What is liberalisation of trade? How did India change its trade and investment policy in the early 1990s?
Generated by claude-sonnet-4-6 · 2026-06-26 13:23 · grounding rag
Model Answer
Liberalisation of trade means removing barriers or restrictions set by the government on foreign trade and investment. With liberalisation, businesses are free to decide what they wish to import or export, and the government imposes much fewer restrictions than before.
Changes in India's policy (early 1990s):
Starting around 1991, India made far-reaching changes in trade and investment policy:
- The government decided Indian producers should compete globally to improve their quality and performance.
- Barriers on foreign trade and foreign investment were removed to a large extent.
- Goods could now be imported and exported easily.
- Foreign companies could set up factories and offices in India.
Source: Chapter 4, Liberalisation of foreign trade and foreign investment policy
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Explanation
- The question has two parts — define liberalisation (1 mark) and explain India's policy changes in 1991 (2 marks). Budget your words accordingly.
- Examiners expect the key phrase: "removing barriers/restrictions set by the government."
- For the second part, mention the year 1991, the reason (competition to improve quality), and the outcome (easier imports/exports, foreign companies allowed). Three points = 2 marks.
- Avoid writing about WTO or SEZs here; that's beyond the scope of this specific question.