Impact of Liberalisation- For RAS RTS Mains examination of Rpsc

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The leading economists of the country differ in their opinion about the socioeconomic and ecological consequences of the policy of liberalisation.Liberalization-2/”>Liberalization has led to several positive and negative effects on Indian economy and Society. Some of the consequences of liberalisation have been briefly described here:

1. Increase in the Direct Foreign Investment: The policy of liberalisation has resulted in a tremendous increase in the direct foreign investment in the industrial and infrastructural sector (roads and electricity).

2. Enhancement in the Growth of GDP: There is a significant growth in the Gross Domestic Product (GDP). Prior to the liberalisation, the growth rate of GDP was around 4 per cent which rose to around 10 per cent in 2006-07.

3. Reduction in Industrial Recession: The Industrial Sector of India was passing through a period of recession prior to the policy of liberalisation. The foreign and private investment has checked the recession trend. This happened because of the massive investment in modernisation, expansion, and setting up of many new projects. Industries like automobiles, auto-components, coal-mining, consumer electronics, chemicals, food-processing, Metal, petrochemicals, Software, sport-goods, and textiles have undergone a growth rate of about 25 per cent. In addition to these, other industries, like crude-oil, construction, fertilisers, and power generation have shown an increase of about 15 per cent.

4. EMPLOYMENT: The heavy investments in industries and Infrastructure-2/”>INFRASTRUCTURE by the Indian and foreign investors have generated great employment opportunities for the professionals, and skilled and unskilled workers.

5. Development of Infrastructure: Prior to the liberalisation, the infrastructure (roads and electricity) were in a bad shape affecting the industrial growth and Economic Development of the country adversely. Heavy investment in infrastructure has improved the efficiency of the industrial sector significantly.

6. Rise in Export: There is a phenomenal increase in export after liberalisation. Simultaneously India is importing raw materials, machinery, and finished products. Despite heavy imports, there has been a tangible improvement in the Balance of Payment.

7-Increase in Regional Disparities:The policy of liberalisation and New Industrial Policy (1991) could not reduce the regional inequalities in economic development. In fact, investments by the Indians and foreign investors have been made in the states of Andhra Pradesh, Gujarat, Haryana, Karnataka, Maharashtra, Rajasthan, Tamil Nadu, and West Bengal. The states like Bihar, Himachal Pradesh, Jammu and Kashmir, Kerala, Meghalaya, Mizoram, Nagaland, Orissa, Tripura, Uttar Pradesh, and Uttarakhand are lagging behind. This has accentuated the regional imbalance and has lead to north south devide. The maximum investment so far has been done in Maharashtra, Gujarat, Andhra Pradesh, West Bengal, and Tamil Nadu. This uneven industrial development has resulted into many socioeconomic and political problems. The Naxal Movement, ULFA, and political turmoil in Jammu and Kashmir may be partly explained as being caused due to the less industrial and economic development of the regions.
8. Damage to Cottage and Small Scale Industries:Liberalisation in a country like India has adversely affected the traditional cottage and small scale industries which are unable to compete with the large-scale industries established by the multinationals. The cottage and small scale industries need protection in the form of subsidies, technology, technical access, funds, and Network to export their products, Indian traditional workers such as silk workers of bihar are threatened by the imported synthetic silk.

9.Sophisticated Technology: The latest technology, being sophisticated, replaces labour and thus results in Unemployment. This may be counter productive and detrimental to our industrial structure.

10. Comparatively Little Direct Investment: The foreign investors are more inclined to portfolio investment rather than direct investment. The former may be withdrawn at will at the slightest of hurdles giving a jolt to the economy of the country  and it may create instability to Indian economy.

11. Investment in Selected Industries: Most of the foreign investment comes to white-goods and not to wage-good sector. Hence, it may be fruitful in improving the high priority sector and bringing in the latest technology. This will be counter productive. India is blessed with demographic dividend and the selective investment has failed to harness it.

12. Economic and Political Freedoms are at Stake: The over-enthusiasm of liberalisation to attract more investors and Foreign Exchange might lead to gradual handling over of the whole economy to the multinationals. This will affect adversely our economic and political freedom.

13. Inflation: Since the new industrial policy and liberalisations, the rate of inflation is continuously increasing. A section of the society is becoming more rich and adopting the lifestyle of consumerism. As opposed to this, the absolute number below the POVERTY line is also increasing. The gulf between the rich and the poor may be the cause of numerous social problems resulting in social tension.

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Introduction to liberalization

Liberalization is the process of removing restrictions on economic activity. This can be done by reducing tariffs, quotas, and other barriers to trade, as well as by privatizing state-owned enterprises. Liberalization is often seen as a way to improve economic efficiency and growth.

Economic Reforms In India

India began its economic reforms in 1991, when the government of Prime Minister P.V. Narasimha Rao introduced a series of measures to liberalize the economy. These reforms included reducing tariffs, devaluing the rupee, and privatizing state-owned enterprises.

Impact of liberalization on the Indian economy

The economic reforms of 1991 had a significant impact on the Indian economy. They led to an increase in foreign investment, a rise in exports, and a decline in inflation. The reforms also helped to improve the efficiency of the Indian economy.

Positive impacts of liberalization

The positive impacts of liberalization on the Indian economy include:

  • Increased foreign investment: The reforms of 1991 led to an increase in foreign investment in India. This investment has helped to finance the country’s economic growth.
  • Rise in exports: The reforms of 1991 also led to a rise in exports from India. This has helped to boost the country’s economy.
  • Decline in inflation: The reforms of 1991 helped to bring down inflation in India. This has made it easier for businesses to operate and for people to save Money.
  • Improved efficiency: The reforms of 1991 helped to improve the efficiency of the Indian economy. This has made it more competitive in the global marketplace.

Negative impacts of liberalization

The negative impacts of liberalization on the Indian economy include:

  • Increased inequality: The reforms of 1991 have led to an increase in inequality in India. This is because the benefits of the reforms have not been evenly distributed.
  • Loss of jobs: The reforms of 1991 have led to the loss of some jobs in India. This is because some businesses have closed down or moved to other countries.
  • Environmental damage: The reforms of 1991 have led to some environmental damage in India. This is because some businesses have not been careful about the Environment.

Challenges faced by the Indian economy in the wake of liberalization

The Indian economy faces a number of challenges in the wake of liberalization. These challenges include:

  • Increasing inequality: The reforms of 1991 have led to an increase in inequality in India. This is because the benefits of the reforms have not been evenly distributed. The government needs to take steps to reduce inequality, such as providing more Education and healthcare to the poor.
  • Loss of jobs: The reforms of 1991 have led to the loss of some jobs in India. This is because some businesses have closed down or moved to other countries. The government needs to create new jobs, such as in the manufacturing sector.
  • Environmental damage: The reforms of 1991 have led to some environmental damage in India. This is because some businesses have not been careful about the environment. The government needs to enforce environmental regulations and provide incentives for businesses to adopt environmentally friendly practices.

Way forward for the Indian economy

The Indian economy has made significant progress in recent years. However, it faces a number of challenges, such as increasing inequality, loss of jobs, and environmental damage. The government needs to take steps to address these challenges in order to ensure that the Indian economy continues to grow and prosper.

Here are some frequently asked questions and short answers on the impact of liberalization:

  1. What is liberalization?

Liberalization is the process of removing government controls on the economy. This can include things like deregulation, Privatization, and trade liberalization.

  1. What are the benefits of liberalization?

Liberalization can lead to a number of benefits, including:

  • Increased competition: When businesses are free to compete with each other, it can lead to lower prices and better quality goods and Services.
  • Increased efficiency: When businesses are free to make their own decisions, they can often become more efficient.
  • Increased innovation: When businesses are free to experiment, they can often come up with new and innovative products and services.

  • Increased economic growth: Liberalization can lead to increased economic growth by encouraging investment and Entrepreneurship.

  • What are the costs of liberalization?

Liberalization can also lead to a number of costs, including:

  • Job losses: When businesses are free to compete with each other, some businesses may not be able to compete and may have to lay off workers.
  • Inequality: Liberalization can lead to increased inequality, as some people and businesses may benefit more than others.
  • Environmental damage: Liberalization can lead to increased environmental damage, as businesses may be less likely to take environmental costs into account when making decisions.

  • Social unrest: Liberalization can lead to social unrest, as people may be concerned about the impact of change on their jobs, livelihoods, and way of life.

  • What is the impact of liberalization on the Indian economy?

Liberalization has had a significant impact on the Indian economy. It has led to increased competition, efficiency, innovation, and economic growth. However, it has also led to job losses, inequality, environmental damage, and social unrest.

  1. What are the challenges of liberalization in India?

One of the biggest challenges of liberalization in India is the need to protect the environment. Liberalization can lead to increased environmental damage, as businesses may be less likely to take environmental costs into account when making decisions. This is a challenge that the Indian government needs to address in order to ensure that liberalization does not have a negative impact on the environment.

Another challenge of liberalization in India is the need to reduce inequality. Liberalization can lead to increased inequality, as some people and businesses may benefit more than others. This is a challenge that the Indian government needs to address in order to ensure that liberalization does not lead to a more divided society.

  1. What are the future prospects of liberalization in India?

The future prospects of liberalization in India are positive. The Indian economy is growing rapidly and is expected to continue to grow in the future. This growth will create opportunities for businesses and individuals, and will help to reduce poverty and inequality. However, there are also challenges that need to be addressed, such as the need to protect the environment and reduce inequality.

  1. Which of the following is not a component of the New Economic Policy?
    (A) Liberalization
    (B) Privatization
    (C) Globalization/”>Globalization-3/”>Globalization
    (D) Deregulation

  2. The New Economic Policy was introduced in India in the year:
    (A) 1991
    (B) 1992
    (C) 1993
    (D) 1994

  3. The main objective of the New Economic Policy was to:
    (A) Increase economic growth
    (B) Reduce poverty
    (C) Increase employment
    (D) All of the above

  4. The New Economic Policy has had a positive impact on the Indian economy. Which of the following is not a reason for this?
    (A) Increase in foreign investment
    (B) Increase in exports
    (C) Increase in GDP growth
    (D) Increase in inflation

  5. The New Economic Policy has also had some negative impacts on the Indian economy. Which of the following is not a reason for this?
    (A) Increase in inequality
    (B) Increase in unemployment
    (C) Increase in Environmental Degradation
    (D) Increase in Corruption

  6. The New Economic Policy has been a mixed bag. It has had both positive and negative impacts on the Indian economy. The government needs to take steps to mitigate the negative impacts and maximize the positive impacts.

  7. The government needs to focus on increasing employment opportunities for the poor. It also needs to ensure that the benefits of economic growth are shared by all sections of society.

  8. The government also needs to take steps to protect the environment and to reduce corruption.

  9. The New Economic Policy has been a major turning point in the history of India. It has helped to transform the Indian economy into one of the fastest growing economies in the world.

  10. However, the New Economic Policy has also had some negative impacts on the Indian economy. The government needs to take steps to mitigate these negative impacts and maximize the positive impacts of the New Economic Policy.