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This article provides information about the economic dimension of globalisation in terms of liberalisation:
Although Globalisation makes an impact in all spheres of human life, the economic dimension of globalisation is more prominent and far-reaching than any others. The most important dimensions of the current phase of economic globalisation are the breaking down of national economic barriers; international spread of trade, financial and production activities and the growing power of transnational corporations and international financial institutions.
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Free flow of trade and services, which includes the origin and functioning of WTO, multilateral trading system and end of national economies; foreign direct investment which includes globalisation of financial markets, transnational integrated production and functioning of multinational and transnational companies; liberalisation in investment; growth of global economy; infrastructural development; development of information and communication technologies; outsourcing of services; and Trade Related Intellectual Property Rights.
In general, liberalisation refers to a relaxation of restrictions, usually in areas of social or economic policy. Most often, the term is used to refer to economic liberalisation, especially trade liberalisation or capital market liberalisation; the policies often referred to as neo-liberalism. A major revolution in the policy environment caused by the current phase of globalisation is liberalisation of economic policy, which included the freeing up of markets and reduction in the role of national governments in terms of ownership and control over production of goods and services.
The “liberalisation revolution” challenges the legitimacy of many of the activities nation-state governments have performed in the modern (post- 1914) world such as running nationalised industries, trade exchange and price controls and monopoly over infrastructure and public services.
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Free market economic policies advocated by neo- liberals in the Western countries, put into practice by Margaret Thatcher in Britain and Ronald Reagan in the U.S. during the 1980s, soon became the official policy of International Financial Institutions (IFIs), which started insisting on the deregulation of national economies and liberalisation in the trade and investment sectors as conditions for the grant of financial assistance or loans to countries the world over.
Since the movement of economic forces in the contemporary world is beyond the control of national governments, neo-liberals call for a fundamental restructuring of relations between the state and civil society with the state maintaining a low profile in the area of economic activities which should be governed by the free play of market forces.
They advocated free trade, which in modern usage means trade or commerce carried on without such restrictions as import duties, export bounties, domestic production subsidies, trade quotas, or import licences. The basic argument for free trade is based on the economic theory of “comparative advantage” that means, each region should concentrate on what it can produce most cheaply and efficiently and should exchange its products for those it is less able to produce economically.
In India, the pace of globalisation gathered momentum when the then central government (Narasimha Rao government) introduced the package of reforms at the behest of IMF and World Bank aimed at economic liberalisation in June 1991. The roots of the liberalisation programme in India, in fact, may be traced to earlier periods of liberalisation of trade regime in the late 1970s under the Janata government initiative as well as in the industrial policy reforms of the early 1980s introduced by Indira Gandhi and finally in the New Economic Policy fashioned by the Rajiv Gandhi government in the mid-1980s. But these earlier initiatives and their implementation were rather slow compared to Narasimha Rao’s initiative in 1991, which was more ambitious and aimed at freeing to economy from state intervention.
The reforms introduced by Rao’s government included short-term stabilisation measures encompassing devaluation of the rupee, restraint on public expenditure (by reducing subsidies on fertilizer and petroleum), a plan for the reduction of the fiscal deficit and removal of restrictions on the flow of foreign capital to Indian markets.
The medium and long term Structural Adjustment Programme (SAP) included a series of measures aimed at liberalisation of trade and deregulation of industry, restricting the ambit of the public sector including disinvestment of equities in profit making concerns and withdrawal of subsidies for the loss making ones, reforms of the financial sector and the tax systems and measures to facilitate foreign capital flows.
The main features of the liberalisation policy of Indian government have been:
i. General reduction in the role of the state in economic governance;
ii. Withdrawal by the State from some economic sectors and its replacement by the private sector;
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iii. Decline in the government/public sectors in basic and key industries, banking, insurance and other public sector undertakings;
iv. Decline in the role of the State in provision of public social services like education, housing and health;
v. Future development through wider participation of the private sector and hence more dependence on the market for the exchange of goods.