h e i n d us tr i a ls o ci et y , c h a ng e f r o m c e ntr a l l y pl a n n ed e co no my t o ma r ke t l e de co no my , c ha ng e f r o m ex c es s i v e g o v er nm e nt i nt er v e nt i o n tom i ni ma l i nt er v e n ti o n , ch a ng e from na ti o na l i za ti o n toprivatization, c h a ng e from s u bs i di za ti o n and cr o s s -s u bs i di za ti o n t o g r a d ua l w i t h dr a w a l o f s ub s i dy , e t c. B ut t hes ec h a ng es , w hi c h t h e g o v er n me n t h a s i n tr o du c e d, r ep r es e nt as ha r p d e pa r t ur e f r o m t he e a r l i e r i n d us t r i a l po l i c i es . T h e s ec ha nge s p e r ta i n b ro ad l y to f i ve ar e as v i z ,a) Industrial licensing,b) Public sector policyc ) MR T P A c t , 1 969d ) F o r e i gn i n v e s t m e n te ) F o r e i g n t e c h n o l o g y a gr e e m e n t s .I n d u s t r i a l Li c e n s i n g T hi s i s o n e o f t he a r e a s i n w h i ch s u bs t a n ti a l ch a n g e h a sb e e n ma de b y th e g o v er nm e nt. W i t h a v i ew to g i v e ef f e ct tot h es e c ha ng es , t h e g o v er nm e nt i s s ue d a n o ti f i c a ti o n [ vi z . ,N o t i f i c a t i o n N o . 4 7 7 ( E ) ] o n J u l y 2 5 , 19 9 1 a n d t hi s no ti f i c a t i o nh a s ex e m pt e d t he i n d us tr i a l u n de r t a k i n g s f r o m th e o pe r a ti o no f t he f o l l o w i ng S e c ti o ns o f In d u s t r i e s D e ve l o p m e n t a n d Page 8 of 37
  • International Business Management ReportR e gu l a t i o n s A c t , 1 95 1 s u b j e c t t o t he f ul f i l m e nt o f ce r t a i nc o nd i t i o n s . (a) S e cti o n 1 0 (w hi ch d e a l s w i th r e g i s tr a ti o n o f ex i s t i n g i n d us t r i a l u n de r ta ki ng s ) (b) S e cti o n 1 1 (w hi ch i s c o n c er ne d w i t h th e l i ce ns i n g f o r n ew i n d us tr i a l un d er ta ki ng s ) (c) S e cti o n 1 3 (w hi c h i s co n cer n e d w i t h t h e l i c en s i ng r e qu i r e m en ts f o r s u bs t a nti a l e x p a n s i o n ). F ur th er , the s e co n d s c he d ul e a pp e n de d to th en o t i f i ca ti o n ci t ed a bo v e [ v i z. , N o . 4 7 7 ( E ) ] l i s ts t h e i nd us tr i esw hi c h a r e s u bj e ct to m a nd a to r y i n d u s tr i a l l i c e ns i n g . A c co r di ngto th i s no ti f i ca t i o n, o nl y 1 8 i n d us t r i e s w e r e s u b j e ct toc o mp ul s o r y i nd us tr i a l l i ce ns i n g . F ur th er , f i v e mo r e i n d us t r i esh a v e b ee n ex c l u d e d f r o m t he l i s t o f i nd us tr i es w h i ch a r es u bj e ct to c o m pu l s o r y i n d us tr i a l l i ce ns i n g s u bs eq u e n tl y . T ha tm e a n s , o nl y 13 i n dus tr i es a r e no w s u bj e ct to c o m p ul s o r yi n d us t r i a l l i ce ns i n g .P u b l i c Se c t o r P o l i c y Page 9 of 37
  • International Business Management Report A l a r g e n um b er o f Pu bl i c S e cto r E n t er pr i s es ha v e f a i l e d toa c hi ev e a t l e a s t a r e a s o na bl e r a t e o f s u cc es s . S o me o f t hef a c to r s w hi ch ha v e co n tr i b u te d to t hi s s i t ua ti o n a r e o v ers ta f f i n g a n d o v er ma na g i ng , pr i ce a n d d i s tr i bu ti o ns co ntr o l s ,e t c. H en c e, t he g o v er n me n t, i n i ts In d us tr i a l P o l i c y , 19 9 1,i n tr o du c e d t he nu m b er o f s i g ni f i ca n t c h a n g e s p er ta i n i ng to t heP S E s . S o m e o f th e i m po r ta n t cha n g es e nv i s a g ed b y t he N ewP o l i c y a r e s u m ma r i z e d b el o w . P r i o r to t he a n n o u n c em e nt o f N ew In d us tr i a l P o l i c y ,1 9 9 1, s ev e nt ee n i n d us tr i es w er e r es er v e d ex cl us i v el y f o r t hes ta te f o r th ei r f u t ur e de v e l o p me n t. F ur t her , w i t h r es p e ct toa no t her 12 i n d us t r i es , t he s ta te w a s to p l a y a n i m p o r t a n t r o l eb y t a ki n g i ni ti a t i v e to es ta bl i s h n ew u n d er ta ki ng s . B es i d es , thes ta te ha d p o w e r t o e nt er i n to a ny o t her a r e a r e s e r v e d f o r thep r i v a t e s e cto r . H o w e v er , th e f a i l u r e o n t he p a r t o f ma j o r i ty o fP S E s h a s f o r c ed t h e g o v er n me n t t o r e v i ew i ts ea r l i er d e ci s i o n.C o ns e q ue n tl y , th e g o v er n me n t i n i ts N ew I n d us tr i a l Po l i c y ,1 9 9 1 ha s pr un ed t he l i s t o f t he i n d us t r i e s r es e r v e d f o r t hepublic s ec to r to o nl y 8. F ur t h er , the g o v er n me n t hasd e r es er v e d 2 mo r e i nd us tr i es . A s a r es ul t, o nl y s i x i n d us tr i esa r e no w r es e r v ed f o r t he p u bl i c s e cto r . T h ey a r e: ( a ) A r ms a nda m m un i t i o n a n d a l l i ed i te ms o f d ef e n c e e q ui pm e n t, a i r cr a f ta n d w a r s hi ps , (b ) A to mi c e n er g y , ( c ) Co a l a nd l i g n i t e, ( d)M i n er a l o i l s , (e) M i n er a l s s pe ci f i e d i n t h e s c he d ul e t o t heA to m i c E ner g y Or d er , 1 95 3, a n d ( f ) R a i l w a y tr a ns p o r t. H e n ce , Page 10 of 37
  • International Business Management Reportt h e f o c us o f th e p u b l i c s e c to r w i l l be o nl y o n s t r a te g i c a ndh i g h t e c h i n d us t r i es a nd o n ba s i c i nf r a s tr u ct ur a l pr o j e c ts .H o w ev e r t h e o bj e c ti v e o f t he N ew I nd us tr i a l Po l i c y ha s b e en tow i t hd r a w t he pu b l i c s e c to r i nv e s t m en t f r o m th e a c ti v i ti esw hi c h c a n s uc ce s s f ul l y b e ta k en u p b y t he pr i v a t e s e cto re n te r p r i s e s . T he e m p ha s i s o f PS E s i n f u t ur e w i l l be o n : (a )Basic and e s s en t i a l i nf r a s tr u ctu r a l f a ci l i ti es , (b) M i n er a lr es o ur ces , ( c ) C r u c i a l a r e a s i n t he i n ter es t o f th e e co no m y i nt h e l o n g r u n a n d w her e th e p r i v a t e s e cto r i n v es t m en t i si na d e qu a t e , a nd ( d ) D ef e n ce eq ui p m e nt. W i t h a v i ew to mo b i l i ze th e r e s o ur ces a n d to h a v e aw i d er p u bl i c pa r ti c i p a t i o n , a pa r t of g o v er nm e n ts s ha r eh o l di ng s i n i ts en t er pr i s es w i l l be o f f er e d to t h e m u t ua l f u n ds ,f i n a n ci a l i ns t i t u ti o ns , e mp l o y s o f P S E s , a n d t he g e n er a l p u bl i c.T h e N ew I n du s tr i a l Po l i cy a l s o pr o po s es s e l e c ti v e p r i v a ti z a t i o no f PS E s . F ur t he r , t he po l i cy a l s o p r o po s e s to cl o s e do w n thePSEs w h i ch have b e co m e sick and w hi c h c a n no t ber e ha bi l i t a t ed. T h e s i c k PS E s w h i c h ca n be r ev i v e d w i l l ber ef e r e d to B o a r d f o r I n d us tr i a l a n d F i n a n c i a l R e co ns tr u ct i o nf o r t h e f o r m ul a ti o n o f r ev i v a l pa c ka g es . T he N ew I n d us t r i a lPolicy also aims at pr o v i di n g g r e a t er o pe r a ti o na l andm a na g er i a l a uto n o my to th e ma n a g e me n t o f PS E s a nd m a k i n gt h e ma n a g em e nts a c co u n ta bl e f o r t he p er f o r m a nc e t hr o u g h as y s t em c a l l ed M em o r a n d um o f U nd e r s t a n d i n g .M R T P A c t , 1 96 9 Page 11 of 37
  • International Business Management Report T h e N ew I nd us t r i a l Po l i cy , 1 99 1 pr o po s es to a m en ds ui ta bl y t he M o n o po l i es a n d R es tr i c ti v e T r a d e P r a c ti ce s A c t,1 9 6 9. T o r em o v e t h e t hr es ho l d l i m i ts o f a s s ets i n r es pe c t o fM R T P co m pa ni es a nd t he d o m i n a n t i n du s tr i a l u n d er ta ki ng s .T h e i m po r ta n t o b j e cti v es o f t h i s w er e tw o i n nu m b er . T he yare: (a) P r ev e n ti o n o f co n ce n tr a ti o n o f e co no mi c po w e r i n t h e h a nd s o f f ew w h i c h w i l l be d etr i m e nt a l to t h e c o mmo n i n ter es t; a n d (b) R e g ul a ti o n o f m o no po l i s ti c, r es tr i c ti v e a n d u nf a i r t r a d e pr a c ti c es w h i ch a r e p ur s ue d by th e b us i n e s s c o mm u ni ty a nd w hi c h a r e p r ej u di ci a l to t he p u b l i c i n ter es t.T h e N ew Po l i cy p r o po s es to r en ew t h e t hr es ho l d l i mi ts o fa s s e ts a nd t h er e f o r e , to r e p ea l t h e P r o v i s i o ns o f M R T P A c t,1 9 6 9 per ta i n i ng t o t he f i r s t o b j e c ti v e. H e n ce , th e M R T P A ctn o w co n c er ne d o nl y w i t h t he p r o hi bi ti o n o f m o no po l i s t i c,r es t r i ct i v e a nd unfair tr a de p r a c ti ce s followed by t hei n d us t r i a l u n de r ta ki ng s a nd t he tr a di n g co m m un i t i e s .F o r e i g n In ve s t m e n t Page 12 of 37
  • International Business Management Report A s f a r a s t h e di r e c t f o r e i g n i n v es t m e nt i s co n c er ne d , t heN ew Po l i cy pr o po s es to g i v e a uto ma ti c a pp r o v a l u p to 5 1% o fe q ui ty i n t he c a s e o f h i g h p r i o r i t y i n d us tr i es a nd i t h a s a l s oi d en ti f i e d 34 such i nd us tr y g r o u ps . F ur th er , the po l i cyp r o po s es to a l l o w ma j o r i ty f o r ei g n e q ui ty ho l d i ng s u p to 51%o f e q ui ty f o r th e tr a di ng co mp a ni es w h i c h a r e e ng a g e d i ne x po r t a c ti v i ti es . T hi s i s to e na bl e t he do m es ti c co m pa ni es a ne a s y a c ces s to i nt er n a ti o n a l ma r ke ts . Wi th a v i ew t o ne g o t i a t ew i t h t he l a r g e i nt er na ti o na l f i na n ci a l i ns ti t u ti o ns a n d toa p pr o v e t he d i r e c t f o r e i g n i n v es tm e nts p r o po s a l s i n s el e c t e dareas, the N ew P o l i cy pr o po s e s to co ns t i t u te a s pe ci a lc o mm i t te e. F o r e i gn T e c h n o l o g y A gr e e m e n t s T h e N ew I n d us tr i a l Po l i cy pr o po s es to g i v e a ut o m a t i cp e r m i s s i o n f o r f o r ei g n t e c h no l o g y a g r e em e nts i n i de n ti f i e dh i g h pr i o r i ty i nd u s tr i es . F ur t her , i t a l s o pr o po s es to a l l o wo th er i n d us tr i es to i m po r t f o r ei g n t e c hn o l o g y s u b j ec t to th ef ul f i l l me n t o f c er t a i n co nd i t i o n s . Page 13 of 37
  • International Business Management Report P R IIV A T IIZ A T IIO N PR VAT ZAT ONIntroduction I n t he s i x ti es a nd s ev e nti es , t he p u bl i c s ec to r po l i c y ha sb e e n l a r g el y g ui d ed b y I n d us t r i a l Po l i cy R es o l u t i o n , 1 95 6w hi c h g a v e th e p u b l i c s e cto r a s t r a te g i c r o l e i n th e e co no my .D ur i n g t he l a s t f o ur de ca d es , ma s s i v e i nv es tm e nts ha v e b ee nm a de to b u i l d a p u b l i c s e cto r w hi c h h a s a c o m ma n d i ng r o l e i nt h e e co no my . T o da y , ma n y k ey s e cto r o f t he e co no my a r ed o mi na te d b y t he ma t ur e p ub l i c s e cto r e n te r p r i s e s t ha t ha v es u c ces s f u l l y ex p a n d e d t h e p r o d u ct i o n. I n t h e ea r l y po s t - I nd e pe n de n c e y ea r s , t her e w a s v i r t ua lc o ns e ns us a bo u t t h e n ee d f o r t he g o v e r n m e nt i nt er v e nt i o n i ne co no mi c a c ti v i ti es . P a nd i t Ja w a h a r l a l N e h r u de s cr i be d t h ep u b l i c s ec to r a s T e m pl es o f M o d er n In d i a . A t t h a t ti me ,v i r t ua l l y n ei t her q u es ti o n ed t h e s t r a te g y no r r a i s ed a n y do ub tsa bo u t i t s i m pl e me n ta ti o n. T h e n um b er o f ce n tr a l p u b l i c s e cto re n te r p r i s es i n cr e a s ed f r o m 5 i n t h e y ea r 1 95 1 to 24 0 by t h ee n d o f 19 95 a nd i nv es tm e nts i n p u b l i c s e cto r u n d er ta ki ng s( P S U s ) i nc r e a s e d f r o m R s 2 9 cr o r e i n 1 9 51 to R s . 1,7 2 , 43 8 cr o r eb y t h e en d o f 19 9 5. T hey c o ntr i b u t e d ne a r l y o ne t h i r d o f o ure x po r ts . T he y made s i g ni f i ca n t co ntr i b u ti o n to i m po r ts u bs t i t u ti o n. G o v er nm e nt u n der ta ki ng s a cc o u n t f o r mo r e t ha t7 0% o f t he w o r k f o r ce e m pl o y e d i n t h e o r g a ni ze d s e c to r . T heyh a v e g r ea tl y r e du c e d t h e i m ba l a n c e d o f r eg i o n a l d ev el o p me nt Page 14 of 37
  • International Business Management Reporta n d ha v e l a i d s tr o ng b a s e f o r th e r a pi d de v el o p m e nt o f t h ec o un tr y . S o m e o f th e PS U s h a v e e a r ne d a r ep u t a ti o n pa re x c el l e n ce a t t he i n ter n a t i o n a l l e v e l . S o me g i a nt p u bl i c s ec to ru n i t s (e. g . , I n d i a n O i l C o r po r a ti o n , S t e el A u tho r i ty o f I n di a , Oi land N a t ur a l Gas Co mm i s s i o n , H i nd us ta n P et r o l e umC o r po r a ti o n Lt d. , Co a l I n di a Ltd and Bharat P e tr o l e umC o r po r a ti o n Lt d) f i g ur e in F o r t un e I nt er na ti o na l ’s largec o mp a ni e s . F u r th e r , t he p ub l i c s e c to r a c co u nt s f o r o n e - f o ur tho f th e co u n tr y ’s G D P. T h er e are tw o mi l l i o n e m pl o y e es in g o v e r nm e ntu n d er ta ki ng s a nd t h e a v er a g e em o l u me nt s pe r a n n u m a mo u n tt o mo r e th a n R s . 50 , 0 00 e a c h. B e s i des p a y i n g hi g h er s a l a r i es ,p u b l i c e n ter pr i s es a s s ur e j o b s e c ur i ty , g o o d w o r ki ng co n di ti o n,a t tr a c ti v e i nc e nti v e s c he m e, pa r ti ci p a ti v e ma na g em e n t, hi g herd e g r ee o f s a f e ty , a d eq u a t e f a ci l i t i e s , et c.M e a n i n g o f Pr i v a t i s a t i o n T h e r e v o l u t i o n of p r i v a t i z a t i o n s ta r t e d i n 1 9 8 0 a nd s p r e a dt o ma n y p a r t s of t h e wo r l d . S e v e r a l c o u n t r i e s a r e p r i v a t i z i n gtheir public sector enterprises. India is no exception to it.P r i v a t i z a t i o n w a s me a n t t o i mp r o v e t h e p e r f o r ma n c e o f p u b l i centerprises. Privatization techniques have be e n tried incountries like Great Britain, China, US, Tur k e y, Brazil,M e x i c o , J a p a n , e t c . P r i v a t i z a t i o n , i n t h e n a r r o w s e n s e , me a n s Page 15 of 37
  • International Business Management Reportt r a n s f e r o f o wn e r s h i p , o r s a l e o f p u b l i c e n t e r p r i s e s . Ho we v e r ,p r i v a t i z a t i o n h a s b e e n u s e d i n d i f f e r e n t w a ys a s d e t a i l e d b e l o w: 1 . L i b e r a l i z a t i o n A p p r o a c h : Pr i v a ti za ti o n ma y b e us ed i n th e s en s e of l i b er a l i za ti o n h a v i ng f ew e r co n tr o l s and r eg ul a ti o n b y t he s t a t e i n e co no m i c a c ti v i ti es . T h i s a l s o m e a n s s l o w i ng o f new co nt r o l s a n d r e g u l a ti o ns a n d a l s o d i s ma n tl i ng o f t he ex i s ti n g co n tr o l s a n d r eg ul a t i o ns . 2 . R e l a t i v e Sh a r e E n l a r ge m e n t A p p r o a c h : P r i v a ti za ti o n ma y r el a t e to e nl a r g em e n t o f t he s h a r e o f pr i v a te e nt er pr i s es i n t h e pr o d u ct i o n o f g o o d s a n d s er v i c es i n t he ec o no my . T hi s m ea ns th a t f a s t er e co no mi c e x p a ns i o n o f g o o ds a n d s er v i c es pr o d u ced b y p r i v a t e s e ct o r a n d s l o w i n g d o w n o f p r o d uc ti o n o f g o o ds a n d s e r v i ce s i n th e pu bl i c s e ct o r . 3 . A s s o c i a t i o n o f P r i v a t e S e c t o r M a n a ge m e n t A p p r o a c h : T hi s a p pr o a c h s u g g es ts u ti l i zi ng the s er v i c es of m a na g er i a l p er s o n nel o r ex ec u t i v es o f p r i v a t e s e c to r e n te r p r i s es f o r th e co n d uc t a n d m a na g e m en t o f P S U s . 4. Transfer of Mi n o r i t y Equity O wn e r s h i p Approach : P r i v a t i z a t i o n ma y b e def i n e d a s t h e tr a ns f er o f m i no r i ty e q ui ty o w n er s hi p of pu b l i c e n te r p r i s es to p r i v a te i n di v i d u a l s a nd i n s ti t u ti o ns s o t ha t t he u l t i m a t e c o ntr o l c o nt i n u es to r e ma i n w i t h t h e s t a te . 5 . T r a n s f e r o f C o m p l e t e O wn e r s h i p A p p r o a c h : Pr i v a t i z a t i o n i s a l s o us e d i n th e s e ns e o f s a l e o f a l l th e s h a r es to t he private pa r ti e s so t ha t the p u bl i c e nt er pr i s es are c o nv e r t e d i n to pr i v a te en t er pr i s es . Page 16 of 37
  • International Business Management ReportShortcomings T ho ug h t he PS U s ha v e co n tr i b ute d h ea v i l y to de v e l o p t hei n d us t r i a l b a s e o f t he co u ntr y , t h ey co n ti nu e , ev e n to da y , tos uf f er f r o m a nu m b er o f s ho r t co mi ng s w h i ch a r e i d e nti f i e db e l o w v er y b r i ef l y . 1 . A s i za bl e n u m be r o f PS U s ha v e b ee n i n c ur r i n g a n d r e po r t i n g l o s s es o n a co nt i nu a l b a s i s . Co ns e q ue n tl y , a l a r g e n u m be r o f P S U s ha v e a l r e a dy b ee n r ef er r e d o f B IF R ; 2 . M ul ti pl i c i t y of a u t ho r i ti es to w ho m t he PSUs are a c co u nt a b l e ; 3 . D el a y i n i m pl em e n ta ti o n o f pr o j e c ts l ea di ng t o co s t e s ca l a ti o n a n d o t h er co ns e q u en ce s ; 4 . I n ef f e ct i v e a nd w i d es p r e a d i n ef f i ci e n cy o n m a n a g e m e nt ; 5 . M a n y PS U s a r e o pe r a ti ng w i t ho u t th e l e a d er (i . e . , c h i ef e x e c ut i v e o r c ha i r ma n ) ; 6 . W i t h a v i ew to p r o v i d e o p po r t un i ti e s f o r mo r e a n d mo r e u n e m pl o y e d y o u t hs , mo r e n um b er of p eo pl e , t ha n r e qu i r e d , w er e r e cr ui t e d a n d t he r ef o r e , m a n y PS U s a r e o v er - s ta f f e d r es u l ti ng i n l o w e r l a bo ur p r o d uc ti v i ty , ba d i n d us t r i a l r el a t i o n s , e tc. ; 7 . u n - r em u ne r a ti v e p r i ci ng po l i cy ; a n d 8 . A n u mb er o f s i ck c o m p a n i es ( 4 0 c o m pa ni es ) w hi c h w e r e i n th e pr i v a te s e c to r w a s t a k e n o v er by p u bl i c s e cto r Page 17 of 37
  • International Business Management Report m a i nl y to pr o t ec t t h e e m pl o y ee s . T h es e s i ck u n i t s a r e c a us i n g a bi g dr a i n o n t h e r es o ur ce s o f t h e s t a t e; et c.M et h o d s o f P r i va t i z a t i o nT h er e a r e f o ur i m p o r t a n t mo d es o f pr i v a t i z a t i o n. T h ey a r e : (a) F r a n c hi s i ng (b) C o n tr a c ti ng (c) L ea s i ng (d) D i s i nv e s t me n t. I n I n d i a , di s i nv es tm e nt o f g o v er n m e nt s ha r e o f e q u i t y i nP S U s i s pr edo mi n a n t. It s ta r t ed i n 1 9 92 i mm e di a te l y a f t er t heN ew E co no m i c Po l i c y i n a p h a s ed m a n ner . T he m a i n cr i ti c i s mo f di s i n v es t me n t o f s ha r es o f PS U s i n I n di a i s tha t i t ha s be e np a r ti a l a n d h a l f - h ea r te d. T h er e s ee ms to b e n o pl a ns tod i s i nv es t co m pl et el y . T h e g o v er nm e n t s ti l l w o ul d l i ke to ke epa do mi na n t co nt r o l . 39 co m pa ni es ha v e be e n p r o po s ed f o rd i s i nv es tm e nt ti l l 1 9 95 - 9 6. A l l t h e co m pa ni es p r o po s ed f o rd i s i nv es tm e nt a r e c e ntr a l PS U s . N o s t a t e l ev el PS U h a s b e enp r o po s ed f o r di s i nv es tm e nt. It co ul d o nl y di s i nv e s t 1% to 35% Page 18 of 37
  • International Business Management Reports ha r es o f PS U s o n a n a v e r a g e. I t i s a l s o o bs er v e d t ha t th es ha r es of ef f i c i en t and pr o f i t - ma ki ng co mp a ni es ared i s i nv es te d mo r e t ha n th e co mp a ni es w hi c h a r e po t en ti a l l ys i c k o r s i c k co mp a ni es . T h e di s i n v es t m en t pe r c en t a g e i s a l s onot much in l o s s - m a ki n g and i n ef f i ci e nt u ni ts , t h er e byd ef ea ti ng t he p ur po s e.P r i v a t i z a t i o n o f P S Us M a j o r i ty o f t he i n d u s tr i a l e n ter pr i s es i n th e p u bl i c s e cto rh a v e f a i l e d to a ch i ev e t h e d es i r ed r es ul t. Of co ur s e, a n u m berof f a c to r s - i n ter n a l and ex ter n a l , co n tr o l l a bl e and no n -c o ntr o l l a bl e a r e r es po n s i bl e f o r h i s p r e ca r i o us pe r f o r ma n ce. Al o o k a t th e hi s to r y o f p u bl i c s e cto r un d er t a k i n g s ( P S U s ) i n t hec o un tr y r e v e a l s t h e co nt i n uo us ex pa ns i o n i n t h e r o l e o f PS U s .C o ns e q ue n tl y , a n u m b er o f e nt er p r i s es ha v e b ee n es ta bl i s he da n d h u g e a mo unt o f bo r r o w e d ca pi ta l ha s be e n e m pl o y e d b yt h e s ta te ev en i n t he no n - co r e , no n - s tr a te g i c a n d no t s oe s s e n ti a l a r e a . H e n c e, t h e s ta t e h a s ma de a n um be r o f c ha ng esi n i ts N ew I nd us tr i a l Po l i c y a nno un c e d o n J ul y 2 4, 1 9 9 1. Page 19 of 37
  • International Business Management Report GLOBALISATION GLOBALISATIONIntroduction: T h e ex pa ns i o n o f ec o no mi c a ct i v i ti es a cr o s s p o l i ti ca lb o un d a r i es o f n a ti o n s ta tes . M o r e i m po r ta nt, p er ha ps , i tr ef e r s to a pr o c e s s o f i nc r e a s i n g eco no mi c i nt e g r a te d a n dg r o w i ng e co no mi c i n t er de pe n d en c e b etw ee n co u n tr i es i n th ew o r l d e co no my . I t i s a s s o ci a t e d n o t o nl y w i t h a n i n cr ea s i n gc r o s s - bo r d er mo v em e nt o f g o o ds , s er v i ces , ca pi ta l te c h no l o g yi nf o r ma ti o n a n d p eo pl e b ut a l s o w i t h a n o r g a ni za ti o n o fe co no mi c a ct i v i ti es w h i c h s tr a d dl es n a t i o n a l bo un d a r i es . T hi sp r o ce s s is dr i v e n by the l ur e of pr o f i t a nd t hr ea t ofc o mp e ti t i o n i n th e ma r k et. T h e t er m G l o ba l i z a ti o n a s s u c h d e no tes a d j us tm e n t o fn a ti o na l e co no m y w i t h t h a t o f t he w o r l d ec o no m y . It i sc o nv e r s i o n o f a n a ti o na l ma r k et i n to i n t er na ti o na l mo bi l i t y o ff a c to r s o f pr o d uc t i o n. In o t h er s w o r ds , i t ma y be d e s cr i be d a st h e i n te g r a ti o n o f na ti o na l ec o no m y w i t h th a t o f g l o b a le co no my .A n i m po r ta n t a t tr i b u te o f G l o b a l i z a t i o n i s t he i n cr ea s i n gd e g r ee of o pen n es s , w hi c h has t hr ee d i me ns i o ns , i . e. ; Page 20 of 37
  • International Business Management Reporti n ter n a ti o n a l tr a d e , i n ter n a ti o n a l i nv es tm e nt a n d i n ter n a ti o n a lf i n a n c e. A c co r d i ng to Wo r l d D ev el o p men t R e po r t,G l o b a l i z a ti o n r ef l e cts t h e pr o g r e s s i v e i n te g r a ti o n o f w o r l d’se co no mi es . The m a n i f e s ta ti o n of pr o d uc t i o n i n c l u d es s pa ti a lr eo r g a ni z a t i o n of pr o d u cti o n t he i nt er p e n etr a t i o n ofi n d us t r i e s a cr o s s b o r d er s , th e s pr e a d o f f i na n ci a l m a r ke ts , a n dt h e d i f f us i o n o f i d en ti c a l co ns u me r g o o ds to di s ta n t co u nt r i esa n d ma s s i v e tr a ns f er o f po p u l a ti o n a cr o s s na ti o n a l f r o n ti e r s . G l o b a l i za ti o n i s a pr o c es s o f r ea f f i r m a t i o n o f f a i t h i n t hem a r ke ts , r e ta i ni n g t h e c ha r a ct er o f i n de pe n d en c e o f a co u ntr y .H er e , t h e co u n tr y f o l l o w s a pr a g m a ti c po l i cy w i t h a s hi f t i nd e ci s i o n ma ki ng f r o m g o v er nm en t to b us i n es s . T h e ma r k etf o r c es a n d t h e l a w s o f eco no mi cs w i l l ha v e g r ea ter i m po r ta n cet h a n t he po l i ti ca l i d eo l o g y . T o m a ke a co un tr y a s uc c es s f ulp a r t ner in Globalization, t he g o v e r n m e nt must play ac o mp l i me n ta r y r o l e.F a c t o r s c o n t r i bu t i n g t o G l o ba l i z a t i o n :T h e i mp o r t a n t f a c t o r s t h a t c o n t r i b u t e t o Gl o b a l i z a t i o n a r e : Page 21 of 37
  • International Business Management Report ( a ) T ec h n o l o g i c a l Ad va n c es I n c o m mu n i c a t i o n : T e c h nol og i c a l a d v a nc e s i n c omm u ni c a t i on h a v e ma d e i tp os si b l e t o know i n a n i nst a nt w h a t i s h a p p e ni ng i nd i f fe re nt p a rt s o f t h e w or l d . Th e f l ow o f i n for m a t i o n a n di d e a s, b o ost e d greatly by the I nt e rn e t , can enabled e v e l op i ng c ou nt ri e s t o l e a r n mo r e r a p i d l y f rom e a c h ot h e ra nd f r om i nd u st r i a l c ou nt ri e s . ( b ) I mp r o v emen t s I n T r a n s p o r t a t i o n An d T ec h n o l o g y : I m p r o v e m en ts i n tr a ns po r t a ti o n n e tw o r ks a n d t e c h no l o g ya r e r e d u ci ng t h e c o s ts o f s hi p pi ng g o o ds b y w a t er , g r o un d a nda i r . T h i s c a n f a ci l i t a t e t he mo v em e n ts o f g o o ds . T e c hno l o g i c a li m pr o v em e nt s ca n en a bl e d ev el o pi ng co u ntr i es t o l e a p s t a g esi n t he d ev e l o p me n t pr o ce s s t h a t r e l y o n i n ef f i ci e nt us es o fn a ti o na l r es o ur ce s . (c) O t h e r Fa c t o r s : R i s i n g ed u ca ti o n a l l ev e l s , t e chn o l o g i ca l i nno v a t i o ns th a ta l l o w i de a s to ci r c ul a t e , a nd t he e co no m i c f a i l u r es o f mo s tc e n tr a l l y pl a n ne d eco no mi es have also co nt r i bu t ed toG l o b a l i z a ti o n. Page 22 of 37
  • International Business Management ReportT r en d s i n G l o ba l i z a t i o n :T h e i mpo r t a n t t r e n ds i n G l o b a l i za t i o n a r e t h e f o l l o w i ng : (a) I n t er n a t i o n a l T r a d e : T r a de i n g o o ds a n d s er v i c es ha s g r o w n tw i c e a s f a s t a sg l o ba l G D P i n t h e 19 9 0’s a n d t h e s h a r e a ttr i b u ta bl e tod e v el o pi n g co u nt r i es h a s r i s en f r o m 2 3 to 2 9 p er c e n t. T her e i sa c o m po s i ti o n a l s h i f t i n tr a de , w hi c h ha s cr e a t ed a newp a tt er n i n t he i n t er na ti o na l ex ch a ng e o f g o o ds , s e r v i ce s , a n di d ea s . T r a de i n c o mpo n e nts i s o n e pa r t o f t h a t n ew pa tt er n.A dv a n c es i n i nf o r ma ti o n t ec h no l o g y h el ps to l i n k f i r ms f r o md e v el o pi n g co u nt r i es i nto g l o ba l pr o d u cti o n netw o r ks . T h et r e m e n do us g r o w t h o f tr a d e i n s e r v i c es a n d , mo r e r e ce nt l y , o fe l e c tr o ni c co m me r ce i s a l s o a pa r t o f t he n ew tr a de p a t te r n. (b) International Financial Flows : T h er e ha s b ee n i n cr e a s e i n i n te r na ti o na l ca pi ta l f l o w s o fd e v el o pi n g co u nt r i es . H o w ev er , th e f i n a n c i a l cr i s i s o f 1 9 77 - 99h a v e p u t t he g r o w i ng i n ter d e pen d e n ci es a mo n g c o u n tr i es i nt h e s po tl i g h t a n d l e d to i n te ns e s c r u ti ny . S u ch f l o w s a r es ta r te d to r i s e a g a i n. T he f i n a nci a l per f o r m a nc e o f em er g i n g Page 23 of 37
  • International Business Management Reportm a r ke ts i n t he 1 9 9 0s ma d e c a pi ta l a c co u nt l i b er a l i za ti o n a na t tr a c ti v e o pt i o n f o r dev el o pi ng c o u n tr i es . M a n y d ev el o pi ngc o un tr i es h a v e b e g a n to l o o s e n c o n tr o l s o n i n f l o w s a ndo ut f l o w s o f ca pi ta l . T h e E a s t A s i a n me l t do w n ha s e n ha n c ed t he a tt r a ct i v en es s o fl o n g - t er m ca pi ta l i nv es t m en t. C o un tr i es have s t a r te d tor e co g ni ze t ha t f o r ei g n d i r e c t i nv es t m e nt br i n g s w i t h i t no to nl y ca pi ta l bu t also t e ch no l o g y m a r ke t a c c es s ando r g a ni za ti o na l s k i l l s . A n a na l y s i s o f t he per i o d 19 9 6 - 97 s ho w st h a t f o r ei g n d i r e c t i nv es t m e nt w a s l es s v o l a ti l e th a n t hec o mm er ci a l b a nk l o a n s a nd f o r ei g n p o r tf o l i o f l o w s . ( c ) I n t er n a t i o n a l M i g r a t i o n : A l o n g w i th g o o d s , s e r v i c es , a nd i nv es tm e nt , pe o p l e a r ecrossing bo r d er s in large n um b er s . A c co r di n g to Wo r l dD ev el o pm e nt R ep o r t 1 99 9 - 2 00 0, e a c h t ea r be tw e e n 2 mi l l i o na n d 3 mi l l i o n peo pl e e mi g r a t e, w i t h ma j o r i ty o f th e m g o i ng toj us t 4 co un tr i es : t h e U ni t e d S ta t es , G er ma ny , C a na da a n dA us tr a l i a . T h e ma r k et f o r hi g h l y s ki l l e d w o r ke r s w i l l b eco mee v e n mo r e g l o ba l l y i nt eg r a te d i n t h e co m i n g de ca d es . A t t h e e n d o f th e 2 0 t h c en t ur y G l o b a l i za ti o n ha s a l r ea dyd e mo ns tr a te d th a t e co no mi c de c i s i o ns , w h er ev er t h ey a r e Page 24 of 37
  • International Business Management Reportm a de i n t he w o r l d , m us t ta ke i n t er na ti o na l f a c to r s i ntoa c co u nt. T her e i s a c cel er a ti o n o f g o o ds , s e r v i c es , i d ea s a ndc a pi ta l a cr o s s na t i o n bo r d er s . Page 25 of 37
  • International Business Management Report C O N CL US I O N: The low a n n u a l g r o wt h rate of the economy of I n d i a b e f o r e 1 9 8 0 , wh i c h s t a g n a t e d a r o u n d 3 . 5 % f r o m 1950s to 1980s, wh i l e p e r capita i n c o me a ve r a g e d 1.3%] At the s a me time, Pakistan grew by 5 % , I n d o n e s i a b y 9 % , Th a i l a n d b y 9 % , S o u t h K o r e a b y 1 0 % a n d i n Ta i wa n b y 1 2 % . Only four or f i ve licences wo u l d be g i ve n f o r s t e e l , p o we r a n d c o m mu n i c a t i o n s . L i c e n se o wn e r s b u i l t u p h u g e p o we r f u l e mp i r e s . A h u g e p u b l i c s e c t o r e me r g e d . S t a t e - o wn e d e n t e r p r i s e s made large losses. Infrastructure i n ve s t me n t wa s poor because of the p u b l i c s e c t o r mo n o p o l y . Page 26 of 37
  • International Business Management Report License Ra j e s t a b l i s h e d the "irresponsible, self - p e r p e t u a t i n g b u r e a u c r a c y t h a t s t i l l e xi s t s throughout much of the country andcorruption flourished under this s ys t e m. E co no mi c l i be r a l i za ti o n h a s i n cr e a s ed t h e r es po n s i bi l i t ya n d r o l e o f t he p r i v a t e s e cto r . A t t he s a me t i me , i t ha sr e du c e d t h e co nt r o l o f t h e g o v er n m e nt o n e co no m y a f f a i r s . I ti s ex p e ct e d th a t t h e r ef o r ms w o ul d l i ber a l i ze t h e I n d i a ne co no my e no ug h t o cr ea te a co nd u c i v e e nv i r o nme n t f o r r a p i de co no mi c d ev el o p m e nt. T he N i nth F i v e Y ea r P l a n, t h er ef o r e,r i g ht l y o bs er v ed, “ T h e co n d i ti o ns t ha t ex i s t to da y , d e ma n d ad e ci s i v e br ea k f r o m t h e p a s t. T h e g o v er n m en t h a s ta ke n o ni ts el f to o ma ny r e s p o ns i bi l i ti es w i t h t he r es ul t t ha t i t no t o nl ye n co ur a g ed a de p e n de n cy s y n dr o me a mo n g o ur p eo p l e , buta l s o i m po s e d s ev er e s tr a i n s o n f i na n ci a l a n d a d m i ni s tr a ti v ec a pa bi l i ti e s o f t he g o v er nm e nt. Private i ni ti a ti v e w h et h er i nd i v i d u a l , co l l e ct i v e orc o mm u ni ty - ba s ed f o r ms t he es s e nc e o f t h e d e v e l o p m e nts tr a te g y a r ti c ul a t e d i n t h e p l a n. Page 27 of 37
  • International Business Management Report T h e pr o c es s o f r e f o r ms a cco r d i ng to ma ny e co no mi s ts a nds o ci a l s ci en ti s ts i s no t f a s t e no ug h to a c h i ev e t he g o a l s .J ef f r e y S a c hs , d i r e cto r o f H a r v a r d U ni v er s i ty ’s c en t er f o ri n ter n a ti o n a l dev el o p me n t a n d a n o t e d e co no mi s t , po i n te d o u tt h a t t he r ef o r m p r o ce s s i n I n di a h a d a l o ng w a y to g o . H e f e el st h a t w i tho u t a f o c us o n th e “ tw i n pi l l a r s ” o f s o ci a l a n de co no mi c s tr a teg i es , t h e f u t ur e w o u l d b e bl ea k f o r I n di a ,e s p e ci a l l y i n t he c o nt ex t o f co m pe ti ti o n a l l a r o u nd . L i ber a l i za ti o n pr o ce s s i s o n t h e s l o w tr a c k . G o v e r n m e nt i se x p e ct e d to r e du c e a n d f i na l l y g i v e u p i ts i nv o l v e m en t i ne co no mi c m a t t er s a n d p l a y a m a j o r r o l e i n pr o v i d i ng t her e qu i r e d s o ci o - e co no mi c i nf r a s tr u ct ur e. The g o v er n me n t,h o w ev er , i s r el u c t a n t to g i v e u p i ts r o l e o f o w ni ng a ndc o ntr o l l i n g e c o no mi c a ct i v i ti e s . A t t he s a m e ti me i ts i na bi l i t yto s pe n d for providing mi ni m u m h ea l t h and e d u ca ti o ns er v i c es . I t i s ea g e r to s pe n d o n h i g he r e d uca ti o n w i tho u ts pe n di n g e no u g h o n pr i ma r y a nd s e co n da r y e du ca ti o n. It h a sf a i l ed in pr o v i d i ng a co r r up ti o n fre e a d mi ni s tr a ti o n , ane s s e n ti a l p r e co nd i ti o n f o r i n cr e a s i n g co m pe ti ti v en es s . S u c ces s o f t h e e co no mi c r ef o r ms d e pe n ds up o n t hec o mm i t me n t o f a l l co n c er ne d – p e o p l e , po l i ti ca l pa r ti es , Page 28 of 37
  • International Business Management Reportb u r e a uc r a cy , and g o v er n me n t – to the socio e co no m i cp r o g r es s o f t he co u n tr y .T h e e c o n om i c liberalisation in I n di a r e f e r s too n g o i n g e c o n o m i c r e f o r ms i n I n d i a t h a t s t a r t e d i n 1 9 9 1 .After Independence in 1947, India adheredt o s o c i a l i s t p o l i c i e s . I n t h e 1 9 8 0 s , P r i m e M i n i s t e r Ra j i vG a n d h i i n i t i a t e d s o m e r e f o r ms . I n 1 9 9 1 , a f t e r I n d i a s o l d 6 7t o n s o f g o l d t o t h e I n t e r n a t i o n a l M o n e t a r y F u n d ( I M F) , t h eg o ve r n m e n t of P. V. Narasimha Rao and his financem i n i s t e r Ma n mo h a n Singh started breakthroughr e f o r ms . Th e n e w n e o - l i b e r a l p o l i c i e s i n c l u d e d o p e n i n g f o ri n t e r n a t i o n a l t r a d e a n d i n ve s t m e n t , d e r e g u l a t i o n , i n i t i a t i o no f p r i va t i z a t i o n , tax r e f o r ms , and inflation-controllingm e a s u r e s . T h e o ve r a l l d i r e c t i o n o f l i b e r a l i s a t i o n h a s s i n c eremained the s a me , i r r e s p e ct i ve of the ruling p a r t y,a l t h o u g h n o p a r t y h a s ye t t r i e d t o t a k e o n p o we r f u l l o b b i e ssuch as the trade unions and farmers, or contentiousissues such as reforming labour l a ws andr e d u c i n g a g r i c u l t u r a l s u b s i d i e s . Th e ma i n o b j e c t i ve o f t h eg o ve r n m e n t wa s to transform the economics ys t e m f r o m s o c i a l i s m t o c a p i t a l i s m s o as to a c h i e veh i g h e c o n o mi c g r o wt h a n d i n d u s t r i a l i z e t h e n a t i o n f o r t h ewe l l - b e i n g of Indian c i t i z e n s . To d a y India is ma i n l yc h a r a c t e r i z e d a s a ma r k e t e c o n o m y .A s o f 2 0 0 9 , a b o u t 3 0 0 mi l l i o n p e o p l e — e q u i va l e n t t o t h eentire population of the Un i t e d S t a t e s — h a ve e s c a p e d Page 29 of 37
  • International Business Management Reporte xt r e me p o ve r t y . T h e f r u i t s o f l i b e r a l i s a t i o n r e a c h e d t h e i rp e a k i n 2 0 0 7 , wh e n I n d i a r e c o r d e d i t s h i g h e s t G DP g r o wt hr a t e o f 9 % . W it h t h i s , I n d i a b e c a me t h e s e c o n d f a s t e s tg r o wi n g ma j o r economy in the wo r l d , n e xt only toChina. An Organisation for E c o n o mi c Co - o p e r a t i o n andD e ve l o p m e n t ( O E C D) report states that the a ve r a g eg r o wt h r a t e s 7 . 5 % wi l l d o u b l e t h e a ve r a g e i n c o me i n ad e c a d e a n d m o r e r e f o r ms wo u l d s p e e d u p t h e p a c e .Indian g o ve r n m e n t coalitions h a ve been a d vi s e d tocontinue liberalisation. India g r o ws at s l o we r pacet h a n Ch i n a , wh i c h h a s b e e n l i b e r a l i s i n g i t s e co n o m y s i n c e1 9 7 8 . Mc K i n s e y s t a t e s that r e mo vi n g main obstacles" wo u l d f r e e I n d i a ’ s e c o n o m y t o g r o w a s f a s t a s C h i n a ’ s , a t1 0 p e r c e n t a ye a r " .I n d i a n e c o n o mi c p o l i c y a f t e r i n d e p e n d e n c e wa s i n f l u e n c e db y t h e c o l o n i a l e xp e r i e n c e ( wh i c h wa s s e e n b y I n d i a nl e a d e r s a s e xp l o i t a t i ve i n n a t u r e ) a n d b y t h o s e l e a d e r s e xp o s u r e t o Fa b i a n socialism. Policy tendedt o wa r d s p r o t e c t i o n i s m , wi t h a s t r o n g e mp h a s i s o n i m p o r tsubstitution, industrialization under statem o n i t o r i n g , s t a t e i n t e r ve n t i o n a t t h e m i c r o l e ve l i n a l lbusinesses especially in labour and financial markets, alarge public sector, business regulation, and centralp l a n n i n g Fi ve - Ye a r Plans of India resembled centralplanning in t h e S o vi e t U n i o n . S t e e l , mi n i n g , m a c h i n e Page 30 of 37
  • International Business Management Reportt o o l s , wa t e r , t e l e c o m mu n i c a t i o n s , i n s u r a n c e , a n d e l e c t r i c a lplants, a mo n g other industries, we r ee f f e c t i ve l y n a t i o n a l i z e d i n the mid-1950s. Elaboratelicences, regulations and the a c c o m p a n yi n g r e d tape,c o m mo n l y r e f e r r e d t o a s L i c e n c e R a j , we r e r e q u i r e d t o s e tu p b u s i n e s s i n I n d i a b e t we e n 1 9 4 7 a n d 1 9 9 0 .Before the process of reform began in 1991, theg o ve r n m e n t a t te mp t e d t o c l o s e t h e I n d i a n e c o n o m y t o t h eoutside wo r l d . The Indian c u r r e n c y, the rupee, wa si n c o n ve r t i b l e and high tariffs and i mp o r t licensingp r e ve n t e d f o r e i g n g o o d s r e a ch i n g t h e m a r k e t . I n d i a a l s oo p e r a t e d a s ys t e m o f c e n t r a l p l a n n i n g f o r t h e e c o n o m y, i nwh i c h f i r ms r e q u i r e d l i c e n s e s t o i n ve s t a n d d e ve l o p . Th el a b yr i n t h i n e b u r e a u c r a c y o f t e n l e d t o a b s u r d r e s t r i c t i o n s —up to 80 agencies had to be satisfied before a firm couldb e g r a n t e d a l i c e n c e t o p r o d u c e a n d t h e s t a t e wo u l dd e c i d e wh a t wa s p r o d u c e d , h o w m u c h , a t wh a t p r i c e a n dwh a t s o u r c e s o f c a p i t a l we r e u s e d . Th e g o ve r n m e n t a l s op r e ve n t e d f i r ms from l a yi n g off wo r k e r s or closingfactories. Th e central pillar of the policy wa s i m p o r tsubstitution, the belief that India needed to rely oni n t e r n a l ma r k e t s f o r d e ve l o p me n t , n o t i n t e r n a t i o n a l t r a d e —a belief generated by a mi xt u r e of socialism and thee xp e r i e n c e o f c o l o n i a l e xp l o i t a t i o n . P l a n n i n g a n d t h e s t a t e ,rather than markets, wo u l d determine how mu c hi n ve s t m e n t wa s n e e d e d i n wh i c h s e c t o r s . Page 31 of 37
  • International Business Management ReportI n t h e 8 0 s , t h e g o ve r n me n t l e d b y R a j i v G a n d h i s t a r t e dl i g h t r e f o r ms . T h e g o ve r n m e n t s l i g h t l y r e d u c e d L i c e n s eRaj and also p r o mo t e d the g r o wt h oft h e t e l e c o mm u n i c a t i o n s a n d s o f t wa r e i n d u s t r i e sT h e V i s h wa n a t h P r a t a p S i n g h g o ve r n m e n t (1989–1990)a n d Ch a n d r a S h e k h a r S i n g h g o ve r n me n t ( 1 9 9 0 – 1 9 9 1 ) d i dn o t a d d a n y s i g n i f i c a n t r e f o r ms . 1 9 9 1 I n di a e c on o m i c c r i s i sT h e a s s a s s i n a t i o n o f p r i me mi n i s t e r I n d i r a G a n d h i i n 1 9 8 4 ,and later of her s o n Ra j i v Gandhi in 1991, crushedi n t e r n a t i o n a l i n ve s t o r c o n f i d e n c e o n t h e e c o n o m y t h a t wa se ve n t u a l l y p u s h e d t o t h e b r i n k b y t h e e a r l y 1 9 9 0 s .A s o f 1 9 9 1 , I n d i a s t i l l h a d a f i xe d e xc h a n g e r a t e s ys t e m,wh e r e t h e r u p e e wa s p e g g e d t o t h e va l u e o f a b a s k e t o fcurrencies of major trading partners. India startedh a vi n g b a l a n c e o f p a ym e n t s p r o b l e ms s i n c e 1 9 8 5 , a n d b yt h e e n d o f 1 9 9 0 , i t wa s i n a s e r i o u s e c o n o mi c c r i s i s . Th eg o ve r n m e n t wa s close to default,its central bank hadr e f u s e d n e w c r e d i t a n d f o r e i g n e xc h a n g e r e s e r ve s h a dreduced to the point that Indiacould barely finance threewe e k s ’ wo r t h o f i mp o r t s .A B a l a n c e o f P a ym e n t s c r i s i s i n 1 9 9 1 p u s h e d t h e c o u n t r yt o n e a r b a n k r u p t c y . I n r e t u r n f o r a n I M F b a i l o u t , g o l d wa stransferred toLondon as collateral, t h e Ru p e e d e va l u e da n d e c o n o m i c r e f o r ms we r e f o r c e d u p o n I n d i a . T h a t l o wp o i n t wa s t h e c a t a l ys t r e q u i r e d t o t r a n s f o r m t h e e c o n o m y Page 32 of 37
  • International Business Management Reportt h r o u g h b a d l y n e e d e d r e f o r ms t o u n s h a c k l e t h e e c o n o m y.Controls started to bed i s m a n t l e d , t a r i f f s , d u t i e s a n d t a xe s p r o g r e s s i ve l y l o we r e d ,s t a t e mo n o p o l i e s b r o k e n , t h e e c o n o m y wa s o p e n e d t otrade and i n ve s t me n t , p r i va t e sector enterprise andc o mp e t i t i o n we r e e n c o u r a g e d a n d g l o b a l i s a t i o n wa s s l o wl ye mb r a c e d . T h e r e f o r ms p r o c e s s c o n t i n u e s t o d a y a n d i saccepted by all political parties, but the speed is oftenh e l d h o s t a g e b y c o a l i t i o n p o l i t i c s a n d ve s t e d i n t e r e s t s .L a t e r r e f o r ms A t a l B i h a r i V a j p a ye e s a d mi n i s t r a t i o n s u r p r i s e d m a n y b y c o n t i n u i n g r e f o r m s , wh e n i t wa s a t t h e h e l m o f a f f a i r s o f I n d i a f o r f i ve ye a r s . T h e V a j p a ye e a d m i n i s t r a t i o n continued wi t h p r i va t i z a t i o n , reduction of t a xe s , a sound fiscal p o l i c y a i me d at reducing deficits and debts and i n c r e a s e d i n i t i a t i ve s f o r p u b l i c wo r k s . T h e U F g o ve r n m e n t a t t e mp t e d a p r o g r e s s i ve b u d g e t t h a t encouraged r e f o r ms , but the 1997 Asian financial crisis and political i n s t a b i l i t y c r e a t e d e c o n o mi c stagnation. E c o n o mi c and technology-related sanctions h a ve r e p e a t e d l y n o t p r o ve d t o b e ve r y e f f e c t i ve i n c o mp e l l i n g n a t i o n s t o c h a n g e t h e i r s o ve r e i g n d e c i s i o n s m a d e i n e n l i g h t e n e d s e l f - i n t e r e s t . I n d i a f a c e d s e ve r e s a n c t i o n s a f t e r P o k h r a n - I ( f i ve n u c l e a r t e s t s o n Ma y 1 1 a n d 1 3 , 1998 at the Pokhran range in Rajasthan Page 33 of 37
  • International Business Management Report Desert),andsanctions that we r e mo r e c o m p r e h e n s i ve we r e i m p o s e d f o l l o wi n g P o k h r a n - I I . Th e r e we r e d i r e p r e d i c t i o n s o f t h e c o l l a p s e o f t h e e c o n o m y, d o u b l e - d i g i t inflation etc. A f t e r f i ve ye a r s, mo s t o f t h e s a n c t i o n s h a ve b e e n l i f t e d and the Indian economy is continuing to grow at an a c c e p t a b l y s a t i s f a c t o r y r a t e . Th e a n t i c i p a t e d g r o wt h r a t e for 2003-04 is 6.0%. Though India’s Gross National Income is only $477.4 billion by c o n ve n t i o n a l calculations, it translates into $2,913 billion purchasing p o we r parity (PPP), according to the latest wo r l d d e ve l o p me n t i n d i c a t o r s . I n P P P t e r ms , i t i s t h e wo r l d s f o u r t h l a r g e s t e c o n o m y, b e h i n d o n l y t h e US , C h i n a a n d Japan.L i b e r al i z a ti on v s Dem oc r a ti z at i onT h e r e i s a d i st in c t di f fe re n c e b e t w e e n l ibe r al iz a t io n an dd e m o c r a t iz a t io n , w h i c h a re o ft e n t h o u g h t to b e th e s a m ec o n c e pt . L ibe r al iz a t io n can take pl ac e w i th o u td e m o c r a t iz a t io n , a n d de al s w i t h a c o m b in at io n o f po l i c ya n d so c i al c h an g e sp e c ial iz e d t o a c e r t ai n is s u e s u c h asthe l i be r al iz at i o n of g o ve r n m e n t - h e l d pr o p e r ty forp r i v ate pu rc h a s e , w h e re a s de m o c r at iz a ti o n is m o rep o l i t ic al l y spe c i al iz e d th at c an a r i se from al ibe r al iz a t io n , bu t works in a b ro ad e r l e ve l ofg o ve rn m e n t. Page 34 of 37
  • International Business Management Report What are Disadvantages of Privatisation ?1 . P r i v a t i s a t i o n i s e x p e n s i v e a n d g e n e r a t e s a l o t o f i n c o me i nfees for specialist advisers such as banks.2 . P u b l i c mo n o po l i e s h a v e b e e n t u r n e d i n t o p r i v a t e mo n o p o l i e sw i t h t o o l i t t l e c o mp e t i t i o n , s o c o n s u me r s h a v e n o t b e n e f i t e d a smu c h a s h a d b e e n h o p e d . Th i s i s t h e ma i n r e a s o n wh y i t h a sb e e n n e c e s s a r y t o c r e a t e r e g u l a t o r s ( O F WA T , O F G AS e t c ) .T h i s i s a n i mp o r t a n t p o i n t . I t p a r t l y d e p e n d s o n h o w t h eprivatisation took place. F o r e x a mp l e , t h e r a i l wa ys we r ep r i v a t i s e d i n b i t o f a r u s h a n d t h e r e mi g h t h a v e b e e n o t h e rw a ys t o d o i t s o t h a t mo r e c o mp e t i t i o n wa s c r e a t e d . I t p a r t l yd e p e n d s o n t h e ma r k e t . S o me m a r k e t s a r e n a t u r a l mo n o p o l i e s w h e r e c o mp e t i t i o n i s d i f f i c u l t . F o r e x a mp l e , i t w o u l d b e v e r ywasteful and expensive to build t wo sets of track intoL i v e r p o o l S t r e e t ju s t t o c r e a t e s o me c o mp e t i t i o n . Na t u r a lmo n o p o l i e s c r e a t e a s p e c i a l ju s t i f i c a t i o n f o r p u b l i c o wn e r s h i pi n t h e g e n e r a l p ub l i c i n t e r e s t .3 . Th e n a t i o n a l i se d i n d u s t r i e s we r e s o l d o f f t o o q u i c k l y a n d t o oc h e a p l y. Wi t h p a t i e n c e a b e t t e r p r i c e c o u l d h a v e b e e n h a d wi t hmo r e b e n e f i c i a l r e s u l t s o n t h e g o v e r n me n t s r e v e n u e . I n a l mo s tall cases the share prices rose sharply as soon as dealing beganafter privatisation. Page 35 of 37
  • International Business Management Report4 . Th e p r i v a t i s e d b u s i n e s s e s h a v e s o l d o f f o r c l o s e d d o wnu n p r o f i t a b l e p a r t s o f t h e b u s i n e s s ( a s b u s i n e s s e s n o r ma l l y d o )a n d s o s e r v i c e s e g t r a n s p o r t i n r u r a l a r e a s h a v e g o t wo r s e .5 . Wi d e r s h a r e o w n e r s h i p d i d n o t r e a l l y h a p p e n a s ma n y s ma l li n v e s t o r s t o o k t he i r p r o f i t s a n d d id n t b u y a n yt h i ng e l s e . Page 36 of 37
  • International Business Management Report Bibliographyh t t p : / / w w w. g o o g l e . c o m Page 37 of 37