Impact of Liberalisation


The leading economists of the country differ in their opinion about the socioeconomic and ecological consequences of the policy of liberalisation.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 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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