7.1.2. Features of Liberalisation Policy

The main features of the policy of liberalisation are as follows:

Delicensing: Before 1991, there existed a regulatory system of licensing and controls. Industries which were covered under this system were required to be registered and were granted licenses by the government. The regulatory system of licensing and controls became a hurdle in the industrial growth. It caused delays and was breeding corrupt practices. The industrial licensing policy led to unnecessary government interferences, delays in investment decisions, bureaucratic red-tapism, etc. The regulatory measures also created an inefficient, high-cost and weak industrial sector. Therefore, there was a need to review these measures.

The thrust of the policy of liberalisation was on abolishing the requirement of licensing of industries. In most cases, the industrial policy of 1991 has made the licensing policy very liberal. The requirement of licensing has been abolished for most of the industries. Entrepreneurs are now free to enter any industry, trade or business.

Relaxation in Controlling Monopolies: Under the Monopolies and Restrictive Trade Practices (MRTP) Act, all the firms with assets above a certain amount (Rs. 100 crore since 1985) were permitted to enter select industries only, and they were required to take the approval of the government for any investment proposals. In order to make deregulation more effective, restrictions on functioning of monopolies have been relaxed. Monopoly houses are no longer required to seek prior government approval for expansion and establishment of new industries. The emphasis has shifted now to controlling and regulating the monopolistic and restrictive unfair trade practices by taking action against the offenders so as to safeguard the interest of consumers.

Industrial Location Policy Liberalised: In a departure from the earlier industrial location policy, freedom has been given to industries to be located at any location, with some exceptions. Also there is no need for obtaining the approval of the government, except for industries subject to compulsory licensing.

Removal of Restrictions: Restrictions on mergers, takeovers, separation of industrial units etc. have been largely removed.

Liberalisation of Capital Markets: Capital market has been made free. A new company can be floated now with the issuance of new shares and debentures without seeking the permission of the government. However, Securities and Exchange Board of India (SEBI) has been set up as a watchdog for regulating the functioning of the capital market.

Foreign Exchange Market: Reforms have been introduced in the foreign exchange market. Flexible exchange rate is introduced under which exchange rate is determined by market forces. In 1993-94, the rupee was made fully convertible on trade account in terms of the foreign currency. Exporters can now convert the foreign currency earned by them into Indian rupees at the prevailing market rate. Similarly, importers can now buy the foreign currency from the market at the market rate. The Reserve Bank of India (RBI) helps only to ensure that there are no extreme fluctuations in the exchange rate.

Development of Infrastructure: Private sector has been allowed to enter and develop the infrastructure such as power, roadways, communications, shipping, civil aviation, banking etc.