Privatisation liberalization


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  • The economic reforms initiated by the Government since 1991 have added new dimensions  to  industrial  growth  in   general and steel   industry   in   particular. Licensing  requirement for capacity creation   has  been abolished,   except  for  certain  location restrictions. Steel industry has been removed from the list of industries  reserved  for   the   public   sector. Automatic   approval of foreign equity investment up to 100% is now available. Price and distribution  controls have been removed from January, 1992, with a view to make the steel industry efficient and competitive. Restrictions on  external trade, both in import and  export    have  been removed. Import duty rates have been reduced drastically. Certain  other policy measures  such  as  reduction  in    import duty of capital goods, convertibility of rupee on trade account, permission to mobilise resources from overseas financial markets and rationalisation of existing tax structure for a period of time have also benefited the Indian Steel Industry.
  • The results in telecommunications have been much better and this is an important factor underlying India’s success in information technology. There was a false start initially because private investors offered excessively high license fees in bidding for licenses which they could not sustain, which led to a protracted and controversial renegotiation of terms. Since then, the policy appears to be working satisfactorily. Several private sector service providers of both fixed line and cellular services, many in partnership with foreign investors, are now operating and competing with the pre-existing public sector supplier. Teledensity, which had doubled from 0.3 lines per 100 population in 1981 to 0.6 in 1991, increased sevenfold in the next ten years to reach 4.4 in 2002. Waiting periods for telephone connections have shrunk dramatically. Telephone rates were heavily distorted earlier with very high long distance charges cross-subsidizing local calls and covering inefficiencies in operation. They have now been rebalanced by the regulatory authority, leading to a reduction of 30 percent in long distance charges. Interestingly, the erstwhile public sector monopoly supplier has aggressively reduced prices in a bid to retain market share.
  • The insurance sector (including pension schemes), was a public sector monopoly at the start of the reforms. The need to open the sector to private insurance companies was recommended by an expert committee (the Malhotra Committee) in 1994, but there was strong political resistance. It was only in 2000 that the law was finally amended to allow private sector insurance companies, with foreign equity allowed up to 26 percent, to enter the field. An independent Insurance Development and Regulatory Authority has now been established and ten new life insurance companies and six general insurance companies, many with well-known international insurance companies as partners, have started operations. The development of an active insurance and pensions industry offering attractive products tailored to different types of requirements could stimulate long term savings and add depth to the capital markets. However, these benefits will only become evident over time.
  • As a result of this, huge amounts of foreign direct investment came into India through non- resident Indians, international companies, and various other foreign investors.The growth of FDI in India boosted the economic growth of the country. Major advantages of FDI in India have been in terms of - Increased capital flow, Improved technology, Management expertise, Access to international markets.In 1993, foreign institutional investors were allowed to purchase shares of listed Indian companies in the stock market, opening a window for portfolio investment in existing companies.
  • A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. Considering the need to enhance foreign investment and promote exports from the country and realizing the need that a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, The Government of India had in April 2000 announced the introduction of Special Economic Zones policy in the country, deemed to be foreign territory for the purposes of trade operations, duties and tariffs. As of 2007, more than 500 SEZs have been proposed, 220 of which have been created. This has raised the concern of the World Bank, which questions the sustainability of such a large number of SEZs. The Special Economic Zones in India closely follow the PRC model. India passed special economic zone act in 2005.
  • Privatisation liberalization

    1. 1. By Gunjan Porwal Business Environment Privatisation & Liberlization
    2. 2. Reduction in the involvement of state/public sector in economic activities of a nation Privatisation…..
    3. 3. Initiation of private management without its ownership Public sector ownership Private sector ownership Privatisation…..
    4. 4. Measures of Disinvestment Ownership Measures Total denationalization Ex: VSNL to Tata Joint Ventures Example: Maruti Suzuki Liquidation HZL Management Buy-Out Delhi airport
    5. 5. Contd…. Organisational Measures Holding company Leasing Restructuring; financial/ basic restructuring
    6. 6. Some other forms…. • Divesture • Denationalization • Licensing of technology of PSUs to private enterprise on annual royalty linked to output • Government withdrawal • Management contracts; govt. retains ownership but with private management (lease)
    7. 7. Objectives • To do away with non strategic enterprises • Release resources from non strategic enterprises & re- deploy in prioitised areas • Reduction of public debt • Transferring commercial risk
    8. 8. Uncontrolled State Expansion…. • Economic inefficiency • Ineffectiveness in provision of goods & services • Bureaucracy • Stressed public budget • Inefficient governance & management
    9. 9. Consequently….. New Industrial Policy, 1991 pruned the list of the industries reserved for the public sector to only 8 Presently, only 2 industries are now reserved for the public sector.
    10. 10. Atomic energy Railways
    11. 11. In India Privatisation was adopted to…. • Modernize & upgrade PSUs • Asset creation • Optimal use of resources & assets/ productive potential • Employment generation • Restriction of private monopoly • Disinvestment • Divestment Proceeds Fund • Guidelines • Abolition of industrial policy • Sick units
    12. 12. Demerits • Concentration of economic power • Slow down the growth of low margin industries • Continuing industrial sickness • MNCs • Threat for weaker sections of society • Discarding the objectives of Public sector • Privatisation of vital sectors are against national interest • Capital markets are not fully developed
    13. 13. Sector-wise Performance • Steel • Telecom • Banking • Insurance
    14. 14. Steel • India set plans in motion to partially privatize its nationalized industries in 1993 • Although India started exporting steel way back in 1964,restrictions on external trade, both in import and export were been removed • Steel industry has been removed from the list of industries reserved for the public sector • Automatic approval of foreign equity investment up to 100% is now available
    15. 15. Telecom Sector • India introduced private competition in value-added services in 1992 followed by opening up of cellular and basic services for local area to private competition. • The Telecom Regulatory Authority of India (TRAI) was constituted in 1997 as an independent regulator in this sector. • Competition was also introduced in national long distance (NLD) and international long distance (ILD) telephony
    16. 16. Banking Sector • Operation autonomy to public sector banks and reduction of public ownership up to 49% • Entry for Indian private sector, foreign and joint-venture banks and insurance companies • Reduction in reserve requirement, disbanding of administered interest rates, introduction of pure inter-bank call money market and capital adequacy requirements and other prudential norms Reforms Impact • Reduction in the share of non-performing assets in the portfolio and more than 90 percent of the banks now meet the new capital adequacy standards. • Increase in the overall profit of public sector banks.
    17. 17. Insurance Sector • Insurance sector was opened up in August 2000 • 49% FDI has been recently announced by government • An independent Insurance Development & Regulatory Authority has been established.
    18. 18. Privatization occurred in.. • Bharat Aluminium Company - in 2001 by the BJP Government • Maruti Udyog • BSNL • Hindustan Zinc Limited - in 2001 by the BJP [6] • VSNL - by the BJP • Delhi Airport • Mumbai Airport • Hyderabad International Airport • Bangalore International Airport • Cochin International Airport
    19. 19. Decisions in line… • Disinvestment in ONGC • Disinvestment in OIL • Divestment IOC
    20. 20. Liberalization  Loosening or removal of controls so that economic development gets encouragement  Abolition of those economic policies, rules, regulations, administrative controls and procedures which impede economic development
    21. 21. In other words economic liberalisation is a new economy policy of promoting market determined economic decisions rather than bureaucratic arbitrary economic decisions Definition-Liberalization
    22. 22. Genesis • 1980s, the root cause of the crisis was the large and growing fiscal imbalance • Large fiscal deficits emerged as a result of mounting government expenditures, particularly during the second half of the 80s • These fiscal deficits led to high levels of borrowing by the government from the Reserve Bank of India (RBI), IMF, World Bank • Government expenditure in India grew at a phenomenal rate, faster than what government earns as a revenues. • The subsidies grew at a rate faster than government expenditures • Expenditure on subsidies rose from Rs.19.1 billion in 1980-81 to Rs. 107.2 billion in 1990-91
    23. 23. Continued…… • The Indian economy was indeed in deep trouble • Lack of foreign reserves • Gold reserve was empty • Before 1991, India was a closed economy • The government was close to default and its foreign exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports • The Government of India with Manmohan Singh (appointed as a special economical advisor) decided to usher in several reforms that are collectively termed as liberalisation in the Indian media
    24. 24. Economic Reforms • Industrial delicensing and simplification and rationalization of tax structure to promote investment and expansion • Liberal FDI regime to supplement domestic resources • Current account convertibility to have a liberal trade regime
    25. 25. • Limited industries for Public Players only • Monopolies and Restrictive Trade Practices Act to new competition law Reforms in Industrial Policy
    26. 26. Reforms in Trade Policy • Import licensing was abolished relatively early for capital goods and intermediates which became freely importable in 1993 • Switch to a flexible exchange rate regime
    27. 27. Foreign Investment In India • After reforms in 1992, huge amounts of foreign direct investment came into India • In 1993, foreign institutional investors were allowed to purchase shares of listed Indian companies in the stock market • Foreign direct investments in India are approved through two routes: a) Automatic approval by RBI b) The FIPB Route
    28. 28. Special Economic Zone • The main objectives of the SEZ Act are: generation of additional economic activity promotion of exports of goods and services; promotion of investment from domestic and foreign sources; creation of employment opportunities; development of infrastructure facilities; • The announcement of the Exim policy 2002–03 has given further impetus to the creation of SEZs because the Exim policy has included service- sector units to be set up in SEZs
    29. 29. Resulted in… • Delicensing • Freedom from locational requirement & government clearance • Freedom to PSUs to access capital market • Permission to corporates to buyback shares • Liberalisation in tax structure • Freedom for banks to enter in insurance sector • Shifting of product/industries from administered price mechanism • Freedom to transfer license & assets • Removal of restrictions on movement of products/ sale-purchase of assets • Reduction in CRR & SLR • Tax exemptions/ concessions
    30. 30. Thank You