LPG
and Indian Administrative System
Under
the forces of globalization-liberalization recent decades have seen a shift
towards reduced role for the state and government in all countries. India could
have not remained unaffected by these global trends. The nineties saw the
replacement of ‘License, Quota, Permit (LPG) Raj’ by Liberalization,
Privatization and Globalization (LPG) regime.
One
natural and inevitable consequence of planned development in India has been the
phenomenal growth and extension of public undertakings in varies fields of
developmental activities. There was contextual change from Imperial governance
to Democratic governance and from Night watchman state to the Welfare state.
State assumed varied responsibilities to respond to increased expectations of
people from independent state and our owned government and to achieve goals of
socio-economic justice along with political democracy.
The
Public enterprises were assigned a pre-eminent role in the economic
development. The scheme of Industrial Policy Resolution of 1956, talks of
‘commanding heights of the economy’ through public sector enterprises. The
economic development and rate of growth were accelerated and sound economic
infrastructure for industrialization was established. The monopolies and
concentration of wealth in the hands of few could not be prevented but
self-reliance in strategic fields to reduce dependence on foreign technology
was attained. Balance regional development was achieved and regional
disparities were reduced. Employment opportunities in different sectors
improved standard of living of people and reduced the pressure on balance of
payment through export promotion and import reduction.
Notwithstanding
these achievements, the public enterprises have met with enormous failures,
especially in financial performance and managerial efficiency. Of the total 240
central enterprises, about 140 were making profits and 100 were incurring
losses in 1990. Due to their inefficiency desired results were not achieved.
Impact
of LPG:
To
improve the overall performance of the Indian Economy, the Central Government
announced in 1991 the New Economic Policy. It came to be known as the ‘New
Economic Policy’ as it made a ‘radical’ departure from Nehruvian Economic
Philosophy contained in the 1956 policy. In essence, it heralded the era of
liberalization which led to privatization and globalization.
Liberalization
means free-market economy. It marks a change from a restrictionist regime to a
free regime. It implies reducing, relaxing and dismantling of government’s
controls and regulation in economic activities.
These
measures include: delicensing of a good number of
industries, raising of licensing limits, relaxations under the MRTP Act, broad
banding, relaxations under the FERA (FEMA) regulations, legislation of
additional capacities, relaxations in export-import policy and so forth.
Thus the private
sector is permitted to function freely in respect of investment, production and
products.
Privatization
means- 1. Denationalization, i.e. changing the ownership of public enterprises
fully or partially to the private parties, 2. Deregulation i.e. allowing the
entry of private sector into areas hitherto exclusively reserved for the public
sector and 3. Operating contract, i.e. entrusting the management and control of
public enterprises to the private parties on agreed remuneration.
Globalisation
means progressive integration of Economies throughout the world and treating
the whole world as one global market by removing the restrictions on foreign
trade. This implies opening up the Indian economy to foreign direct investment.
It removes constraints to the entry of Multi National Companies (MNC’s) in
India. Thus, Indian Economy is made part and parcel of the world economy.
The various
reasons for this change in the Governments policy towards public sector are as
follows:
·
The dismal financial performance of the
public sector.
·
Low returns against heavy investments in
Public enterprises.
·
Government’s inability to provide
budgetary support to sick enterprises.
·
The need to create competition for the
public enterprises so that they are forced to earn profits through improved
efficiency.
·
The global trend towards liberalization,
privatization and gobalisation invited the private sector to come forward to
invest in infrastructure areas.
·
External factors influencing the
government like advanced countries, MNC’s, World Bank, IMF and so on.
The
New Industrial Policy of 1991 contained the following provisions with regard to
the public sector:
·
The Government decided to confine public
sector investments to strategic, hi-tech and essential infrastructure areas.
·
Some of the areas reserved public
sectors will be opened up to the private sector selectively and public sector
was allowed to enter in areas not reserved for it.
·
Chronically sick public enterprises will
be referred to the Board for Industrial and Financial Reconstruction (BIFR) for
formulation of revival and rehabilitation schemes. Etc…
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