Thursday, 17 February 2022

The major reform of liberalization in India

 Liberalization addresses for removing border barriers. The process of liberalization helps the nations in welcoming several different economical activities. The main reason behind adopting the liberalization process of India for coming out from the economical crisis. India was used to having several restrictions and complexity in the process of business. But with the liberalization, it resulted in much freedom for the free trade activity.

The major freedom that liberalization facilitated in India includes the easy process for the industrial licensing, adaptation of the upgraded technology, flexibility in import-export process, welcoming environment for foreign traders in order for making investment in India, and many more. The adoption of the liberalization policy helps the country to enjoy the higher growth rate in comparison to the average growth rate that they used to have before the adoption of the liberalization policy. The adoption of the liberalization policy helps the country n improving their economical prosperity, better growth in the sector associated with finance and services, real estate sector, and many more.

The liberalization resulted in offering great advancement in several key areas including the growth of economy. Here in this guide, we will discuss  the major reforms after adoption of the liberalization policy.

Free trade

Before the liberalization policy in India, the mechanism of trading process was very complex. Every business owners were instructed for taking the permission from the government before starting any kind of business, and the permission from government is also required for closing the business. The company as even bounded for taking permission in order for deciding the quantity of the production, and many more similar kind of decisions. 

The government was imposing several kind of restrictions on all types of private businesses. The private businesses were not having any liberty regarding pricing policy for the products. This was the reason why there were only very limited products dominating by the private sectors. The reform policy introduces several liberties for the private businesses and removed multiple restrictions leading to several opportunities for the advancement in the private sector. The major reforms of liberalization include:

  • Abolishing of licence: This policy helps in abolishing the policy of licence allowing many of the private businesses owners not requiring any kind of licence for starting any business. This policy allowed the licensing for only some businesses including the pharmaceutical businesses, alcohol, dangerous chemical products, drugs, etc.
  • Liberalisation emphasized on free trade. This policy helped in development of the private sector allowing them to trade freely with very limited restriction. This policy keep only two sector under the government that includes the railway industry and the atomic energy generation.
  • This policy offered liberty to the market allowing them with the right for deciding the price for their products.
  • Under liberalisation, Indian market also opened door for foreign companies. The investment in the Indian market from the foreign country contributed much in the growth of Indian economy.


Reforms under financial sectors

India is having several financial institutions including the commercial bank, foreign bank, investment banks and many more. Reserve bank of India used to regulate all banks across India. Reserve bank has all the power to operate all the banks through the various norms that they impose on banks. RBI provide guidelines regarding reserve, interest on loans, interest on deposit and so on. Following are reforms under liberalization.

  • The major reform of liberalization is the reduction of control of RBI on different financial institution. Basically, the liberalization also offered several liberties to the different financial institutions from all around the nation regarding decision making procedure in certain situations without interference of the RBI.
  • Reform policies led to support of the establishment of private sector banks and foreign bank as well.
  • It also raises the limits of foreign bank investment by 50 percent.
  • RBI eases the process of opening banks branches across India.
  • Banks have been provided liberty to generate fund from India as well as foreign. But Banks are required to care for certain aspects including the security of account holder and the nation.
  • Reserve bank of India gives permission regarding the use of pension fund for investing in financial market.

Flexibility in tax

Government imposes tax on various product and incomes, and invests on welfare policy which collection is known as fiscal policy. Government collect tax using two methods Including the direct tax and indirect tax. Direct tax is that tax that is imposed directly on individual income and revenue of business. Indirect tax is imposed on goods and services. Let us discuss following reform regarding taxes.

    • The major reform by liberalization includes the reduction of the taxt rates on the income of the individual person. This policy encouraged for increasing the investment and savings for an individual.
    • Earlier, the cooperation tax was high. But the reforms gradually reduced the cooperation tax rates as well.
    • This policy also contributed much in simplifying the mechanism of indirect taxes and many more.
    • The simplification of tax mechanism helped the government in easily generating much revenue along with reduction in the tax evasion.

Foreign exchange

Another major reforms made by the liberalization policy is for the international sector. As foreign market is playing major role in the development of economy of the nation, liberalization policy made several reforms for encouraging the foreign trade in the country. The major reform includes immediate measure for resolving the payment crisis. Since the value of Indian rupees is less in compare to foreign currency, the inflow of the foreign trade is more.


So these are some major reforms by the liberalization policy in India. The majority of changes were made considering the economical development of the nation. I hope, all these information help you better understand the changes in economy activities after liberalization.



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