Economics · Ch 8 — Economic Reforms
Liberalisation
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Liberalisation
Liberalisation means freeing the economy from excessive government control and regulation, so that market forces — the interaction of demand and supply — play a bigger role in deciding what is produced, how much, and at what price. The Gujarat Std 11 Economics course studies liberalisation as the first, and in many ways the most far-reaching, of the three 1991 reforms.
Key measures of liberalisation
| Area | What changed after 1991 |
|---|---|
| Industrial licensing | Abolished for almost all industries except a short list (defence, atomic energy, a few hazardous items); firms could now start or expand production without prior government permission. |
| Financial sector | Interest rates were gradually deregulated; private and foreign banks were allowed to operate more freely; capital markets were opened up. |
| Foreign investment | Foreign Direct Investment (FDI) limits were raised across many sectors, and automatic-approval routes replaced case-by-case clearance for a wide range of industries. |
| Foreign exchange | The rupee was devalued and gradually made more market-determined; foreign-exchange controls were eased. |
| Trade policy | Import licensing was abolished for most goods; tariff (customs-duty) rates were reduced in stages to make Indian industry more competitive and to allow cheaper access to raw materials and technology. |