Question

What do you understand by liberalization, privatization, and globalization? How have they helped industrial development in India?

Answer 1

The New Industrial Policy was announced in 1991. The major objectives of this policy were to build on the gains already made, correct the distortions or weaknesses that have crept in, maintain a sustained growth in productivity and gainful employment and attain international competitiveness. Within this policy, measures initiated are:

• abolition of industrial licensing,
• free entry to foreign technology,
• foreign investment policy,
• access to the capital market,
• open trade,
• abolition of phased manufacturing programme, and
• liberalized industrial location programme. The policy has three main dimensions: liberalization, privatization, and globalization.

The industrial licensing system has been abolished for all except six industries related to security, strategic or environmental concerns. At the same time, the number of industries reserved for the public sector since 1956 has been reduced from 17 to 4. Industries related to atomic energy, substances specified in the Schedule of the Department of Atomic Energy as well as Railways have remained under the public sector. The government also has decided to offer a part of the shareholdings in the public enterprises to financial institutions, the general public, and workers. The threshold limits of assets have been scrapped and no industry requires prior approval for investing in the delicensed sector. They only need to submit a memorandum in the prescribed format.

In the new industrial policy, Foreign Direct Investment (FDI) has been seen as a supplement to the domestic investment for achieving a higher level of economic development. FDI benefits the domestic industry as well as the consumers by providing technological up-gradation, access to global managerial skills and practices, optimum use of natural and human resources, etc. Keeping all this in mind, foreign investment has been liberalized and the government has permitted access to an automatic route for Foreign Direct Investment. The government has also announced changes in the industrial location policies. Industries are discouraged in or very close to large cities due to environmental reasons.

The industrial policy has been liberalized to attract private investors both domestic and multi-nationals. New sectors like mining, telecommunications, highway construction, and management have been thrown open to private companies. Globalization means integrating the economy of the country with the world economy. Under this process, goods and services along with capital, labour, and resources can move freely from one nation to another. The thrust of globalization has been to increase the domestic and external competition through extensive application of market mechanisms and facilitating dynamic relationships with foreign investors and suppliers of technology. In the Indian context, this implies:

• opening of the economy to foreign direct investment by providing facilities to foreign companies to invest in different fields of economies activity in India;
• removing restrictions and obstacles to the entry of multinational companies in India;
• allowing Indian companies to enter into foreign collaboration in India and also encouraging them to set up joint ventures abroad;
• carrying out massive import liberalization programmes by switching over from quantitative restrictions to tariffs in the first place, and then bringing down the level of import duties considerably; and
• instead of a set of export incentives, opting for exchange rate adjustments for promoting export.

A breakup of foreign collaboration approval reveals that the major share went to core, priority sectors while the infrastructural sector was untouched. Further, the gap between developed and developing states has become wider. The major share of both domestic investment as well as foreign direct investment went to already developed states. Uttar Pradesh, the state with the largest population has only 8 percent. In spite of several concessions, seven northeastern states could get less than 1 percent of the proposed investment. In fact, economically weaker states could not compete with the developed states in the open markets in attracting industrial investment proposals and hence they are likely to suffer from these processes.