Chapter 3: Liberalisation, Privatisation and Globalisation: An Appraisal

The following points will highlight the reasons that make India a favourite outsourcing destination:

1. Wage rates in India are less as compared to other developed nations, and it makes MNCs invest in Indian workers and shift a part of their business to India.

2. Indians are educated and can be easily trained, but due to the lack of job opportunities, job training costs will be low.

3. India is an emerging market for goods and services, as the cost of production is cut by half if it is produced in India; therefore, it makes sense to invest in India.

4. India offers a stable political environment suitable for setting up businesses.

5. India has been developing the infrastructure section for the last 10-20 years, and connectivity has become much improved; this has helped MNCs in reducing the cost of production.

6. India has abundant natural resources, which make for a steady source of raw materials to ensure the proper functioning of MNCs.

7. India does not have companies that can provide competition on a global basis. Hence, it is easier for MNCs to establish themselves as market leaders.

Navaratna status is given to those PSE or PSU (Public Sector Enterprises or Public Sector Undertaking) in 1997 that have been profitable in the market and have a comparative advantage. These organisations were given freedom in financial, operational and managerial autonomy. The result of this move was that the company expanded its footprints in the global market and became financially and operationally self-sufficient. The granting of Navaratna status helped them improve their performance.

Factors that helped in the growth of the service sector are as follows:

1. India being a major outsourcing market for services, had a high demand for banking, customer support, finance, software service, advertisement and communication, which led to the growth of the service sector.

2. India underwent financial reforms in the year 1991, which expanded its economy through the inflow of foreign investment, which led to the growth of the service industry.

3. Indian economy had undergone a structural change which shifted its focus from the primary to the tertiary sector, which opened up avenues for the growth of services across segments.

4. By following a policy of low tariff and non-tariff barriers for products, India could gather a large part of the service sector from developed countries.

5. India provides a market for cheap and knowledgeable labour, and this factor has helped many developed nations in setting up subsidiaries in India to carry on their operations.

6. The growth of the IT sector and innovations in the technology field have made India a favourite destination for investors and industries alike.

Economic reforms initiated in 1991 did not have an impact on the agriculture industry. Here are the reasons:

1. Public investment decreased in the agriculture sector after 1991, so the Indian government reduced support for research and development in agriculture and supported services that had a negative impact on agriculture.

2. As subsidies were removed from fertilisers, the cost of production escalated, which made farming more expensive, and it also affected poor farmers.

3. By complying with WTO regulations, import duties on agricultural products were reduced, which made it difficult for poor farmers to compete against products of the international market.

4. Shifting focus on producing more cash crops and removal of subsidies exerted a double impact which resulted in inflation, making the cost of production more expensive.

Industrial sector performance was poor due to the following reasons:

1. A reduced industrial output was observed due to cheaper imports. Imports were cheaper as import tariffs were removed. This led to reduced demand for domestic goods.

2. There was a lack of investment in infrastructure facilities, due to which domestic firms were unable to compete with their developed counterparts from foreign countries in terms of cost and quality. Inadequate infrastructure raised the cost of production and made the goods non-feasible in the market due to the high price.

3. Non-tariff barriers maintained by many developed countries made Indian products less accessible in those countries, which led to an overall decline in revenue.

4. Domestic industries did not develop in terms of technology and hence were unable to compete with the industries of developed nations. Traditional technologies were not at all cost-effective or had good quality, which was the reason for poor growth.

Economic reforms enabled India to be an able competitor in the international market. Here are other positive points that happened as a result of the reforms:

1. Movement of goods and services across the globe.

2. The inflow of foreign capital led to more investor interest

3. The boom in the service sector boosted Eco tourism

4. GDP increased multiple times

5. Employment opportunities

Negative points

1. No benefits for the agriculture industry

2. Reforms benefitted the high-income group and made life tougher for the low and middle class

3. Development of areas nearby metropolitan cities made rural areas underdeveloped

Thus, it can be said that economic reforms did not provide social justice and were unable to work for the welfare of the general public.

• Introduction
• Background
• Financial sector reforms
• Tax reforms
• Foreign exchange reforms
• Trade and investment policy reforms
• Liberalisation
• Privatisation
• Globalisation
• World Trade Organisation (WTO)