Indian Economy Part 8 – LIBERALISATION, PRIVATISATION AND GLOBALISATION

Tax Reforms

  1. Tax reforms are concerned with the reforms in government’s taxation and public expenditure policies which are collectively known as its fiscal policy.
  2. There are two types of taxes: direct and indirect
  3. Since 1991, there has been a continuous reduction in the taxes on individual incomes as it was felt that high rates of income tax were an important reason for tax evasion.
  4. It is now widely accepted that moderate rates of income tax encourage savings and voluntary disclosure of income.
  5. The rate of corporation tax, which was very high earlier, has been gradually reduced.
  6. In order to encourage better compliance on the part of taxpayers many procedures have been simplified and the rates also substantially lowered.

Foreign Exchange Reforms

  1. The first important reform in the external sector was made in the foreign exchange market.
  2. In 1991, as an immediate measure to resolve the balance of payments crisis, the rupee was devalued against foreign currencies.
  3. This led to an increase in the inflow of foreign exchange.
  4. It also set the tone to free the determination of rupee value in the foreign exchange market from government control.
  5. Now markets determine exchange rates based on the demand and supply of foreign exchange
  6. Trade and Investment Policy Reforms.
  7. Liberalisation of trade and investment regime was initiated to increase the international competitiveness of industrial production and also foreign investments and technology into the economy.
  8. The aim was also to promote the efficiency of the local industries and the adoption of modern technologies.
  9. In order to protect domestic industries, India was following a regime of quantitative restrictions on imports.
  10. This was encouraged through tight control over imports and by keeping the tariffs very high
  11. These policies reduced efficiency and competitiveness which led to slow growth of the manufacturing sector.

The trade policy reforms aimed at

  • The dismantling of quantitative restrictions on imports and exports
  • Reduction of tariff rates
  • Removal of licensing procedures for imports.
  1. Import licensing was abolished except in case of hazardous and environmentally sensitive industries
  2. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed from April 2001.
  3. Export duties have been removed to increase the competitive position of Indian goods in the international markets.

PRIVATISATION

It implies shedding of the ownership or management of a government-owned enterprise.

Government companies can be converted into private companies in two ways

  • By withdrawal of the government from ownership and management of public sector companies
  • By the outright sale of public sector companies.
  1. The privatisation of the public sector undertakings by selling off part of the equity of PSUs to the public is known as disinvestment.
  2. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernisation.
  3. It was also envisaged that private capital and managerial capabilities could be effectively utilised to improve the performance of the PSUs.
  4. Government envisaged that privatisation could provide the strong impetus to the inflow of FDI.
  5. The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.
  6. Some PSUs have been granted special status as navaratnas and mini ratnas.

The first set of navaratna companies included

  1. Indian Oil Corporation Ltd (IOC)
  2. Hindustan Petroleum Corporation Ltd (HPCL)
  • Oil and Natural Gas Corporation Ltd (ONGC)
  1. Steel Authority of India Ltd (SAIL)
  2. Indian Petrochemicals Corporation Ltd (IPCL)
  3. Bharat Heavy Electricals Ltd (BHEL)
  • National Thermal Power Corporation (NTPC
  • Videsh Sanchar Nigam Ltd (VSNL)
  1. Two more PSUs —Gas Authority of India Limited (GAIL) & Mahanagar Telephone Nigam Ltd (MTNL) —was also given the same status.
  2. Many of these profitable PSUs were originally formed during the 1950s and 1960s when self-reliance was an important element of public policy.
  3. They were set up with the intention of providing infrastructure and direct employment to the public so that quality end-product reaches the masses at a nominal cost and the companies themselves were made accountable to all stakeholders.
  4. They were set up with the intention of providing infrastructure and direct employment to the public so that quality end-product reaches the masses at a nominal cost and the companies themselves were made accountable to all stakeholders.

GLOBALISATION

  1. Globalisation is the outcome of the policies of liberalisation and privatisation.
  2. Globalisation is generally understood to mean the integration of the economy of the country with the world economy, it is a complex phenomenon.
  3. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration.
  4. It involves the creation of networks and activities transcending economic, social and geographical boundaries.
  5. Globalisation attempts to establish links in such a way that the happenings in India can be influenced by events happening miles away.
  6. It is turning the world into one whole or creating a borderless world.

Outsourcing

  1. This is one of the important outcomes of the globalisation process.
  2. In outsourcing, a company hires regular service from external sources mostly from other countries, which was previously provided internally or from within the country (like legal advice, computer service, advertisement, security — each provided by respective departments of the company).
  3. Many of the services such as voice-based business processes (popularly known as BPO or call centres), record keeping accountancy, banking services, music recording, film editing, book transcription, clinical advice or even teaching are being outsourced by companies in developed countries to India.
  4. With the help of modern telecommunication links including the Internet, the text, voice and visual data in respect of these services are digitised and transmitted in real time over continents and national boundaries.
  5. Most multinational corporations and even small companies are outsourcing their services to India where they can be availed at a cheaper cost with a reasonable degree of skill and accuracy.
  6. The low wage rates and availability of skilled manpower in India have made it a destination for global outsourcing in the post-reform period.

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