Topic 02 of 6 · Chapter 09 · Indian Economy
Liberalisation — Dismantling the Licence Raj
Industrial delicensing, MRTP Act abolition, FDI liberalisation, trade liberalisation, and deregulation of economy.
📋 In This Article
1. What is Liberalisation?
Liberalisation means reducing government controls and regulations on the economy — giving more freedom to businesses and markets. It involves dismantling the Licence Raj and reducing state intervention.
⭐ Key Idea: Before 1991, the government controlled almost every aspect of business. Liberalisation meant: “Let businesses decide what to produce, how much to produce, and at what price — without needing government permission for every step.”
2. Key Liberalisation Measures (1991)
| Measure | Details |
|---|---|
| Industrial Delicensing | Abolished industrial licensing for most industries (except 18 specified). Businesses no longer needed government permission to start or expand. |
| MRTP Act Reform | Removed asset limit for large companies under MRTP Act. Large companies could now expand freely. MRTP Act later replaced by Competition Act 2002. |
| FDI Liberalisation | Automatic approval for FDI up to 51% in priority industries. Foreign companies could invest in India without prior government approval. |
| Deregulation of Financial Sector | Interest rates deregulated. Banks given more freedom to set lending rates. Capital market reforms. |
| Rupee Devaluation | Rupee devalued by ~20% to make Indian exports competitive. |
| Reduction of Public Sector Monopoly | Industries reserved for public sector reduced from 17 to 8 (later to 2). |
3. Trade Liberalisation
- Import tariffs reduced significantly (from average 87% in 1990 to ~25% by 2000)
- Import licensing abolished for most goods
- Quantitative restrictions on imports removed
- India joined WTO in 1995
- Export promotion measures introduced
✅ Impact of Liberalisation: India’s GDP growth accelerated from ~3.5% (pre-1991) to ~6-7% (post-1991). IT sector boomed. FDI inflows increased. Exports grew. Consumer goods became cheaper and more varied. Competition improved quality.
4. Key Points for Exam
🔑 Must-Remember Facts
- Liberalisation = reducing government controls on economy
- Industrial delicensing: abolished for most industries (except 18)
- MRTP Act = Monopolies and Restrictive Trade Practices Act
- MRTP Act replaced by: Competition Act, 2002
- FDI automatic approval: up to 51% in priority industries (1991)
- Rupee devalued by ~20% in 1991
- Import tariffs reduced from ~87% (1990) to ~25% (2000)
- India joined WTO: 1995
- Currently only 2 industries reserved for public sector
- New Industrial Policy: July 24, 1991