Liberalisation

Liberalisation means removing the restrictions that had held back the economy. It covered five areas:

• Industry: industrial licensing was abolished for almost all products, except a few such as alcohol, cigarettes, hazardous chemicals and defence equipment. Only parts of atomic energy and the core of railway operations remain reserved for the public sector. Many goods once reserved for small-scale industry were opened to all (dereserved). In many industries, prices are now set by the market.
• Finance: the role of the Reserve Bank of India changed from a regulator (which fixed many things itself) to a facilitator (which helps the system work). Private banks, Indian and foreign, were allowed in; foreign investment in banks was raised to about 74 per cent; and foreign institutional investors (FIIs) could invest in Indian markets.
• Taxes: income tax and corporation tax rates were lowered, and procedures simplified, so that more people would pay honestly. After a constitutional amendment in 2016, the Goods and Services Tax (GST) replaced many indirect taxes: 'one nation, one tax'.
• Foreign exchange: the rupee was devalued in 1991, to make exports cheaper. Today the exchange rate is mostly set by demand and supply in the market.
• Trade: quantitative restrictions on imports (limits on how much could come in) were removed step by step, and fully from April 2001; tariffs (import taxes) were cut; import licensing was removed; and export duties were abolished, to help Indian goods compete abroad.