Liberalisation, privatisation and globalisation are interrelated terms that are most often used together, since when one occurs, the other two occur in tandem with it.

Liberalisation: Governments of different countries have different trading rules. They impose what are called trade barriers to restrict trade. When trade is restricted, the domestic companies do not have to compete with the global market and therefore they succeed and develop. The obvious downside to this is that the country’s economy misses out on a lot of foreign goods and services that could be cheaper and of better quality. Liberalisation is removing/restricting/reducing these trade barriers, i.e., having liberal trading policies.

Privatisation: Industries are mainly of two types – public sector and private sector. Public sector industries pertain companies in which the government is a major stakeholder. This is done to foster the industries’ development if it is failing. Privatisation entails selling shares owned by the Govt. to the common people and therefore making the companies privately owned.

Globalisation: This is a controversial term that has many definitions to it. The basic concept is this: the integration of different nations’ societies, economies, cultures etc. as one. In the frame of liberalisation, it is economic globalisation that is the most important. Domestic companies set up manufacturing, marketing, servicing cells in other countries, thereby linking these economies. It is made possible by liberalisation. It also includes greater import-export of goods.

These three could be better understood if we talk about it in the context of Indian economy. So, lets begin.

  1. Liberalisation :- prior to 1991, Indian Economy was marked by restrictions and isolation. Norms were more stringent in nature. Rules and laws which were aimed at regulating the economic activities became major hurdles in growth and development. To tackle this, Liberalisation was introduced. It simply ended these restrictions and opened up various sectors of the economy. Some of the important measures taken were Industrial sector reforms(deregulation & dereservations of Industrial sectors, abolishment of Licensing, extending industries to pvt. Sectors except few which were more of prime importance, prices were determined by markets), financial sector reforms (reducing the role of RBI from regulator to facilitator i.e. financial sector may take decisions on many matters without consulting the RBI, estd. of pvt. sector banks, Foreign institutional investors were allowed to invest in Indian financial markets), Tax reforms (reduction in taxes on individual income & corporate sector to overcome tax evasions, estd. of common national market for goods and commodities), Foreign exchange reforms (devaluation of rupee w.r.t. foreign currencies to resolve BOP crisis, exchange rates were determined by markets), Trade and Investment reforms (relaxing quantitative restrictions i.e. High tariffs on imports, removal of export duties, abolition of licensing procedures for imports). So,In nutshell, liberalisation means lessening of Rigid laws and giving more flexibility to economy.
  2. Privatisation :- It refers to shedding of ownership or management of a government owned enterprise. Govt. companies are converted into pvt. one in two ways – I) By withdrawal of govt. from ownership and management of public sector companies and, II) Outright sale of public sector companies. Privatisation of the public sector enterprises by selling off part of the equity of PSEs to the public is known as disinvestment. The aim was, to improve financial discipline and facilitate modernisation. The govt. has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions. E.g. Some PSUs have been granted the status of maharatnas, navratnas & miniratnas.
  3. Globalisation :- In general, It means integration of the economy of a country (say; INDIA) with the world economy. It is an outcome of the set of various policies that are intended for transforming the world towards greater interdependence. Globalisation attempts to establish links in such a manner that the happenings in India can be influenced by events happening miles away thus, turning the world into one whole & creating a borderless world. In recent times with the advancement of sci & tech, easy transportation, faster telecommunication, speedy Internet & digital services many Multinational Companies (MNCs) have spread their wings in different part of the world. E.g. Oil and Natural Gas Corporation (ONGC) has projects in 16 countries, Tata Steel, a private company estd. in 1907, one of the top ten global steel companies in the world, have operations in 26 countries and sells its products in around 50 countries. It employs around 50,000 persons in a country. HCL Technologies, one of the top five IT companies in India has offices in 31 countries and employs about 15,000 persons abroad.


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