Question

How has liberalization of trade and investment policies helped the globalization process?

Answer 1

• Liberalisation means removing restrictions or barriers set by the government.
• An example of a trade barrier is tax on imports.
• Trade barriers can be used by Governments of any country to regulate foreign trade (i.e. decrease or increase imports). Governments can decide what kind of goods can enter the country.
• After independence, the Indian government had put many barriers to foreign investment and trade.
• Indian Government had permitted imports of only important items such as petroleum, fertilisers, machinery etc.
• In the year 1991, Indian Government made many changes in policies concerning trade. There were much lesser restrictions imposed by the Government on trade.
• The then Government of India had come to a decision that it was time to open competition for Indian producers with producers across the globe.
• This meant that foreign companies could set up offices and factories in India easily, and that goods could be exported and imported easily.
• With more global competition the domestic producers would be forced to improve the quality and performance of their products.
• International organisations which were very powerful supported this decision of the Government of India.
• Businesses were free to make decisions on what they need to export or import. This was the benefit of the liberalisation policy introduced by the Government.
• Liberalising international trade is the objective of the World Trade Organization (WTO).
• Rules regarding international trade are established by the World Trade Organization (WTO) and these rules have to be obeyed by around 160 countries of the world, who are currently members of WTO.
• WTO believes that trade between countries has to be free and there should be no barriers to international trade.