Examine the impact of liberalization on companies owned by Indians. Are the competing with the MNCs satisfactorily? (15 Marks)

Mentors Comments:
1. Briefly introduce what happened during the process of liberalization
2. Discuss the impact of Liberalisation on Indian companies – both benefits and challenges
3. Discuss any steps to strengthen the domestic industry

Liberalization is defined as laws or rules being liberalized, or relaxed, by a government. Economic liberalization is generally described as the relaxing of government regulations in a country to allow for private sector companies to operate business transactions with fewer restrictions. It is usually promoted by advocates of free markets and free trade, whose ideology is also called economic liberalism. Economic liberalization also often involves reductions in taxes, social security, and unemployment benefits.

Impact of Liberalization on Indian companies:

Impact on Small Scale companies:

  • After independence, the government attempted to revive the small scale sector by reserving items exclusively for it to manufacture. With liberalization list of reserved items was substantially curtailed and many new sectors were thrown open to big players.
  • Small scale industry however exists and still remains the backbone of Indian Economy. It contributes to a major portion of exports and private sector employment. Results are mixed, many erstwhile Small scale industries got bigger and better. But overall value addition, product innovation and technology adoption remains dismal and they exist only on the back of government support.

Impact on Services Sector

  • In this case, globalization has been boon for developing countries and bane for developed ones. Due to historic economic disparity between two groups, human resources have been much cheaper in developing economies.
  • This was further facilitated by the IT revolution and this all culminated in the exodus of numerous jobs from developed countries to developing countries. Here the US have to jealously guard its jobs as we guard our agriculture.

Information Technology industry

  • Software, BPO, KPO, LPO industry boom in India has helped India to absorb a big chunk of demographic dividend, which otherwise would have wasted. Best part is that the export of services results in the export of high value. There is almost no material exported which consume some natural resource. Only thing exported is the labour of Professionals, which doesn’t deplete, instead grows with time. Now India is better placed to become a truly Knowledge Economy.
  • Exports of these services constitute a big part of India’s foreign exchange earnings. In fact, the only three years India had Current Account surplus, I.e. 2000-2002, was on the back of this export only.

Telecom Sector

  • Conventionally, Telecom sector was a government-owned monopoly and consequently, service was quite substandard. After reforms, private telecom sector reached the pinnacle of success. And Indian telecom companies went global. However, corruption and rent-seeking marred growth and outlook of this sector.
  • Entry of modern Direct to Home services saw improvements in quality of Television services on one hand and loss of livelihood for numerous local cable operators.

Education and Health Sector

  • It should be noted that food (Agriculture), Health and education (and to lesser extent banking) are among basic necessities, which every human being deserves and can’t do without. Unfortunately, in developing countries, there is a market failure in all these sectors and the majority of people can’t afford beyond a certain limit (or can’t afford at all). Concept of free markets, globalization, liberalization etc. fails here miserably. Free markets provide goods and services to people who can afford to pay for them, not to those who deserve and need these.

Now if we consider these sectors from the angle of our inclination towards free markets, certainly there has been a lot of progress. There has been world-class education available in India and Deregulation has resulted in Mushrooming of private engineering and Medical Colleges. But in reality, this had far-reaching devastating effect on society.

On Social front, India’s performance is deplored all over the world and it is probably behind all the important developing economies. This lacuna has been recognized and the government has taken the charge. In case of education almost universal enrolments has been achieved up to primary level and now impetus should be on improving quality so that student of public schools comes at par with at least average private ones.

In the Indian case, the term liberalisation is used to show the direction of the economic reforms-with decreasing influence of the state or the planned or the command economy and increasing influence of free-market or the capitalistic economy. It is a move towards capitalism. India is attempting to strike its own balance of the ‘state-market mix’. It means even if the economic reforms have the direction towards market economy it can never be branded a blind-run to capitalism. Since the economy was more like the state economy in the former years, it has to go for a greater degree of mix of the market.

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Partha Acharya
8 months ago

India took a major leap and transformed its econmy throygh the LPG reforms . It opened its market for the foreign investors by removing the trade barriers , thus connecting the indian market to the international market .
The policy of liberalisation had a very hetrogenous impact on the indigenous indudtries . The opening of trade barriers allowed for more foreign investment . It not only led to availability of capital but also newer technology that provided a boost to productivity and quality of produce.
But with liberalisation foreign goods were also allowed to flood the indian market. It increased the competition for the indegineous industries who lacked the size in capital snd technology to compete with the international organisations.
Though we have established ourselves as a leader in services sector but our manufacturing sector has to cover a long distance to come at par with global players.
Recent reforms of providing support to startups through startup india and decreasing the procedural hurdles to initiate business reflected in improvement in rankig in ease of doing bhsiness and promoting and supporting msme through mudra yojana and promoting research and innovation are steps in right direction to strengthen the manufacturing base.
India’ s pulling out of RCEP deal , apprehensive of increased competition for indian industries makes it imperative for strong substantial stringent measures to strengthen our manufacturing sector and make Indian players capable for international competition.

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