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Commerce > List of Commerce Articles > Liberalisation

What is Liberalisation?

Meaning of Liberalisation
Liberalisation is the process or means of the elimination of control of the state over
economic activities. It provides a greater autonomy to the business enterprises in
decision-making and eliminates government interference.

Table of content:
1. Liberalisation in India
2. Objectives
3. Reforms under Liberalisation
4. Impact of Liberalisation
5. MCQs
6. FAQs

Liberalisation was begun to put an end to these limitations, and open multiple Join BYJU'S Learning Program
areas of the economy. Though some liberalisation proposals were prefaced in the
Name
1980s in areas of export-import policy, technology up-gradation, fiscal policy, and
foreign investment, industrial licensing, and economic reform policies launched in
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1991 were more general. There are a few significant areas, namely, the financial
sector, industrial sector, foreign exchange markets, tax reforms, and investment
and trade sectors that gained recognition in and after 1991. City

Grade/Exam
Liberalisation in India
Since the adoption of the New Email Address
Economic Strategy in 1991, there has
been a drastic change in the Indian
Submit
economy. With the arrival of
liberalisation, the government has
regulated the private sector
organisations to conduct business
transactions with fewer restrictions.

For the developing countries,

liberalisation has opened economic
borders to foreign companies and
investments. Earlier, the investors had
to encounter difficulties to enter
countries with many barriers.

These barriers included tax laws, foreign investment restrictions, accounting

regulations, and legal issues. Economic liberalisation reduced all these obstacles
and waived a few restrictions over the control of the economy to the private sector.

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Meaning of Privatisation
Meaning of Globalisation

Objectives
To boost competition between domestic businesses
To promote foreign trade and regulate imports and exports
To improve the technology and foreign capital
To develop a global market of a country
To 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
To reduce the role of the public sector in future industrial development
To introduce more competition into the economy with the aim of increasing efficiency

Reforms under Liberalisation

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

Impact of Liberalisation

Positive Impact of Liberalisation in India

Free flow of capital: Liberalisation has enhanced the flow of capital by making it
affordable for the businesses to reach the capital from investors and take a
profitable project.

Diversity for investors: The investors will be benefitted by investing a portion of their
business into a diversifying asset class.

Impact on agriculture: In this area, the cropping designs have experienced a huge
change, but the impact of liberalisation cannot be accurately measured.
Government’s restrictions and interventions can be seen from the production to the
distribution of the crops.

Negative Impact of Liberalisation in India

The weakening of the economy: An enormous restoration of the political power and
economic power will lead to weakening the entire Indian economy.

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.

Mergers and acquisitions: Here, the small businesses merge with the big
companies. Therefore, the employees of the small companies may need to
enhance their skills and become technologically advanced.[1] This enhancing of
skills 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

Several sectors were affected by the impact of Liberalisation. A few economic
reforms were:

Financial Sector Reforms

Tax Reforms / Fiscal Reforms
Foreign Exchange Reforms / External Sector Reforms
Industrial Sector Reforms

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Economics Sample Paper Class 11

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MCQs

Q.1 ___________ means removing all unnecessary controls and restrictions like
permits, licenses, quotas etc. imposed by the government.

a. Liberalisation

b. Privatisation

c. Globalisation

d. None of the above

Q.2- Which of the following reforms are included under liberalisation taken by the
government?

a. Industrial Sector Reforms

b. Financial Sector Reforms

c. Tax Reforms

d. All of the above

Q.3- ______________ introduced more competition into the economy with aim of
increasing efficiency.

a. Liberalisation

b. Privatisation

c. Globalisation
 d. None of the above

Answer Key

1-a, 2-d, 3-a

For more data on Economics Class 11 Syllabus, Commerce notifications and sample
papers for Class 11 Commerce, stay tuned to BYJU’S.

Important Topics in Economics:

Agricultural Sector during the Independence

Economic system in India
Foreign Trade during Colonial Rule

Frequently Asked Questions on Liberalisation

Q1 What is the meaning of Liberalisation in Economics?

Liberalisation in economics means minimising the government’s restrictions

and regulations in an economy, in return for higher involvement of private
organisations. In short, liberalisation means the removal of restrictions in order
to promote economic development.

Q2 Name one example of Liberalisation.

One example of Liberalisation is the European Union liberalising electricity and

gas.

Q3 What is one role of Liberalisation?

The one important role of liberalisation is to ease the government controls to

encourage economic development.

Q4 What are the pros of Liberalisation?

The following are the pros of Liberalisation:

1. Removing the tariff barriers and, therefore, reducing the products or
services prices for the consumers.
2. Trade liberalisation will increase the competition from abroad.
3. Encourage incoming investment.

Q5 What are the 2 main objectives of Liberalisation?

The following are the two main objectives of Liberalisation:

1. To boost international foreign investment, industrial production, and
technology competitiveness.
2. To increase the position of Indian goods in the international markets.

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