Effects of Liberalisation on the Economy:

Liberalisation plays a very important role in the economy as it opened up the economy to foreign investors. Export and import of products across different geographical locations help in foreign direct investment. Liberalisation increases the growth rates in a very short span of time. This also helps to result in higher imports than exports. The higher growth rate in developed countries and increment in the income of developing economies helps to reduce the trade deficits of developing economies. In simple words, we can say that liberalisation helps to promote the economy of the country.

Liberalisation:

Liberalisation may be described as a relaxation of certain government restrictions in the areas of social, geopolitical and economic policies. It is a process that helps to remove the control of systems in order to encourage economic development in the country. 

Due to liberalisation, the economy of the country is boosted up and the best goods and services can compete in the global market and the consumer has a different variety of choices and disappearance of monopolies. It also helps to provide greater autonomy to the businesses in decision making and eliminate government interference.

Economic Liberalisation:

Economic liberalisation is the removal of government rules, regulations and restrictions in an economy in order to exchange goods for greater participation by private industries. In short, economic liberalisation is the removal of controls to encourage economic development. Economic liberalisation has reduced all the obstacles and waived very few restrictions over the control of the economy to the private sector.

Liberalisation In India:

India has adopted liberalisation in 1991 as the new economic strategy. Since then, there has been a drastic change in the economy of  India. With the adoption of liberalisation, the government has allowed private sector industries to conduct business transactions without any restrictions.

For developing countries like India, liberalisation has opened economic borders to foreign companies and investors. Before liberalisation, the investors had to encounter various difficulties in order to enter countries with many barriers of rules and regulations. The barriers such as tax laws, regulation of accounting, foreign investment restrictions, and other legal issues.

In 2006, liberalisation in India was at its peak and recorded the highest GDP  growth rate of 9.6%. After this, India has become the second-fastest growing economy in the world. In 2015, the economy of India rebounded to 7.3%.

Objective of Liberalisation:

The main objective of liberalisation are as follows:

• To increase the level of competition within the domestic market
• To promote the foreign trade and import and export regulation of goods and services.
• To make advancements in technology and foreign capital
• In order to develop a well established global market of the country
• To reduce the burden of the debt burden of the country
• To increase the economic potential of the country by advancing the private sector and its expansion
• To promote the private sector to take part in the development process of the country
• To introduce competition with the aim of increasing efficiency of the market

Liberalisation Policies:

The policies of liberalisation which helps in the growth of the economy are:

• Deregulation of the Industrial Sector
• Financial Sector Reforms
• Tax Reforms
• Foreign Exchange Reforms
• Trade and Investment Policy Reforms
• External Sector Reforms
• Foreign Exchange Reforms
• Foreign Trade Policy Reforms

Need of Liberalisation:

Liberalisation is very much needed in developing countries like India, Pakistan, and others. It is needed to make advancements in the production and technological competitiveness of goods & services and also to boost international foreign investment. Liberalisation is also required to make the suitable position of developing countries goods in the global market.

Effect of Liberalisation in India:

Liberalisation affects the economy of India in various ways. Liberalisation has a positive impact as well as negative impacts which are as follows:

Positive Impact of Liberalisation in India

• Free flow of capital:

Liberalisation has increased the flow of capital by making it affordable for all kinds of businesses to reach the capital from investors and can have a profitable project.

• Diversity for investors:

The investors had been benefitted by liberalisation as they can invest a large portion of the business into a different asset class.

• Impact on agriculture:

Agriculture has experienced a positive impact through liberalisation. The cropping designs and pattern has been changed a lot. Before liberalisation, Government’s restrictions on the agriculture sector can be seen from starting the production of the crops to the distribution.

Negative Impact of Liberalisation in India:

• The weakening of the economy:

Due to the enormous restoration of political-economic power, it will weaken the entire economy of India.

• Technological impact:

Fast development and advancement in technology allow many small scale businesses and other businesses in developing countries to adjust to the changes or may even shut down their businesses.

• Mergers and acquisitions:

Many small businesses have been merged with large companies. Due to this, the employees of the small industries may need to enhance their skills and become technologically advanced. The time required to enhance the skills of the employees may lead to non-productivity and can be a burden to the company’s capital.