F.Y.B.COM. SEMESTER II
FOUNDATION COURSE – II
Q.1 State the concept of Liberalisation.
ANS:
Globalization
and privatization have become the buzzwords in the current economic scenario.
The concepts liberalization, globalization and privatization are actually
closely related to one another. This LPG phenomenon was first initiated in the
Indian Economy in 1990 when the Indian Economy experienced a severe crisis.
There was decline in the country’s export earnings, national income and
industrial output. The government had to seek aid from IMF to resolve it’s debt
problem. That is when the government decided to introduce the New Industrial
Policy (NIP) in 1991 to start liberalizing the Indian economy.
Liberalization
means elimination of state control over economic activities. It implies greater
autonomy to the business enterprises in decision-making and removal of
government interference. It was believed that the market forces of demand and supply
would automatically operate to bring about greater efficiency and the economy
would recover. This was to be done internally by introducing reforms in the
real and financial sectors of the economy and externally by relaxing state
control on foreign investments and trade.
With
the NIP’ 1991 the Indian Government aimed at integrating the country’s economy
with the world economy, improving the efficiency and productivity of the public
sector. For attaining this objective, existing government regulations and restrictions
on industry were removed. The major aspects of liberalization in India were ;
1. Abolition of licensing:
NIP’1991
abolished licensing for most industries except 6 industries of strategic
significance. They include alcohol, cigarettes, industrial explosives, defense
products, drugs and pharmaceuticals, hazardous chemicals and certain others reserved
for the public sector. This would encourage setting up of new industries and
shift focus to productive activities.
2. Liberalization of Foreign Investment: While earlier prior approval was
required by foreign companies, now automatic approvals were given for Foreign
Direct Investment (FDI) to flow into the country. A list of high-priority and
investment-intensive industries were delicensed and could invite up to 100% FDI
including sectors such as hotel and tourism, infrastructure, software development
.etc. Use of foreign brand name or trade mark was permitted for sale ofgoods.
3. Relaxation of Locational Restrictions: There was no requirement anymore for
obtaining approval from the Central Government for setting up industries
anywhere in the country except those specified under compulsory licensing or in
cities with population exceeding1 million. Polluting industries were required
to be located 25 kms away from the city peripheries if the city population was
greater than 1million.
4. Liberalization of Foreign Technology imports: In projects where
imported capital goods are required, automatic license would be given for
foreign technology imports up to 2 million US dollars. No permissions would be
required for hiring foreign technicians and foreign testing of indigenously
developed technologies.
5. Phased Manufacturing Programmes: Under PMP any enterprise had to
progressively substitute imported inputs, components with domestically produced
inputs under local content policy. However NIP’1991 abolished PMP for all
industrial enterprises. Foreign Investment Promotion Board (FIPB) was set up to
speed up approval for foreign investment proposals.
6. Public Sector Reforms: Greater autonomy was given to the PSUs (Public Sector
Units) through the MOUs ( Memorandum of Understanding) restricting interference
of the government officials and allowing their managements greater freedom in decision
making.
7. MRTP Act: The Industrial Policy 1991 restructured the Monopolies and
Restrictive Trade Practice Act. Regulations relating to concentration of
economic power, pre-entry restrictions for setting up new enterprises,
expansion of existing businesses, mergers and acquisitions. etc. have been
abolished.
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