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What is Liberalization?

Liberalization is the precondition for privatization and globalization. It is a broad term that usually refers to fewer government regulations and restrictions, mainly on economic activities. Liberalization is a change in the economic philosophy of a state.

Liberalization in India

Since the adoption of the New Economic Strategy in 1991, there has been a drastic change in the Indian economy. With the arrival of liberalization, the government has regulated private sector organizations to conduct business transactions with fewer restrictions.
For developing countries, liberalization has opened economic borders to foreign companies and investments. Earlier, Investors have to encounter difficulties entering countries with many barriers.
These barriers included tax laws, foreign investment restrictions, accounting regulations, and legal issues. The economic liberalization reduced all these obstacles and waived a few restrictions on the control of the economy to the private sector.



  • To boost competition between domestic businesses
  • To promote foreign trade and regulate imports and exports
  • Improvement of technology and foreign capital
  • Develop a global market for a country
  • Reduce the debt burden of a country
  • To unlock the economic potential of the country by encouraging the private sector and multinational corporations to invest and expand.
  • To encourage the private sector to take an active part in the development process.
  • Reduce the role of the public sector in future industrial development.
  • Introduce more competition into the economy to increase efficiency.

Impact of Liberalisation

Positive Impact of Liberalisation in India

  1. Free flow of capital: Liberalisation has enhanced the flow of capital by making it affordable for businesses to reach the capital from investors and take a profitable project.
  2. Diversity for Investors: Investors will be benefitted by investing a portion of their business into a diversifying asset class.
  3. Impact on Agriculture: In this area, the cropping designs have experienced a huge change, but the impact of liberalization cannot be accurately measured. Government restrictions and interventions can be seen from production to distribution of the crop.

Negative Impact of Liberalisation in India

  1. The weakening of the economy: Enormous restoration of political power and economic power will lead to the weakening of the entire Indian economy.
  2. Technological Impact: Fast development in technology allows many small-scale industries and other businesses in India to either adjust to changes or shut their businesses.
  3. Mergers and Acquisitions: Here, small businesses are merging with big companies. This enhancement of skill and the time it might take may lead to non-productivity and can be a burden to the company’s capital.

Economic Reforms During Liberalisation

  • Financial Sector Reforms.
  • Tax Reforms.
  • Foreign Exchange Reforms.
  • Industrial Sector Reforms.