Public Administration Challenges: Liberalisation, Privatisation & Globalisation PDF

# Chapter 7 Public Administration Challenges: Liberalisation, Privatisation and Globalisation ## Need for Liberalisation - India's performance in the global market has been dismal, despite vast resources - India's contribution to world trade in 1992 was 0.53%, behind even Thailand - Planned econom...

# Chapter 7 Public Administration Challenges: Liberalisation, Privatisation and Globalisation ## Need for Liberalisation - India's performance in the global market has been dismal, despite vast resources - India's contribution to world trade in 1992 was 0.53%, behind even Thailand - Planned economic growth has achieved some reconstruction, but India remains underdeveloped - Issues include low NNP, chronic unemployment, low per capita income, poverty, low capital formation - Increasing imports lead to a trade deficit, foreign debt, low technological base, and poor external image - The government identified liberalisation as a primary step to find solutions to these problems ## Public Administration Challenges: Liberalisation, Privatisation and Globalisation ### Factors which backed the policy change include: - Global change - Position of Indian Economy - Trade deficit ### Global Change - The last decade has seen a tremendous change globally, necessitating every nation to adapt its economy - Countries started thinking in terms of the global economy and global market - European Economic Community became the the largest single market - The Gulf War opened up a door for increasing cooperation and integration of EEC with America - US and Canada forged an integrated trade zone - Despite a large trade surplus, Japan is still accepted as a strong trading partner for America - The US granted 'Most Favoured Nation' status to China - A global philosophy of business is emerging - No country can resist the forces of globalization - The Asian-Pacific block is emerging, with a common market philosophy gaining ground - India needs to adopt a policy to adapt to the emerging global market - Liberalisation is seen as the most important remedy for India's economic ills - The tremendous results of China's liberalisation in less than a decade was an eye-opener for India - Any country that wants to operate in the global market needs to liberalize its economy - A global market philosophy is emerging, with countries relaxing controls and regulations - Privatisation has become the order of the day - Companies need to either compete or remain complementary or ancillary to survive - India has realised this fact and initiated liberalisation - Fast changes are emerging in business globally: technological, social, political, environmental, cultural, geographical, and economic changes - Liberalisation is necessary to equip business organizations in India to stand up to these changes ## Position of Indian Economy - India has been facing a grave economic crisis and external pressure for foreign exchange - The country was almost on the brink of defaulting in the international arena in 1991 - This brought panic among NRIs, who took away deposits - The country was in the grip of internal and external debt traps - The foreign exchange crisis was stimulated by long-term and short-term foreign debts - No more foreign borrowings were possible - The country's monetary system, particularly the foreign exchange situation, was in a very disastrous footing - The government had to attract foreign exchange and increase exports while reducing imports - Developing an industrial base and increasing production were immediately required - The country was in need of a latest technology base, greater innovation, capital formation, greater employment opportunities, latest technical know-how, and inflow of foreign capital - Without liberalisation, foreign investors were unwilling to invest in India - Increasing inflow of foreign capital included: Increasing production, exports, and import substitution, reducing external debt, and increasing economic activities ## Trade Deficit - A high trade deficit has been a characteristic of the Indian economy since independence - Despite political independence, India has failed to achieve economic independence - India's share in the world market has been very negligible, while the import bill has been growing - The trade balance was negative in 1990-91 and increasingly more negative in later years - The trade balance in 1995-96 stood at -3.2% of GDP - The trade balance in 1999-2000 stood at -0.4% of GDP - The trade balance in 2002-03 and 2003-04 was -2.1% and -2.5% respectively ## The Path of Liberalisation - The government had to release the economy from restrictive rules and regulations - India needed to establish a different image: a market-oriented economy and a private sector friendly image - The government needed to check both unemployment and inflation - The government needed to win the confidence of foreign investors and allay the fears of the Indian public - Globalisation necessitates liberalisation - The LPG model of development introduced in 1991 aimed to charter a new strategy with emphasis on liberalisation, privatisation, and globalisation - Areas previously reserved for the public sector were opened to the private sector - The government intended to transfer loss-making units to the private sector but failed due to a lack of takers - The government started disinvestment of profit-making PSUs and used the proceeds to reduce fiscal deficits - The government was unable to carry forward its programme of privatisation due to various social constraints