Liberalization and Privatization
Presented By: Neha Singh««.«..004 Shweta Bhandari.«.005 Varsha Tushir««...034 Brij Mohan Gupta..«037 Shilpa Deshwal««.047
Definition-Liberalization It
refers to loosening or removal of controls so that economic development gets encouragement.
It
includes abolition of those economic policies, rules, regulations, administrative controls and procedures which impede economic development
In
other words economic liberalisation is a new economy policy of promoting market determined economic decisions rather than bureaucratic arbitrary economic decisions
Genesis 1980s, the root cause of the crisis was the large and growing fiscal fiscal imbalan imbalance. ce. Large fiscal deficits emerged as a result of mounting government expe expend ndit itur ures es,, part partic icul ular arly ly duri during ng the seco second nd hal half of the the 80s. 80s. These fiscal deficits led to high levels of borrowing by the government from the Reserve Bank of India (RBI), IMF, W orld Bank. Governm Government ent expendi expenditure ture in India India grew grew at a phenomen phenomenal al rate, rate, faster than what government earns as a revenues. revenues . The subsi subsidi dies es grew grew at a rate rate fast faster er than than gov govern ernme ment nt expenditures. Expend Expenditu iture re on on subsidi subsidies es rose from Rs.19. Rs.19.1 1 billi billion on in 19801980-81 81 to to Rs. 107.2 billion in 1990-91.
Continued«« The Indi Indian an econ econom omy y was was inde indeed ed in deep deep troub trouble le.. Lack of fore foreiign res reser erv ves . Gold re reserv serve e wa was em empty pty. Befor Before e 1991, 1991, India India was a close closed d econom economy y. The gove governm rnment ent was was close close to to default default and its its forei foreign gn excha exchange nge reserves had reduced to the point that India could barely bar ely finance three weeks¶ worth of imports. The The Gove Govern rnme ment nt of Indi India a hea heade ded d by Chandra Shekhar, with Manmohan Singh (appointed as a special economical advisor) decided to usher in several reforms that are collectively termed as liberalisation in the Indian media.
Economic Reforms Industrial delicensing and simplification and rationalization of tax structure to promote investment and expansion. Liberal FDI regime to supplement domestic dom estic resources. Current account convertibility to have a liberal trade regime. regim e. Public sector disinvestment to ensure government does what it does best. WTO compatibility to plug into the global economy.
Reforms in Industrial Policy
Indust Industria riall policy policy has seen seen the the great greatest est chan change, ge, with with most most centr central al government industrial controls being dismantled. The list of industries reserved solely for the public sector -- which used to cover 18 industries, industries, including iron and steel, heavy plant and machinery, m achinery, telecommunications and telecom equipment, minerals, oil, mining, m ining, air transport services and electricity generation and distribution -- has been drastically reduced reduced to three: defense aircrafts and warships, atomic energy generation, and railway transport. transport. Industrial licensing by the the central government has been almost abolished except for a few hazardous and environmentally sensitive industries.
The requir requiremen ementt that that invest investment ments s by larg large e indust industria riall houses houses need needed ed a separate clearance under the Monopolies and Restrictive Trade Practices Act to discourage the concentration of economic power was abolished and the act itself is to be replaced by a new competition law which will attempt to regulate anticompetitive behavior in other ways.
MRTP Act and License Raj The Monopolistic and Restrictive Trade Practices Practices Act, 1969, aims to prevent concentration of economic power to the common detriment, provide for control of monopolies and probation of monopolistic, restrictive restrictive and unfair trade practice and protect consumer interest. License Raj refers to the elaborate licenses, regulations regulations and accompanying red tape tape that were required to set up business in India between 1947 and 1990. the license Raj was a result r esult of India¶s decision to have a planned economy, economy, where all aspects of the economy are controlled by the state and licenses were given to a select few f ew..
Reforms in Trade Policy
Import Import lice licensi nsing ng was was aboli abolishe shed d relativ relatively ely early early for for capit capital al goods goods and and intermediates which became freely importable in 1993, sim ultaneously with the switch to a flexible exchange rate regime. Import Im port licensing had been traditionally defended on the grounds that it was necessary to manage the balance of payments, but the shift to a flexible exchange rate enabled the government to argue that any balance of payments impact would be effectively dealt with through exchange rate flexibility.
Foreign Investment In India After After reforms reforms in 1992, 1992, huge amounts amounts of foreig foreign n direc directt inve investm stment ent came into India In 1993, 1993, forei foreign gn institu institutio tional nal investo investors rs were were allow allowed ed to purchase purchase shares of listed Indian companies in the stock market Foreign Foreign direct direct investm investment ents s in India India are are appro approved ved through through two two routes: a) Automatic approval by RBI b) The FIPB Route
Foreign Direct Investment Exploration or mining of coal or lignite for captive consumption
74%
Road Roads s and and High Highwa ways ys,, Port Ports s and and Harb Harbor ors s 74%
Exploration and mining of diamonds and precious stones
74%
Projec Projects ts relating relating to electri electricity city generat generation, ion, 74% transmission and distribution (other than atomic power plants)
Continued«.
Banking
Airports
74%
Up to 100% with FDI, beyond 74% requiring Government approval
Infrastructure related to marketing of petroleum products
100%
Telecom eleco m Services Servic es
74%
Civil Aviation
49%
Insurance
2 6%
Special Economic Zone
The main objectives of the SEZ Act are: gene genera rati tion on of addi additi tion onal al econ economi omic c acti activi vity ty promo romoti tio on of expo export rts s of good oods and and serv servic ice es; promo romoti tio on of inv investm estme ent fro from domes omesttic and and for foreig eign sou sources rces;; crea creati tion on of emplo employ yment ment oppo opport rtun unit itie ies; s; deve develo lopme pment nt of infra infrast stru ruct ctur ure e faci facili liti ties es;;
The announ announceme cement nt of of the the Exim Exim poli policy cy 2002 2002±03 ±03 has given given furth further er impetus to the creation of SEZs because the Exim policy has included service-sector units to be set up in SEZs.
Currently
500 approved and 220 operational.
Disinvestment
Disi Disinv nves estme tment nt of the the Gove Govern rnmen ment¶ t¶s s equ equit ity y in CPSUs started in 1991-92,
When When mino minorrity ity shar shareh eho oldin lding g of of the the Central Government in 30 individual CPSUs was was sold to selected financial institutions (LIC, GIC, UTI) in bundles.
In orde orderr to ensu ensure re that that alon along g with with the the attrac attractiv tive e shares shares,, the the not not so attractive shares also got sold. Subsequently, shares of individual CPSUs were sold and the category of eligible buyers was gradually expanded to include individuals, NRIs and registered FIIs.
By 1997, 1997, sale sale was was also also initi initiate ated d and MTNL MTNL (1997 (1997-98 -98), ), VSNL VSNL (199 (1998-9 8-99) 9) and GAIL (1999-2000) all used the opportunity to access the GDR market.
The numbe mber of lilisted CPSUs on domestic stock exchange stood at 42 as on 31.3.2006.
Disinvestment Commission The government constituted an independent body, the Disinvestment Commission in 1996. 1996. The main terms of reference were:
A compreh comprehens ensive ive overa overallll long long-te -term rm disin disinves vestmen tmentt prog programme ramme within 5-10 years for the the PSUs referred to it by the Core Group.
To select the financial advisors for specified PSUs to facilitate the disinvestment process.
To monitor the progress of disinvestment process and take necessary measures.
1999 Onwards
The progre progress ss of disinv disinvest estment ment in India India was was very very slow slow
Accord According ing to the the bala balance nce sheet sheet of of the the gov govern ernment ment,, at the end of March 2000, the investments totalled Rs.2,52,554cr.
Excep Exceptt for for three three year years s (1991-9 (1991-92, 2, 1994-9 1994-95 5 and 1998 1998-99 -99), ), the the budget budget targets for disinvestment were not met.
Betwe Between en 1991-9 1991-92 2 & 1999-2 1999-2000 000,, the total total realis realisati ation on ± Rs. 18,368 18,368 cr against against the targeted targeted - Rs. 44,300 44,300 cr.
More than than 40 % of government government equity had been disinvested disinvested in HPCL, VSNL, MTNL, IPCL and Hindustan Organic Chemicals.
Disinvestments so far«.. S.No.
Name of the CPSEs
% of equity disinvested
Name of the buyer
Proceeds realized (Rs.in crore)
1.
Bongaigaon Re Refineries & Petrochemicals Ltd. (BRPL)
74.46
Indian Oil Corporation Limited
148.80
2.
Chennai
Petroleum Corporation Limited
51.81
Indian Oil Corporation Limited
509.33
3.
Kochi-Refineries Limited (KRL)
55.04
Bharat Petroleum Corporation Limited
659.10
4.
Modern Food Industries (India) Ltd.
74%
5.
Maruti Udyog Ltd.
45.79%
Hindustan Lever Ltd.
Suzuki Motors
105.45
1,000.00
Strategic Sale cases called off S. No No. Name of of th the CP CPSU
Percentage of equity which was earlier prop pr opo osed sed to be sold old thro throug ugh h Stra Strate tegi gic c Sale Sale
1
Manganese Ore India Limited
51%
2
Sponge Iron India Limited
100%
3
Shipping Corporation of India Limited
54.12% (51% through Strategic Sale and 3.12 3.12% % to Empl Employ oyee ees) s)
4
National Aluminium Company Limited
61.1 1.15% (10 (10% Domest mestic ic Iss ssu ue, 20% ADR Issu Issue e, 29.1 29.15% 5% Stra Strate tegi gic c Sale Sale,, 2% to Empl Employ oyee ees) s)
5
National Building Construction Corporation Limited
74%
6
National Fertilizers Limited
53% (51% through Strategic Sale and 2% to Employees)
7
Rashtriya Chemicals and Fertilizers Limited
53% (51% through Strategic Sale and 2% to Employees)
Sector-wise Performance Steel Telecom Banking Insurance
Steel
India set plans in motion motion to partia partially lly privatiz privatize e its nationaliz nationalized ed industri industries es in in 1993. As such, 10 percent of SAIL was offered to private investors over the next several years.
Althou Although gh India India star started ted exp export orting ing steel steel way back back in 1964 1964,, export exports s were were not regulated and depended largely on domestic dom estic surpluses. However, However, in the years following economic liberalisation, export of steel recorded a quantum jump.
After After de-li de-licen censin sing g of India Indian n Iron Iron and Stee Steell Indust Industry ry and and as a resul resultt of the the steps taken for creation of additional capacity in the private sector, s ector, 19 projects involving involving a total investment of Rs. 30,835 crores equivalent to a capacity of approx. 13 million tonnes per annum have already been cleared by Financial Institutions and are in various stages of implementation. Already 8 units with a total capacity of Approx 5.45 million tonnes have already been commissioned.
Telecom Sector
India India intro introduc duced ed priv private ate compet competiti ition on in valu value-a e-adde dded d service services s in 1992 1992 followed by opening up of cellular and basic services for local area to private competition.
The Teleco Telecom m Regula Regulator tory y Author Authority ity of of India India (TRAI (TRAI)) was was const constitu ituted ted in in 1997 as an independent regulator in this sector.
Competition
was also introduced in national long distance (NLD) and international long distance (ILD) telephony at the start of the current decade.
FDI in telec telecom om secto sectorr whic which h opened opened up up with with 49%, 49%, has has been been increa increased sed to to 74% equity cap in 2004-05 Budget.
As many as 72 72 million million new phones phones have have been been added added sinc since e 20072007-200 2008 8
Banking Sector Reforms
Operation autonomy to public sector banks and reduction of public ownership up to 49% Entry for Indian private sector, foreign and joint-venture banks and insura insurance nce compani companies. es. Reduction in reserve requirement, disbanding of administered interest rates, introduction of pure inter-bank call money market and capital adeq adequa uacy cy requi equire reme ment nts s and and oth other prud pruden enti tial al norms orms .
Impact
Reduction in the share of non-performing assets in the portfolio and more than 90 percent of the banks now meet m eet the new capital adequacy standards. Increase in the overall profit of public sector banks.
Insurance Sector
Insu Insura ranc nce e sec secto torr was was ope opene ned d up in in Augu August st 200 2000. 0.
Priva Private te sect sector or insu insuran rance ce compan companies ies with with foreig foreign n equity equity allo allowe wed d up to 26% were allowed to enter the field.
An indepe independe ndent nt Insuran Insurance ce Devel Developme opment nt & Regu Regulat latory ory Auth Authori ority ty has has been established.
Thank You
