Liberalisation in India: There has been a revolutionary change in Indian Economy since the espousal of the New Economic Strategy in 1991. This had great impacts on all the areas of life in India. When a nation becomes liberalised, the economic effects can be intense for the country and as well as for the investors. Economic liberalisation is relaxing the government regulations in a country to allow the private sector companies to operate business transactions with comparatively fewer restrictions.
With reference to the developing countries, this term denotes to opening of economic borders to multinationals and foreign investments. Investors face problems to enter in the emerging market countries when there are lots of barriers. These barriers can include legal issues, tax laws, foreign investment restrictions, and accounting regulations that can make it difficult or impossible to gain access to the entire nation. The economic liberalisation begins by relaxing these obstacles and relinquishing some control over the direction of the economy to the private sector. This often involves some form of deregulation and a privatization of corporations.
Impacts of Liberalisation in India
|Positive impacts of liberalisation in India||Negative impacts of liberalisation in India|
|Free flow of capital: Liberalisation has improved flow of capital into the country which makes it inexpensive for the companies to access capital from investors. Lower cost of capital enables to undertake lucrative projects which they may not have been possible with a higher cost of capital pre-liberalisation, leading to higher growth rates.||Destabilization of the economy: Tremendous redistribution of economic power and political power leads to Destabilizing effects on the entire Indian economy.
|Stock Market Performance: Generally, when a country relaxes its laws, taxes, the stock market values also rise. Stock Markets are platforms on which Corporate Securities can be traded in real time.||Impact of FDI in Banking sector: Foreign direct investment allowed in the banking and insurance sectors resulted in decline of government’s stake in banks and insurance firms.|
|Political Risks Reduced: Liberalisation policies in the country lessens political risks to investors. The government can attract more foreign investment through liberalisation of economic policies. These are the areas that support and foster a readiness to do business in the country such as a strong legal foundation to settle disputes, fair and enforceable laws.||Threat from Multinationals: Prior to 1991 MNC’s did not play much role in the Indian economy. In the pre-reform period, there was domination of public enterprises in the economy. On account of liberalisation, competition has increased for the Indian firms. Multinationals are quite big and operate in several countries which has turned out a threat to local Indian Firms.|
|Diversification for Investors: In a liberalised economy, Investors gets benefit by being able to invest a portion of their portfolio into a diversifying asset class.||Technological Impact: Rapid increase in technology forces many enterprises and small scale industries in India to either adapt to changes or close their businesses.|
|Impact on Agriculture: In the area of agriculture, the cropping patterns has undergone a huge modification, but the impact of liberalisation cannot be properly measured. It is observed that there are still all-pervasive government controls and interventions starting from production to distribution for the produce.||Mergers and Acquisitions: Acquisitions and mergers are increasing day-by-day. In cases where small companies are being merged by big companies, the employees of the small companies may require exhaustive re-skilling. Re-skilling duration will lead to non-productivity and would cast a burden on the capital of the company.|
The economic reforms were mainly towards liberalising the Indian business industry from all unnecessary controls and restrictions by the Government. Liberalisation of the Indian industry has taken place with respect to abolishing license requirements in most of the industries across the country. Removal of restrictions on the movement of goods and services across the country, freedom in fixing the prices of goods and services, reduction in tax rates, simplification of procedures for imports and exports and easier paths to attract foreign capital and technology in India.