Twenty-Five Years of Liberalisation

The economic policy after independence was influenced by the colonial experience tended towards protectionism, with a strong emphasis on import substitution, industrialization under state monitoring, state intervention at the micro level in all businesses especially in labour and financial markets, a large public sector, business regulation, and central planning. The process of Five-Year Plans was followed in India which was based on the central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalised in the mid-1950s. Appropriate licences, rules and regulations accompanied with Red Taoism commonly referred to as Licence Raj, were required to set up business in India between 1947-90.Before the policy of liberalisation in 1991, the government attempted to close the Indian economy to the outside world. The Indian currency, the rupee, was inconvertible and high tariffs and import licensing prevented foreign goods reaching the market. The bureaucracy often led to absurd restrictions. The central pillar of the policy was import substitution and India needed to rely on internal markets for development but not international trade.