Liberisation

Meenakshi Handa

Liberalisation

• Liberalisation to a relaxation of previous government restrictions, usually in such areas of social, political and economic policy.

• This concept is referred to as deregulation.

Economic liberalisation in India

• The economic liberalisation in India refers to the ongoing economic liberalisation, initiated in 1991, of the country's economic policies, with the goal of making the economy more market-oriented and expanding the role of private and foreign investment.

• Specific changes include a reduction in import tariffs, deregulation of markets, reduction of taxes, and greater foreign investment.

Impact• The low annual growth rate of the economy of India before 1980, which

stagnated around 3.5% from 1950s to 1980s, while per capita income averaged 1.3%. At the same time, Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and Taiwan by 12%.

• Only four or five licences would be given for steel, electrical power and communications. Licence owners built up huge powerful empires.

• A huge private sector emerged. State-owned enterprises made large losses.

Impact

• Income Tax Department and Customs Department became efficient in checking tax evasion.

• Infrastructure investment was poor because of the public sector monopoly.

• Licence Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country" and corruption flourished under this system.

Trade liberalisation

• All countries that have had sustained growth and prosperity have opened up their markets to trade and investment.

• By liberalising trade and capitalising on areas of comparative advantage, countries can benefit economically.

• Use of resources - land, labour, physical and human capital - should focus on what countries do best. • Trade liberalisation measures should be taken on a multilateral basis and complemented by

appropriate employment, labour and education policies, so that the benefits of trade can be shared.

Benefits• Consumers ultimately benefit because liberalised trade can help to lower

prices and broaden the range of quality goods and services available.• Companies can benefit because liberalised trade diversifies risks and

channels resources to where returns are highest. • When accompanied by appropriate domestic policies, trade openness

also facilitates competition, investment and increases in productivity.

Downside• Trade reforms, even if beneficial for a country overall, may

negatively affect some industries or some jobs and many commentators worry about negative effects on the environment.

• The solution to these problems is not to restrict trade. • They should be tackled directly at source through labour,

education and environmental policies.

Privatisation and Globalisation• Privatisation refers to the participation of private

entities in businesses and services and transfer of ownership from the public sector (or government) to the private sector as well.

• Globalisation stands for the consolidation of the various economies of the world.

Conclusion