ECONOMIC REFORMS

INTRODUCTION• Term “Economic reforms” indicates

necessary structural adjustments to external events.

• It requires reduction in country’s spending to the level parallel to its income & thereby reducing its fiscal deficit.

• Requires gradual reduction in import restrictions & also elimination of export restrictions.

NEED OF ECONOMIC REFORMS

• Increase in Fiscal deficit• Increase in Adverse Balance of

Payment• Gulf crisis• Fall in foreign exchange reserves• Rise in prices• Poor performance of PSUs

MAIN FEATURES OF ECONOMIC REFORMS

ECONOMIC REFORMS

LIBERALISATION

PRIVATISATION

GLOBALISATION

LIBERALISATION

• Liberalization of the economy means to free it from direct or physical controls imposed by the government.

• It is the process of liberating the economy from various regulatory & control mechanism of the state & of giving greater freedom to private enterprises.

MEASURES TAKEN FOR LIBERALISATION

• Abolition of industrial licensing & registration• Concession from Monopolies Act• Freedom from expansion & production to industries• Increase in investment limit of the small industries• Freedom to import capital goods.• Freedom to import technology• Free determination of interest rates• Action plan for information technology & software

development

PRIVATISATION• Privatization means allowing the private

sector to set up more & more of industries that were previously reserved for public sector.

• Privatization is not merely the transfer of ownership of government or publicly owned assets into private hands

• it also refers to a process in which major economic decisions concerning production, exchange, distribution & consumption are entrusted to the market force& decisions are taken by a large number of individual & private economic units.

There is need of privatization because of inefficiency of public sector.

Privatization is of three forms: Change in Ownership Total Nationalization Joint venture Liquidation Workers cooperative

Organizational measures A Holding company Structure Leasing Restructuring

Operational Measure

CAUSES OF PRIVATISATION

Disintegration of Socialist economies

Inefficient public Sector Uneconomic Price Policy Burden on Government

OBJECTIVES OF PRIVATISATION

• To increase efficiency & competitive power of the enterprises

• To earn more & more foreign currency

• To make optimum use of economic resources & diffuse their ownership

• To achieve rapid industrial development of the country.

MEASURES FOR PRIVATISATION

• Contraction of Public sector• Disinvestment of Existing Public sector

industries• Sale of shares of public enterprises• Increase in private sector enterprises• Conversion of loans into share is not

necessary• Sick Industries

ADVANTAGES OF PRIVATISATION

Reduction in economic burden Increase in efficiency Reduction in sense of responsibility Scientific management Reduction in political interference Encouragement of new inventions

DISADVANTAGES OF PRIVATISATION

Industrial sickness Lack of social welfare Class struggle Increase in inequality Increase in unemployment Ignores weaker sections

GLOBALISATION Process of removal of restrictions on foreign

trade,investment,innovations in communication and transport system.

Process of international integration of product, technologies,human resources,capital,information & cultures.

Process associated with increasing openess,growing economic independence and deepening economic integration in world economy.

FEATURES OF GLOBALISATION Business expands throughout the world. Goods & services are bought and sold

from/to any country. Difference between domestic & foreign

market comes to an end. Products are planned & developed keeping

in mind market of entire world. Manufacturing & distribution of goods can

be made in any part of world. Outsourcing of goods & services can be

made in entire world.

SOURCES OF GLOBALISATION

Increased international trade Growth of MNCs The internationalisation of finance. Technological Advancement. Decline in trade barriers to free

flow of goods,services & capital.

GLOBALISATION INDICATORS

Foreign Direct Investment Foreign Portfolio Investment Trade Global Governance By

International Organisation like WTO

Business Restructuring.

PROCESS OF GLOBALISATIONSTAGE1 Domestic company exports to foreign

countries through dealers & distributors of home country.

STAGE 2 Domestic Company exports to foreign country directly on its own.

STAGE3 Domestic Company becomes an international company by establishing production & marketing operations in foreign countries.

STAGE4 Company take over foreign company in foreign country having all facilities like R&D etc

STAGE5 Company becomes true foreign company serving need of foreign customers.

FOREIGN MARKET ENTRY STRATEGIES Exporting Licensing/Franchising Contract manufacturing Management contract Assembly operations Joint Venturing Fully owned manufacturing facilities Counter trade Mergers & Acquisition Strategic alliance Third country location

ESSENTIAL CONDITIONS FOR GLOBALISATION

Business Freedom Facilities Government Support Resources Competitiveness Orientation.

LEVELS OF GLOBALISATION

World Level Globalisation Country Level Globalisation Industry Level Globalisation Firm Level Globalisation

GAINS & OPPORTUNITIES FROM GLOBALISATION Competitive & learning effects Technological Gains Larger Markets Greater Specialization Price Stabilization International investment Inflow Increase in consumption & production level Increase in employment opportunities in

developing countries Reduction in Cultural Difference

RISKS & THREATS OF GLOBALISATION

Vanishes Domestic Business Decline in demand of domestic

product Widens gap between rich & poor Developed countries exploit

resources of developing countries Foreign companies violates laws of

host country

OBSTACLES TO GLOBALISATION Government Policy & Procedures High Cost Poor infrastructure Obsolescence Resistance to change Poor quality image Supply problems Small size Lack of experience Limited R & D and Marketing Research Growing Competition Trade Barriers

FACTORS FAVOURING GLOBALISATION Human resource Wide base Growing Entrepreneurship Growing Domestic Market Niche Market Expanding Market Transnationalisation of world economy NRIs Economic Liberalization Competition