To encourage better compliance on the part of taxpayers many procedures have been simplified and the rates have also been substantially lowered. Import licensing was abolished except in case of hazardous and environmentally sensitive industries. The government has established the board of Industrial and financial reconstruction for the revival of the sick industries. To maximize India’s economic potential by encouraging multinational and private companies to expand.

features of liberalisation

Today, India has made good standing in economic system when it comes to market trade fee and 4th largest by way of the buying power parity. Economic liberalization is usually regarded as a useful and needed course of for creating nations. Private sector focuses more on profit maximization and less on social objectives unlike public sector that initiates socially viable adjustments in case of emergencies and criticalities (Lokyo, S., 2012).

The purpose of the liberalisation was to dismantle the excessive control framework that reduced the freedom of enterprise over the years, the country had developed a system of licence permit raj‘. The aim of the new economic policy was to save the businesspersons from unnecessary harassment of seeking permission from Babudom to start an undertaking. The main drive of the process to economic liberalization is to set business free and to run on commercial lines. The underlying conviction is that commerce and business are not matter to contain to fixed national boundaries.

The candidates are required to go through a 3 stage selection process – Prelims, Main and Interview. The marks of the main examination and interview will be taken into consideration while preparing the final merit list. The candidates must go through the UPSC Civil Service mains strategy to have an edge over others. Efforts have also been made to reform the indirect taxes, taxes levied on commodities, to facilitate the establishment of a common national market for goods and commodities. Liberalization was introduced to put an end to restrictions and open up various sectors of the economy. Many steps were also taken to encourage foreign capital investment such as the introduction of Foreign Exchange Management Act and setting up of Special Economic Zones.

The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to give it a new thrust on market orientation. As we have discussed in the introduction, the country was going through economic turmoil during the 1980s. The reasons that led to this will be discussed in this section. Improves decision-making – The increased autonomy given to managers would help them make better decisions thereby improving their decision-making skills. In India, a combination of complete privatization, open competition, and contracting was used to achieve the goal of privatization.

The current account deficit was steadily increasing, and to cover this deficit, the government had to take loans such as external commercial borrowings, NRI deposits, etc. Removal of restrictions on foreign trade was another objective that had to be undertaken. Lack of welfare activities – Private sector is not obligated to serve the country and work towards public welfare. Hence, they can choose to focus on making profits and not serve the underprivileged people in need. Investor Portfolio Diversification – Removing restrictions meant that investors could invest in a diverse class of assets.

What are the benefits of globalization to developing countries?

The International Monetary Fund and other organisations provided the required funds on a conditional basis, which included the opening of India’s economic borders. It was designed to make structural changes and stabilize the economy. Stabilization measures are short-term policies and these included a slew of fiscal reforms and inflation control strategies. Structural measures are long-term policies and these drastically affect the economy in the long run. These included liberalization, privatization, and globalization. Several reforms were introduced in order to revive the economy.

The rising fiscal deficit and increasing overvaluation led to this chaos. The invasion of Kuwait by Iraq took place in the same year, which led to a sharp increase in oil prices and falls in remittances from Indian workers working abroad. Purchasing oil became costly and net factor income from abroad decreased rapidly. In 1951, there were just 5 enterprises in the public sector in India but in March 1991, their number multiplied to 246. Several thousand crores of rupees were invested in their expansion.

It also includes the transfer of management of the Public Sector Undertakings . It was also done to unlock the economic potential of the economy by allowing the private sector to participate in economic activities. Liberalization is the removal of restrictions on something, typically in features of liberalisation an economic context. After Independence, the government decided to take a protective approach and closed the economy to the outside world. This was done because the new industries weren’t strong enough to compete with international companies and would eventually be pushed away by them.

It wanted to increase the participation of private players in the all sectors of the economy. That is why the reserved numbers of sectors for government were reduced. It wanted to permit the international flow of goods, services, capital, human resources and technology, without many restrictions. Controlling inflation – As reserves were declining and demand for them grew, inflation spiralled. One of the main objectives of LPG was to put a check on inflation.

features of liberalisation

It is the practice of hiring professionals from another country in order to get work done cheaply. The low cost of labour is not the only motivation behind outsourcing. If a skill is rare and is found only in specific areas, outsourcing becomes an effective way of getting that work done. Marketing, legal advice, technical support, IT, etc. are some of the major services that get outsourced. India, with its cheap but effective workforce, has made it an attractive option for organizations in developed countries to avail of its services.

Features of liberalization

Commodity prices keep fluctuating due to the import of certain agricultural goods into the market. Allowing multinational companies to set up their businesses in the country to boost India’s economic growth. Indian industries were given the freedom to import capital goods like machinery and raw materials from foreign countries.Previously, the government used to fix the maximum production capacity of industries. Now, the industries could diversify their production capacities and reduce production costs. Industries are now free to decide this based on market requirements.

Liberalization presents the opportunity for the sector to compete internationally, contributing to GDP progress and generating international change. Privatization heightens price rise in general as privatized enterprises do not enjoy government subsidies after the deal and the burden of this inflation affects the common man. There can be a clash of interest amongst stakeholders and the management of the buyer private company and initial confrontation to change can impede the performance of the enterprise . It also has aim to ensure proficient utilization of all types of resources including human resources.

• Private sector focuses more on profit maximization and less on social objectives unlike public sector that initiates socially viable adjustments in case of emergencies and criticalities . Liberalization is a process whereby a state lifts restrictions on some private individual activities. Liberalization occurs when something which used to be banned is no longer banned, or when government regulations are relaxed. Economic liberalization is generally thought of as a beneficial and desirable process for emerging and developing countries. These countries are considered high-risk in their beginning stages, but that doesn’t deter significant investment from institutional investors who want to get in first.

It was only after the economic liberalization in 1991, Indian economy tasted the freedom of trade induced by globalization in a real sense. Globalization is seen as a process defining the growing interdependence between various economies of the world. Subsequently, demand, and supply of foreign exchange determined exchange rates and Government’s intervention is quite minimal in this aspect.

features of liberalisation

It is well established that the condition of the nation after two centuries of exploitation and a shocking separation must be kept in mind before evaluating the progress of the continual industrial policy. Many factors like lack of tactical skills, low literacy levels, unskilled labour, and absence of technology were significant aspects of Indian economy before independence. It is said that, Industrial plans and policies and their revival has vital role for the economic growth of any country. Liberalization means the elimination of a state’s control over economic policies while privatization refers to the transfer of ownership from the public sector to the private sector. Privatization, in a sense, is a step towards the liberalization of an economy. Many components like lack of tactical expertise, low literacy levels, unskilled labour, and absence of expertise have been important elements of Indian financial system earlier than independence.

The economic liberalization in India refers to the economic liberalization of the country’s economic policies.

You can learn more about this topic by referring to the notes and solutions available on Vedantu’s website. The Indian stock market has appreciated ever since liberalization.

  • In India, the concept of economic liberalization was introduced to attain several objectives – industrialization, expansion in the role of private and foreign investment, and introducing a free market system.
  • Several reforms were brought in insurance, money and capital markets, etc.
  • Increased international competitiveness of industrial production.
  • There were some measures in 1990 in areas of industrial licensing, export import policy, technology up gradation, fiscal policy and foreign investment, but they were not sufficient.
  • The disparity between rich and poor – The economic growth was more favourable for the rich than it was for the poor.
  • Industrial coverage is described as a press release which explains the role of presidency in industrial growth.

In truth, some analysis recommend a 50% cut in service trade barriers over a 5- to ten-yr interval would create world gains in financial welfare of round $250 billion every year. India’s IT services have become globally competitive as many companies have outsourced certain administrative features to nations where prices are decrease. The entry of overseas service suppliers can be a constructive in addition to negative development.

Corporate Governance and the Board of Directors

New institutional regulators and structures such as SEBI, BSE, NSE, PFRDA, and IRDA were erected in the face of new realities of the Indian financial sector. Gradually FDI and FPI limits were increased in various sectors. Private sector banks like ICICI, Kotak, HDFC, etc, both domestic and international, were established. The government used to control prices and distribute selected industrial products, which led to corruption.

Impact of Liberalization, Privatization and Globalization on Governance

The service sector had the greatest impact from Liberalization. As restrictions were removed, the entry of private players improved the whole sector, leading to faster growth as compared to other sectors. Services such as banking and telecom saw major improvements after Liberalization. The New Economic Policy was implemented to deal with the economic crisis of 1990. India was in a very dicey situation with meagre resources to fulfil the basic needs of the country.