Courses
Courses for Kids
Free study material
Offline Centres
More
Store Icon
Store

Liberalization, Privatization and Globalization

ffImage
Last updated date: 22nd Mar 2024
Total views: 422.7k
Views today: 12.22k
hightlight icon
highlight icon
highlight icon
share icon
copy icon

Introduction to LPG

Liberalisation, Privatisation, and Globalisation are the three elements of the new economic model of the country. Liberalisation ensures a relaxation from severely strict laws and opinions which may include certain rules and regulations of the government. Privatisation is the complete transfer of roles and operations of publicly owned means to private ownership. This means a property or business of the government being taken by a private owner with an aim to function and discipline well. Globalisation is the next step forward to increase the network of trade and culture interconnecting the whole of the world. It ensures no trade, services or technology are bounded by borders thus connecting and integrating the whole world together. They are often togetherly referred to as LPG. They aim to develop the economy of the country fast so that it can compete and complement the world’s economy.


What is LPG?

LPG refers to Liberalisation, Privatisation, and Globalisation. When India under its New Economic Policy approached the International Banks for developing the country, they suggested that the government should open towards restrictions on trade which is mostly done by the private sectors in between India and other countries. After the suggestion put forward by the International Banks, the Indian Government announced New Economic Policy or NEP. This policy consisted of an extensive range of reforms. These measures are broadly classified into two groups- structural reforms and stabilisation measures. 


The objective of structural measures was to develop international competitiveness. Moreover, the measures aimed to eliminate the rigidity in various sections of the country's economy. In stabilisation measures, the aim was to rectify and correct the existing weakness developed in controlling the inflation and balance of payments. Both sets of measures were taken for a short-term period. 


The stabilisation measure included Liberalisation, Privatisation, and Globalisation. Under this measure, the balance of payment was enabled to record all forms of economic transactions of a country with the rest of the world in a year. In such a scenario, inflation refers to the growth of prices in goods and services over a particular period. 


Liberalisation

The objective of liberalisation was to put an end to those rigidities and restrictions that were acting as a hindrance to the growth of the country. Further, in this approach, the Government was expected to be flexible with its regulation in the nation. 


The objectives of this policy were to enhance the competition among the domestic industries and encourage international trade with planned imports and exports. Moreover, it aimed at increasing international technology and capital. Also, this policy was expected to expand the international market frontier of the nation and reduce the burden of debt in the country. 


Privatisation

The second policy of the stabilisation measure is privatisation. This policy aims to expand the domination of private sector companies and reduce the control of the public sectors. Thus, the Government-owned enterprise will have less ownership. Besides these Government companies can be converted into private sector companies with two approaches. These approaches are by withdrawing the control of the Government in the public sector company and by disinvesting. There are three forms of Privatisation which are a strategic sale, partial sale, and token privatisation. In the strategic sale or denationalisation, the Government needs to deliver 100% of productive resources ownership to the owners of the private companies. 


The Partial Sale or Partial privatization owns a minimum of 50% ownership with the help of the transfer of shares. They would, therefore, own the majority of the shares and would have control of the autonomy and functioning of the company. In the token or the deficit privatisation, the Government would have to disinvest the share capital by up to 5-10% in order to meet the shortage in the budget. This policy, therefore, aims to improve the financial situation in the country and reduce the work pressure of the public sector companies. Moreover, funds could be raised from the disinvestment. With the reduced work pressure the efficiency of the public sector would automatically increase and yield better quality of goods and services for the use of consumers. 


Globalisation

In this policy, the country's economy is expected to grow with the help of the global economy. This means that the primary focus would be on foreign trade and institutional and private investments. It is the third and the last policy that is to be implemented. The objective of this phenomenon is to develop and independent the world with the implication of suitable strategies. It is the attempt to create a world where the requirements of one country can be driven and turned into one large economy. One of the major outcomes of Globalisation is outsourcing. 


Outsourcing means an enterprise can employ professionals from other countries to reach a particular goal. There is a lot of contractual work that is being outsourced in the field of Information Technology leading to its development. This has opened new avenues for a lot of private sectors and Indian skills are regarded as the most effective and vibrant across the globe. The low wage rate and dedicated employees have made India one of the constructive nations suitable for international outsourcing.

FAQs on Liberalization, Privatization and Globalization

1. What are the objectives of liberalisation?

In Spite of the fact that the government always thinks the best for the country, at times the strict rules and regulations laid by the government offer hindrance in the path of the development and hence certain relaxation in the strict rules and regulations are necessary. Liberalisation ensures the same with the following objectives as its goal.


  • The development of a country needs the development of domestic industries. Liberalisation ensures that by encouraging the sense of competition between the domestic industries.

  • It also encourages business with other countries of the world with less strict rules and regulations.

  • It can include foreign capital and technology for its development.

  • Increase the global market and improve the economy of the country.

2. What are the privatisations done by India in the sector of Airports?

One of the major breakthroughs in the privatisation done by India is the privatisation of airports with an aim to increase the airport capacity, efficiency in operations, and find new ways to earn revenue for local and state governments. The main aim is to earn more revenue and reduce costs. The privatisation of airports has also increased the benefits for consumers and job opportunities for many local people. Privatisation has also helped the government to clear its long-standing debts. The airport authority of India has given permission to privatise 13 airports of India including major airports of Bhubaneswar, Raipur, Indore, Varanasi, Trichy and Amritsar. The following airports have already been privatised. 


  • Trivandrum International Airport

  • Hyderabad International Airport

  • Delhi Airport

  • Mumbai Airport

  • Cochin International Airport

3. What are the disadvantages of privatisation?

Although privatisation brings good job opportunities, tax reduction and increased revenue to the country there are several problems with privatisation. They are as follows:


  • Privatisation often increases the cost for customers

  • Employees are not under government hence opposition from employees often take place

  • Often working is not proper in private sectors

  • It often deteriorates industrial relations

  • It concentrates the economic power to a certain business group only.

  • Often in many privatisations, there has been a great loss.

  • Privatisation has not been able to completely remove the burden from the government. Instead, sometimes they depend on the government for its requirements, adding more burden to the government.

4. What are the advantages of globalization?

Globalisation is the other name of development for developing countries. Through globalisation, they present and compete with the world market with an aim to complement the world market ultimately. The greatest advantages are interchange and learning new updated technologies which lead to improvement in the standard of living. Globalisation often promises better services and cheaper products resulting in the extension of the market. Contribution to the country’s GDP increases through globalisation. The development of infrastructures is also possible through globalisation only. Refer to the official website of Vedantu for a detailed explanation.

5. What is the impact of Liberalisation, Privatisation and Globalisation on the country’s governance?

These three elements for the economic development of the government have not always come with all the golden fruits as was expected though most of the time they have a remarkably good impact on the government. The following are the impacts on the country’s governance including both good and bad impacts.


  • A remarkable growth in GDP

  • Significant increase in foreign investment

  • Generation of employment for both skilled and unskilled professionals.

  • Significant growth in export due to development of infrastructure

  • Loss of employment due to the introduction of advanced technologies

  • Big setback for the small scale industries and cottage industries which are not able to compete with the foreign aided large scale industries.