Some of the measures to promote globalization in India are as follows: 

Measure 1# Import Liberalization:

For liberalizing foreign trade, import controls through licensing was abolished.

With this almost all items of capital goods, raw materials, intermediate goods can be freely imported subject only to payment of customs duties. For some time quantitative restric­tions on consumer goods remained but with effect from 1995 all quantitative restrictions, even on imports of consumer goods, have been lifted.

To liberalize imports peak customs duties which in some cases were as high as over 300 per cent were lowered in stages to 150 per cent in July 1991, to 85 per cent in Feb. 1993, 50 per cent in 2002. The average import duty was further reduced to 31 per cent in 2003 and to 20 percent in Jan. 2004, to 15 per cent in 2005 and further to 12.5% in 2006.


Import duties on capital goods have been reduced even below 20 per cent for certain categories. This phased reduction in exceptionally high customs duties and a phased removal of quantitative restrictions on imports has substantially reduced anti- export bias in the earlier trade and balance of payment policies.

Measure 2# Imports of Gold and Silver:

Imports of Gold and Silver have been considerably liberalized. This reduced the incentive for smuggling. In Jan. 2004 imports of gold were made free from any commission charged for it.

Measure 3# Market-Determined Exchange Rate:

An important measure in external sector was to devalue the rupee in July 1991 and after about 2 years in 1993 exchange rate was changed from basket based pegged exchange rate system to market-determined exchange rate. With this the exchange rate of the rupee today is determined by demand and supply conditions in the foreign exchange markets.

Measure 4# Convertibility of Rupee:

Another important reform for globalizing the Indian economy was the convertibility of rupee on balance of payments on current account. This implies the importers can get their required quantity of foreign exchange by converting their rupee resources into dollars from the foreign exchange market. The exporters do not have to surrender their foreign exchange (US dollar or EU Euro) earned abroad to RBI but can now sell them in the foreign exchange markets.

Measure 5# Liberalisation of Foreign Investment:


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.

Portfolio Foreign Investment:


An important feature of new economic policy adopted since 1991 is that it has laid stress on non-debt creating capital inflows, such as direct foreign investment and foreign portfolio investment for reducing reliance on debt flows as the chief source of external resources. Accordingly, in addition to foreign direct investment, foreign portfolio investment has also been liberalized. Portfolio foreign investment refers to the foreign firms, foreign institutional investors and NRI who invest in the equity bonds and securities of Indian firms.

In case of foreign portfolio investment foreign investors get returns in the form of yearly payable dividends/interest and capital gains accrued but do not exercise any direct control in running these companies. Foreign private portfolio capital inflows are welcome as they provide needed finance to the Indian firms and also bring the much needed foreign exchange. But it is important to mention that they are prone to greater volatility.

The currency crisis of East Asian countries in 1997-78 was mainly precipitated by the sudden flight of portfolio foreign capital. Therefore, sufficient foreign exchange reserves must be maintained to save the domestic currency from such sudden capital flight. In the new economic policy of 1991, foreign portfolio investment was also liberalized.

In Feb. 1992 the Indian firms of good standing were allowed to raise funds through equity and convertible bond issues in Euromarkets and in September 1992 registered Foreign Institutional Investors (FII) were allowed to purchase both equity and debt securities directly in the Indian markets.

The Foreign Exchange Regulation Act (FERA) has been replaced by Foreign Exchange Management Act (FEMA) to remove a number of constraints earlier applicable to firms with foreign equity operating in India. Besides, FEMA makes it easier for Indian companies to operate abroad. Further, procedure for Indian companies to invest abroad and also raise funds abroad through ECB (External Commercial Borrowing), that is, through ADR (American Depository Receipts) and GDR (General Depository Receipts have been simplified.

Foreign institutional investors (FII) found Indian stocks particularly attractive for the purpose of risk diversification. Both ‘pull’ factors and ‘push’ factors worked to attract foreign portfolio invest­ment into India. The pull factors include the improvement in Indian macroeconomic environment following the abolition of licensing system and banking and financial sector reforms.

On the other hand, ‘push’ factors included the fall in interest rates and yields and slowdown in economic growth in USA and other developed countries. These prompted foreign investors to invest in India and other developing countries, especially China, to get higher yields on their investment.