CBSE Free NCERT Solution of 12th business-studies Business Environment what are the essential features of a liberalisa 8th August 2023

features of liberalisation

The term is most often used in conjunction with economics to refer to economic liberalisation, i.e. removing or reducing restrictions on specific areas of economic activity. In India, liberalisation was achieved through industrial sector deregulation, financial sector reform, tax reform and foreign exchange reform. By this measure, an opposite of a liberalized economy are economies such as North Korea’s economy with their “self-sufficient” economic system that is closed to foreign trade and investment (see autarky). Liberalization refers to industrialization, expansion in the role of private and foreign investment, and the introduction of a free market system. Restrictions on the entry of private companies in core industries, which were previously reserved for the public sector are removed in the process of liberalization.

Although individuals and specific geographical areas were seriously harmed by restructuring, the welfare benefits from the privatisation of major companies were overwhelmingly positive (Hernández and López 2000). What privatisation did not automatically achieve was market opening and greater competition, it simply transferred state assets to the private sector (Mota 1998). In a few cases the state retained direct control over strategic decisions through a ‘golden share’. In all cases the chairmen were appointed by the government (Berenguer 2002).

The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions. Liberalization signalled the end of the license permit quota and other restrictions that were put on the industries before 1991. It stresses the integration of domestic economies into a cohesive or interconnected global economy. Foreign Investment Promotion Board (FIPB) was set up to promote foreign investments in India. However, trade liberalization can negatively affect certain businesses within a nation because of greater competition from foreign producers and may result in less local support for those industries.

Economic Policy of Liberalization in India: 7 Elements

Protectionism, the opposite of trade liberalization, is characterized by strict barriers and market regulation. The outcome of trade liberalization and the resulting integration among countries is known as globalization. Therefore, economic reforms were introduced in 1991 to loosen restrictions on the economy. Economic reform is based on the assumption that market forces can guide the economy more effectively than government control. Privatization means to drastically reduce the role of the public sector.

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The IMF had asked India to adopt the policy of LPG – Liberalisation, Globalisation, and Privatisation. Since then, there have been several structural changes in the Indian economy. Liberalization mainly refers to the upliftment of certain economic policies to bolster economic growth in a country. While initiating liberalization, the government ensures increased participation of private industries and individuals in the economy, thereby strengthening the economy in the long run. It stresses freedom of business and industry from unnecessary controls and restrictions of the government. Proponents of trade liberalization, however, claim that it ultimately lowers consumer costs, increases efficiency, and fosters economic growth.

Popular Questions of Class 12 Business Studies

However, as much as the conditions are considered, it may be stated that liberalization has worked well in uplifting the Indian economy. (iii) New private banks were allowed operations, infusing competition into the financial system. The Central Government has abolished FERA (Foreign Exchange Regulation Act) and enacted FEMA (Foreign Exchange Management Act). Under the liberalized exchange management system, value of rupee is determined by the market forces of demand and supply. With a view to ensuring higher productivity and competitive advantage in the international market; the interference of the Government through MRTP was restricted.

There may also be a financial and social risk if products or raw materials come from countries with lower environmental standards. Increased competition from abroad as a result of trade liberalization creates an incentive for greater efficiency and cheaper production by domestic firms. This competition might also spur a country to shift resources to industries in which it may have a competitive advantage. For example, trade liberalization has encouraged the United Kingdom to concentrate on its service sector rather than manufacturing. Before 1991, the government had imposed various controls on the Indian economy, e.g. industrial licensing systems, price controls, import licences, foreign exchange controls, etc.

There would now be no need for the firms covered under MRTP, to obtain prior approval of the government for establishment of new undertakings, mergers and amalgamations, expansion of operations and appointment of certain directors. In fact, the new industrial policy unshackled many of the provisions which acted as brakes on the growth of large private corporate sector. Most economists agree that NAFTA was beneficial to the Canadian and U.S. economies. According to a Council on Foreign Relations report, regional trade increased from $290 billion in 1993 to over $1.1 trillion in 2016, and U.S. foreign direct investment (FDI) stock in Mexico increased from $15 billion to more than $100 billion. However, economists also say that other factors may also have contributed to these outcomes, such as technological change and extended trade with China.

Investment liberalization and promotion feature prominently in new investment policies

It refers to transfer of ownership, management and control of the public sector to the private sector. And to achieve this government adopted disinvestment of the public sector and referred the loss making and sick enterprises to the Board of industrial and Financial Reconstruction. Liberalisation means removing all unnecessary controls and restrictions imposed on the economy, such as permits, licences, protectionist consumption quotas, etc. In other words, it is the practice of making laws, systems, or opinions less severe. The economic reform of 1991 in India is an example of the liberalisation of the economy.

For Spain, it would be a particular test of liberalisation policy to open this remaining market and accept market-based reforms to the Common Agricultural Policy (CAP). It was, after all, the largest net recipient of funding through the CAP (Economist 2002a). Labour Market ReformsLabour market reform was the most politically sensitive areas of liberalisation in Spain.

Improvement of Stock Market Performance

Apart from trade creation, EU integration led to a concentration of trade within this region. EU trade as a proportion of all trade rose from less than one-third of imports and half of exports in 1980 to some two-thirds of imports and three-quarters of exports. Thus, with the principal exception of agricultural products, in 2002 markets in goods in Spain were relatively open to world competition.

features of liberalisation

It refers to integration of the various economies of the world leading towards the emerging of a cohesive or interconnected global economy. It also implies reducing the restrictions on the import and export such as licensing and tariffs. The process of decreasing the state involvement and increasing the market reforms means a process of liberalization .It moves towards the free market or capital economy. After liberalization, investors got the option to invest in a diversified portfolio, thus generating more profit. Therefore, both domestic and international investment grew by a large margin in India. It helps the economy gain momentum due to the active participation of private parties.

By the mid-1990s it had gained a stronger place in economic policy. Stakes were sold in the state-owned bank Argentaria, the electricity utility Endesa, the oil company Repsol and the telecommunications company Telefónica. Following the election to office of the right-of-centre PP in 1996 the privatisation programme was accelerated, the objective being to dispose of all state-owned enterprises.At the same time, it was made clear that preference would be given to Spanish capital. In the process of privatisation national champions were created with international reach (Salmon 2001), assisted by the careful preparation of companies before sale and use of their dominant position in the home market after sale. Employment and investment increased both within the major privatised companies and within the sectors in which these companies operated, services improved and prices fell.

  • Public sector has shown a very low rate of return on capital invested.
  • Although individuals and specific geographical areas were seriously harmed by restructuring, the welfare benefits from the privatisation of major companies were overwhelmingly positive (Hernández and López 2000).
  • A sudden economic reform led to the redistribution of political and economic power.
  • Most economists agree that NAFTA was beneficial to the Canadian and U.S. economies.
  • BIFR (Board on Industrial and Financial Reconstruction) was established for revival of loss making and sick enterprises.

It was estimated that between 1980 and 1986 public enterprises accounted for 8 to 10 per cent of the gross value-added of goods and services in Spain (Fariñas, Jaumandreu and Mato, 1989). By 2002 state-owned public enterprises had been reduced to a small number of companies in coal mining, shipbuilding, and certain services notably the post-office, the railways, radio and television, and air and seaport operators. Privatisation began under the Socialist Party (Partido Socialista, PSOE) in the early 1980s as a pragmatic response to industrial problems (Aranzadi 1989).

In the closing years of the twentieth century Spain took a decisive turn towards liberal capitalism. As recently as the early 1980s, markets had been protected by a battery of import tariffs and non-tariff barriers. Building land was strictly limited by local authority planning controls. There were tight controls on property rental and long minimum rental periods for agricultural land. Labour markets were extremely rigid, making it almost impossible to shed staff.

(i) Restrictions on operations of foreign banks were eased and new ones were allowed to enter. Exporters are free to sell their foreign currency in the open market; while the importers can freely buy it from the market. Except for these six industries mentioned in the list, all other industries, irrespective of how big investment is involved, have been freed from the provisions of compulsory licensing. The main reasons for the liberalization of India were as mentioned below.

Advantages and Disadvantages of Trade Liberalization

Job security and rigid employment contracts developed during the Franco regime passed into the Workers Statute in the early 1980s. From an economic efficiency perspective, two thirds of the labour force formed an inflexible labour market which had to be reformed, a step constantly referred to in OECD reports (OECD 2000b and 2001). The Socialist government (PSOE) introduced reforms in 1994, which contributed to their election defeat in 1996. Stiffer reforms followed the election to office of the PP, which once negotiations with trade unions broke down moved away from consensus politics to direct action. Reforms were designed to increase the flexibility of the labour market, making hiring and firing workers easier and, according to neo-liberal arguments, promoting employment. Most controversial were reforms passed in May 2002, which led to the first General Strike since 1994 (following the labour reforms that year).

features of liberalisation

(v) Banks and non-banking financial companies have been permitted to enter the insurance business. The Central Government has enacted a new law, the Competition Act, 2002, for upholding competition in the Indian market. The government has removed features of liberalisation the industrial licensing requirement from all industries except for a short list of 18 industries; which number has been now reduced to only six industries. (i) Foreign equity participation was raised to 51% for 34 high priority industries.

Liberalization is an economic concept that mainly refers to reforms to remove certain limiting policies enacted by the government. Liberalization is aimed at growing the economy through increased participation of private players. Usually, liberalization is initiated by the government to lift restrictions put on trade and businesses to create a transparent and active free-market economy.

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