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Liberalization, Privatization, Globalization
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Assignment - 4
Liberalization, Privatization,
Globalization
Date of Submission:6August,2015
Submitted by:Sonali
Class:BBA
Roll No: BBA/13/913
Email:snlkkrj000@gmail.com

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Abstract
This assignment contains those topics which are related to the economy that are liberalization, globalization,
and privatization showing the effect of globalization on India with the negative effects. FEMA and FERA is
defined under the liberalization part along with this the objectives of privatization and causes of inefficiency
of public sectors, advantages and disadvantages of privatization, how changes arises across Euro and USA
and changes in the third world, at last the brief introduction of all the three topics the liberalization,
privatization and globalization.

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Table of Contents
1 Globalization....................................................................................................................................................................4
1.1 Effect of Globalization on India .........................................................................................................................5
1.2 Negative effect of globalization..........................................................................................................................6
2 Liberalization ...................................................................................................................................................................8
2.1 FEMA......................................................................................................................................................................8
2.2 FERA.......................................................................................................................................................................9
3 Privatization ...................................................................................................................................................................11
3.1 Objectives of Privatization ................................................................................................................................11
3.2 Causes of Inefficiency of Public Sectors.........................................................................................................11
3.3 Privatization has its own advantages and disadvantages..............................................................................12
3.4 Changes across Euro and USA .........................................................................................................................14
3.5 European Free Trade Association ....................................................................................................................16
3.6 Changes in the Third World ..............................................................................................................................17
3.7 Changes in Asian Countries:.............................................................................................................................18
4 Liberalization, Privatization and Globalization in India ........................................................................................20
4.1 Liberalization .......................................................................................................................................................20
4.2 Privatization and Globalization ........................................................................................................................20
4.3 LPG and the Economic Reform Policy of India ............................................................................................20
4.4 Highlights of the LPG Policy............................................................................................................................22
5 Bibliography...................................................................................................................................................................23

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1 Globalization
The term globalization can be used in different contexts. The general usages of the termGlobalization can be as
follows:
Interactions and interdependence among countries.
Integration of world economy.
Deterritorisation.
Globalization
By synthesising all the above views Globalization can be broadly defined as follows:
It refers to a process whereby there are social, cultural, technological exchanges across the border.
The term Globalization was first coined in 1980s. But even before this there were interactions among nations.
But in the modern days Globalization has touched all spheres of life such as economy, education. Technology,
cultural phenomenon, social aspects etc. The term “global village” is also frequently used to highlight the
significance of globalization. This term signifies that revolution in electronic communication would unite the
world.
Undoubtedly, it can be accepted that globalization is not only the present trend but also future world order.

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1.1 Effect of Globalization on India
Globalization has its impact on India which is a developing country. The impact of globalization can be
analysed as follows:
1. Access to Technology:
Globalization has drastically, improved the access to technology. Internet facility has enabled India to gain
access to knowledge and services from around the world. Use of Mobile telephone has revolution used
communication with other countries.
2. Growth of international trade:
Tariff barriers have been removed which has resulted in the growth of trade among nations. Global trade has
been facilitated by GATT, WTO etc.
3. Increase in production:
Globalization has resulted in increase in the production of a variety of goods. MNCs have established
manufacturing plants all over the world.
4. Employment opportunities:
Establishment of MNCs have resulted in the increase of employment opportunities.
5. Free flow of foreign capital:
Globalization has encouraged free flow of capital which has improved the economy of developing countries to
some extent. It has increased the capital formation.

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1.2 Negative effect of globalization
Globalization is not free from negative effects. They can be summed up as follows:
1. Inequalities within countries:
Globalisation has increased inequalities among the countries. Some of the policies of Globalization
(liberalisation, WTO policies etc.) are more beneficial to developed countries. The countries which have
adopted the free trade agenda have become highly successful. E.g.: China is a classic example of success of
globalization. But a country like India is not able to overcome the problem.
2. Financial Instability:
As a consequence of globalization there is free flow of foreign capital poured into developing countries. But the
economy is subject to constant fluctuations. On account of variations in the flow of foreign capital.
3. Impact on workers:
Globalization has opened up employment opportunities. But there is no job security for employees. The nature
of work has created new pressures on workers. Workers are not permitted to organise trade unions.
4. Impact on farmers:
Indian farmers are facing a lot of threat from global markets. They are facing a serious competition from
powerful agricultural industries quite often cheaply produced agro products in developed countries are being
dumped into India.
5. Impact on Environment:
Globalization has led to 50% rise in the volume of world trade. Mass movement of goods across the world has
resulted in gas emission. Some of the projects financed by World Bank are potentially devastating to ecological
balance. E.g.: Extensive import or export of meat.
6. Domination by MNCs:
MNCs are the driving force behind globalization. They are in a position to dictate powers. Multinational
companies are emerging as growing corporate power. They are exploiting the cheap labour and natural
resources of the host countries.

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7. Threat to national sovereignty:
Globalizations results in shift of economic power from independent countries to international organisations, like
WTO United Nations etc. The sovereignty of the elected governments are naturally undermined, as the policies
are formulated in favour of globalization. Thus globalization has its own positive and negative consequences.
According to Peter F Drucker Globalization for better or worse has changed the way the world does business. It
is unstoppable. Thus Globalization is inevitable, but India should acquire global competitiveness in all fields.

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2 Liberalization
It is an immediate effect of globalization. Liberalization is commonly known as free trade. It implies removal of
restrictions and barriers to free trade. India has taken many efforts for liberalization which are as follows:
New economic policy 1991.
Objectives of the new economic policy.
To achieve higher economic growth rate.
To reduce inflation
To rebuild foreign exchange reserves.
2.1 FEMA
Foreign exchange Regulation Act 1973 was repealed and Foreign exchange Management Act was passed. The
enactment has incorporated clauses which have facilitated easy entry of MNCs.
Joint ventures with foreign companies. E.g.: TVS Suzuki.
Reduction of import tariffs.
Removal of export subsidies.
Full convertibility of Rupee on current account.
Encouraging foreign direct investments.
The effect of liberalisation is that the companies of developing countries are facing a tough competition from
powerful corporations of developed countries.
The local communities are exploited by multinational companies on account of removal of regulations
governing the activities of MNCs.

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2.2 FERA
The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian Parliament in 1973 by the
government of Indira Gandhi and came into force with effect from January 1, 1974. FERA imposed strict
regulations on certain kinds of payments, the dealings in foreign exchange and securities and the transactions
which had an indirect impact on the foreign exchange and the import and export of currency. The bill was
formulated with the aim of regulating payments and foreign exchange.
Coca-Cola was India's leading soft drink until 1977 when it left India after a new government ordered the
company to turn over its secret formula for Coca-Cola and dilute its stake in its Indian unit as required by the
Foreign Exchange Regulation Act (FERA). In 1993, the company (along with PepsiCo) returned after the
introduction of India's Liberalization policy.
FERA was repealed in 1998 by the government of Atal Bihari Vajpayee and replaced by the Foreign Exchange
Management Act, which liberalised foreign exchange controls and restrictions on foreign investment.
FERA
Regulated in India by the Foreign Exchange Regulation Act(FERA),1973.
Consisted of 81 sections.
FERA Emphasized strict exchange control.
Control everything that was specified, relating to foreign exchange.
Law violators were treated as criminal offenders.
Aimed at minimizing dealings in foreign exchange and foreign securities.
FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low, Forex being a
scarce commodity. FERA therefore proceeded on the presumption that all foreign exchange earned by Indian
residents rightfully belonged to the Government of India and had to be collected and surrendered to the Reserve
bank of India (RBI). FERA primarily prohibited all transactions, except one’s permitted by RBI.

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OBJECTIVES
To regulate certain payments.
To regulate dealings in foreign exchange and securities.
To regulate transactions, indirectly affecting foreign exchange.
To regulate the import and export of currency.
To conserve precious foreign exchange.
The proper utilization of foreign exchange so as to promote the economic development of the country.

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3 Privatization
In the event of globalization privatization has become an order of the day. Privatization can be defined as the
transfer of ownership and control of public sector units to private individuals or companies. It has become
inevitable as a result of structural adjustment programmes imposed by IMF.
3.1 Objectives of Privatization
To strengthen the private sectors.
Government to concentrate on areas like education and infrastructure.
In the event of globalization the government felt that increasing inefficiency on the part of public sectors would
not help in achieving global standards. Hence a decision was taken to privatise the Public Sectors.
3.2 Causes of Inefficiency of Public Sectors
Bureaucratic administration
Out dated Technology
Corruption
Lack of accountability.
Domination of trade unions
Political interference.
Lack of proper marketing activities.

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3.3 Privatization has its own advantages and disadvantages
Advantages:
Efficiency
Absence of political interference
Quality service.
Systematic marketing
Use of modern Technology
Accountability
Creation of competitive environment.
Innovations
Research and development
Optimum utilization of resources
Infra structure.
However, privatization suffers from the following defects.
Exploitation of labor.
Abuse of powers by executives.
Unequal distribution of wealth and income.
Lack of job security for employees.
Privatization has become inevitable in the present scenario. But some control should be exercised by the
government over private sectors.
Changes across Euro, Third World, USA and Their Impact on India

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3.4 Changes across Euro and USA
Significant changes have taken place across Euro and USA on account of globalization, particularly in the field
of international business politics etc. Such changes have given rise to change in cultural and social aspects as
well.
The economy of European countries and US are getting integrated with the global economy. Different
arrangements have been made in this regard which are as follows:
1. Free Trade Area:
It is an agreement among a group of countries to abolish all trade restrictions and barriers, in carrying out
international trade.
2. Customs Union:
The member countries abolish all the restrictions and barriers and adopt a uniform commercial policy.
3. European Economic Community:
It was initially formed by six countries viz: France, Federal Republic of Germany, Italy, Belgium, Netherlands
and Luxembourg. It came into existence on 1.1.1958. How EEC has 15 members. In order to become a member
of EEC, a country must be European country and it must be democratic.
 Activities of EEC:
Elimination of customduties and quantity restrictions on export and import of goods.
Devising a common agricultural policy.
Devising a common transport policy.
To control disequilibrium in balance of payments.
Development of a common commercial policy.

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4. North American Free Trade Agreement:
NAFTA
It came into being in 1994 Developed countries like US, Canada and a developing country Mexico
became the members.
Objectives and Activities of NAFTA:
Removing barriers among the member countries to facilitate free trade.
To enhance Industrial development.
To enhance competition.
To improve Political relationship among member countries.
To develop industries in Mexico. the international market.

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3.5 European Free Trade Association
It was formed in 1959. The member countries are: Austria, Norway, Denmark, Sweden and Switzerland and
Great Britain.
Objectives of EFTA
To eliminate trade barriers.
To remove tariffs.
To encourage free trade.
To enhance economic development of member countries.

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3.6 Changes in the Third World
The concept of Third World does not have much significance in the present scenario. This term was popular
prior to the disintegration of Soviet Union. USA and USSR were considered as super powers and the countries
in the world were divided in supporting them. The countries which did not have an alliance with both the
countries were considered as Third World countries. But with the disintegration of USSR the concept of Third
World has almost disappeared. However changes in Asian countries and other countries (other than Europe and
USA) have affected India. Such changes can be discussed as follows:
Trade blocks in Asia:
South Asian Association for Regional Cooperation (SAARC)
It came into being in 1983 countries like India, Bangladesh, Bhutan, Pakistan, Maldives and Sri Lanka adopted a
declaration on SAARC.
Objectives of SAARC
To promote economic social and cultural development among member countries.
To improve the life of people among member countries.
To enhance cooperation with other developing economies.
To liberalize trade among member countries.
To promote economic cooperation among member countries.

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3.7 Changes in Asian Countries:
Chinese Market:
China has introduced many economic reforms. It started privatization in 1984. China has formed special
economic Zones. It has attracted heavy foreign investments. It has also formed economic and Technical
Development Zones in towns and cities. These zones are free zones which allow quick business operations.
Japanese Market:
There is a rapid growth in Japan during the past Fifty years. Japanese maintained a close link with ministry of
international trade and investment. The Strategies of Japanese-corporate sector was directed by ministry of
international trade.
Impact on India:
Changes across Euro, USA and Third World has its own impact on India which can be summarised as follows:
India’s economic dependence on other countries has significantly increased.
Extensive opportunities in the field of information technology.
Extensive opportunities for India’s Telecom sector.
Strategic alliances. Joint ventures, mergers have become the order of the day.
Extensive research and development.
Bilateral treaties to promote free trade.
Membership of WTO.
Amending the domestic laws to suit the liberalized economy. E.g.: FEMA. Amendment of Patent Act
Active participation in global politics.
Improvement in Productivity.

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On the whole it can be concluded that changes across Euro, USA and other countries have significantly chang ed
the Indian economy. India has realized that its business can’t survive without focusing on changes in other
countries. Indian economy has become a major economy of the world and a significant trading partner. In the
new era, India is looking at the potentials of the new products.
Management Perspective:
Globalization has led to the practice of management across culture. Modern business organisations have adopted
Global management practices. Efforts are being made by India to understand Japanese, Chinese style of
management. Issues in Motivation, communication across culture has gained significance. Every functional area
of management is being studied with a global perspective. E.g.: International HRM, International Financial
management, International marketing etc.

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4 Liberalization,Privatizationand Globalizationin India
The economy of India had undergone significant policy shifts in the beginning of the 1990s. This new model of
economic reforms is commonly known as the LPG or Liberalization, Privatization and Globalization model. The
primary objective of this model was to make the economy of India the fastest developing economy in the globe
with capabilities that help it match up with the biggest economies of the world.
The chain of reforms that took place with regards to business, manufacturing, and financial services industries
targeted at lifting the economy of the country to a more proficient level. These economic reforms had influenced
the overall economic growth of the country in a significant manner.
4.1 Liberalization
Liberalization refers to the slackening of government regulations. The economic liberalization in India denotes
the continuing financial reforms which began since July 24, 1991.
4.2 Privatization and Globalization
Privatization refers to the participation of private entities in businesses and services and transfer of ownership
from the public sector (or government) to the private sector as well. Globalization stands for the consolidation of
the various economies of the world.
4.3 LPG and the Economic Reform Policy of India
Following its freedom on August 15, 1947, the Republic of India stuck to socialistic economic strategies. In the
1980s, Rajiv Gandhi, the then Prime Minister of India, started a number of economic restructuring measures. In
1991, the country experienced a balance of payments dilemma following the Gulf War and the downfall of the
erstwhile Soviet Union. The country had to make a deposit of 47 tons of gold to the Bank of England and 20
tons to the Union Bank of Switzerland. This was necessary under a recovery pact with the IMF or International
Monetary Fund. Furthermore, the International Monetary Fund necessitated India to assume a sequence of
systematic economic reorganizations. Consequently, the then Prime Minister of the country, P VNarasimha Rao
initiated groundbreaking economic reforms. However, the Committee formed by Narasimha Rao did not put
into operation a number of reforms which the International Monetary Fund looked for.
Dr Manmohan Singh, the present Prime Minister of India, was then the Finance Minister of the Government of
India. He assisted. Narasimha Rao and played a key role in implementing these reform policies.
Narasimha Rao Committee's Recommendations

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The recommendations of the Narasimha Rao Committee were as follows:
Bringing in the Security Regulations (Modified) and the SEBI Act of 1992 which rendered the legitimate power
to the Securities Exchange Board of India to record and control all the mediators in the capital market.
Doing away with the Controller of Capital matters in 1992 that determined the rates and number of stocks that
companies were supposed to issue in the market.
Launching of the National Stock Exchange in 1994 in the form of a computerised share buying and selling
system which acted as a tool to influence the restructuring of the other stock exchanges in the country. By the
year 1996, the National Stock Exchange surfaced as the biggest stock exchange in India.
In 1992, the equity markets of the country were made available for investment through overseas corporate
investors. The companies were allowed to raise funds from overseas markets through issuance of GDRs or
Global Depository Receipts.
Promoting FDI (Foreign Direct Investment) by means of raising the highest cap on the contribution of
international capital in business ventures or partnerships to 51 per cent from 40 per cent. In high priority
industries, 100 per cent international equity was allowed.
Cutting down duties from a mean level of 85 per cent to 25 per cent, and withdrawing quantitative regulations.
The rupee or the official Indian currency was turned into an exchangeable currency on trading account.
Reorganization of the methods for sanction of FDI in 35 sectors. The boundaries for international investment
and involvement were demarcated.
The outcome of these reorganizations can be estimated by the fact that the overall amount of overseas
investment (comprising portfolio investment, FDI, and investment collected from overseas equity capital
markets ) rose to $5.3 billion in 1995-1996 in the country) from a microscopic US $132 million in 1991-1992.
Narasimha Rao started industrial guideline changes with the production zones. He did away with the License
Raj, leaving just 18 sectors which required licensing. Control on industries was moderated.

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4.4 Highlights of the LPG Policy
Given below are the salient highlights of the Liberalization, Privatization and Globalization Policy in
India:
Foreign Technology Agreements
+Foreign Investment
MRTP Act, 1969 (Amended)
Industrial Licensing
Deregulation
Beginning of privatization
Opportunities for overseas trade
Steps to regulate inflation
Tax reforms

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5 Bibliography
http://www.yourarticlelibrary.com/essay/globalization-liberalisation-and-privatisation-in-india-1916-
words/4657/
http://business.mapsofindia.com/india-policy/liberalization-privatization-
globalization.html#sthash.K01am3St.dpuf
https://en.wikipedia.org/wiki/Foreign_Exchange_Regulation_Act

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