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    Liberalization (orliberalisation) refers toa relaxation of previous governmentrestrictions, usually in areas of social or

    economic policy. In some contexts thisprocess or concept is often, but notalways, referred to as deregulation

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    In short economics liberalization means

    Open competition

    Free trade


    End of licensing

    End of registration

    Freedom of import-export

    Freedom of capital investment

    Freedom from bureaucratic control

    To narrow down the public sector

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    Liberalization vs

    Democratization There is a distinct difference betweenliberalization and democratization, which areoften thought to be the same concept.Liberalization can take place without

    democratization, and deals with acombination of policy and social changespecialized to a certain issue such as theliberalization of government-held property for

    private purchase, whereas democratization ismore politically specialized that can arisefrom a liberalization, but works in a broaderlevel of government.liberalization.

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    The main aim of liberalisation was todismantle the excessive regulatoryframework which acted as a shackle onfreedom of enterprise. Over the years, the

    country had developed a system of license-permit raj. The aim of the new economicpolicy was to save the entrepreneurs fromunnecessary Harassment of seeking

    permission from the Babudom (thebureaucracy of the country) to start anundertaking.

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    The major purpose of liberalisation was tofree the large private corporate sector formbureaucratic controls. It, therefore, started

    dismantling the regime of industriallicensing and controls.

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    Liberalisation is a process by which theeconomy is opened up and stringentregulatory measures are relaxed to a large


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    The list of industries in which industrial Licensing is compulsory:

    1. Distillation and brewing of alcoholic drinks2. Hazardous chemicals3. Sugar4. Animal fats and oils5. Cigars and Cigarettes of tobacco and manufactured tobacco substitutes6. Petroleum (other than crude) and its distillation products7. Coal and Lignite8. Paper and newsprint except bagasse-based units9. Tanned or dressed fur skins10. Raw hides and skins, leather, chamois leather and patent leather11. Plywood, decorative veneers, and other wood based products12. Asbestos and asbestos-based products

    13. Industrial explosives14. Drugs and Pharmaceuticals15 . Electronics, aerospace and defense equipment: all types

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    The various dimensions of financialliberalization are:

    Abolishing credit controls.

    Deregulating interest rates.

    Allowing free entry into the banking industry or more

    generally into financial services industry.

    Making banks autonomous.

    Putting banks in private ownership.

    Freeing international capital flows.

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    The major problems concerned with liberalization can besummarized as under:

    (1) In so far as fiscal deficits are financed by moneycreation and growing, financial liberalization serves toaccelerate inflation which coupled with an over- valuedexchange rate, promotes capital flight.

    (2) Liberalisation does raise real interests and results inan increased diversity of financial instruments. Innocent

    investors may be taken in by the rather fanciful termsoffered.

    (3) Competition is not automatically enhanced. It canlead to domination by big institution that has market

    controlling powers.

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    (4) Distortions in credit allocation or self dealing bybanks can produce efficiency gains.

    (5) Deregulation can shorten the horizons of savers andinvestors, leading to a drawing up of long-term finance.

    (6) Sometimes there can be problems of moral hazard.

    (7) Pressure on profits and profitability can lead tospeculation and create problems of systemic failures.

    (8) With fewer entry restrictions, it has been possible formany entrants to make inroads into this lucrative sector,some antisocial elements can enter the field directly orindirectly.

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    (9) A number of companies can incorporate their ownfinance companies to make finance available on easyterms for purchase of their products, this phenomenoncan also be used against the interest of the society.

    (10) It should also be noticed that liberalization can alsoresult in the increase in instability. In general, financialliberalization represents a profound change in theeconomic rules. It can increase the riskiness of

    traditional behaviour or introduce new inexperiencedplayers. In these circumstances, disasters can also take


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    Advantages Full use of resources

    Production will increase Export will increase

    Improve in mass media

    Improve information technology

    Development of science and technology Indian economy will become competitive

    Good will and understanding

    Improvement in the efficiency of public sector

    Expansion of industrialization

    Consumer will be benefitted

    More equal development of society

    Indian economy will get linked with world economy

    Security of country

    Develop small and cottage industries

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    Liberalisation can well be considered an investment inthe future financial well being of a nation. It helps thebanking industry as a whole by providing:

    1. Increased financial flexibilities of firms.

    2. Reduced transaction costs.

    3. Improved allocation efficiency.

    4. Attraction of new capital to financial intermediaries.

    5. Stronger and more competitive banking institutions. 6. Better and diversified portfolios.

    7. More effective conduct of monetary policy.

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    8. Meaningful competition in banking services byallowing greater role to private sector and foreign banks.

    9. Technological up-gradation of banks through wide useof computers and modern communication systems.

    10. Removing major regulatory impediments to profitableworking of banks.

    11. Relaxation in the regulations covering foreigninvestment and foreign exchange.

    12. Easy access to foreign capital.

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    Industrial Policy 1991

    Meaning: -The Government of India announced the new industrialpolicy (NIP) on 24th July, 1991. The NIP aims at liberalisation ofIndian industry. The main objectives of the NIP are:

    1. Attainment of international competitiveness.

    2.Development of backward areas.3. Encouraging competition within Indian industry.4. Efficient use of productive resources.5. Full utilisation of plant capacities to generate employment.

    6. Revival of weak units, etc.

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    Main features ofindustrial policy

    of 1991 and liberalisation Abolition of licensing system Amendment in monopolies and restrictive trade practice

    act METP act

    Restricted the role of public sector Investment of foreign capital

    Import of foreign technology

    Collaboration with foreign trading companies

    Policy related to sm