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Introduction Indian economy had experienced major policy changes in early 1990s.

The new economic reform, popularly known a s , Li b e r a l i z a t i o n , P r i v a t i z a t i o n a n d G l o b a l i z a t i o n ( LP G model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of r e f o r m s undertaken with respect to industrial sector, trade as well a s f i n a n c i a l s e c t o r a i m e d a t m a k i n g t h e economy more efficient. With the onset of reforms to liberalize the I n d i a n economy in July of 1991, a new chapter has dawned for I n d i a a n d h e r b i l l i o n p l u s p o p u l a t i o n . T h i s p e r i o d o f economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent o f t h e r e a l i n t e g r a t i o n o f t h e I n d i a n e c o n o m y i n t o t h e global economy. T h i s e r a o f r e f o r m s h a s a l s o u s h e r e d in a remarkable change in the Indian mindset, as it deviates f r o m t h e traditional values held since Independence in 1947, such a s s e l f reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, o v e r a l l b a c k wa r d n e s s a n d i n e f f i c i e n c y o f t h e e c o n o my, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity.

phones, fax) are used to contact one another around the w o r l d , t o a c c e s s i n f o r m a t i o n i n s t a n t l y , a n d t o communicate from remote areas. This has been facilitated by satellite communication devices. As you w o u l d b e a w a r e , c o m p u t e r s h a v e n o w e n t e r e d a l m o s t every field of activity. You might have also ventured into the amazing world of internet, where you can obtain and share information on almost anything you want to know. Internet also allows us to send instant electronic mail (e-mail) and talk (voice-mail) across the world at negligible costs. Liberalization of foreign trade and foreign investment policy Let us return to the example of imports

of Chinese toys in India. Suppose theIndian government puts a tax on import of toys. What would happen?Those who wish to import these toys would have to pay tax on this.Because of the tax, buyers will have to pay a higher priceon imported toys. Chinese toys will no longer be as cheapin the Indian markets and

imports from China will automatically reduce. Indian toy-makers will prosper. Tax on imports is an example of trade barrier .It is called a barrier because some restriction has beenset up. Governments can use trade barriers to increaseor decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come intothe country. The Indian government, after Independence,had put barriers to foreign trade and foreign investment.This was considered necessary to protect the producerswithin the country from foreign competition. Industrieswere just coming up in the 1950s and 1960s, and competitionfrom imports at that stage would not haveallowed these industries to come up. Thus, India allowed imports of only essential items such as machinery,fertilisers, petroleum etc. Note that all developed countries, during the early stages of development, havegiven protection to domestic producers through a variety of means.S t a r t i n g a r o u n d 1 9 9 1 , s o m e f a r r e a c h i n g c h a n g e s i n policy were madein India. The government decided that the time had comefor Indian producers to compete with producers around the globe. It felt that competition would improve the performance of producerswithin thecountry since they would have to improve their quality.This decision

was supported by powerful international organisations. Th u s , b a r r i e r s o n f o r e i g n t r a d e a n d f o r e i g n i n v e s t me n t were removed to a large extent. This meant that goodscould be imported and exported easily and also foreigncompanies could set up factories and offices here. R e m o v i n g b a r r i e r s o r r e s t r i c t i o n s s e t b y t h e government is what isknown as liberalisation. With liberalisation of trade,businesses areallowed to make decisions freely about what they wish toimport or export. The government imposes much less restrictionsthan beforeand is therefore said to be more liberal.

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