question_answer

What were the reasons for putting barriers on foreign investment by the Indian government? Why did it wish to remove these barriers?

Answer:

(i) After Independence, the Indian government had put up barriers to foreign trade and foreign investment. This was considered necessary to protect the domestic producers from foreign competitors.

(ii) Industries were just coming up in the 1950s and 1960s and competition from imports at that stage would not have allowed these industries to come up.

(iii) Thus, India allowed imports of only essential items such as machinery, fertilisers, petroleum, etc.

However, around 1991, some far-reaching changes in policy were made by Indian government.

(i) The government decided that the time had come for Indian producers to compete with producers around the globe.

(ii) It was felt that competition would improve the performance of domestic producers since they would have to improve their quality.

(iii) This decision was supported by powerful international organisations.

Thus, barriers on foreign trade and foreign investment were removed to a large extent.