The real beginning of liberalisation may well be said to have taken from 1975 with the modification of the licensing procedure and recognition of additional capacities.
The government exempted the medium entrepreneurs from the licensing provisions of the Industrial Development and Regulation Act in respect of a large number of industries. The government also announced the facility of utilising installed capacity without limit in certain cases coming under the preview of MRTP and FERA Acts.
Between 1975 and 1979, the licensing policy was further liberalised. The Government allowed exemption from licensing for investment up to Rs 3 crore in 1978 and to Rs. 5 crore in 1983.
The liberalisation process gathered momentum in 1980 with the announcement of industrial policy statement.
The statement focused attention on the need for promoting competition in the domestic market, technological up gradation and modernisation. The policy laid the foundation for an increasingly competitive export base and for encouraging foreign investment in high technology.
The logic behind liberalisation is the withering effects of a sheltered market on industries and other competitive sectors.
Since 1985-86, the liberalisation process which till then primarily consisted in removing the supply constraints entered a new phase with the introduction of liberalisation measures on the demand front as well, especially on the demand of consumer durables.
A number of policy measures were taken with a view to (1) limiting the role of licensing (2) expanding the scope for contribution to growth by large houses (3) encouraging modernisation (4) raising the investment limits for the promotion of the small scale sector (5) providing fiscal incentives for the same and (6) encouraging existing industrial undertakings in certain industries to achieve minimum economic levels of operations.