Liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy. Privatization means transfer of ownership and/or management of an enterprise from the public sector to the private sector .It also means the withdrawal of the state from an industry or sector partially or fully. Globalization implies integration of the economy of the country with the rest of the world economy and opening up of the economy for foreign direct investment by liberalizing the rules and regulations and by creating favorable socio-economic and political climate for global business.

1. THENEWINDUSTRIALPOLICY-1991
LIBERALISATION PRIVATISATION
GLOBALISATION
1

2. CONTENTS
Introduction
Reasons for
implementing LPG
Liberalization
Privatization
Globalization
2

3. Introduction
July 1991,India has taken a series of measures to
structure the economy and improve the BOP
position. The new economic policy introduced
changes in several areas.
The policy have salient feature which are: -
1.Liberlisation (internal and external)
2.Extending Privatization
3.Globalisation of the economy
Which are known as “LPG”. (libearlisation privatisation
globalisation)
3

4. Reasons for implementing LPG
 Excess of consumption and expenditure over
revenue resulting in heavy govt. borrowings.
 Growing inefficiency on the use of resources.
 Over protection to industries.
 Mismanagement of the firm and the
economy.
 Increase in losses for public sector
enterprises.
 Various distortion like poor technological
development, shortage of foreign exchange
and borrowing from abroad.
 Low foreign exchange reserves.
 Inflation
4

5. Liberalization
Liberalization is a very broad term that usually
refers to fewer government regulations and
restrictions in the economy.
Liberalization refers to the relaxation of the
previous government restriction usually in area of
social and economic policies. When government
liberalized trade , it means it has removed the
tariff ,subsidies and other restriction on the flow of
goods and services between the countries.
5

6. The Path of liberalization
• Relief for foreign investors
• Devaluation of Indian rupees
• New industrial Policy
• New trade policy
• Removal of import Restrictions
• Liberalization of NRI remittances
• Freedom to import technology
• Encouraging foreign tie-ups
• MRTP relaxation
• Privatization of public sector
6

7. Advantages of liberalization
• Industrial licensing
• Increase the foreign investment.
• Increase the foreign exchange reserve.
• Increase in consumption and Control over
price.
• Check on corruption.
• Reduction in dependence on external
commercial borrowings
7

8. Disadvantages of Liberalization
• Increase in unemployment.
• Loss to domestic units.
• Increase dependence on foreign
nations
• Unbalanced development
8

9. Privatization
Privatization means transfer of ownership and/or
management of an enterprise from the public
sector to the private sector .It also means the
withdrawal of the state from an industry or
sector partially or fully.
Privatization is opening up of an industry that
has been reserved for public sector to the private
sector.
Privatization means replacing government
monopolies with the competitive pressures of the
marketplace to encourage efficiency, quality and
innovation in the delivery of goods and services.
9

10. Need for Privatisation.
Though the PSUs have contributed heavily to
develop the industrial base of the country, they
continue, even today, to suffer from a number of
shortcomings which are identified below very
briefly :-
• A sizable number of PSUs have been incurring
and reporting losses on a continual basis.
Consequently, a large number of PSUs have
already been referred of loss giving units;
• Multiplicity of authorities to whom the PSUs are
accountable;
• Delay in implementation of projects leading to
cost escalation and other consequences; 10

11. 11
• Ineffective and widespread inefficiency on
management;
• With a view to provide opportunities for more and
more unemployed youths, more number of people,
than required, were recruited and therefore, many
PSUs are over-staffed resulting in lower labour
productivity, bad industrial relations, etc.;
• A number of sick companies (40 companies) which
were in the private sector was taken over by public
sector mainly to protect the employees. These sick
units are causing a big drain on the resources of the
state; etc.

12. Different Ways in privatization
• Liberalization Approach
• Relative Share Enlargement Approach
• Association of Private Sector
Management Approach
• Transfer of Minority Equity Ownership
Approach
• Transfer of Complete Ownership
Approach
12

13. Advantages of Privatization
• Privatization helps to reduce the burden on
Govt.
• It will help profit making public sector unit to
modernize and diversify their business.
• It will help in making public sector unit more
competitive.
• It will help to improving the quality of decision
making, because the decisions are free from
any political interference.
• Privatization may help in reviving sick units
which are the liability of the public sector.
• Industrial growth.
• Increase the foreign investment.
• Increase in efficiency.
13

14. Disadvantages of Privatization
• Industrial sickness.
• Lack of welfare.
• Class struggle.
• Increase in inequality
• Opposition by employees.
• Problem of financing.
• Increase in unemployment.
• Ignores the weaker sections.
• Ignores the national importance
14

15. Examples of privatization in India
• Lagan Jute Machinery Company
Limited (LJMC)
• Videsh Sanchar Nigam Limited (VSNL)
• Hindustan Zinc Limited (HZL)
• Hotel Corporation Limited of India
(HCL)
• Bharat Aluminum Company limited
(BALCO)
15

16. Globalization
Globalization implies integration of the
economy of the country with the rest of the
world economy and opening up of the
economy for foreign direct investment by
liberalizing the rules and regulations and by
creating favorable socio-economic and
political climate for global business.
16

17. 17
According to IMF: -”The growing
economic interdependence of countries
worldwide through increasing volume
and variety of cross border transaction
in goods and services and of
international capital cash flows, and
through the more rapid and
widespread diffusion of technology.”

18. Features of Globalization
• Opening and planning to expand business
throughout the world.
• Erasing the difference between domestic
market and foreign market.
• Buying and selling goods and services
from/to any countries in the world.
• Locating the production and other physical
facilities on a consideration of the global
business dynamics ,irrespective of national
consideration.
18

19. 19
• Basing product development and production
planning on the global market consideration.
• Global sourcing of factor of production i.e.
raw-material, components ,
machinery,technology,finance etc. are obtained
from the best source anywhere in the world.
• Global orientation of organizational structure
.and management culture

20. Foreign market entry strategies
 Exporting
 Licensing/Franchising
 Contract manufacturing
 Management contract
 Assembly operations
 Fully owned manufacturing facilities
 Joint venturing
 Merger and acquisition
 Strategic alliance
 Countertrade
20

21. Pros and Cons of Globalisation
Globalization have several benefits ,these are: -
 Free flow of capital and increase in the total
capital employed.
 Free flow of technology.
 Increase in industrialization.
 Spread of production facilities throughout the
globe.
 Balanced development of world economies.
 Increase in production and consumption.
 Commodities at lower price with high quality.
 Increase in jobs and income.
 Higher Standard of living.
 Balanced human development
21

22. Negative effects of
Globalization
• Loss of domestic industries
• Exploits Human resource
• Decline in income
• Unemployment
• Transfer of natural resources
• Lead to commercial and political
colonism
• Widening gap between rich and
poor
• Dominance of foreign institutions
22

23. CONCLUSION
Economic liberalization has increased
the responsibility and role of the private
sector. At the same time, it has reduced
the control of the government on
economy affairs. It is expected that the
reforms would liberalize the Indian
economy enough to create a conducive
environment for rapid economic
development.
•
23

24. 24
• The process of reforms according to many
economists and social scientists is not fast
enough to achieve the goals. Jeffrey Sachs,
director of Harvard University’s center for
international development and a noted
economist, pointed out that the reform
process in India had a long way to go. He
feels that without a focus on the “twin
pillars” of social and economic strategies,
the future would be bleak for India,
especially in the context of competition all
around.

25. 25
• The government, however, is reluctant to give up its role of owning
and controlling economic activities. At the same time its inability
to spend for providing minimum health and education services. It
is eager to spend on higher education without spending enough on
primary and secondary education. It has failed in providing a
corruption free administration, an essential precondition for
increasing competitiveness.
Success of the economic reforms depends upon the commitment of
all concerned – people, political parties, bureaucracy, and
government – to the socio economic progress of the country.

26. Impact of LPG on Industry
• The external policies in 1960s, 1970s and
1980s were guided by the principle of import
substitution, which had been prompted to some
extent because of scarcity of foreign exchange.
The strategy therefore involved, restricting
imports through quotas and high tariff rates as
well as there being restrictions on FDI, foreign
collaborations, import of technology.
• The general trade and industrial policies that
India adopted till mid-80s and till 199os
insulated the Indian industry from competition,
domestic as well as foreign.

27. Impact of LPG on Industry
• However, the environment has changed drastically
since New Economic Policies were initiated in 1990s.
Globalisation has led to opening up of markets
leading to intense competition.
• There is greater competition in domestic market with
imports of high quality goods from developed
countries and low priced goods from developing
countries. Competition has further intensified with
the arrival of MNCs as the restrictions on FDI have
been removed.

28. Impact of LPG on Industry
• Thus Indian enterprises, small and large have been
forced to improve their quality and productivity in
order to (i) compete with imported goods or with
goods produced by MNCs; (ii) export successfully
without government support.
• A study, based on CMIE (Centre for Monitoring
Indian Economy) database to test competitiveness of
domestic private sector companies with respect to
foreign companies, show that competitiveness of
Indian companies; measured in terms of cost
management and profitability lag behind that of
foreign firms.

29. Impact of LPG on Industry: Competitiveness of
Indian Industry
• Raw materials expenses to net sales lower for foreign
companies by 5 per cent vis-à-vis Indian companies.
Cost of production to net sales too lower for foreign
companies.
• On the profitability side, Profit after Tax (PAT) to
capital employed was 5 per cent higher for foreign
companies.
• ROCE for the Indian firms fell from 6.3% in 1993-94
to 1.6 in 1999-2000. Foreign firms’ ROCE too fell
from 10 to 7 per cent in the same period. However
there has been increasing gap between the two set of
firms.

30. Impact of LPG on Automobile
Industry
• The automobile industry, compromises of four segments, the
passenger car and jeep industry, commercial vehicles, two and
three wheeler industry and automobile components
• First Automobile Policy in 1949, which banned import of
completely built automobiles but firms engaged in assembling
vehicles from completely knocked down units were permitted
to operate.
• By late 1960s, bias against passenger car industry, which was
absent earlier came into play. In 1968, for the first time,
Statutory Price Control was imposed on the passenger car,
segment as it happened to be a ‘luxury’ good.
• Unlike the ’50s and ’60s, the period of ‘70s saw poor
performance by car manufacturers. Low demand, high prices,
high input costs, low scales of production and low profit were
some of the highlights. However, things didn’t look up even
after Statutory Price Control was lifted in 1975.

31. Impact of LPG on Automobile
Industry
• 1993: De-licensing of the automobile industry.
• Removal of FERA and allowing 100% FDI, saw host of
joint ventures entered into by PA (with Peugot), HML
(with GM), TELCO (with Mercedes, Daimler-Benz,
Mitsubishi). New entrants like DCM (with Daewoo),
Kirloskar (with Toyota). Hyundai has 100% owned
subsidiary in India.
• Reduction of import duties on parts and
components, in alignment to ASEAN rates.
• Completely Built Up (CBU) allowed since 2001

32. Impact of LPG on Automobile
Industry
• Currently domestic market size is to the tune of 7,55,771 cars.
Number of models has gone up from 4-5 in mid-1980s to 25-
26 in 2002-03. Over and above this, exports had been 1,30,000
in 2003. Exports projected to grow at 10-15% in the coming
years.
Manufacturing Hub for vehicles
• Hyndai- Export base for small cars.
• Ford exporting CKDs of Ikon to S. Africa and CIS countries
• Tata Indica being sold in Europe under Rover brand.
• M&M targeting S. Africa, China, Europe, Russia for export of
Scorpio and Bolero.
• Maruti exports cars to EU.

33. Production of Passenger Cars
Year No. of Cars
1960 19,097
1970 35,205
1980 30,538
1985 1,02,456
1990 1,76,609
1996 3,76,263
2003 7,55,771

34. CASE – Ashok Leyland
• Ashok Leyland: one of the largest manufacturer of
commercial vehicles in India. They were the first to
introduce CNG buses in Delhi.
• Entry of global companies like GM, Ford, Honda,
Toyota, has forced Ashok Leyland to achieve
international competitiveness to survive.
• Therefore company is now focusing on maximum
effective utilisation of resources, they have started
cost saving measures on operation side, including
VRS. They are more consumer-centric now.

35. Impact of LPG on Steel Industry
1950-70: Pre-liberalisation phase – Nature of controls
Integrated Plants/Primary Steel Sector
• Industry being one of the key inputs in
infrastructural sectors and heavy industry
goods, was completely regulated through
compulsory licensing for capacity expansion,
investment. As a result most of the capacity
expansion in the pre-liberalisation phase has
been in PSUs through, SAIL, Rashtriya Ispat
Nigam Ltd. (RINL). TISCO being the only
private enterprise.
• Only private player, TISCO, not allowed to

36. Impact of LPG on Steel Industry
1970-91
Secondary Steel Sector
• However, since late 60s, private sector allowed in the
secondary sector, using steel scrap for producing steel. And
large number no. of small firms or mini-steel plants (MSPs)
emerged in this sector in the 1970s and 1980s, though its
share was very small in total capacity. Some liberalisation:
MSPs allowed to import scrap, customs duties and excise
duties lowered for encouraging growth of MSPs. Some
selected MSPs, also permitted to diversify production into
high grade alloy steel.
• Primary Steel Sector
• With nationalisation drive all PSUs brought under one
management, SAIL. Also TISCO allowed to go in for
modernisation, with help from the state as well as loan from
World Bank.

37. Impact of LPG on Steel Industry
Post-liberalisation phase: 1991 onwards
• De-licensing private investment in steel, abolition of the system
of administered prices for steel. Most restrictions lifted on
private domestic and foreign companies.
• De-reservation of steel from public sector, no new projects to be
in the public sector.
• Import duties on various steel products reduced from the range
of 20 -85% to 5-30% by the end of 1990s, forcing domestic
firms to be more quality conscious and efficient.
• Greater no. of private players, like, Lloyds, Sunflag,
Essar Gujarat, Jindal Strip. Number of steel plants have
gone up from 7 in the pre-91 period to 16 in post-91
period.
• Modernised plants and technology, like midi-plants,
used by the private firms, more in sync with world state
of production.
• From being a importer in the 70s, there has been
modest rise in exports in the 1990s.

38. Impact of LPG on Steel Industry
• However over-capacity in domestic steel industry due
to sudden rise in no. of players
• Global over-capacity in steel industry of Korea,
Japan, leading to dumping of cheaper imports. Sharp
fall in domestic and international demand have
plagued the industry since 1995-96 to about 2002-03.
• However, since 2003 world demand has picked up
Indian steel Industry doing well.
• Even then, inferior technology of Indian industries
makes them energy inefficient and hence places India
at a disadvantageous position in terms of cost of
production and quality of products.

39. Impact of LPG on Electronics
Industry
• Electronics industry comprise of six categories.
Of them, consumer electronics contributes a
major proportion of the industry’s production.
The growth of this industry has been primarily
due to phenomenal expansion of the consumer
electronics segment, especially Televisions (TV)
and Audio systems during the 80s and PCs
during the 1990s.
• Recent Developments:
• The industry is undergoing rapid transformation
due to major changes

40. 40