UNIT - V CURRENT FIVE YEAR PLANS

UNIT STRUCTURE
5.0 Introduction
5.1 Objectives
5.2 Current Five Year plans – 10th and 11th Five year Plans
5.3 Political stability –Structural Reforms
5.4 Liberalization- Privatization – Globalisation – Its Impact on India.

5.0 Introduction
The National Development Council (NDC), headed by then Prime
Minister Atal Behari Vajpayee, approved unanimously in December 2002
the Tenth Five-Year Plan, envisaging an 8 percent.

The Tenth Plan provides an opportunity, at the start of the new

millennium, to build upon the gains of the past but also to address the
weaknesses that have emerged. The country must be willing to modify
policies and institutions based on past experience, keeping in mind the
changes that have taken place. The country must, therefore draw up a
reform plan instead of merely having a resources plan.

5.1 objectives
After studying this lesson, you should able to :
 understand the 10th and 11th Five year Plans
 know the Political stability –Structural Reforms
 Describe the concept of Liberalization- Privatization –
Globalisation – Its Impact on India.

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 5.2 TENTH FIVE YEAR PLAN (2002-2007)

Objectives of the Tenth Plan

Traditionally, the level of per capita income has been regarded as a

summary indicator of the economic well being of the country and growth
targets have therefore focused on growth in per capita income or per
capita GDP in the past, the growth rates of GDP have been such as to
double the per capita income over 20 years or so. Recognizing the
importance of making a quantum jump compared with the past
performance, the Prime Minister has directed the Planning Commission
to examine the feasibility of doubling the per capita income in the next
ten years. With population expected to grow at about 1.6 per cent per
annum, this target requires the rate of growth of GDP to be 8 per cent
over the Tenth Plan and 9.3 per cent during the Eleventh Plan.

The Approach Paper proposed that the Tenth plan should aim at an
indicative target of 8 per cent GDP growth for 2002-07. It is certainly an
ambitious target, especially in view of the fact that GDP growth has
decelerated to around 6 per cent during the last two years of the Ninth
Plans.

Economic growth cannot be the only objectives national planning

and indeed over the years, development objectives are being defined not
just in terms of increase in GDP or per capita income but more broader in
terms of enhancement of human well being. This includes only an
adequate level of consumption of food and one types of consumer goods
but also access to basic social services especially education, health,
availability of drinking water and basic sanitation. It also includes the
expansion of economic and social opportunities for all individuals and
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groups and greater participation in decision making. The Tenth Plan
must set suitable targets in the areas to ensure significant progress
towards improvement in the quality of life of all people.

MAIN TARGETS :
To reflect the importance of these dimensions development
planning, the Tenth Plan must established specific and monitorable
targets for a few key indication of human development. It is proposed that
in additions the 8 per cent growth target, the following targets show also
be considered as being central to the attainment of the objectives of the
Plan

 Reduction of poverty ratio by 5 per cent per cent by 2007 and by

15 percentage points per cent of 2012;
 Gainful employment to the addition the labour force over the Tenth
Plan period;
 Universal access to primary education by 2007
 Reduction in the decadal rate of population grow between 2001
and 2011 to 16.2 per cent;
 Increase in literacy to 75 percent by 2007.
 Reduction of infant mortality rate (IMR) to 45 per 1000 live births
by 2007 and to 1 by 2012
 Increase in forest and tree cover to 25 per cent by 2007 and 33
percent by 2012.
 All villages to have access to potable drinking water by 2012.
 Cleaning of all major polluted rivers by 2007 and other notified
stretches by 2012.

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 The social targets mentioned above will requires substantial
allocation of resources to the social sector and major improvements in
governance to make effective use of these resources.

Tenth Plan emphasizes the need to take measures to reduce idle

capital stock so that assets can be used to their full productive capacity.
For this, the following measures are suggested in the Tenth Plan.

1. Full Emphasizes to be placed on completion of partially

completed or on-going projects and upgradation of exiting capital assets
before starting new projects.

2. Rapid privatization of public sector enterprises (PSEs),

particularly those, which are working below capacity.

3. Legal and procedural changes for quick transfer of assets,

including such measures as repeal of Sick Industrial Companies (Special
Provisional) Act (SICA), introduction of a bankruptcy law, facilitating
foreclosure, accelerating judicial processes, etc.

Employment Generation and Poverty Reduction

Tenth Plan as indicated that the current backlog of unemployment

is around 35 million persons, i.e. 9 per cent of the labour force. The Prime
Minister’s vision of creating 100 million employment opportunities over
the next 10 years cannot be realised, if we depend merely on the growth
process pushing it to 8 per cent level. The Special Group on Targeting 10
million employment opportunities per year has indicated that over the
Tenth Plan, if 8 per cent growth is achieved, an additional 30 million
employment opportunities will be created. For this purpose, special
employment generation programmes will have to be focused on high
employment generating sectors so that an additional 20 million jobs are

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crated over the Tenth plan period. If this combined target is achieved,
unemployment rate is likely to decline significantly to 5 per cent by the
end of the Tenth Plan.

Similarly, the targeted reduction in poverty rate of 5 percentage

during the Tenth Plan and another 10 percentage points by the Eleventh
Plan, will still leave more than 11 per cent of the population, or about 130
million people, below the poverty line in 2012. The Tenth Plan has
estimated that it may be possible to reduce poverty by nearly 7 percentage
points over the Tenth Plan period with proper sectoral and regional focus.

Regional Balance and Poverty

A unique feature of the Tenth plan is to lay down specific targets

for each state in consolation with State governments. Table provides
information on growth rate targets for different States in the Tenth Plan
along with the growth rates achieved during the Eight and the Ninth Plan.

During the Eight and the ninth plan period, the rate of growth in
better-off States (i.e States with higher per capita GDP), viz Gujarat,
Maharashtra, etc, have generally been higher than the States with lower
level of per capita income like Bihar. Orissa and Uttar Pradesh. Such a
phenomenon has resulted in higher income differences among States.
According to some studies, the regional disparities tended to increase
gradually in the 1980s followed by a relatively steep increase I the years
after the reforms were launched and a gradual increase through the 1990s.

The Tenth Plan aims at reversing the pace of increase in inequality

and create the necessary pre conditions to help the worse- off States to
catch up. Raising of growth rate is also important from the point of view
of reducing poverty levels prevailing in the country.

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 A close perusal of the State – wise growth rate targets of the Tenth
Plan reveals that an effort has been made to fix the growth rates of
relatively poor States like Uttar Pradesh, Bihar, Madhya Pradesh, Orissa,
Rajasthan, Chhattisgarh and Assam in the range of 6-8 per cent per
annum. This is a healthy development if these targets can be translated
into reality. Whether the planning process would be able to create
conditions for higher growth rates in terms of economic and social
infrastructure in these States so as to boost growth rates, is the major
challenge for the Tenth Plan.

Table : Growth Rates in State Domestic Produced in

Different plans

(Per cent per annum)

Eight Plan Ninth Plan Tenth Plan
Delhi 9.4 10.6
Gujarat 12.4 4.0 10.2
Karnataka 6.2 7.2 10.1
Goa 8.9 5.5 9.2
Himachal Pradesh 6.5 5.9 8.9
West Bengal 6.3 6.9 8.8
Rajasthan 7.5 3.5 8.3
Arunachal Pradesh 5.1 4.4 8.0
Tami Nadu 7.0 6.3 8.0
Haryana 5.2 4.1 7.9
Sikkim 5.3 8.3 7.9
Uttar Pradesh 4.9 4.0 7.6
Maharashtra 8.9 4.7 7.4
Tripura 6.6 7.4 7.3
Madhya Pradesh 6.3 4.0 7.0
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Jharkhand 6.9
Andhra Pradesh 5.4 4.6 6.8
Uttaranchal 6.8
Kerala 6.5 5.7 6.5
Manipur 4.6 6.4 6.5
Punjab 4.7 4.4 6.4
Jammu & Kashmir 5.0 5.2 6.3
Meghalaya 3.8 6.2 6.3
Assam 2.8 2.1 6.2
Bihar 2.2 4.0 6.2
Orissa 2.1 5.1 6.2
Chhattisgarh 6.1
Nagaland 8.9 2.6 5.6
Mizoram 75.3
All – India 6.5 5.4 79

Note :
The Growth rates for the Tenth Plan in reposed of Bihar, Madhya
Pradesh and Uttar Pradesh do not include Jharkhand, Chhattisgarh
and Uttaranchal respectively.
States have been arranged in the descending order on the basis of
Tenth Plan growth rate.
Source :

Planning Commission, Tenth Five Year Plan

(2002-2007), Vol.I.

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 Poverty Projections of the Tenth Plan

As a consequence of the Tenth Plan strategy to reduce regional

disparities, poverty ratio in 2006-07 is expected to decline to 19.2 per
cent as against 26.1 per cent of 1999-2000. However, out of the total poor
population in 2006-07 at 2,197 lakhs, about 1,626 lakhs i.e 74 per cent
will be concentrated in six poor States viz Madhya Pradesh, Assam, Uttar
Pradesh, Rajasthan Orissa and Bihar. Only 24 per cent (525 lakhs) will be
in better-off States. (Refer Table 8).

Table : Poverty projections for 2006-07 for Major States

Better –off States Percentage of Poor No of Poor (lakhs)

Punjab 2.0 5.4
Maharashtra 16.2 174.3
Haryana 2.0 4.8
Gujarat 2.0 11.2
West Bengal 18.3 159.7
Karnataka 7.9 45.6
Kerala 3.6 12.1
Tamil Nadu 6.6 44.1
Andhra Pradesh 8.5 68.7
[Link] total 525.2
Poor States
Madhya Pradesh 29.5 266.5
Assam 33.3 97.1
Uttar Pradesh 24.7 484.4
Rajasthan 12.1 77.9
Orissa 41.0 162.7
Bihar 43.2 536.9
B. Sub total 1625.5
All India 19.3 2197.2

Source : Compiled and computed from Planning Commission,

Tenth Five Year Plan (2002-2007), vol.I
Employment perspective :

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 On the basis of the Report of the Special Groups creation of 10
million employment opportunities per year, the Tenth Plan has estimated
the backlog of under played around 34.85 million (defined on CDS basis
2001-02. It also provides the estimates of additional labour force over the
Tenth Plan period as 35.29 million person years. The total job
opportunities needed during the Tenth Plan will be 70.14 million (i.e.
34.85+35.29 -70.14 million.

AN EVALUATION OF THE TENTH PLAN :

Tenth Plan has raised its sights and finally set its and on the target
of 8 per cent average annual growth of GDP it has also promised to bring
this about by raising the level of gross domestic saving from 24.4 per cent
of GDP in 2001-02 to 29.4 per cent in 2006-07 – a step up of 5
percentage points. The Plan also seeks to generate 50 million additional
Jobs to bring about reduction in unemployment(including under-
employment) from the level of 9.12 per cent in 2001-03 to 5.11 per cent
in 2006-07.

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 Eleventh Five Year plan (2007-2012)

The Union Cabinet gave its approval for placing the Draft
document of Eleventh Five Year Plan (2007-12) before the National
Development Council (NDC) that would enable its operationalisation in
full.

The 11th Plan aims to increase the average economic growth to

nine per cent from 7.6 per cent in the Tenth Plan. The 11th Plan also
proposes to increase farm sector growth rate to four per cent from 2.13
per cent in the previous Plan. The Plan, which has been formulated with
the aim of making economic growth more inclusive, proposes to reduce
poverty by ten percentage points, generate seven crore new employment
opportunities and reduce unemployment among educated persons to less
than five per cent.

The Plan will also focus on the education sector by increasing the
outlay to 19 per cent of the Central budgetary support from less than eight
per cent in the previous Plan. NDC, the country’s highest policy making
body, comprises the Prime Minister, Union Ministers, state Chief
Ministers and members of the Planning Commission.

The eleventh plan has the following objectives:

1. Income & Poverty

o Accelerate GDP growth from 8% to 10% and then maintain
at 10% in the 12th Plan in order to double per capita income
by 2016-17

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 o Increase agricultural GDP growth rate to 4% per year to
ensure a broader spread of benefits
o Create 70 million new work opportunities.
o Reduce educated unemployment to below 5%.
o Raise real wage rate of unskilled workers by 20 percent.
o Reduce the headcount ratio of consumption poverty by 10
percentage points.
2. Education
o Reduce dropout rates of children from elementary school
from 52.2% in 2003-04 to 20% by 2011-12
o Develop minimum standards of educational attainment in
elementary school, and by regular testing monitor
effectiveness of education to ensure quality
o Increase literacy rate for persons of age 7 years or more to
85%
o Lower gender gap in literacy to 10 percentage points
o Increase the percentage of student college going to higher
education from the present 10% to 15% by the end of the
plan
3. Health
o Reduce infant mortality rate to 28 and maternal mortality
ratio to 1 per 1000 live births
o Reduce Total Fertility Rate to 2.1
o Provide clean drinking water for all by 2009 and ensure that
there are no slip-backs
o Reduce malnutrition among children of age group 0-3 to half
its present level
o Reduce anemia among women and girls by 50% by the end
of the plan

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4. Women and Children
o Raise the sex ratio for age group 0-6 to 935 by 2011-12 and
to 950 by 2016-17
o Ensure that at least 33 percent of the direct and indirect
beneficiaries of all government schemes are women and girl
children
o Ensure that all children enjoy a safe childhood, without any
compulsion to work
5. Infrastructure
o Ensure electricity connection to all villages and BPL
households by 2009 and round-the-clock power.
o Ensure all-weather road connection to all habitation with
population 1000 and above (500 in hilly and tribal areas) by
2009, and ensure coverage of all significant habitation by
2015
o Connect every village by telephone by November 2007 and
provide broadband connectivity to all villages by 2012
o Provide homestead sites to all by 2012 and step up the pace
of house construction for rural poor to cover all the poor by
2016-17
6. Environment
o Increase forest and tree cover by 5 percentage points.
o Attain WHO standards of air quality in all major cities by
2011-12.
o Treat all urban waste water by 2011-12 to clean river waters.
o Increase energy efficiency by 20 percentage points by 2016-
17.

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 The National Development Council approved the 11th Five-Year
Plan (2007 - 2012) amid demands by the Chief Ministers for greater flow
of funds to them for tackling regional imbalances. PM Manmohan Singh
expressed confidence that Indian economy would achieve a growth rate
of 10 per cent in the terminal year of the plan. He also cautioned against
the price pressures on food items and the adverse impact of global
financial crisis on the [Link] 11th Five-Year Plan has given
highest priority to agriculture, education and health. The total outlay for
the plan is Rs 36,44,718 crore out of which, budgetary support would be
Rs 14,21,711 crore.

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 5.3 POLITICAL STABILITY AND STRUCTURAL REFORMS

Political stability is not necessarily an essential pre-requisite item

for good economic growth. In actual practice, it is the other way around
as it can be argued, that it is good economic growth, that essentially leads
to political stability. Political uncertainty, no doubt, is an investor’s
nightmare. It does disturb the flow of foreign direct investment plans both
into the private sector as well as the government owned public sector
units and that surely affects economic growth. However, this argument is
good only to a limited extent. Political stability is mostly helpful for
economic growth, stability depends upon of life of governments.

Most of the prior studies on economic growth have found that

unstable political regimes hamper growth, whereas stable political
systems act as catalyst for growth. These studies suggest that political
instability often leads to slower economic growth. However, analysts
differ about the channels through which political instability translate into
a slower economic growth. Some studies suggest that political instability
retards growth, directly lowering total factor productivity. In a article it
was found that measures of political instability, such as coups,
revolutions, and political assassinations, are inversely correlated with the
growth of gross domestic product(GDP) and investment share of the
GDP. that political instability, through its adverse effect onproperty
rights, reduces growth and investment. political stability influences
economic growth.
Coalition Governments: Political Stability Vs Stable Economy
In their pre-occupation to provide a stable government, some of the
parties have failed to take reference to the successful coalition
arrangements prevailing in Italy, Germany but has instead generally
rejected coalition arrangements.

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 In fact, stable governments do not necessarily lead to higher
economic growth. Our own performance on the economic front in the
first 30years of Mr. Jawarhalal Nehru’s post-independence era, which
epitomized political stability, exhibited the lowest level of economic
growth (some 3 – 3.5% growth rate: the lowest in the last fifty years).
Compare this growth rate with the levels (some 6-7%) achieved in the last
10 yrs period of maximum political instability, when we have seen as
many as 4 Prime Ministers. Industrial growth rates jumped to double
digits, something that had not happened before. From as low as 500 or so
at the beginning of the decade, the Bombay Sensex went on climbing
from one high to another, breaking several records on the way. A scenario
of political stability suits only the politician and not the common man on
the street. Stability only allows the politician to relax for the 5-year tenor
of the Parliament.

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 5.4 LIBERALIZATIONS, PRIVATISATION AND
GLOBALISATION

LIBERALIZATION
Liberalization, Privatisation and Globalisation have become a
much talked of subjects amoung politicians, economists and businessmen
in modern days. These three expressions are the supporting pillars on
which the edifice of new economic policy of our Government has been
erected and implemented since 1991. In the this chapter, we shall briefly
study about these concepts.

‘Liberalization’ is an essential per-requisite for a successful

privatization. In the absence of liberalized rules and regulations, the
private sector will not be willing to venture, due to several restrictions
which would hinder the independent growth of the private sector
institutions. We know that the Industrial Policy of 1991 announced by the
Government of India is nothing but economic and industrial
liberalization. This liberalization has tremendously expanded the scope of
the private industry in India.

Prior to liberalization, 17 of the most important industries were

exclusively reserved for the public sector was to play a dominant role.
Even in the industries are open to private sector, several regulations like
industrial licensing, clearance from MRTP Act and Foreign Exchange
restrictions etc., would hinder private investments. With the liberalization
policy, these restrictions were removed, offering large scope for the
expansion of the private sector. Now only six industries are reserved for
the public sector and even in some of these industries, selective entry of
the private sector is allowed. Industrial licensing is confined to 14

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industries. These industries, subject to licensing, account for only 15 per
cent of the value added in the manufacturing sector. The MRTP
regulations regarding entry and growth were scrapped. In short, private
enterprises can now enter and grow in most of the industries. Further
automatic approval of foreign investment upto 51 per cent and foreign
technology agreements are permitted for 48 priority industries.

Liberalisation improve the competitiveness and internationalization

The liberalization policy of the government has strengthened the

performance of Indian Industries by becoming more competitive.
Contrary to the fear expressed by several people that liberalization would
result in foreign competition and strangling down of Indian industries,
several Indian industries have substantially increased their sales and also
profits. The increase in competition is reflected in the increase in
marketing costs and fall in profitability; but total profits have increased,
due to higher sales. Another indication of increasing competitive strength
of Indian companies is the rise in their export intensity, i.e the ratio of
exports to total sales. The growth impulse provided by the liberalization
has increased competition in the domestic market and also larger business
opportunities in foreign markets.

A number of companies have established wholly owned

subsidiaries or joint ventures abroad. Several Indian firms have entered
into licensing agreements and strategic alliances to foster business
abroad. Further, the policy had given a boosting effect on foreign
investments. The business environment in India has undergone a radical
change. It is for the government and the bureaucratic attitudes which
should properly orient towards the liberalized environment, which would
help the economy to move towards globalization.

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PRIVATIZATION

Privatization generally means the transfer of ownership or

management of an enterprise from the public sector to the private sector.
It also means the withdrawal of the State from an Industry or sector,
partially or fully. Privatization, as an economic policy has been gathering
momenturn throughout the world sine 1980. More than 8,500 State
owned enterprises have been privatized in over 80 countries of the world,
during the period 1980-1992. This trend is gathering ground even in
socialist and communist countries to make the economy market oriented.

The fundamental reason for the reversal of policy from

nationalization to privatization is the growing disappointment with the
functioning of the public sector undertakings and State owned enterprises.
In 1960s, there was a trend towards nationalization in Britain. But since
1970, this trend has been reversed and privatization gathered ground by
selling State owned enterprises. Besides U.K countries which announced
the policy of privatization included Argentina, Bangladesh, Brazil,
Germany, France, Italy, Japan, Mexico, Nigeria, spain, Turkey, etc. A
number of other countries, including India have deregulated or liberalized
the industrial sector in varying degrees. In late 1970s China also started
privatization and It spread to other communist countries like former
USSR, East European countries and Cuba.

The performance of public enterprises or State owned enterprises

was far from satisfactory in several countries including India.
Consequently, the burden of carrying the State owned enterprises had to
be borne by the public through government budgets and also increase in
external debt.

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 In some countries the combined deficit of State owned enterprise
rose from about I per cent of GNP to 5 per cent of GNP within a decade.
The rate of economic growth was deplorably low.

The heavy financial burden imposed on the public due to the

failures of State owned enterprises and the growing public discontent
about their inefficiency, indifference, irresponsibility and corruption
made the governments ponder over the issue and think in terms of
privatization. Prof. Samuel paul has pointed out three important factors
which were the results of unbridled state expansion of economic
activities. They are :

i) Economic inefficiency in the production activities of the public

sector, with high cost of production, inability to innovate, and
costly delays in delivery of the goods produced;
ii) Secondly, ineffectiveness in the provision of goods and services
and failure to meet the intended objectives and also diversion of
benefits to elite groups of citizens; and
iii) Rapid and unreasonable expansion of the bureaucracy, causing
severe strain in the public budget and also labour relations,
leading to gross inefficiency and retardation of economic
growth. All these have led many governments to undertake
programmes of public sector reforms to revitalize the economy
by curbing public expenditure and revitalize the industrial
structure by shifting their activities to private sector.

Ways of Privatization
There are several ways of achieving privatization and each country
adopted its own method. In Britain, the staff of the privatized company
had the priority in buying shares and were entitled to a discount. For

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instance, 96 per cent of British telecom employees took a share in their
company in defiance of the trade union opposition. Although some of
them later sold them at a higher rate, they derived certain benefits
financially through privatization. One of the important methods of
privatization is divestiture, or privatization of ownership, through the sale
of equity. In countries where there are well functioning capital markets,
this entails selling stock to the public. In industrial countries,
privatization had taken place mainly through divestiture of government
economic activities. Bangladesh, Pakistan, Brazil, Peru, Chile, Jamaica,
Sudan and Philippines are some of the examples of this method.

Of course, Japan has a century-old history of divestiture. Though

initially, it stated industrialization through State ownership, the Japanese
government, by and by sold many state firms including 52 factories, 10
mines and 3 ship-yards. Privatisation assumed importance in Japan till
1980. Even recently Japan has privatized two most lucrative state
enterprises, viz., Nippon Telegraph and Telephone and Japan Tobacco
and Salt Corporation. The objective is to reduce government expenditure
and to raise administrative efficiency by withdrawing government
presence from areas which can be better managed by private people.

There is another way of privatization. It takes the form of

denationalization or reprivatisation. Several large enterprise were
denationalized in Pakistan, Bangladesh and Chile. Franchising is also on
of the methods of privatization. In this, certain services are designated in
certain geographical areas which will be delivered by private companies.
This is common in utility services and transport. Contracting is also
common in public works. Where suppliers compete for contract and there
is no loss economies of scale, contracting is efficient. But, there is scope

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for corruption in contracting. Long term contracts tend to encourage
monopolistic tendencies in private companies. Privatization may also take
the form of privatization of management, using leases and management
contracts.

Privatization in India

In India, only with the advent of New Economic Policy of

liberalization, privatization has been introduced as a policy. Soon after
independence, the public sector in India; both Central as well as States,
expanded indiscriminately to create vested interests by the politicians.
States, expanded indiscriminately to create vested interests by the
politicians. State Government set up public corporations in several fields
to expand the empire of the political parties, in order to give berths to
political leaders, as Chairman or Vice-Chairman or Secretary or political
member, etc. Losses accumulated in several State owned enterprises. In
some State Transport Corporations the loses were larger than the capital
invested in them. Continuing losses compelled the government to
increase taxation and curtail development expenditures. In due course, it
became obvious that the behaviour and functioning of the public sector
had to be tamed.

The new industrial policy abolished the public sector monopoly in

several industries. Only eight industries are now exclusively reserved for
the public sector as against 17 industries in Schedule A previously. This
is a significant step towards privatization. Industries which are opened for
the private sector include iron and steel, power, ship, building, telephone
and telephone cables, telegraph and wireless apparatus, air craft, air
transport and heavy plant machinery.

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 The scrapping of the Schedule B which contained 12 industries
where public sector was to play a dominant role is also an import policy
change towards privatization. The new policy also proposes privatization
of enterprises by selling shares to mutual funds, workers and the public.
The Central Government is also reviewing the existing portfolio public
investment with a view to offloading public investment from areas where
the following conditions prevail :
(a) Industries based on low technology (b) Small-scale and non-
strategic areas (c) Inefficient and unproductive areas (d) Areas with low
or zero social responsibility or public purpose; and (e) Areas where
private sector had developed adequate expertise and resources. However,
the government is faltering with the issue due to opposition from Trade
Union and political parties to ensure their vested interests. The
Government should have a clear view and strong will in this matter.

Globalization :
The term’ Globalisation’ has been extensively used in modern
discussion of industrial policies and also national economic policies,
besides in business circles. Generally, this term ‘globalisation’ is
considered as a synonym for the term ‘internationalisation’. Strictly
speaking, it is not so. Business with one or more foreign countries
amounts to internationalism, whereas globalization means adopting a
global outlook for the business and business strategies are aimed at
enhancing global competitiveness.

Companies which have adopted global outlook “stop thinking of

themselves as national marketers, but start thinking themselves as global
marketers’. In these companies, the management and the staff are given
training in planning business all the world over, competing in
international markets throughout the globe. Executives are trained in
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world wide operations and not mere domestic market or a few markets
outside the country. Similarly, management staff if recruited from many
countries and procurements are made throughout the world where they
can have at the least cost, and investments are made in several countries
where the anticipated returns are the greatest.

Definition and meaning of globalization

Globalization is the integration of international markets for goods
and services, technology, finance and to some extent labour. It is the
integration of the country with the world economy. World is perceived as
a global village. A country will be able to supply anything to or buy
anything from anybody in the world. Globalization implies the linkage of
a nation’s market with the global market. Technology is an important
factor which has facilitated the globalization process. Globalization has
made markets highly competitive and there is a remarkable growth of
new service products.

Globalization and Liberalisation are inter-related. The latter

connotes ‘structural adjustment’ symbolizing measures to stimulate
structural change by reorganizing production and shifting the emphasis
from the State to the market economy; liberalizations has got two
dimensions ;
(i) Domestic liberalization, which consists of relaxing restrictions
on production, investment, prices and increasing the role of
market, guiding resource allocation.
(ii) (ii) External sector liberalization or relaxing restrictions on
international flow of goods services, technology and capital.
Globalization is identified with external sector liberalisation.

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Globalization and Its Impact on India

In India, the period after 1980-81 was marked by severe balance of

payment difficulties mainly due to hike in oil price and Gulf War in
1990-91 and hostilities in West Asia. When the new government tool
over in June 1991 India had unprecedented balance of payment crisis.
The finances of the Central, as well as State Governments had reached a
situation of near bankruptcy. This problem got further accentuated by
India’s increased reliance on high cost external commercial borrowings
and NRI deposits in 1980s. With the downgrading of India’s credit rating
by some international agencies, combined with political uncertainties at
home, there was heavy flight of capital out of India. Since India lost its
credit worthiness in the international market, the government mortgaged
40 tonnes of gold to the Bank of England.

Under these circumstances, the new government for 1991-92

presented its budget through the Finance minister Dr. Manmohan Singh
in July 1991 with a series of policy changes which underlined
globalization, liberalization and privatization. This has come to be called
as India’s new economic Policy. The policies were further strengthened
when India signed the Dunkel Draft in 1994. From this, it is evident, that
the adoption of the policy of globalization and liberalization was not out
of selection of a policy, but it was a matter of compulsion, both voluntary
and involuntary.

Reforms of liberalization and globalization

In order to make the programme of structural adjustment to suit the

policy of liberalization and globalization, the following measures were
taken by the Government of India.
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 (1) Abolition of Industrial Licensing, except for a few industries

(2) Reduction in the number of industries reserved for public

sector.
(3) Fixation of a realistic exchange rate of rupee to encourage
exports of India goods.

(4) Foreign private sector participation by making rupees

convertible first on trade and finally on current account and y
reducing import duties. Quantitative import controls through
licensing were slashed. Almost all capital goods, intermediate
goods and raw material were made free to be imported.
Customs duties were reduced to 28% in 1997-98 from 50% in
1990-91.

(5) Automatic approval of foreign investment upto 51% equity was

allowed and foreign technology agreements permitted for 35
priority industries. Companies with more than 40 per cent of
foreign equity are now treated on par with fully Indian owned
companies.

(6) Foreign exchange regulations were suitably amended in order to

remove a number of constraints, so that Indian business could
operate easily abroad.

(7) The policy of interest rate determination by the RBI was relaxed
as a part of the liberalization process.

Advantages of Globalisation
A study by the World Bank revealed that large strides have been
made in Hong Kong, Indonesia, Japan, Malaysia, Singapore, South
Korea, Taiwan and Thailand in their openness to world trade. A more

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recent example is China. It has been estimated that beyond the year 2005,
world trade is likely to increase by leaps and bounds to the extent of
about 300 billion dollars on account of liberalization and globalization
trends with reduction in tariffs. India cannot remain isolated.

Identification of products with competitive advantage is yet

another component of globalization, Different countries have different
advantages in different industries. For example, Japan has some
advantages in electronics, U.S.A., in computers and air crafts, Germany
in fine chemicals and India in textiles, jewellery, leather products and
movie productions, etc. four Indian companies have a place among the
World’s largest industrial corporations : Indian oil, ONGC, SAIL and
Hindustan petroleum.

The Aditya Birla group is the world’s largest producer of rayon

fiber (viscose staple fiber), Foreign ventures are taken over by Indian big
companies like Birlla group, Tata group, Parry group, Kirloskar group,
Thapar group, Singhanias, etc., and also by Indian State enterprises and
Non-resident Indians. This shows that India is also a good competitor in
the international market.

Liberalization and globalization would help in the long run to

reduce structural imperfections resulted by the Industrial policy, licensing
policy, MRTP and foreign exchange regulations.

Globalization has led to inflow of Foreign Direct Investment (FDI)

and Foreign Institutional Investment (FLL). Indian Companies have
started raising foreign equity capital through Global Depository Receipts
([Link].) and other instruments that help to expand and modernize the
plants and machineries of lower technologies. Domestic production for

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exports has been increased. Global production cost has been reduced and
best products are available at competitive prices. More jobs are created in
agriculture and industries. Brain drain could be avoided.

After liberlisation and globalization, economic situation in our

country has completely changed. Hence, it is stated that liberalization and
globalization is proving lot of good both internally and externally.

Demerits of Globalisation
It should not be construed that globalization is all blessings. It has
its disadvantages and dangers as well. Several foreign companies have
entered. Indian market. Beverages like coca-cola and pepsi, alcohols,
confectionary items like ice-creams and chocolates, electronic toys,
designer shoes, cosmetics, VCRs, Television, etc., are flooded in the
Indian market.

A time will come when the outflow of profits will exceed the
inflow of foreign investments. In such a situation the BOP will be badly
affected, creating lot of problems. Generally, MNCs have only short-
term approach. They bring second hand technologies which are outmoded
in their own countries. Moreover these MNCs give priorities to only elite
items of consumption such as motor cars, soft drinks and five-star hotels.
We know that Coca Cola which was pushed out by former Prime Minister
Moraji Desai in 1977, has been successful in entering Indian industry and
also successful in buying Gold Sport, Thumps Up, maaza, Citra and
Limca.

Another very important problem due to globalization and foreign

investments will be killing out own Indian indigenous technology and
also small industries. This will create more unemployment and

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inequalities of income in the countryside. In slow stages, the Indian firms
will be taken over by foreign giants and the result will be monopolistic
and oligopolistic structure in the country. The consumers will be
exploited with heavy prices.

The so called flow of foreign exchange is only transitory. In fact,

the flow of foreign exchange due to globalization in is not strictly
speaking due to increase in exports, but due to the inflow of hot money
into country which can move out of the country at any time. To increase
our exports, we have been devaluing our currency frequently.

In developing countries like India, agriculture is looked upon as a

source of cheap agricultural commodities and market for manufactured
goods. In the long run, this will result in country’s food scarcity and
decay of cottage and small scale industries.

The developed countries of the world may adopt protectionist

policies for their industries in a disguised manner, by prohibiting certain
items of import. Globalization may result in loss of immunity towards
world level economic diseases.

The advocates of globalization indicate the growth of Malaysian

countries and several small countries like South Korea, Thaiwan,
Hongkong, Singapore, etc. The comparison of these countries with India
is not correct. It should be realized that they are very small countries with
India is not correct. It should be realized that they are very small
countries having a limited population with compact administration. Their
per capita incomes are far above than our countries; 8 to 14 times large.
Their economic growth is nearly double than our and their population
growth is just half. Above all they have paid excellent attention to their
educational system, technological development and an honest

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administration. But, Indian environment is entirely different. Indian
Government has lost hundreds of crores of rupees in scams such as Stock
Scam, Sugar Scam, Fodder Scam, Hawala Scam, Befors Scam; and what
not.

Liberalization and Globalisation have their brighter as well as

darker sides. But, a country like India, should be extraordinarily careful in
proceedings deep into this, as we have awkward dualism and also
backwardness. We have been perusing ‘Nehruvian Policy’ for nearly four
decades and suddenly we made a ‘U’ turn in economic policies.

It is true that there have been structural changes in well developed

countries. Particularly USA’, where agriculture’s share fell from 47% to
13 and ‘services’ represented 70% of work force. They are in need of
markets for their goods and hence they manipulate through GATT to
have free trade for them with developing counting world over. They may
say that liberalization and globalization will ultimately lead to
globalization of prosperity. But, developing economies should be very
careful in taking steps at every stage. They have to think ‘locally’ first
and then ‘nationally’ and then ‘internationally’. If backward countries do
not exercise adequate caution, globalization will not result in
globalization of prosperity, but globalization of poverty.

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SELF ASSESMENT QUESTIONS:
1. Evaluate the 10TH and 11TH Five Year plans
2. Describe the concept of liberalization and privatization in
India.
3. Write an essay on Globalization and its impact in India.

References :
1. Ruddar Datt, and K.P.M. Sundharam, Indian Economy [Link] &
Company Ltd, New Delhi: 2003
2. [Link], Indian Economy: Problems Policies and Development
Margham Publications, Chennai: 2003
3. Indian Economy Spectrum Books Pvt. Ltd. New Delhi: 2003.

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