Question

how has liberalisation of trade investment policies helped the globalisation process? explain

Answer 1

liberalisation of trade investment policies helped the globalisation process? explain

ans.The new economic policy adopted since 1991 considerably liberalized the scope of foreign investment, both direct and portfolio. Earlier investment by foreign companies required prior approval of the government and was restricted to 40 per cent equity participation and was also subjected to the conditions of technology transfer to India. Besides, foreign investment was permitted in priority areas only. Foreign portfolio investment was allowed mainly into a limited number of public sectors bond issues.

The new economic policy of 1991 provided for automatic approval of foreign direct investment, that is, no prior permission from the government is required up to 51 per cent of the total equity capital of the firms in 34 priority indus­tries. In 1996, the government raised this ceiling limit for automatic approval from 51 per cent to 74 per cent for foreign equity participation.

Criteria for approval of foreign investment greater than 51 per cent equity participation prior to 1996 (and greater than 74 per cent after 1996) in priority industries and foreign equity participation in non priority industries which was approved on case to case basis was quite liberalized to attract more foreign investment.

Besides, it is worth mentioning that elimination of industrial licensing restric­tions, opening up to the private sector of a number of industries previously reserved for the public sector which increased the growth of domestic corporate sector also served to promote foreign private investment.