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...