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What is Liberalization?

Much has been said and written about the term “liberalization”, not only in context of what it means, but also about what it does not mean. For instance, Mahajan (2006) defines Liberalisation as the “process where economy policy emphasizes minimum restrictions, maximum freedom and least administrative controls on economy so that industries are kept liberalised from regulations and controls to their maximum”.  In simpler terms, it can also be defined as the “process of removing constraints to both domestic and global trade” (Kay, Mayer and Thompson, 1986; Heald and Steel, 1981). These economic constraints refer to subsidy programs, trade tariffs, macro-involvement of the government in the private sector, taxes, etc. Heald and Steel (1981) specifically describe liberalization to be the relaxation of government regulations which prevent private enterprises from entering the free market. Similarly, Kay, Mayer and Thompson express it as a situation where the government removes all restrictions and regulations that fuel competition in monopolistic industries. Lakatos (2008) describes liberalization as the “removal of internal and external governmental barriers to competitive trade within industries and markets”.

Liberalization is also not merely the invitation of several foreign companies or multinational companies (MNCs) on “whatever terms with whatever objectives in mind and in whatever sector in discriminatively” (Shaikh, 2006). It is also not the removal of control; it is the removal of regulations. Rather, it implies that the initiative of opening up of the economy is with the motive of building up of a strong economy; indicating that invitation of foreign enterprises is a means and not an end. Liberalization should ideally encourage elements such as accountability and transparency in the procedural functions pertaining to different sectors in the economy. Khatkhate (2009) expresses that it is “not the absence of government intervention that distinguishes liberalization; rather, it is the presence of competition in various domains like borrowing or lending, which constitute the main feature of financial liberalization”. However, Vollbrecht (2001) gives a contrasting view of liberalization: “It cannot be separated from regulation; it is the imposition of regulations by the government to enable the economy to move towards more liberal markets”.

Liberalization in totality can be referred to as the freedom from regulations and controls. It implies the following (Jain, 2007; Mahajan, 2006; Shaikh, 2006):

  1. Allowing the private sector entry into those fields of production that were earlier reserved exclusively for public sector enterprises.
  2. Removal of all rules and regulations hampering the growth and development of the private sector.
  3. Delicensing of industries
  4. Contraction of public sector enterprises
  5. Freedom from bureaucratic controls
  6. Encouraging healthy competition between public and the private sectors
  7. Reform of financial system
  8. Reduction in levels of corporate and personal taxation
  9. Reduction in control on current as well as capital account foreign exchange
  10. Softening of MTRP regulations and
  11. Encouraging quality production of goods in a cost-effective and efficient manner, making the country competitive on the global platform too.



  • Mahajan, Sanjeev (2006): Globalisation and Social Change. Published by Lotus Press. page 165.
  • Kay, J., Mayer, C. and Thompson, D. (1986) Privatisation and Regulation: The UK Experience. Published by London: Clarendon Press.
  • Heald, D. and Steel, D. (1981): Privatising Publuc Enterprises: Options and Dilemmas. Published by Royal Institute of Public Administration (London).
  • Lakatos, Gergo (2008): Transition economies: 21st century issues and challenges. Published by Noval Science Publishers, page 172.
  • Shaikh, S. (2006): Business Environment. Published by Dorling Kindersley India Pvt. Ltd. Page 322.
  • Vollbrecht, J. (2001). Policy issues in insurance: insurance regulation liberalisation and Financial Covergence. Published by the OECD, page 69.
  • Jain, R. (2007): Xam Idea- Social Science. Published by V.K. Enterprises (New Delhi). pg. 208.

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