Define the term liberalization. Explain the reasons why the Indian Government

started the policy of liberalization in 1991.

1. Liberalization refers to the removal of barriers or restrictions (in relation to foreign trade and foreign investment) set up by the government. These barriers can be in various forms such as heavy import duties on foreign goods which the government uses to regulate the number of foreign goods entering the domestic markets.

2. The Indian Government introduced the policies of liberalizing the economy because it was felt that the time had come for Indian producers to compete with the producers across the globe.

3. It was also realized that competition would improve the performance of Indian producers and the Indian-quality product since they would have an incentive to work towards their betterment in the market.

NOTE- The policy of restrictions on trade and investment was adopted by the leaders at the time of independence in order to protect the domestic producers from foreign competition. Moreover, economically and financially, the Indian economy was suffering from the impact of British rule which first required the development of India and its economy.