Introduction:
From 1947-1991, the Indian economy followed a socialist form of governance. The policies were very strict and promoted protectionism. The government focuses a lot on import substitution by levying high taxes and quotas on imports. Industrialization required a lot of licensing and permits which were very tedious and time-consuming. Once the industries got permission to start production, there was tight monitoring of business activities and production, with limits set on the quantity of production. There was intervention even by the state government at the lowest levels. These policies were slowly leading India into an economic crisis which eventually came in the year 1991. The 1991 economic crisis in India left India in turmoil.
The economic policies were quite poor and ineffective, the public sector was inefficient and in losses, India had huge trade deficits leading to an imbalance of balance of payments. The government was also on a huge fiscal deficit. The only support that India had was its gold reserves which could support India’s governance for only two weeks. Thus, Dr. Manmohan Singh, the finance minister at that time, approached the IMF for financial help. The IMF agreed to help India by giving the funds required on one condition that India changes its economic policies and open its market to the world. Thus, the New Economic Policy which included liberalization, globalization, and privatization was adopted in India. The NEP showed excellent results as the situation of the Indian economy recovered and rose. All the deficits and reserves became normal and today the economy is 9 times that of 1991. [1]
LPG Policy
The LPG policy aimed to give the economy a new thrust on market orientation. Many administrative functions, such as PDS and ration card preparation, implementation of the National Rural Employment Guarantee, registration of land records, driving license, pension, and national insurance schemes, have been updated to make the administration and its functions more transparent to the people. Technological innovation has changed the administrative process, bringing efficiency, flexibility, and cost-effectiveness. Many bureaucratic duties are provided by private and non-governmental organizations, while the government is focusing on developmental functions for the poor. It was expected to reduce the inflation rate, accelerate the growth of the economy, refill the insufficient forex reserves, and stabilize the Indian economy. It would also lead to open India to the international market and MNCs which would lead to an inflow of international technology, goods, capital, and human resources without any restrictions. Lastly, with an increase in private companies, there would be an increase in jobs as well as improved efficiency and reduce the burden on the government.[2] Let us understand how the three impacted the Indian administration.
Liberalization and its Impacts on Administration
Liberalization refers to the relaxation of restrictions set by the government on social, political, or economic policies. The government lessens the regulations and restrictions for private companies to set up and run businesses to promote more businesses to run their business in our country so that there is an increase in jobs as well as foreign exchange reserves. With the introduction of liberalization, the public sector witnessed several changes in the administration. The government abolished the “licensing raj” system. The requirement of a license for all the industries was no longer required (except 5). This resulted in ease in starting businesses and reduce red-tapism. Hence more people were now starting businesses.
The production spaces that were previously reserved for Small Scale Industries were made available to everyone. As a result, land efficiency improved, and more cultivated space was developed across the country. The government earlier put a cap on production a business could produce, crops to be grown and imports to be made. After liberalization, the producers were voluntarily allowed to expand their production capacity according to the nature of the market. They were allowed to choose their crop or product. On the study of the market conditions related to demand and supply the producers were allowed to choose the size of land under cultivation for each crop and had the liberty to plan their production either for the domestic market or international markets. Other products which had acceptability in international markets were allowed to manufacture.
Exports were allowed for all types of crops. Import of latest technology was encouraged to develop more skills in agriculture. In the financial sector, the government reduced the SLR and the CRR which allowed banks to lend more and increase their profits. The banking sector was emerging and lead to the creation of healthy competition and expansion of the service sector for the consumers with better service. On all business and commercial borrowings, banks were entitled to set their interest rates.
Lastly, the RBI became the “facilitator” of all banks from “regulator”. In the fiscal sector, there were huge changes. The government simplified the taxation system and also reduced the taxes. This increased the tax revenue for the government and reduced all tax evasion strategies which taxpayers used to follow to skip tax liability. As the tax revenue and other revenues increased for the government, correspondingly government started developing all the areas which were either underdeveloped or undeveloped.
Finally, in the foreign sector, many reforms were introduced too. Before liberalization, the import duties were very high and imports were restricted. After liberalization, the quota system was abolished meaning there were no restrictions or quotas on the number of imports and all the import-related policies were abolished. The high import duties were reduced tremendously, and the export duties too were scraped. Another change in administration was the devaluation of the rupee. The value of the rupee was deliberately devalued to encourage exports and discourage imports. In 1991, to increase foreign exchange reserves, exports were promoted and all relevant benefits were provided to exporters. (Liberalisation, privatization and globalization-an appraisal, Indian Economic Development, CBSE)[3] [4]
Globalization and its Impact on Administration
According to the Committee for Development Policy, globalization can be defined as:
“the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, the flow of international capital, and the wide and rapid spread of technologies. It reflects the continuing expansion and mutual integration of market frontiers (…) and the rapidly growing significance of information in all types of productive activities and marketization are the two major driving forces for economic globalization.”[5] Globalization means linking the national economy with the global economy and open the doors of the Indian market to the internal market. Globalization necessitates major changes in countries’ social, economic, political, and administrative institutions.
The abolition of licensing, quotas, and taxes on the export and import of commodities throughout the country was stressed as part of globalization. It has brought with it new technologies, improved and advanced methods of production, and expanded the scope of the private sector, particularly multinational corporations in the country, creating a competitive environment in the national economy as a means of improving the system’s productivity and efficiency. It has facilitated free capital and labor movement through increasing openness, increasing economic interdependence, and deeper economic integration in the global economy.
As a result of globalization, India’s government had to reduce restrictions on the flow of foreign commodities, services, capital, and technological investments, and embrace more open rules for investment adjustment. Government intervention in economic activities is on the decline. The global market’s integration and rapid technological progress resulted in increased efficiency and growth. As a result, there was more competition in the public sector due to lower costs and improved market efficiency, more productivity, lower obstacles to entry, and new investment opportunities.[6]
Public administration is becoming more and more like “business” because of market forces and market model principles. Public administration, like business administration, is increasingly emphasizing efficiency, effectiveness, productivity, performance, accountability, responsiveness, and flexibility by adopting corporate-style practices. National and local governments are required to make structural and behavioral changes to become more efficient, effective, responsive, and responsible. Meanwhile, public employees are being asked to perform more with less, their rights and job security are being eroded, and, more crucially, social equity and justice are being called into question. Because of the breakthrough in information technology, globalization gives lower-level governments more latitude and discretion.
Local governments interact directly with foreign governments and large enterprises to attract investment and encourage commerce, resulting in additional jobs and a boost to the local economy. Furthermore, e-government facilitates the delivery and management of local programs and services, even though local governments rely significantly on state payments to fund municipal programs. [7]Hence, globalization has immensely impacted the administration of the Indian government.
Privatization and its Impact on Administration
The transition of publicly owned or operated means of production to private ownership or operation is known as privatization. Entry of private ownership brings in quality service and products along with the effective and efficient working of businesses.[8] Privatization helps the government in many ways such as taking the load off the public sector, improve the financial situation of the government, provide better service, brings in foreign investment, and provides the government with money in form of taxes. It also leads to healthy competition in the market.[9] With the introduction of privatization, the concept of public-private partnership has also come up.
The government leases the land to the private sector to build infrastructure and run the place effectively, fulfilling the role of infrastructure development and quality service at reasonable prices. It benefits the government as indirectly their role of infrastructure development is being fulfilled. With the introduction of privatization, the government can shed some of its burden on the private sector. The government often privatizes its undertakings which are under a lot of debt and are better off to the private sector (for example BSNL and MTNL). This helps them to reduce their fiscal deficits and get some money for other important operations.
Privatization also reduces the political interference in businesses which allows the private sector to run things smoothly. With privatization coming in, the flow of foreign investment also increases which also benefits the administration in the form of taxes to be paid and more factories mean more jobs for the people of India.[10] Privatization has helped the government immensely.
Conclusion
The LPG policy was a crucial and a need of the hour step to be taken in order to save India from bankruptcy. Dr. Manmohan Singh was the man behind the NEP 1991 and since then India’s GDP and economy have been on a rise. The LPG policy also benefited the government in many ways as well as helped India develop too.
References:
[1] Amit Mudgill, Since 1991, budget size grew 19 times, ECONOMY 9 TIMES; your INCOME 5 times The Economic Times (2021), https://m.economictimes.com/markets/stocks/news/since-1991-budget-size-grew-19-times-economy-9-times-your-income-5-times/articleshow/62735382.cms (last visited Aug 20, 2021).
[2] Hemant Singh, New economic policy of 1991: Objectives, features and impacts Jagranjosh.com (2019), https://www.jagranjosh.com/general-knowledge/new-economic-policy-of-1991-objectives-features-and-impacts-1448348633-1 (last visited Aug 20, 2021).
[3] Dr Meenu, IMPACT OF GLOBALISATION AND LIBRALISATION ON INDIAN ADMINISTRATION, 2 International Journal of Marketing, Financial Services & Management Research 120–125 (2013).
[4] LPG reforms in India, JournalsOfIndia (2021), https://journalsofindia.com/lpg-reforms-in-india/ (last visited Aug 20, 2021).
[5] Gao Shangquan, Economic globalization: trends, risks and risk prevention. Economic & Social Affairs, CDP Backround Paper, 1, pp.1-8.
[6] Supra note 3
[7] Chon Kyun Kim, PUBLIC ADMINISTRATION IN THE AGE OF GLOBALIZATION , 9 International Public Management Review 39–55 (2008).
[8] P.M. O’Neil, Privatisation Privatisation – an overview | ScienceDirect Topics (2009), https://www.sciencedirect.com/topics/earth-and-planetary-sciences/privatisation (last visited Aug 21, 2021).
[9] John B Goodman & Gary W Loveman, Does privatization serve the public interest? Harvard Business Review (2014), https://hbr.org/1991/11/does-privatization-serve-the-public-interest (last visited Aug 21, 2021).
[10] Sri Janani, Privatization: Objectives, methods, advantages and disadvantages Sociology Group: Sociology and Other Social Sciences Blog (2021), https://www.sociologygroup.com/privatization-objectives-methods-advantages-and-disadvantages/ (last visited Aug 21, 2021).
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