Question

Write short answers of the following.

Explain the need for liberalization.

Answer 1

Liberalization refers to freeing the economy from direct or physical controls (such as industrial licensing, price controls, import licences, etc.) imposed by the government. It implies greater dependence on the market for making various economic decisions.

Liberalization was needed in India because prior to 1991, a host of controlling systems, such as the licensing system, foreign exchange controls, control on expansion, etc. were imposed on the private sector. Due to this, inefficiencies crept into the system and economic growth was badly hampered. GDP growth rate had hit an all-time low. Thus, with the aim of reviving the economy, liberalization reforms were introduced in 1991.