Economic Liberalization Essay

Without economic development, any potential for political openness and freedom will be questionable.

-Jose Maria Aznar

The economic liberalisation in India refers to the economic liberalisation, initiated in 1991, of the country 's economic policies, with the goal of making the economy more market and service-oriented and expanding the role of private and foreign investment.

Liberalisation

Liberalisation refers to the slackening of government regulations. The economic liberalisation in India denotes the continuing financial reforms which began since July 24, 1991.

Privatisation and Globalisation

Privatisation refers to the participation of private entities in businesses and services and transfer of ownership from the public sector (or government)

Removing Barriers to International Investing

Investing in emerging market countries can sometimes be an impossible task if the country you 're investing in has several barriers to entry. These barriers can include tax laws, foreign investment restrictions, legal issues and accounting regulations that can make it difficult or impossible to gain access to the country. The economic liberalization process begins by relaxing these barriers and relinquishing some control over the direction of the economy to the private sector. This often involves some form of deregulation and a privatization of companies.

2. Unrestricted Flow of Capital

The primary goals of economic liberalization are the free flow of capital between nations and the efficient allocation of resources and competitive advantages. This is usually done by reducing protectionist policies such as tariffs, trade laws and other trade barriers. One of the main effects of this increased flow of capital into the country is that it makes it cheaper for companies to access capital from investors. A lower cost of capital allows companies to undertake profitable projects that they may not have been able to with a higher cost of capital pre-liberalization, leading to higher growth

For the government to continue to attract more foreign investment, other areas beyond the ones mentioned earlier have to be strengthened as well. These are areas that support and foster a willingness to do business in the country such as a strong legal foundation to settle disputes, fair and enforceable contract laws, property laws, and others that allow businesses and investors to operate with confidence. Also, government bureaucracy is a common target area to be streamlined and improved in the liberalization process. All these changes together lower the political risks for investors, and this lower level of risk is also part of the reason the stock market in the liberalized country rises once the barriers are gone.

5. Diversification for Investors

Investors can also benefit by being able to invest a portion of their portfolio into a diversifying asset class. In general, the correlation between developed countries such as the United States and undeveloped or emerging countries is relatively low. Although the overall risk of the emerging country by itself may be higher than average, adding a low correlation asset to your portfolio can reduce your portfolio 's overall risk