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					                            New Economic Reforms

                                    Chapter II


I. Explain the role of international trade in economic development.
Trade is exchange of goods and services. If trade takes place within the
geographical boundaries of a country it is called domestic or home trade. If trade
takes place between two countries across the political boundaries it is called
international trade. International trade has both positive and negative effects. The
positive effects of international trade in economic development can be explained
as follows
1. Increases Output. All the countries can produce all of the commodities. But
they will produce only those commodities for which they have a natural
advantage. Due to the country wise specialization there will be a tremendous
increase in the output.

2. Expands Market. In the developing economies the purchasing power of the
people is less. Due to this the markets are small and it does not induce any
investment. International trade helps in expanding the domestic market.

3. Internal and external economies.         International trade helps in enjoying
internal and external economies.

4. Benefits. International trade extends several benefits. International trade will
lead to innovations, inventions, mechanization, and improvement in technical,
managerial and organizational skills.

5. Capital Goods. Developing economies generally produce primary products
coming from the agricultural sector. These countries will be benefited when they
export primary products and import capital goods. These countries are capital
poor and there is a dearth of capital goods. This shortage can be overcome
through international trade.

6. Education. International trade also helps in the spread of education. It is
favourable for the spread of technical and managerial skill and entrepreneurship.

7. Employment. Chronic unemployment is found in a developing economy. Most
of the people will depend on the agricultural sector which reaches a saturation
point. The problem of unemployment can be tackled through international trade.
International trade not only expands the market but also generates mass
employment.

8. Foreign Technology. Developing nations find a dearth in the technology
which can be imported through international trade.
9. Monopolies. International trade checks monopolies with its evils like high cost
and poor quality. It encourages international competition. This improves the
quality and makes the prices competitive.

10. Negative impact. International Trade also has certain negative impact. It has
strong back wash effect. This means the there will be a flight of capital from the
developing nations to the developed nations. Due to this little development which
was possible is lost to the developed nations. It also has the negative impact of
Demonstration effect. In the less developed nations there is deterioration in the
terms of trade.

II. What are the important elements involved in the liberalization in India?
In the pre-reform period there were rigid rules and regulations in India. These
rules instead of contributing towards the development started hampering it.
Hence they wanted to free the economy from all these controls. They wanted to
liberalize the economy. Liberalization implies freeing the economy from all types
of controls. In other words it is relaxation of the previous government’s controls
over the areas of economic and social policies. The important elements of
liberalization are as follows.

1. Big Industries. Previously all the big industries holding 100 crores in the form
of investment were under the control of MRTP Act and Commission. Any activity
like modernization or mechanization they required their permission. Now the
MRTP Act has been diluted. Big industries need not seek their permission.

2. Small Industries. With regard to small industries it would be continuity with
changes. In other words they would continue with all the benefits but would make
the necessary changes where required.

3. Public Sector. Public sector would operate only in 8 areas and the rest of the
areas would be open to the private sector. Subsequently this was decreased to 3
areas which included railways, atomic energy and a schedule under atomic
energy.

4. Private Sector. Private sector Industries have now been deli censed. They do
not require any compulsory licensing to start an industry. They do not require the
permission of the government. It is enough if they submit a memorandum of
information. Only 18 industries of strategic importance required compulsory
licensing which has now been brought down to 5.

5. Industrial Location. Industries should be located 25 kms away from the
peripheral of the city except for non- polluting industries like IT or Print media.

6. Foreign Capital. Free entry of foreign capital provided the foreign exchange
component is assured through foreign equity.
7. Foreign investment. They preferred foreign investment to foreign loans.
Loans will generate income and employment within the country. But foreign loans
have to be repaid in the future along with an interest. Foreign investment was
allowed upto 26 percent in defense, 49 percent in air transport, 51 percent in the
priority sector, 74 percent in banks and insurance companies and 100 percent in
drugs and pharmaceuticals, hotel, internet etc; Foreign investment would not be
allowed in retail trading, atomic energy, lottery business and gambling and
betting.

8. Foreign Technology. Foreign technology could be freely imported upto 2
crores.

9. MRTP Act. MRTP Act has been diluted.

10. Empowered Boards. Government has established Empowered Boards
which will decide the area of investment by foreigners.

11. Sick Units. Sick units in the future will be referred to the Board of Industrial
Finance and Reconstruction.

12. Harmonious labour management relationship. Finally they aimed at a
harmonious labour management relationship.


III. Briefly explain the evolution of Privatisation in India.
The IPR of India declared India to be a mixed economy in which both the public
and the private sectors would play an equally important role. However
importance was given to the public sector relegating the private sector to the
background. Over the years a number of defects were found in the public sector
like inefficiency, low productivity, lack of targets etc; hence the swing was in
favour of privatization. The evolution of privatization can be enumerated as
follows
     1. Interim Budget and budget speech, 1991: The government of India
        announced that there would be 20 percent divesture in selected PSU to
        Mutual Funds, investment institutions and workers. The purpose of
        divesture was to broaden the equity, increase resources and raise funds.

   2. Committee on disinvestment of shares, 1993. : This was headed by Mr.
      C. Rangarajan. This suggested that there would be 49 percent divesture in
      the PSU reserved for the government which could extend upto 74 percent.
      There would be 100 divesture in the PSU not reserved for the
      government. Six areas were identified for the PSU which included coal
      mineral oils, railways, radio active elements, atomic energy and
      ornaments. None of the recommendations were accepted.
   3. Disinvestment Commission 1996: This Commission was headed by
      G.V. Ramakrishna. This Commission stated that in non strategic industries
      the stakes could be upto 26 percent. It also recommended strategic sale in
      which along with the shares they would also transfer management power.

   4. The Government of India, 1997-98: In 1997-98 the government of India
      permitted the NRI’s to invest and global depository receipts were
      introduced which enabled the sale of shares outside the country.

   5. Strategic and non-strategic classification, 1999: There would be only
      26 percent stakes in non- strategic industries and majority of the holdings
      under strategic industries. The areas identified as strategic included
      railways, atomic energy, arms and ammunitions and mineral oils.

   6. Joint Parliamentary Session , 2001 : In 2001, the President addressed a
      joint parliamentary session in which he stated that the non- strategic PSU
      to have 26 percent stakes, revival of loss making but economically viable
      units and shutting down of those units which show chronic loss. But in all
      the instances the workers interest will be given priority.

   7. National Common Minimum Programme, 2004: This was given by the
      NDA government. It gives guidelines to the Privatisation of industries
      which .is as follows

   a. Transparency will be maintained in Privatisation
   b.  Profit making PSU will not be disinvested.
   c. Nav Ratnas will not be disinvested.
   d. Profit making PSU will be modernized and loss making will be closed
      down but interest of the workers will be considered in case of closure.
   e. Privatisation should encourage competition.

   8. National Disinvestment Fund: From the national disinvestment fund 75
      percent will be used towards health, education and employment and 25
      percent towards reviving the PSU.

IV. Differentiate the advantages and disadvantages of Privatisation in India.

Privatisation not only means transfer of ownership from the government to the
private individuals but can also be attained by selling of shares, organizational
changes, leasing, change in the enterprises or change the product according to
the demand.
Advantages.
    1. Better customer service: the PSU extends poor customer service. But
       the private sector extends good consumer service as it is profit oriented.
    2. Capital Market Discipline: A public sector undertaking can easily raise
       finance as it has the backing of the government. But to raise such funds in
        the market the private sector has to prove its worth by performing well in
        the market.
   3.   Efficiency: The private sector is far more efficient then the public sector
        as it is profit oriented.
   4.   Political Interference: Political interference is found in the public sector.
        The private sector is free from this evil.
   5.   Political Considerations: The public sector is influenced more by political
        considerations than economic or social considerations unlike the private
        sector.
   6.   Quick Decisions: In the public sectors the decision making is slow due to
        the protocol which they have to follow. Business considerations require
        quick decisions which are found in the private sector.
   7.   Reforms: The private sector guided by the profit motive implements
        reforms quickly on the identification of the problem unlike the public.
   8.   Successive Planning; The public sector often functions without the head.
        But the private sector is more planned as the successor is intimated well
        in advance.
   9.   Time: The private sector makes timely decisions.

   Disadvantages or critiques of Privatisation or disinvestment:
   1. Privatisation in India has been carried out in a hasty and in an unplanned
       manner. Long term planning was totally absent.
   2. The government did not create the right kind of environment before the
       sale of the shares. For eg’ registering of the firms in the stock exchange
       markets.
   3. The shares of the government were undervalued due to lack of
       competition.
   4. The government as per the agreement had to pay the depletion charges of
       the machinery from the last balance sheet to the date of the sale of
       shares.
   5. The public sectors have failed to generate competition.
   6. Privatisation transforms public monopoly into private monopoly and along
       with it evils like high prices and poor quality.
   7. Privatization always spreads the fear of unemployment among the
       workers.
   Privatisation has its own merits as well as demerits but its merits outnumber
   its demerits.

V. Define globalization and what are the essential conditions of
globalization in India?

A country cannot develop in isolation. It has to integrate with the other countries
of the world so much so that it becomes a part of the world economy.
Conditions:
    1. Business Freedom: The first step towards globalization is business
       freedom. It will be a success only if there is minimum interference from the
       government. The interference of the government in the form of quantitative
       restrictions, tariffs should be avoided.
   2. Infrastructural Facilities : Globalisation also depends on the availability
       of infrastructural facilities like finance, transport, water etc;
   3. Government Support: Globalisation faces a set back if the government
       interferes. But at the same time it requires the support of the government
       in the form of policy reforms, procedural reforms.
   4. Availability of resources: Availability of resources often make or mar
       globalization. Availability of resources often give an edge even to a small
       firm in the international market. It also brings down the prices which is
       competitive in the global market.
   5. Global Orientation: In order to go global a firm should be globally
       oriented.
   6. Competition: A global market is a competitive market. In order to gat an
       edge over the other firms they should have a natural advantage. For eg;
       low price, product superiority, technological superiority etc;
   Globalization has many advantages like helps overcoming shortages, import
   of technology and technocrats etc; But at the same time it has many
   obstacles like resistance to change, limited research and development
   activities etc;
   VI. What are the obstacles to globalization in India?

A country cannot develop in isolation. It has to integrate with the other countries
of the world so much so that it becomes a part of the world economy. There are
many obstacles to globalization which can be enumerated as follows.

1. Old Methods: The technology used in India still old. The technology has not
modernized. Hence the industries produce commodities using old methods which
may not have much demand in the international market.
2. High Costs: The raw material and inputs are costly in India. This makes the
commodities expensive. In the global markets the prices are competitive. Hence
the other products will have an edge over the Indian products.
3. Infrastructural Facilities: Infrastructural facilities are poor in India. This
includes power, banking, transport, communication etc;
4. Resistant to changes: Indian industries are resistant to changes. One of the
causative factors of this is that changes will enhance unemployment in India.
5. Poor image: In the international market Indian products have a poor image.
This hampers the sale of Indian products in the international market.
6. Competition: In the international market the competition is severe and cut-
throat. Indian products fail to rise to the international standards regarding quality
and prices.
7. Experience: Indian industries lack in experience regarding global market.
8. Research and development: The funds allocated for research and
development is almost negligible in India.
9. Small units: Indian industries are small and cannot withstand the onslaught of
the big industries.
10. Supply problems: There are many problems on the supply side like raw
material, power, labor problems etc;
11. Tariff Barriers: Tariff barriers also coma in the way of globalization.
   Globalization has many advantages like helps overcoming shortages, import
   of technology and technocrats etc; But at the same time it has disadvantages
   like unemployment, competition, rivalry etc;

VII. What are the factors favoring globalization in India?

A country cannot develop in isolation. It has to integrate with the other countries
of the world so much so that it becomes a part of the world economy. There are
many factors favoring globalization in India which can be detailed as follows.
1. Wide base: India has a wide base of resources and industries which
encourages globalization.
2. Human Resources: Many countries face a problem regarding human
resources. But India is the second largest populated country in the world.
Besides it stands second in the world regarding scientific and technical
manpower. Managerial power is fast growing which is not only imbibed but also
acquired through managerial schools.
3. Surging entrepreneurship: The existing industries are trying to make a mark
in the global market and the new industries with a global perspective are
emerging due to the available entrepreneur ability.
4. Diversified Markets: Indian markets are diversified with a wide range of
products which can withstand global competition.
5. Transnationalization of the economy: The countries all over the world are
no longer self sufficient. They are inter dependent. It is heading towards a world
economy. The distances have shrunk and it is called a global village today.
6. Extended markets: Indian markets have extended. The surplus is being
exported to the world economy.
7. Non- resident Indians: They are spread all over the world. They have both
international exposure and experience. They are also rich in capital and they
enable investment.
8. Liberalization: The year 1991 saw liberalization in India. Deli censing, free
growth of industries, reduction of tariff and non- tariff barriers, import
liberalization, liberalization in foreign capital and technology have all contributed
towards globalization.
9. Competition: It increases the efficiency of the company. Besides, it improves
the quality and lowers the prices. These factors go a long way in globalization.
Globalization has many advantages like helps overcoming shortages, import of
technology and technocrats etc; But at the same time it has disadvantages like
unemployment, competition, rivalry etc;

VIII. Explain the impact of globalization on Indian economy?
 A country cannot develop in isolation. It has to integrate with the other countries
of the world so much so that it becomes a part of the world economy. The impact
of globalization in India can be explained as follows.
1. Merchandise has increased by 11.7 percent and services by 18.1 percent. The
overall growth has been 13.5 percent.
2. Exports have increased from 6 to 9 percent and imports from 9 to 12 percent.
The net deficit is 7 percent.
3. The people below poverty line has decreased from 36 percent to 26 percent.
4. Globalisation has contributed towards the inequalities in the distribution of
income and wealth.
5. The decrease in the number of people below poverty line among the SC’s and
SC’s has been decreasing at a slow pace.
6. MNC’s, World Bank and IMF have encouraged privatization.
7. Unemployment has been on the increase and the employment growth rate has
decreased from 2 percent to 0.98 percent. The unskilled laborers are at a
receiving end. There is migration from the organized to the unorganized sector.
8. Globalization has denied the right to work among certain laborers.
9. In spite of globalization the infrastructural facilities are still poor.
10. Agriculture has been by- passed. Globalization does not favor social
responsibility which becomes the responsibility of the government.
Globalization has many advantages like helps overcoming shortages, import of
technology and technocrats etc; But at the same time it has disadvantages like
unemployment, competition, rivalry etc;
IX. What are the provisions of GATT?
The Bretton Wood Committee recommended the establishment of IMF, IBRD
AND ITO. The first two organizations were established but the third one was not
established. But in its place a less prestigious treaty was entered into called the
GATT. This treaty was signed by 23 trading nations. The provisions of GATT are
as follows.
1. Most favored nation clause: If two countries entered into an agreement due
to which one of them benefited, then the bi- lateral agreement would become a
multilateral agreement. In other words the benefits will be passed on to all other
member nations.
2. Schedule on tariff concessions: When two member nations enter into an
agreement regarding import duties under no circumstances should the tariff be
increased during the contract period. Besides, MFN clause will be continued.
3. General elimination of quantitative restrictions: There should be a general
elimination of quantitative restrictions and import duties should be fixed at the
minimum level.
4. Emergency Safeguard Code: If a member nation finds the other member
nation dumping a commodity and it is found to be injurious to the domestic
industries they can evoke anti- dumping rules.
5. Rules on Subsidies and Countervailing Duties:
a. Export duties on manufacturing goods were banned.
b. Subsidies could be extended to the primary products provided they do not take
a large share of the international market.
c. If a commodity is dumped and it is found to be injurious to the domestic
industry, they can evoke anti- dumping rules by imposing higher duties. But these
rates should not be higher then what is required
 to off set the margins of dumping.
6. Exemptions: The countries which fall in the following categories could form
free zones provided it does not become a barrier to the other trading nations
a. Countries facing adverse balance of payment.
b. Underdeveloped countries.
c. Heavy inflow of imports.
d. Adversities being faced by the domestic industries.
e. Injurious to domestic industries.
7. Dispute Settlement Board: In order to settle disputes a panel of 3 to 5 judges
would be formed. The judges would be neutral parties. A judgment would be
given within a period of 18 months. The judgment would be final and binding.

The GAAT had eight Rounds of discussions on various international trade issues.
In the year 1994 WTO was established. Both functioned side by side for a year.
Finally in the year 1995 GATT was replaced by WTO.


X. Bring out the important elements in the Dunkel Proposals.

The Bretton Wood Committee recommended the establishment of IMF, IBRD
AND ITO. The first two organizations were established but the third one was not
established. But in its place a less prestigious treaty was entered into called the
GATT. This treaty was signed by 23 trading nations. GAAT had eight Rounds of
discussions on various international trade issues. The eighth Round was called
the Uruguay Round. This Round was started in 1986. The negotiations were
expected to be concluded in 4 years. But this was the most controversial Round
and it extended to eight years. Finally the controversy was broken by Mr. Dunkel,
the then Director General of GATT. He drafted a proposal called the Dunkel’s
Proposal which became the Final Act. It was finally signed by 124 countries on
the 15th of April, 1994. In this Round a mandate was taken on the following 14
areas in Part- I of the Declaration.
1. Tariffs.
2. Non- Tariffs.
3. Tropical Products.
4. National Resource Based Products.
5. Textiles and clothing.
6. Agriculture.
7. Safeguards.
8. Subsidies,
9. GATT Articles.
10. Dispute Settlements.
11. Multilateral Agreements and Arrangements.
12. Trade Related Intellectual Property Rights.
13. Trade Related Investment Measures.
14. Functioning of the GATT System.
The part – II of the Declaration included services and reclassified the above 14
into the following 7 areas.
1. Market Access.
2. Agriculture.
3. Textiles.
4. TRIMs.
5. TRIPs.
6. Trade in Services.
7. Institutional Matters.
 GAAT had eight Rounds of discussions on various international trade issues. In
the year 1994 WTO was established. Both functioned side by side for a year.
Finally in the year 1995 GATT was replaced by WTO.

XI. Explain the different Agreements under WTO.
WTO was established in the year 1994. Both GATT and WTO functioned side by
side for a year. In the year 1995 GATT was replaced by WTO.
1. Agreement on Market Access: As per this Agreement all the member
nations had to cut down tariff on farm and industries by 37 percent. In USA and
European Union it had to be cut down by 50 percent.
2. Agreement on Agriculture: For the first time agricultural products were
brought under the purview. It was decided that all the quantitative restrictions
would be removed. Tariff had to be reduced in developed countries by 36 percent
in 6 years time and in the developing countries by 24 percent within 10 years.
3. Agreement on Textiles and Clothing: Countries had entered into multilateral
Fiber Agreement in 1974. According to this Agreement the developed countries
would decide the quota of export of textiles by the developing nations. This would
be removed by 2005.
4. Agreement on TRIPs: Previously all the countries were following Pan
Convention of 1963 revised in 1967. According to this the rules were not
permanent. Flexibility was given to the government regarding the product, terms
and protection. There was a lot of divergence regarding medicines. Some of
them extended protection to the products and others to the process. TRIPs
extended patents rights to products, copyrights, industrial designs, layouts etc; In
the case of products the patents extended over 20 years and for copy rights it
was 50 years.
5. TRIMs: It emphasis’s on removal of quantitative restriction. Once a foreign
investment enters the economy it should be given a national treatment. But the
conditions include usage of domestic inputs and limited exports.
6. General Agreement on Trade in Services: The most favored nation principle
will be followed. Transparency and commitment to liberalization should be
maintained.
7. Settlement of disputes: In order to settle disputes a panel of 3 to 5 judges
would be formed. The judges would be neutral parties. A judgment would be
given within a period of 18 months. The judgment would be final and binding.
Most of the GAAT agreements were made in the Uruguay Round which is the
eighth round. These agreements were accepted totally when WTO was
established in the year 1994. In fact membership is conditional where it is
mandatory for every member nation to accept the WTO Agreements totally.

XII. Describe the role of WTO in Indian economy.
WTO was established in the year 1994. Both GATT and WTO functioned side by
side for a year. In the year 1995 GATT was replaced by WTO. The role of WTO
in Indian economy can be detailed as follows
1. Tariff Lines: As a member of WTO the Indian Government bound 67 percent
of the tariff lines and prior to it only 6 percent were bound. The phased reduction
to these bounded lines would be between 1995 and 2005.
2. Quantitative Restrictions: The quantitative restrictions were reduced on 714
items in 2000-01 and 715 items in 2001-02.
3. TRIPS: The Patents Act of 1970 was amended by the Patents Amendment Act
of 1999. This Act also gave the Exclusive Marketing Rights. In 2002 Patents
Amendment Act was again adopted. It was once again adopted in 2005. This
provides patent for drugs and farm products. In respect of plant varieties a
protection of plant varieties and Farmers Rights Legislation in the year 2001.
4. TRIMS: Regarding TRIMs developing countries had a transition period upto
1999. However the countries were required to notify if they were inconsistent.
India notified twice. Firstly it notified inconsistency regarding certain
pharmaceuticals and 22 consumer items.
5. GATS: India made commitments regarding 33 activities where foreigners
could make investments.
6. Customs Valuation Rules: The Customs Valuation Rules of India has been
amended in the year 1998. This was in accordance with the Article VII of GATT,
1994.
 Indian membership in GATT has raised both favorable as well as unfavorable
responses. The supporters believed the Indian economy will benefit in the areas
of agriculture, textiles and in exports in general. However there is a contradictory
view regarding the implementation of TRIPs, TRIMs etc;



                         SHORT ANSWER QUESTIONS

1. Public Sector Policy in Liberalization.
Liberalization implies freeing the economy from all types of controls. In other
words it is relaxation of the previous government’s controls over the areas of
economic and social policies. Public sector is an undertaking which is owned and
controlled by the government. It works for the welfare of the people.

The Industrial Policy Resolution of India declared India to be a mixed economy in
which both the public and private sectors would play an equally important role.
The IPR, 1956 stated the goal of India would be to attain a Socialistic Pattern of
 Society. Since then more importance has been given to the public sectors
 relegating the private sector to the background.

  In spite of this the private sector expanded 13 times and the public sector only
 four times. Besides this the public sector exhibited inefficiency, low returns, under
 utilization of resources etc; Hence there was a change in the view of the
 government regarding the public sector and the following measures were
 adopted.

 1. Public sector would operate only in 8 areas and the rest of the areas would be
 open to the private sector. Subsequently this was decreased to 3 areas which
 included railways, atomic energy and a schedule under atomic energy.


 2. Profit making public sector undertakings would be modernized so that they can
 compete at par with the private sector.

 3. Government would review the public sector undertakings which were sick and
 refer them to the Board of Industrial Finance and Reconstruction.

 4. There would be no disinvestment of the nav Ratnas.

5. The government has been disinvesting in those industries which are of no public
  utility and can be run by the private sector. They are offering their share to
  mutual funds, financial institutions, the general public and also the workers.

 6. In case of disinvestment priority would be given to the interest of the workers.

 Even today there is a debate whether the public sectors should be disinvested
 because of their goal of welfare of the people. Besides they are welfare oriented
 but they are being measured on the yard stick of profit.

  2. What measures will be covered under Privatisation?
  Privatisation is possible not only by change in ownership. But there are various
  measures of privatization which is as follows.
  I. Ownership Measures
a. Privatization can be attained by a hundred percent sale in the shares to the
     private sector. The ownership will be transferred from the government to the
     private sector.
b. Privatization is also possible under joint venture. In a joint venture 25 to 50
     percent of the shares is transferred to the private sector depending on the
     nature of the enterprise and the policy of the government.
c. Liquidation is a process under which the all the assets will be sold and the
     buyer can use it for the same purpose or some other purpose.
d. Management buy out is a process in which the assets will be sold to the
   employees. The employees will not only receive their salaries but wil also
   benefit in the form of share holders.

 II. Organisational Measures

  A holding company may be structured in such a way that the government will
 take the apex level decisions and leave the rest of it to the private participation
 with a sufficient degree of autonomy.

 A public sector may be leased to the private sector for a maximum period of 99
 years.

 Restructuring the public sector is another Organisational method. They are of two
 type’s namely financial and basic restructuring. Financial restructuring involves
 writing off the losses and capital compensation is rationalized with regard to the
 debt equity ratio. Basic restructuring involves redefining the commercial activities
 such that certain activities may be included while the others may be shed off.

 III. Operational Measures

 Operational measures involve improving the efficiency of the public sector
 undertaking by injecting commercialism into it.

 Privatisation thus not only means transfer of ownership from the government to
 the private individuals but can also be attained by selling of shares,
 organizational changes, leasing, change in the enterprises or change the product
 according to the demand.

 3. What are the advantages of privatization?
 Privatisation not only means transfer of ownership from the government to the
 private individuals but can also be attained by selling of shares, organizational
 changes, leasing, change in the enterprises or change the product according to
 the demand.
 Advantages.
     1. Better customer service: the PSU extends poor customer service. But
        the private sector extends good consumer service as it is profit oriented.
     2. Capital Market Discipline: A public sector undertaking can easily raise
        finance as it has the backing of the government. But to raise such funds in
        the market the private sector has to prove its worth by performing well in
        the market.
     3. Efficiency: The private sector is far more efficient then the public sector
        as it is profit oriented.
     4. Political Interference: Political interference is found in the public sector.
        The private sector is free from this evil.
   5. Political Considerations: The public sector is influenced more by political
      considerations than economic or social considerations unlike the private
      sector.
   6. Quick Decisions: In the public sectors the decision making is slow due to
      the protocol which they have to follow. Business considerations require
      quick decisions which are found in the private sector.
   7. Reforms: The private sector guided by the profit motive implements
      reforms quickly on the identification of the problem unlike the public.
   8. Successive Planning; The public sector often functions without the head.
      But the private sector is more planned as the successor is intimated well
      in advance.
   9. Time: The private sector makes timely decisions.


   Privatisation has its own merits as well as demerits. The demerits are mainly
   unplanned and hasty decisions, under pricing the shares etc; But its merits
   outnumber its demerits.

4. What are the disadvantages of privatization?

 Privatisation not only means transfer of ownership from the government to the
private individuals but can also be attained by selling of shares, organizational
changes, leasing, change in the enterprises or change the product according to
the demand.

   Disadvantages or critiques of Privatisation or disinvestment:
   1. Privatisation in India has been carried out in a hasty and in an unplanned
       manner. Long term planning was totally absent.
   2. The government did not create the right kind of environment before the
       sale of the shares. For eg’ registering of the firms in the stock exchange
       markets.
   3. The shares of the government were undervalued due to lack of
       competition.
   4. The government as per the agreement had to pay the depletion charges of
       the machinery from the last balance sheet to the date of the sale of
       shares.
   5. The public sectors have failed to generate competition.
   6. Privatisation transforms public monopoly into private monopoly and along
       with it evils like high prices and poor quality.
   7. Privatization always spreads the fear of unemployment among the
       workers.
   Privatisation has its own merits like better customer service, efficiency, quick
   decisions etc; as well as demerits. But its merits outnumber its demerits due
   to which it is successful in its operation.
   5. Bring out the channels of Globalization.

A country cannot develop in isolation. It has to integrate with the other countries
of the world so much so that it becomes a part of the world economy.
Globalization encourages economic integration, economic dependence and
economic openness. The channels of globalization in India can be explained as
follows.

1. The trade barriers should be removed so that there is free flow of goods and
services.

2. Create an atmosphere for the free flow of capital.

3. Create an atmosphere so that there is free flow of technology in the world
among all the nations.

4. In developing nations there is abundance of labour. A free atmosphere should
be created so that there is free flow of labour. If labour is evenly distributed it will
result in the availability of cheaper labour throughout the world.

Globalization has many advantages like helps overcoming shortages, import of
technology and technocrats etc; But at the same time it has disadvantages like
unemployment, competition, rivalry etc; The merits of globalization outweigh its
demerits due to which the world is fast getting globalized.

6. Objectives of GATT.

The Bretton Wood Committee recommended the establishment of IMF, IBRD
and ITO. The first two organizations were established but the third one was not
established. But in its place a less prestigious treaty was entered into called the
GATT. This treaty was signed by 23 trading nations. The objectives of GATT are
as follows
1. The first objective of GATT was to follow the MFN Principle unconditionally.

2. To grant protection to the domestic industries only through tariffs.

3. To carry on trade activities in a non- discriminatory manner. Transparency and
reciprocation should be followed in trade dealings.

4. It had the objective of liberalizing the tariff and non- tariff barriers.

The ultimate aim would be to make full utilization of natural resources, full
employment, and increase in productivity, effective demand and improving the
standard of living of the people world over.
7. Rounds of GATT.
The Bretton Wood Committee recommended the establishment of IMF, IBRD
and ITO. The first two organizations were established but the third one was not
established. But in its place a less prestigious treaty was entered into called the
GATT. This treaty was signed by 23 trading nations. GAAT had eight Rounds of
discussions on various international trade issues which are as follows.
1. The First Round was held in Geneva (Switzerland) in the year 1947. The
GATT Treaty was signed during this Round.
2. The Second Round was held in Anesi (France) in the year 1949. In this Round
the non- tariff barriers were discussed.
3. The Third Round was held in Torquay (England) in the year 1950-51. In this
Round the non- tariff barriers were discussed.
4. The Fourth Round was held in Geneva (Switzerland) in the year 1956. In this
Round the non- tariff barriers were discussed and there was a 20 percent
reduction in the non- tariff barriers.
5. The Fifth Round was held in Dillion (Geneva) in the year 1960-61.

6. The sixth Round was the Kennedy Round held in Geneva from 1964-67. In
this Round there was a 33 percent reduction in the restrictions on the
manufactured goods.
7. The Seventh Round was the Tokyo Round held in Geneva from 1973 to 1979.
In this Round non- tariff barriers were discussed.
8. The Eighth Round was the Uruguay Round held at Punta Del Este. This
Round was started in 1986. The negotiations were expected to be concluded in 4
years. But this was the most controversial Round and it extended to eight years.
Finally the controversy was broken by Mr. Dunkel, the then Director General of
GATT. He drafted a proposal called the Dunkel’s Proposal which became the
Final Act. It was finally signed by 124 countries on the 15 th of April, 1994. The
important issues discussed during this Round were Textiles, Agriculture, TRIPs,
TRIMs, GATS, etc; This Round also paved the way for the establishment of
WTO.
In the year 1994 WTO was established. Both GATT and WTO functioned side by
side for a year. Finally in the year 1995 GATT was replaced by WTO.

8. Differences between GATT and WTO.

The Bretton Wood Committee recommended the establishment of IMF, IBRD
and ITO. The first two organizations were established but the third one was not
established. But in its place a less prestigious treaty was entered into called the
GATT. This treaty was signed by 23 trading nations. GAAT had eight Rounds of
discussions on various international trade issues. The eighth Round paved the
way for the establishment of WTO. In the year 1994 WTO was established and
both GATT and WTO functioned side by side for a year. Finally in the year 1995
GATT was replaced by WTO. The following are the differences between GATT
and WTO.
1. GATT had a small Secretariat headed by the Director General. WTO has a big
Secretariat.

2. GATT was not ratified by the legislature and the government while WTO was
ratified by the legislature and the government.

3. GATT had no legal entity but WTO has a legal entity and can sue and be
sued.

4. GATT was not an agent of UNO and WTO is also not an agent of UNO but it
co-operates with them.

5. The rules of GATT were not permanent and binding but the rules of WTO are
permanent and binding. They are rule based and time bound.

6. GATT had a dispute settlement board. The judgment was optional to the
disputing bodies. WTO has a dispute settlement body which passes a judgment
within a period of 18 months. The judgment of the body is final and binding to the
party members.

9. Objectives of WTO.
GAAT was established in the year 1947. It had eight Rounds of discussions on
various international trade issues. The eighth Round paved the way for the
establishment of WTO. In the year 1994 WTO was established and both GATT
and WTO functioned side by side for a year. Finally in the year 1995 GATT was
replaced by WTO. The following are the objectives of WTO.

a. WTO aims at the full utilization of natural resources but in coherence with the
environment.

b. It has the objective of attainment of full employment.

c. It aims at increase in production and income.

d. It has the objective of increasing the effective demand.

e. It also aims at improving the standard of living of all the people all over the
world.

f. Least developed countries should be given a share in the international market
commensurate with their needs.

g. It aims at avoiding tariff, non tariff barriers and discriminatory treatment.

h. Uruguay Round to be implemented in total. It is mandatory for all the member
nations to accept the Uruguay Round totally.
i. It aims at co-coordinating trade policies, environment policies and sustainable
development.

In order to attain these objectives WTO has been functioning well. It has also
entered into a number of agreements prominent among them are agreement on
TRIPs, TRIMs, GATS ETC;

10. Functions of WTO.
GAAT was established in the year 1947. It had eight Rounds of discussions on
various international trade issues. The eighth Round paved the way for the
establishment of WTO. In the year 1994 WTO was established and both GATT
and WTO functioned side by side for a year. Finally in the year 1995 GATT was
replaced by WTO. The following are the functions of WTO.

a. WTO creates a forum for multi lateral trade agreements and there is provision
for liberalization.
b. All the multilateral trade agreements entered into by the member nations are
administered, operated and implemented by the WTO.

c. The Plurilateral trade agreements entered into by the member nations are
administered, operated and implemented by the WTO. The Plurilateral
agreements entered into are

     Agreement on Civil Aircraft

     Agreement on Government Procurement

     Bovine-meat Agreement.

     Agreement on Dairy Products.

d. In the case of dispute settlement it governs and administers the rules.

e. Coordinates the activities of IMF, IBRD and WTO.

Thus it performs those functions which will help in attaining the objectives. WTO
has been functioning well. It has also entered into a number of agreements
prominent among them are agreement on TRIPs, TRIMs, GATS ETC;

11. Ministerial Conferences.

The Ministerial Conference is the highest decision making body of WTO. They
take important decisions including the decisions regarding the multilateral
agreements. They meet once in two years. They have held seven ministerial
conferences since its inception. These conferences can be detailed as follows.
S. NO.   YEAR        PLACE                                 ISSUES
   1     1996       Singapore            Labor standards, investments, textile and IT.
   2     1998        Geneva                          Uruguay Round talk.
   3     2000          USA                Human Rights and preservation of ecology.
   4     2001      Doha (Qatar)      Investment, Competition, trade facilities, Government
                                               procurement and environment.
  5      2003    Cancun (Mexico)       Progress of negotiations under Doha conference.
  6      2007      Hong Kong                   Export subsidies in agriculture.
  7      2008       Geneva                           Doha Negotiations.




                   VERY SHORT ANSWER QUESTIONS


  1. Liberalization: In simple terms it means freeing the economy. It refers to
     the relaxation of the previous governments restrictions in the areas of
     social and economic policies. Indian government had imposed too many
     restrictions in the areas of legal, administrative and bureaucratic controls
     which started hampering the economy. In view of liberalization the country
     aimed at removing all the controls on the private sector and encouraging
     them to enter into those areas previously reserved for the private sector.
  2. Privatization: Privatization is generally understood as transfer of
     ownership from the government to the private individuals. It not only refers
     to the change in ownership but can also be attained through selling of
     shares partly or wholly, organizational changes, operational changes,
     leasing or by changing the product according to the demand. It has
     advantages like increase in production, efficiency etc; It faces
     disadvantages arising out of the strong motive of wanting to earn profit.
     The privatization policy evolved in India since 1991.
  3. Globalization: A country cannot develop on isolation. It has to integrate
     with the other countries of the world so much so that it becomes a part of
     the world economy. The parameters of globalization include free flow of
     goods and services. It also requires free flow of labor, capital and
     technology between countries. Tariffs, quantitative restrictions and duties
     are the various barriers to globalization. Globalization has the virtues of
     expanding the market, increasing productivity, quality and instilling
     competitive prices.
  4. MRTPs : Monopolies and Restrictive Trade Practices Act was passed IN
     1969. As per this Act all the industries having assets worth 100 crores or
     more would come under the purview of the MRTP Act. Later the limit was
   raised to 500 crores. The industries falling in this purview, for their
   expansion, amalgamation or modernization had to seek the permission of
   the MRTP Commission. The judgment of the Commission regarding any
   issues related to the restrictive trade practices was final and binding.
   However the latest IPR diluted the role of this Commission due to red-
   tapism and corruption involved.
5. MFN : MFN is the basic principle of GATT. This is based on the principle
   of non-discriminatory treatment to all the member nations of GATT.
   According to this principle if two member nations enter into an agreement
   due to which one of them is benefited, this bi-lateral agreement will
   become a multi-lateral agreement. In other words the benefits enjoyed by
   one member nation should be extended to all other member nations. The
   MFN Clause rules out any preferential treatment.

6. FDI: Foreign Direct Investment implies a foreign investment in which the
    investor retains the control. Most of the developing nations are capital
    poor. FDI provides the required boost in investment. The Indian
    government allows FDI upto 26% in defense, 49% in air transport, 51%
    in priority sector, 74% in banks and insurance companies and 100% in
    hotels , internet etc; FDI is prohibited in the areas of retail trading, atomic
    energy, lottery business, gaming and betting.
7. GATT: Bretton Woods Committee recommended the establishment of
    International Trade Organisation and in its place a less ambitious GATT
    was established. GATT is a treaty signed by 23 trading nations in the year
    1947 and went into operation from 1948. It aimed at multilateral trade
    activities without barriers. It had 8 Rounds of negotiations since its
    inception and it was replaced by WTO in the year 1995.
8. WTO: It was replaced GATT in the year 1995. It is a huge organisation
    and a powerful body. It aims at expanding the world trade with minimum
    barriers. It also has the objective of full utilization of the world resources
    and improving the standard of living of the people in the world. It functions
    through the Ministerial conference. It has a dispute settlement body. It has
    a membership of 123 countries.
9. Disinvestment : The government of India had been encouraging the
    public sectors since the declaration of the IPR in 1948. However the public
    sector undertakings exhibited inefficiency in production and management.
    Many of them were incurring loss and were not economically viable.
    Consequently the new IPR of 1991 focused on Privatisation and
    disinvestment. Sale of public investment to the private enterprises is called
    disinvestment. The government stakes in the strategic areas would remain
    the same but in the non-strategic areas would be dropped down to a low
    of 26%.
10. TRIMS: Trade Related Investment Measures calls for a national treatment
    and a general removal of quantitative restrictions to foreign investment.
    The foreign investors will be obliged to use the local inputs. They could
    rely on imported inputs with a mandatory clause that foreign exchange to
be earned through exports. The exports were also limited by
specifications. All the specific measures adopted by the member nation to
be notified within 90 days of entering into the agreement.

				
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