The Market as a Social Institution

The Market as a Social Institution


Explain the concept of liberalization and its two phases in India alongwith the negative results.


Liberalisation : The concept of liberalisation is closely related to globalisation. It is actually the economic content of globalisation. The highly regulated economy is transferred into an outward-looking economy or world economy in this process. It includes a range of policies such as the privatisation of public sector enterprises (viz. selling of government owned comparies to private companies), loosening of government regulations on capital, labour and trade, a reduction in tariffs and import duties to make foreign goods import easier and inviting foreign companies to setup industries in India. It's market based process to solve Social, political or economic problems. Marketisation is preferred in this process as panacea to all ills.

Ideology behind liberalisation

(i)    The idea of liberalisation is essentially based in the thinking that the economy and society will do much better by reducing the state interventions. It is popularised by the watchword- "less state, better state".

(ii)    It emphasises the efficiency aspect of economy. Private enterprises are considered more efficient than the public sector undertakings.

Phases of Liberalisation in India

(i) First phase of liberalisation (1991-94 CE)

The process of globalisation and liberalisation are more predominant in contemporary world. Under such situations, our country is also facing challenges of these processes. A significant transformation has taken place in India since April, 1991. India moved from a highly regulated and inward-looking (introvert) to an outward-looking (extrovert) economy. The dominance of the state in most spheres of activity is giving way to private enterprises. The system of regulation and control of (through different regulations, legislations, licences, permits) declined. The quota permit raj is ending since 1991 phase-wise. From 1991 onwards, numerous structural changes have been introduced in economy. The first phase of reforms (1993-94 CE) focused on the dismantling of controls and regulations in trade and industry. Taxes and tariffs were lowered. All these steps created a conducive climate for private investments both from domestic and foreign investments.

(ii) Second Phase of liberalisation

The process of liberalisation and privatisation has further been accelerated in India during the second phase of reforms. Two major developments in this phase have supported more to this process—

(a) More and more foreign direct investment and (b) downsizing the public sector.

From 1 April, 2001 onwards, all quantitative restrictions have been removed and the market is now open for imported products. Disinvestment in public sector undertaking has not only been initiated, but several corporations have already been sold to private enterprises.

Evaluation of Liberalisation

Bright Side

(a) India has now completed the first post liberalisation decade with satisfactory growth rates.

(b) Inflation has been contained in the postliberalisation period.

(c) Industry is no longer protected from external forces.

(d) More, recently, a break through in the Information Technology (IT) sector has proved skills of Indian professionals who are in great demand in developed countries of the is expected that IT related services would give boost to the economy in the years to come.

Dark side

(a)    Poverty continues to be one of the most important challenges in after 13-14 years of the beginning of liberalisation in India. Around 26.10 percent of the population is still below the poverty line.

(b)    Unemployment is still a burning problem before India. In fact, situation with regard of employment continue to be grim. During the past 14-15 years, more retrenchment from jobs has taken place because companies have reduced their size or merged to face the rigour of competition. This is happening when the Indian economy is not able to generate sufficient jobs.

(c)    In the era of liberalisation, full employment, universal literacy, primary education (free and compulsory for all), health care and rise in quality of life for all citizens are equally challenging tasks to accomplish.

(d) Handicrafts and household industries are adversely being affected due to liberalisation. Economic liberalisation has affected this sector, which is threatened because of the entry of mechanised products and mass producers of these items in the local markets.

(e) Privatisation is affecting women in several ways. It has already started reducing employment opportunities due to introduction of sophisticated technology both in agriculture and industry.

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