📜 Chapter 16: Economic Liberalization
and Globalization
1. Introduction: Economic Reforms
India's government accepted the path of planning to achieve
speedy economic development after independence (1947). Five-
year plans, monetary policy, fiscal policy, and industrial policy
were implemented.
• Need for Reform: True success in economic development
was not attained. The government investigated the causes
and decided to implement new economic policies.
• Reform Year: In the Industrial Policy of 1991, three key
economic reforms were implemented:
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2. Economic Liberalization
Definition: The government gradually reduces the
restrictions and controls imposed on the private sector and
encourages economic development.
Key Economic Reforms (Earlier Period):
[Link]-reservation: The compulsion to take government
permission was eliminated for all industries except the 18
industries that were reserved. (Later reduced further).
[Link] Sectors: Areas other than railways, atomic energy,
and defense were opened for the private sector.
[Link]: The tradition of compulsory registration
for industries was canceled.
[Link]: Government control on the price determination of
certain goods was lifted.
Benefits of Liberalization:
• It led to a decrease in government control.
• The production of goods increased.
• The number of FDI (Foreign Direct Investment)
increased.
• The growth rate of the Gross Domestic Product (GDP)
increased.
Limitations of Liberalization:
• Failure to increase foreign loans.
• Concentration of industries remained in developed regions
of the country.
• Focus remained on production of luxury goods rather than
primary necessary goods.
3. Privatization
Definition: The process of transferring ownership or
management of government-owned companies (Public Sector
Undertakings) to the private sector.
Methods of Privatization:
[Link] of Ownership/Management: The government
sells the shares of public sector companies to the private
sector, resulting in transfer of ownership and
management.
[Link]-nationalization: Converting a government-owned
company into a fully private company.
[Link] Removal: The government holds the
ownership but gives the responsibility of management to
the private sector.
Benefits of Privatization:
• Efficiency: Improved efficiency of public sector companies.
• Reduction of Burden: The burden of running public sector
companies on the government is reduced.
• Flexibility: Decisions are taken with more flexibility and
speed by the private sector.
• Competition: The number of production units increased,
leading to healthy competition.
Limitations of Privatization:
• Monopoly Risk: Risk of the emergence of a monopolistic
situation.
• Exploitation: Concern that small industries may be
exploited.
• Concentration of Wealth: Fear of a further concentration
of wealth in the hands of a few capitalists.
• Welfare Neglect: Possibility of ignoring the goal of social
welfare.
4. Globalization
Definition: The process of connecting the economy of a
country with the world economy, resulting in the free flow of
goods, services, technology, and labour between countries.
Features of Globalization:
• Free Flow: Restrictions on import-export between
countries are reduced.
• Investment: Free flow of investment between countries.
• Technology: Transfer of technology without restriction.
• Labor Mobility: Free movement of labour/citizens
between countries.
Benefits of Globalization:
• Availability of Goods: Consumers get an assortment of
goods at a cheaper rate, leading to improved quality of life.
• International Opportunities: Opportunities for Indian
companies to sell their production abroad.
• FDI: Increased FDI in the country.
• International Standards: India is able to get a hold of new
technology and compete with international standards.
Limitations of Globalization:
• Competition for Small Industries: Small industries cannot
face the global competition and are forced to close down.
• Wealth Concentration: Wealth and income are
concentrated in the hands of few industrialized nations.
• Welfare Neglect: It leads to a tendency to neglect the
interests of developing countries and social welfare.
5. World Trade Organization (WTO)
• Establishment: Established on 1st January 1995.
• Headquarters: Geneva, Switzerland.
• Predecessor: It started as the General Agreement on
Tariffs and Trade (GATT) in 1948.
• Members: It has 164 member nations (as of 2016).
Objectives of WTO:
[Link] Global Taxes: Reduce trade tax and other
restrictions to make international trade free.
[Link] Opportunities: Give equal opportunities to all
countries for international trade.
[Link] Competition: End destructive competition and
promote fair trade competition.
[Link] Protection: Prepare policies to create a
suitable environment for international trade.
Functions of WTO:
• Manages all agreements and provisions related to
international trade.
• Works as a telecommunication service for member
nations for negotiations.
• Resolves disputes related to trade between member
nations.
• Reviews the National Trade Policies of member nations.
• Cooperates with other international organizations to ensure
coherence in economic policy.
6. Strategy for Sustainable Development
• Problem: Economic liberalization and globalization, while
increasing production and consumption, have created
challenges of environmental degradation, pollution,
and resource depletion.
• Need: A development strategy that satisfies present
needs without compromising the ability of future generations
to satisfy their own needs.
Definition of Sustainable Development: Balancing the
need for economic development with the needs of
environmental protection and resource conservation for future
generations.
Strategy for Sustainable Development:
[Link]-renewable Resource Use: Use non-renewable
resources (coal, petrol, minerals) only when necessary and
in limited quantity.
[Link] Resource Use: Increase the use of renewable
resources (solar energy, wind energy).
[Link] Control: Formulate strict laws to control
environmental pollution.
[Link]: Encourage recycling of non-renewable
resources.
[Link] Awareness: Raise awareness about
environmental protection through education and
programs.
[Link]: Impose fines on industries/agencies causing
environmental damage.
• Global Initiatives:
• Earth Conference (1992): Held in Rio de Janeiro,
Brazil, to discuss environmental issues.
• World Environment Day: Celebrated on 5th June
every year.