Liberalization in India involved wide-ranging reforms across multiple sectors including industrial, financial, tax, foreign exchange, and trade/investment policies. Key reforms included abolishing licensing for most industries except sensitive sectors like defense; allowing private sector participation in all industries except rail, atomic energy and defense; deregulating prices and distribution in many industries; establishing private banks and increasing foreign investment limits in the financial sector; reducing income and simplifying indirect taxes; allowing market determination of exchange rates; removing restrictions on imports/exports and quantitative limits; and reducing import duties to promote competitiveness. The goal was to reduce the government's role in the economy and introduce greater competition to increase growth.

1. L I B E R A L I S A T I O N

2. Liberalisation-
*To put an end to Restrictions
*To introduce much more competition in the economy
*To increase the economic potential of the country
Industrial sector
Reforms
Financial sector
Reforms
Tax
Reforms
Foreign
Exchange
Reform
Trade and
Investment policy
Reforms

3. Industrial Sector Reforms
Regulatory Mechanisms Reforms
*Had to get permission from government Licensing was abolished (except
alcohol,
hazardous chemicals etc).
*Private sector was not allowed The only industries reserved under
public sector were defence
equipment,
atomic energy generation and
railway.
*Some goods could be produced only by Goods produced by small-scale
small - scale industries industries now being Dereserved.
*Controls on price fixation and distribution In many industries, the Market has
been
of selected industrial products allowed to determine the prices

4. Financial Sector Reforms
*It includes Financial Institutions, such as Commercial banks, investment banks,
stock exchange operations and foreign exchange market.
Reduced role of RBI from
Regulator to Facilitator of
financial sector
Establishment of Private sector
banks and foreign investment
limit in banks was raised to
around 50%.
Given freedom to set up new
branches without the approval of
the RBI and rationalise their
existing branch networks.
Foreign Institutional
Investors(FII),such as merchant
bankers, mutual funds and
pension funds now allowed to
invest in Indian financial markets.
Financial sector
Reforms

5. Tax Reforms
*Types of Taxes
*Direct Taxes- Taxes on incomes of individuals and profit of business
enterpries
*Indirect Taxes- Taxes levied on commodities
Tax
Reforms
Reduction in taxes on
Individual income, as
moderate rates of
income tax encourage
savings and voluntary
disclosure of income.
Reforms being
made on indirect
taxes, to establish
a common national
market for goods
and commodities. Simplification, to
encourage
taxpayers many
procedures have
been reduced. Eg -
GST Act 2016.

6. Foreign Exchange Reforms
*In 1991, Rupee was Devalued against foreign currencies to resolve the
balance of payments crisis.
Devaluation- It refers to reduction in value of domestic currency by the
government.
.
Increased the inflow of foreign exchange.
Markets determine exchange rates based on the demand and supply
of foreign exchange.

7. Trade and Investment Policy Reforms
*Trade and Investment reforms were intiated
to:
Increase International competitiveness of industrial
production.
Promote foreign investment and technology into the economy.
Promote efficiency of local industries and adoption of modern
technology.

8. Reforms Made in Trade and Investment
Removal of
Quantitative
restrictions and
on imports and
exports
Removal of
Export Duties to
increase
competitive of
Indian goods in
International
market.
Import Licensing
was abolished
except in case of
hazardous and
environmentally
sensitive
industries.
Reduction in
Import duties.