Briefly Explain the Important Areas of Liberalisation

The concept of liberalisation gives freedom to the production of units. This means that government would not interrupt the process of production. Some of the measures were taken in the 1980s in the areas of industry, import and export, technology, fiscal policy, and foreign investment. But, the reforms policies are introduced in the year 1991. Economic liberalisation in India started with 1991. These reform policies were more comprehensive.

In the preceding years of 1991, the Government had imposed rules on the private sector. The rules which the government implemented on the private sector were :

  • licensing system
  • restrictions on investments by big companies.
  • Also, government controls the price of goods.

As a result of these controls it was experienced that several flaws had appeared in the economy. Also, these restrictions imposed the corruption rate in the economy. These restrictions were the major reasons which stagnant the economy. In order to protect the economy government made reform policies . The concept liberlasation is the main backbone of New economy policy.

In the upcoming paragraph, the areas of liberalisation are briefly explained:

The following discussion briefly explain the important areas of liberalisation and the impact of liberalisation .

1. Industrial sector reforms:

To boost up the industrial sector government abolished the licensing system . But some areas like liquor, cigarette, defense, dangerous chemical maker industries were not under this licensing abolishment rule. Government Contracts are also increased in number. The public sector count reduced from 17 to 9 under this reform.

Only atomic energy, railways, and defense were under the public sector. Under this reform de-reservation of the production area also plays an important role to boost the industrial area. Under this reform the areas of small-scale industries were de-reserved. Also production capacity increases with the abolishment of the licensing system. Due to freedom of import new technology enters into the industrial area.

2. Financial sector reforms:

The areas of financial sectors include banks, non-banking financial institutions, stock market, and foreign exchange market. In India, the financial sector is controlled by RBI(Reserve bank of India). Due to liberalization role of RBI chances.Before liberalisation RBI decides the rate of interest for commercial banks. But after liberalisation commercial banks can themselves decides the rate of interest. This enhances competition in banking sector. Now the decisions were taken based upon the competition.

Also private banks increases in number due to RBI role shift . The foreign investment also increases . The foreign investment limit was increased to 74%. As a result of these changes growth in the financial sector was observed. Demonetisation is also one type of financial reform that comes in the year 2016.

3.Tax reforms

The tax structure was quite complex before liberalisation. Tax rates were very high. Due to high tax rates, several shortcomings in the economy emerged. For instance tax evasion, and loss of revenue of the government. But after liberalisation income tax and corporate tax rates were reduced. One common indirect tax was established for goods and services. That indirect tax is GST. Due to GST the problems of tax evasion reduces and also government revenue increases.

Also Read our blog on GST Advantages in Details: Benefits of GST

4. Foreign exchange reforms

Devaluation of Indian currency in relation to foreign currency falls the value of the Indian rupee. It means more number of Indian rupees can get from the US dollar. Now more goods can be buy-in Indian market through dollars. As a result of this devaluation export increases.Due to more export, foreign currency flows more in the Indian economy. This reforms the external sector in the country.To deal with this devaluation India opted “Float exchange rate”. Due to this, the exchange rate of Indian rupee in the international money market is determined based upon supply and demand.

5. Trade and investment policy reforms:

Under this reform the major focus was given on increasing the international competition of the domestic industry.

  • To inculcate foreign investment into the economy.
  • Bringing the best technology into the economy.

The trade and investment policy reforms were carried out in the following manner:

Quantitative restrictions were imposed on imports. Tariff rates were reduced, license on import was abolished and export duties were removed.

FAQs About Liberalisation

What is the Meaning Of Liberalisation?

Liberalisation of the economy is the removal of government (direct or indirect) restrictions on the producing units so that development can be enhanced. Liberalisation is the prominent element of NEP(New Economy Policy 1991). The overall reliance was placed on market forces and the restrictions and checks were demolished.

Example of Liberalisation

Korea, Thailand, and Singapore are developing countries that had achieve rapid growth through liberalisation.

Roles of Liberalisation

The role of liberalisation is to remove government restrictions in order to promote growth and enhance GDP growth.

What are the merits of Liberalisation?

  • The trade and tariff policies were made simple.
  • The industries were delicencing in order to enhance production.
  • The tax structure becomes simple.
  • The banks can decide the interest rate on their own.
  • Due to reforms investment is enhanced and GDP rises.

Objectives of Liberalisation

  • The main focus is given on enhancing investment, production, and competitiveness.
  • To achieve the top position of Indian products in the international market.

Name the types of reforms were made during Liberalisation

  • Economic Reforms.
  • Foreign Exchange Reforms.
  • Trade and Investment Policy Reforms.
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