Liberalisation vs Globalisation, Essays (university) of Economics

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Economics Project

On

Liberalisation vs Globalisation

By

Adhip Ray

Course – BA,LLB(H)

Section – B

Semester – 3

Batch – 2017-

Liberalisation vs Globalisation

Globalization and economic liberalization have led to a marked shift in production to countries which have significant comparative advantage. These developments have caused rapid industrialization and helped in the economic growth of the ESCAP region. However, with this boom of growth witnessed by individual countries came a whole range of problems and issues which need to be dealt with urgently if development is to be sustained.

One of the problems relates to the provision of adequate and efficient transport services to support the increasing level of trade. Traditionally the supply of infrastructure has been a work of the public sector.

However, many governments face difficulty in allocating adequate resources for the development of infrastructure and therefore a huge gap exists between infrastructure demand and available public sector financing resources. Also, with the poor performance of the public sector in supplying infrastructure services, many developing countries has been forced to look for alternative ways to develop infrastructure.

It is now generally agreed that under appropriate circumstances, and with adequate support and control, commercialization and/or private sector involvement can be a solution. In the ports sector, successful experience of privatzation, initially in the United Kingdom, and more recently in Australia, Malaysia, and New Zealand,. has encouraged other countries to formulate policies for private sector participation to assist in overcoming a gamut of problems. In spite of the increased level of experience of public/private sector partnerships in the region, both governments and the private sector still have considerable reservations when considering the formation of new partnerships and misunderstandings prevail.

The ESCAP Commission at its 52nd session in April 1996 recognized this problem and suggested the following in order "to facilitate private sector participation” by the Government:

• transparency of the decision making process
• guarantees for debt coverage by governments
• (^) enhancement of deregulation legislation to infrastructure enterprises

Liberalisation

Economic liberalization is the reducing of government directions and limitations in an economy in return for more prominent cooperation by private elements; the precept is related with classical liberalism. Along these lines, liberalization in short is "the removal of controls" keeping in mind the end goal is to support economic development. Most first world countries nations have sought after economic liberalization ith the expressed objective of keeping up or expanding their competitiveness as business situations.

Liberalization policies include partial or full privatization of government institutions and assets, greater labor market flexibility, lower tax rates for businesses, less restriction on domestic and foreign capital, open markets, etc.

In support of liberalization, British Prime Minister Tony Blair wrote that: "Success will go to those companies and countries which are swift to adapt, slow to complain, open and willing to change. The task of modern governments is to ensure that our countries can rise to this challenge."

The major features of liberalisation are:

a. Freedom of opening/starting production units. b. Use of new machines and technology. c. No government interference in production. d. Free flow of foreign investment

ECONOMIC LIBERALIZATION IN INDIA:

The economic liberalisation in India refers to the economic liberalisation, initiated in 1991, of the country's economic policies, with the goal of making the economy more market and service- oriented and expanding the role of private and foreign investment. Specific changes include a reduction in import tariffs, deregulation of markets, reduction of taxes, and greater foreign investment. Liberalisation has been credited by its proponents for the high economic growth recorded by the country in the 1990s and 2000s. Its opponents have blamed it for increased

inequality and economic degradation. The overall direction of liberalisation has since remained the same, irrespective of the ruling party, although no party has yet solved a variety of politically difficult issues, such as liberalising labour laws and reducing agricultural subsidies. There exists a lively debate in India as to what made the economic reforms sustainable.

The government allowed several concessions under the novel economic liberalization policies in India and some of them include the following:

• The government added a number of nine industries on which a seventy-four percent automatic approval regulation was initiated.
• In cases pertaining to mining, generation of electricity, distribution and diffusion of manufacturing activities, ports, refining of oil and so on, a hundred percent of foreign equity was being permitted in all the marked Special Economic Zones in the country.
• Telecom industry was also included in this list and activities of it were now privatized.
• Under this policy, the FDI was now free to establish their zones replete with infrastructural facilities they require by virtue of the new scheme of Free Trade and Warehousing zones.
• The government took care to allow maximum rates of foreign equity permission for priority industries that generated a lot of resourceful and financial development.

T he context of Five Year Plans in Liberalization Privatization and Globalization

The Eighth Five Year Plan (1992-1997) was formulated after a period of political instability which gripped the country for two years after the completion of the Seventh Five Year Plan. In 1991, the country faced a major foreign exchange crisis which made the economic position of the country very vulnerable. As a result of this instability in the country, there were two Annual Plans for 1992 and 1993. The eighth five-year plan measures such as privatization and liberalization which were to have a far-reaching impact later were introduced during the Eighth Five Year Plan. India also became a member of the World Trade Organization (WTO) during this Plan period.

GLOBALIZATION

• Increase in free trade
• Faster flow of Information
• Increase in quality of goods and services
• Decrease in prices of goods and services
• (^) Reduction in cultural barriers

Globalization and Indian Economy

Let us talk about globalization and Indian economy in this context, When we talk about globalization and India, the name that strikes our mind is, Dr Manmohan Singh. He was the finance minister under whom globalization started being fully implemented and experienced in India during 1990s. He was the front man who framed the economic liberalization proposal Some of the immediate effects which came to happen in India after the implementation and activation of globalization in the country:

• After 1991, rise in GDP that dropped to 13% in 1991 -92 extended momentum in the following five years (1992-2001).
• For 1994-95, the figures were recorded to be 18.4 per cent. Export growth statistics in recent years have been very impressive.

The gradual impacts of globalization in India

• Rise in Employment: With the opening of SEZs or Special Economic Zones, availability of new jobs has been quite effective. Furthermore, Export Processing Zones or EPZs are also established employing thousands of people.
• Improved Standard of Living and Better Purchasing Power: Wealth generation across Indian cities has enhanced since globalization has fully hit the nation. The purchasing power of the Indian people has increased and is expected to increase much more in the near future with more developed and improved business and economic conditions in the country.

DIFFERENCES BETWEEN GLOBALIZATION AND

LIBERALIZATION

Globalization and liberalization are concepts closely related to one another, and both globalization and liberalization refer to relaxing social and economic policies which results in

better integration with an economy and between nations. Globalization and liberalization both occur as a result of modernization and as economies develop and grow, more integration, flexibility, and interdependence result in economic benefits to all. A country usually experiences liberalization of its economic and other policies, which is later on followed by globalization.

• Globalization relates to activities among countries and results in interdependence and interaction among countries and facilitates the movement of goods and services, capital, individuals, knowledge, technology, etc. Liberalization generally relates to activity within a certain country as a result of modernization and development.
• Globalization is the greater integration among countries and economies for trade, economic, social and political benefits.

Liberalization generally refers to removal of restrictions; usually government rules and regulations imposed on social, economic, or political matters.

• The current version of Globalization although heralds the triumph of the capitalist system, it is a significant phase in its development as well. For all the connectivity and interdependence that it has brought about, trade and capital flows in the world are still concentrated among three regions of the world, made of the US, Japan and European Union Countries.

Through liberalization states have hooked their societies on to the globalised world. While the nation-state has been attempting to cope with this development, in its own way, there are new institutions, below, along and above the nation-state, that have come to the fore.

• Globalization means integrating the domestic economy with the world economy.

Liberalization means relaxation of previous government

• Globalization when a/any country (India/other) who import and export their goods and services in rest of the world.

Unlike in most of the other countries which set on reforms much earlier Indian liberalisation has been around for less than a decade. It makes assessment of trends and tendencies less accurate. The debate on liberalisation in India has squared around issues that have been central to the nationalist agenda in India.

Overall globalisation has had a profound impact on the economic, political and cultural domains. Although India was a latecomer to embrace liberalisation it is well-integrated today in the, globalised world. While India has registered appreciable economic and trade growths following the adoption of the policy of liberalisation, the existing trends suggest that the lot of the disadvantaged and the labouring masses has worsened during this period.

Given the fact that the political centre, from the right to the left, has not opposed liberalisation it enjoys widespread political consensus in India at present. Except the communist parties and the Rashrtiya Swayam Sevak Sangh (R.S.S.) and some of its affiliates, all the other major political parties in India have extended their support to the liberalising measures. Anyway, they have not been actively opposed to most of these measures. This consensus, however, is highly precarious.

The following issues shows that this consensus cannot be taken for granted for long:

• Growth of economy
• External control
• Impact on unemployment and poverty
• Inequality between rich and poor states
• Basic industries and infrastructure
• Investment in social sectors

India has generally lagged behind in R&D effort. However, ever since India embraced the path of liberalization and globalization, its spending in R&D has fallen. India spent 0.96 per cent of its GDP on R&D in 1988 which came down to 0.8% in 1999. The corresponding amount is 2- 3% of the GDP for developed countries.

There has been an unprecedented rise in mergers and acquisitions in the Indian corporate sector after liberalization. After liberalization there is more flexibility for firms to make their investment decisions and in choosing plant capacities. Unprecedented restructuring of the Indian industry to meet the challenges of the global market has taken place during the last one decade. Dilution of the MRTP act has removed many restrictions on' corporate investments and growth.

Proportion of trade to GNP has gone up steadily from 14.1 per cent in 1990-91 to 18.2 per cent in 1998-1 999. India's economy has become increasingly interdependent on the global economy. The remittances of Indians abroad has been to, the tune of 2.5 per cent of GDP during the liberalising decade compared to just 1 per cent in the late 1980's. In fact just prior to liberalisation these remittances were declining. Indians are one of the major contenders in the global labour flows today. The FDI flow to India in 1991 was $200 million while US $14. billion worth of FDI was approved in 1997 although the actual inflow was just $3.2 billion. Even this amount was a major advance compared to the situation prior to liberalisation. However, out of the estimated $684 billion FDI flow worldwide in 1994, India's share was a pittance. Besides most of the FDI flow in India so far has been directed towards the non-manufacturing sector and for acquisition of already existing units.

In Andhra Pradesh, Gujarat, Karnataka, Maharashtra, West Bengal and Punjab, poverty started to decline under liberalisation to an appreciable extent while there is no such decline in Bihar, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh. The inter-state inequalities in per capita income increased significantly in 1990's while there was no evidence of convergence and

BIBLIOGRAPHY

1. planningtank.com
2. www.insightsonindia.com
3. https://www.differencebetween.com/difference-between-liberalisation-and-vs- globalisation/
4. Business Economics by The ICSI.
5. Introductory Micro and Macro ECONOMICS by C B Sachdeva
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