EXIM Policy ,Foreign Exchange Management Act, FEMA ,Globalisation Notes

 Privatization

Privatization refers to the process of transferring ownership or control of the government assets, firms, and operations to the private investors. This process of transfer takes the form of issue and sale or outright distribution of shares to the general public. The term privatization broadly includes all other policies such as “outsourced” which is the process by which activities while publically organized or financed can be carried out by private sector companies. For example, garbage collection, street planning, housing, education, etc.

Characteristics of Privatization

The different characteristics of privatization are:

·         Transfer of Ownership – In privatization, ownership of a company, undertaking or property is transferred to the private sector.

·         Lack of Government Interference – Privatization reduces indulgence and interference of the state in the activities of a company. 

·         Economic Democracy – Privatization dilutes state monopoly and allows private companies to participate in economic activities more democratically.

 

Objectives of Privatization

Improved Efficiency: State-run companies are predominantly influenced by political intentions rather than economic well-being. It hinders the efficiency of public sector companies and prevents growth. Privatization deters government influence and aids economic growth. As private bodies do not have a political agenda, they focus more on spurring growth and efficiency within an organization for a greater generation of revenues.

Increased Competition: State-run companies enjoy a monopoly and remain undisturbed by competition in the market. Privatization, accompanied by deregulation of the market, allows the private sector to engage more actively and encourages competition. The competition will, in turn, accelerate overall industrial and economic growth and protect the market against monopolistic sluggishness. 

Promotes Market Dynamism: Privatization liberates the economy of state control without government regulations dictating market progression, the market operates organically, Due to a lack of government interference and the market becomes more dynamic and follows integral economic values of demand and supply Consumer response to a more dynamic and organically run market is greater and generates higher revenues

 Revenue from the Sale of a Company: A primary objective of privatization is a one-time revenue generation for the government. Several governments have previously resorted to privatization when facing a fiscal crisis. 

Methods of Privatization

There are mainly five methods to privatize a company. These are – 

Public Auction: Public auctions are held with the motive of raising the highest amount for a government-owned property. Shares of a public company or long-term assets can be auctioned through this route.

 Sale of Shares: Equity shares of a public sector company or undertaking can be sold through stock exchanges for privatization. The state hands over complete authority of an organization’s economic activities through a public sale of shares. 

Direct Negotiations: When the government enters into dealings with specific private bodies for carrying out the privatization of state-owned property, it is called ‘direct negotiation’. Direct negotiations are potentially more beneficial for participating bodies as both the seller and purchaser are present and agree on necessary and advantageous stipulations. 

Public Tender: It refers to a contract issued to attract offers from interested procurers. A tender is essentially like an auction where the bidder with the most lucrative offer procures it. The process that follows public tender for the privatization of government property is similar to direct negotiations. Except in direct negotiations, there are already selected purchasers who can participate in the dealing. In a public auction, there are no such provisions. 

Lease with a Right to Purchase: Under this method, a private company only assumes possession and usage of a state-run company or undertaking by meeting certain criteria. The private company can later choose to exercise the option to convert the lease of a property to ownership by paying the necessary sum and following certain stipulations. 

Advantages of Privatization

Improved Performance: Private companies are profit-incentivized rather than politically motivated. Privatization, therefore, allows companies to become more efficient by eliminating unnecessary elements within an organization like overwhelming bureaucracy & red tape. Moreover, private companies assess their employees based on their performance and adequately incentivize better performance. This factor spurs overall performance in an organization. 

Better Customer Service: As private companies are profit-driven and function in a competitive market, their primary focus rests on efficient customer service. State-run companies lack this feature as they face no competition and are not financially motivated.  Furthermore, customer service is enhanced in privatization due to the elimination of unnecessary bureaucratic hassle. 

Improved Management: Privatization enhances management of a company. As managers of a privately-owned organization are accountable to the company’s owners, it becomes their responsibility to ensure efficient management. This factor of accountability is less intense in public sector companies which results in poor and inefficient operations that may ultimately harm the economy.

Disadvantage of Privatization

Issues of Regulating Monopolies: The private sector can manipulate their monopoly and neglect social costs. Privatization of certain state industries such as water and electricity regulators may create only single monopolies.

Public Interest: The profit motive should not be the primary objective for the industry which performs an important public service, e.g. health care, education, and public transport. For example, According to the researchers, the private sector in India has grown independently without any major regulation; in the hands of Private health sector, some private practitioners are not even registered doctors and are referred to as quacks.

Accountability: The public does not have any control or administration of private companies. Privatization has a bad effect on accountability because Investors retain full authority to do anything.

Un-assured Success:  Privatization is un-assured in terms of the success rates of any individual unit, due to which many private sector companies suffer huge losses. Important Concepts of Privatization in India

 

Globalization

The term globalization refers to the integration of the economy of the nation with the world economy. It is a multifaceted aspect. It is a result of the collection of multiple strategies that are directed at transforming the world towards a greater interdependence and integration.

It includes the creation of networks and pursuits transforming social, economical, and geographical barriers.  Globalization tries to build links in such a way that the events in India can be determined by the events happening distances away.

 

The policy of globalization was introduced in India in 1991 along with liberation and privatization. Its impact on the Indian economy has been massive. Globalization and the Indian economy have become interrelated as they are directly related. It has helped in the creation of jobs, attract foreign investment and generate income in the economy. Along with the economic impact of globalization, it has impacted the culture of the country too. 

 

 

Advantages of Globalization

Globalization is a process that has several advantages. It is a process that contributes significantly to the development and growth of a nation. Here are some of the benefits of globalization: 

Employment: The establishment of special economic zones has increased the number of jobs available. There are export processing units established all over the world, which have helped employ thousands of people. The multinational companies of the west have been providing employment opportunities to the people by outsourcing employees.

Compensation: There has been an increase in the level and amount of payment compared to the domestic companies. The main reason for this is that domestic or home companies lack skill and knowledge compared to multinational companies. An increase in compensation is leading to changes in the management structure of the companies too. 

Standard of Living: With the emergence of globalization, there has been a change in people's standard of living. The difference in the purchasing behavior of people has increased the standards of living of people. Therefore, the evolution and development of business have raised the standards of living of people. 

Increased Investment: Globalization has led to an increase in cross-border investments. This has led to companies investing and opening branches in different countries across the globe. The increase in investment across the borders has enhanced the welfare of both countries. 

Development of Infrastructure: Technological advancement has helped improve the infrastructure of countries. With the help of technology, the countries are achieving overall development. Foreign Exchange Reserves: With the help of globalization, there is a constant flow of capital in the international financial flows. This capital flow helps countries build foreign exchange reserves.

 

 

Types of Globalizations

Globalization is mainly divided into three different kinds.

Economic Globalization: In this type of globalization, countries aim to integrate international financial markets and coordinate monetary exchange. Multinational corporations that operate in more than two countries play an essential role in a nation's economic globalization. Economic globalization is the North American Free Trade Agreement or NAFTA, an economic agreement between the United States, Canada and Mexico. 

Political Globalization: This is globalization that refers to a nation's policies that aim at bringing it closer to other nations politically and economically. Political globalization helps build a bond between countries with each other. Some examples of political globalization are North Atlantic Trade Organization (NATO) and United Nations (UN). 

Cultural Globalization: In this type of globalization, the focus is on the technological and societal factors which bring people together. Cultural globalization includes ease of communication, social media and access to faster and better transportation. 

EXIM Policy

The Export-Import Policy (EXIM Policy), announced under the Foreign Trade (Development and Regulation Act), 1992, would reflect the extent of regulations or liberalization of foreign trade and indicate the measures for export promotion. Although the EXIM Policy is announced for a five- year period, announcing a Policy on March 31st of every year, within the broad frame of the Five Year Policy, for the ensuring year

Export-Import (EXIM) Policy frames rules and regulations for exports and imports of a country. This policy is also known as Foreign Trade Policy. It provides policy and strategy of the government to be followed for promoting exports and regulating imports. This policy is periodically reviewed to incorporate necessary changes as per changing domestic and international environment. In this policy, approach of government towards various types of exports and imports is conveyed to different exporters and importers.

Export refers to selling goods and services to other countries, while import means buying goods and services from other countries. Now in the era of globalization, no economy in the world can remain cut-off from rest of the world. Export and import play a significant role in the economic development of all the developed and developing economies. With the growth of international organizations like WTO, UNCTAD, ASEAN, etc., world trade is growing at a very fast rate.

Objectives of EXIM Policy:

The principal objectives of this Policy are:

1) To facilitate sustained growth in exports to attain a share of at least 1 % of global merchandise trade.

2) To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services.

3) To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitive strength while generating new employment opportunities, and to encourage the attainment of internationally accepted standards of quality.

4) To provide consumers with good quality goods and services at internationally competitive prices while at the same time creating a level playing field for the domestic produce.

Foreign Exchange Management Act, FEMA

Foreign Exchange Management Act, 1999 (FEMA) came into force by an act of Parliament. It was enacted on 29 December 1999. This new Act is in consonance with the frameworks of the World Trade Organization (WTO). It also paved the way for the Prevention of Money Laundering Act, 2002 which came into effect from July 1, 2005.

Main Features of Foreign Exchange Management Act, 1999

  1. It gives powers to the Central Government to regulate the flow of payments to and from a person situated outside the country.
  2. All financial transactions concerning foreign securities or exchange cannot be carried out without the approval of FEMA. All transactions must be carried out through “Authorized Persons.”
  3. In the general interest of the public, the Government of India can restrict an authorized individual from carrying out foreign exchange deals within the current account.
  4. Empowers RBI to place restrictions on transactions from capital Account even if it is carried out via an authorized individual.
  5. As per this act, Indians residing in India, have the permission to conduct a foreign exchange, foreign security transactions or the right to hold or own immovable property in a foreign country in case security, property, or currency was acquired, or owned when the individual was based outside of the country, or when they inherit the property from individual staying outside the country.

Structure of FEMA

  1. The Head Office of FEMA, also known as Enforcement Directorate, headed by the Director is located in New Delhi.
  2. There are 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai, and Jalandhar, each office is headed by Deputy Director.
  3. Every 5 zones are further divided into 7 sub-zonal offices headed by Assistant Directors and 5 field units headed by Chief Enforcement Officers.

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