Licence Raj, refers to the involved various licenses, regulations and accompanying red-tape that were required to set up and run businesses in India between 1947 and 1990. The Licence Raj was the result of Indian Planned Economy where each and every aspect is controlled by States and Central Government. To start an any new business, one has to take approximately 80 licences, that are resultant into disinterested new initiatives and not only that after getting licences businesses are controlled and governed by the government bodies that resultant into losses of new business.

Government objective is not to control the growth but plan the each every thing and allocate the proper resources but somehow increased corruption rate and frauds has lead to decrease in growth rate.

The License Raj-system was in place for around four decades. The government of India initiated a liberalization policy under the Prime Minister-ship of Rajiv Gandhi, though much of the actual progress was made under P.V.Narasimha Rao. Liberalization resulted in substantial growth in the Indian economy, which continues today.

Liberalisation

Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.

The new neo-liberal policies (economic and social policy) included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling measures. The overall direction of liberalisation has since remained the same, irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.

The main objective of the government was to reform the economic system from socialism to capitalism so as to achieve high economic growth and industrialize the nation for the well-being of Indian citizens. Today India is mainly characterized as a market economy.

With the result of that change today about 300 million people-equivalent to the entire population of the United States-have escaped extreme poverty. The consequences of liberalisation reached their pinnacle in 2007, when India recorded its highest GDP growth rate of 9%. With this, India became the second fastest growing major economy in the world, next only to China.

The reforms progressed furthest in the areas of opening up to foreign investment, reforming capital markets, deregulating domestic business, and reforming the trade regime. Liberalisation has done away with the Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.

Narsimha Rao government’s goals were reducing the fiscal deficit, privatization of the public sector, and increasing investment in infrastructure. Trade reforms and changes in the regulation of foreign direct investment were introduced to open India to foreign trade while stabilizing external loans.

Accountable changes made

In the industrial sector, industrial licensing was cut, leaving only 18 industries subject to licensing. Industrial regulation was rationalized.

Introducing the SEBI Act of 1992 and the Security Laws (Amendment) which gave SEBI the legal authority to register and regulate all security market intermediaries.

Starting in 1994 of the National Stock Exchange as a computer-based trading system

Reducing tariffs from an average of 85 percent to 25 percent

Encouraging foreign direct investment by increasing the maximum limit on share of foreign capital in joint ventures

Opening up in 1992 of India’s equity markets to investment by foreign institutional investors and permitting Indian firms to raise capital on international markets by issuing Global Depository Receipts

Privatization

Under the privatization plan, many of the public sector activities have been or are still being sold to the private sector. Thus the concept of PPP (public private partnership) came up. It describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.

Privatization, in its wider sense, stands for policies to reduce the role of the state or government, assign larger role for the private sector pursuing the logic of the market in all economic decisions. The entry of new private sector enterprises could introduce competition where public sector enjoyed monopoly.

Each form of privatization has differing implications for the labour, consumers and the economy. Degeneration, for instance, is likely to have little immediate adverse impact on employment. Degeneration, because of the removal of entry barriers, may motivate additional investments and offer enlarged employment opportunities. It is, however, possible that new private sector entrants may indulge in ‘poaching’ of senior and experienced employees of the public sector by offering attractive emoluments.

The outgoing public sector employees would carry the advantage and access to business networks and knowledge of the market with them. This phenomenon has already been seen in the aviation sector and communications industry. Privatization could lead to a reduction in the workforce if the new managements were to opt for modernization and automation. This, in all probability, is unavoidable.

Under the Indian planning system public sector investments are financed through financial allocations by the government. While there were no administrative restrictions on cottage, village and small scale industries most large investment proposals by the private sector have had to pass through the scrutiny by a multiple of regulatory agencies.

Soon after the initiation of development planning in India it became evident that the public sector was an economic necessity for the economy and the private sector.1 Public sector was envisaged as a major instrument for pursuance of plan targets. It was universally accepted that the Indian private sector was neither capable of making the necessary large investments nor was it expected to take up projects with long gestation periods and carrying low rates of return.

Industrial Policy Resolution, 1956 reserved a large sector both for exclusive and priority development by the public sector. The government took upon herself the task of providing essential infrastructure and utilities as also heavy industries.