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LIBERALISATION OF THE ECONOMY

CONCEPT OF LIBERALISATION

The term “liberalization” in this context implies economic liberalization. The essence of this policy is that greater freedom is to be given to the entrepreneur of any industry, trade or business and that governmental control on the same be reduced to the minimum.

Rules and laws which were aimed at regulating the economic activities became major hindrances in growth and development. Hence, Liberalisation was introduced to put an end to these restrictions and open up various sectors of the economy.

The main purpose of the process to economic liberalization is to set business free and to run on commercial lines. The underlying belief is that commerce and business are not matter to be contained to fixed national boundaries; they are global phenomena. Here, artificial govt. restrictions which hinder economic and commercial activities and flow of goods and services were removed. The liberalization intended to liberalize commerce and business and trade from the clutches of controls and obstacles.

MAIN FEATURES OF THE POLICY OF LIBERALISATION:

  Lessened Government control and freelance to private Enterprises.

  Capital Markets opened for private Entrepreneurs

  Simplification of Licensing policy

  Opportunity to purchase foreign exchange at market prices

  Right To Take Independent Decisions Regarding The Market

  Better opportunity for completion

 Widened Liberty in the Realm of Business and Trade

 

IMPORTANT MEASURES:

  1. Removal of Industrial Licensing:

  All industrial licensing was abolished except a shortlist of 18 industries related to security and strategic concerns, social reasons, hazardous chemicals and over-riding environmental reasons and items of elitist consumption industries reserved for the small scale sector which were to continue under the reservation list.

  Subsequently, all industries except for a small group of five industries [alcohol, cigarettes, hazardous chemicals industrial explosives, electronics, aerospace and drugs and pharmaceuticals], industrial licensing requirements have been done away with.

  Reservations for Public sector: defence equipment, atomic energy generation and railway transport.

  Deregulation of goods produced in small scale industries.

  Market mechanism to determine the prices.

 

2. Financial Sector Reforms:

  Financial sector which includes financial institutions such as commercial banks, investment banks, stock exchange operations and foreign exchange market – are regulated by the Reserve Bank of India (RBI).

  All the banks and other financial institutions in India are regulated through various norms and regulations of the RBI. RBI decided the amount of money that the banks can keep with themselves, fixed interest rates, nature of lending to various sectors etc.

  One of the major aims of financial sector reforms is to reduce the role of RBI from regulator to facilitator of financial sector. i.e., the financial sector was allowed to take decisions on many matters without consulting the RBI.

  For instance, the reform policies led to the establishment of private sector banks, Indian as well as foreign.

 

3. Liberalization of Foreign Investment:

  While earlier prior approval was required by foreign companies, now automatic approvals were given for Foreign Direct Investment (FDI) to flow into the country.

  A list of high-priority and investment-intensive industries were de-licensed and could invite up to 100% FDI including sectors such as hotel and tourism, infrastructure, software development .etc.

  Use of foreign brand name or trademark was permitted for sale of goods.

 

4. Public Sector Reforms:

 Greater autonomy was given to the PSUs (Public Sector Units) through the MOUs (Memorandum of Understanding) restricting interference of the government officials and allowing their managements greater freedom in decision-making.

 

5. MRTP Act :

 The Industrial Policy 1991 restructured the Monopolies and Restrictive Trade Practices Act. Regulations relating to concentration of economic power, pre-entry restrictions for setting up new enterprises, expansion of existing businesses, mergers and acquisitions etc. have been abolished.

 

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