Process of Liberalisation, Globalisation and Privatisation

The entire world economy has been experiencing dramatic changes since the eighties. In the recent past the economic reforms have been as widespread as today. Economic reforms are being undertaken at such a pace that they are sweeping the entire Eastern Europe and developing economies. These countries are gradually discarding old economic systems and following the new economic systems. There has been a remarkable change in the economic and social institutions all the world over. Countries are following economic reforms in order to have more rapid and sustained economic growth. India is one of the developing countries which has brought economic reforms for quicker development of the economy.

Process of Liberalisation

Economic liberalisation means reducing government interference in economic activities and encouraging privatisation. Liberalisation implies liberating the trade and industry from unnecessary restrictions and at making the industries more competitive. The new industrial policy has abolished the system of industrial licensing for all industrial undertakings except 5 industries. It means 85% of the industry has been taken out of the licensing framework. Now the industries need not take any prior sanction from the government. It can increase its capacity to produce the goods. The producers are free to decide what commodities they are to produce. The asset limit of 100 crores for MRTP companies has been scrapped. The investment limit for tiny sector has been raised to 25 khs and for small scale industries to Rs. 3 crores. The industrialists are free to buy foreign exchange from the open market and make necessary imports. Sanction of government is not required now. As a result of this liberal policy, there will be more competition among industries and they will strive for more efficient production.

The main objectives of process of liberalisation are as follows : (1) Removing the obstacles in the process of economic development, (2) Increase the competitiveness of the Indian industries in order to enter the international markets, (3) Widening the scope of private sector, (4) Ensuring the development of agriculture sector, (5) Stopping in efficiency, misuse of resources and red tapism, (6) Developing better money and capital markets, (7) Solving the basic problems of the economy.


In a narrow sense privatisation implies the induction of private ownership in publicly owned enterprises but in a broader sense it implies besides, private ownership the induction of private management and control in the public sector enterprises. Under new economic reforms, policy of encouraging private and discouraging public sector has been accepted. The number of industries reserved for the public sector since 1956 was 17. This number has now been reduced to 4. It means 13 industries have been thrown open to the private sector.

Previously, the public sector enterprises were reserved for certain areas but now the private sector has also been allowed to enter these areas. This means injecting competition into these areas. The government has also privatised the ownership of some public sector undertakings. It has been done by the sale of a part of the capital of some selected enterprises to the private sector. Thus, by disinvestment of a part of the capital the government has made public enterprises accountable to the private sector criterion, namely, market related profits. Thus with the expansion of privatisation there is every possibility of increase in productivity and efficiency.


The term globalisation is considered as an important element in the reform process. Globalisation means unification or integration of the domestic economy with the world economy. This is the result of a number of policy initiatives taken by the government. The main policy initiatives are as under:

(i) Rupee was devalued by 21% in 1991 in order to bring it down to the realistic level in terms of the domestic price level and the world price level. Rupee has also been made fully convertible.
(ii) The removal of licensing of large many export items has also enabled the exporters to supply their goods to more countries where there are the chances of export promotion.
(ii:) Direct foreign investment upto 51% of foreign equity has been allowed in 48 industries. 74% direct investment has been allowed in 9 categories of industries and 50% direct investment has been allowed in 3 types of industries. Now our economy has been open in respect of both exports and direct investment. All these steps will help in the development of trade in the world.

Thus globalisation means pursuing:
(1) Reduction of trade barriers so as to permit free flow of goods across the world; 9 (2) Creation of environment, allowing free flow of technology;
(3) Creation of environment for free flow of capital among the world nations;
(4) From the point of view of the developing countries, creation of an environment for free flow of labour in different countries of the world.
The advocates of globalisation, more especially from developed countries, limit the globalisation definition to only three components, viz, unrestricted trade flows, technology flows and capital flows. However, several economists in the developing world believe that flow of labour cannot be left out. But the whole issue whether debated at the W.T.O. or at other forums blacks out the labour flows as a necessary component of globalisation.