Current Affairs, GS 3, Indian Economy, TLP-UPSC Mains Answer Writing
3. Lack of liberalisation in factor market has ailed the Indian economy for long. Elucidate. (15 Marks)
कारक बाजार में उदारीकरण की कमी ने भारतीय अर्थव्यवस्था को लंबे समय तक प्रभावित किया है। स्पष्ट करें।
Approach-
Candidates need to elucidate/highlight how the lack of liberalisation in factor market has ailed the Indian economy for long.
Introduction:
Economic liberalization refers to the process of removing non-essential limitations and controls from a country’s economy so that firms and enterprises can contribute to the economy to the fullest possible extent. However, it’s crucial to remember that liberalization does not imply an unfettered economy. Prime Minister P. V. Narasimha Rao and his then-Finance Minister, Dr. Manmohan Singh began the process of economic liberalization in India in 1991.
Lack of liberalisation in factor market has ailed the Indian economy for long
India still had a fixed exchange rate system in 1991, with the rupee tied to the value of a basket of key trading partners’ currencies. India was pushed to the verge of bankruptcy. Dr. Manmohan Singh, India’s then-finance minister, gave respond by introducing economic liberalization.
Lack of liberalisation had ailed the Indian economy for long in the following ways:
- Due to a lack of cash in the pre-liberalization period, executing expensive ventures were prohibited, but this was corrected in 1991, resulting in higher growth rates.
- After independence, India was under immense financial hardships. Especially in the 1950’s and 1960’s India saw a number of bank failures.
- In terms of financial markets, the bond market and FOREX market were limited.
- Based on government policies the nationalized banks gave enormous loans to small-scale industries and sectors such as agriculture.
- However, banks struggled to recover loans and non-performing loans increased. Labour productivity and efficiency came down.
- It was clear that the financial sector needed to be liberalized for a higher growth trajectory.
- India’s looming balance-of-payments issue was adding fuel to the fire.
The key goals of India’s liberalization process can be summarised as follows:
- To increase the private sector’s contribution to India’s economic development.
- To increase the amount of foreign direct investment into Indian companies.
- To encourage domestic rivalry in India’s enterprises.
- To encourage international and private enterprises to expand in India to maximize the country’s economic potential.
- To usher in a new era of globalization for India’s economy.
- To regulate export and import, as well as to promote international trade.
Conclusion:
India’s economic liberalization incorporated the characteristics mentioned above and, in general, removed various limitations to make the country more private sector friendly.
