It is the removal of government control to encourage private participation and economic development.

“Economic liberalization means freeing of prices‚ trade and entry to markets from state control while stabilizing the economy. (World Bank)

In Nepal liberalization policies were implemented from 1990 with higher emphasis on privatization and open market policies. Different policies like Industrial Policy‚ Foreign investment Policy‚ Labor Act etc. promulgated and implemented to support liberalization in Nepal.

Requirements of Liberalization:

Following are the requirements for liberalization:

  1. Role of the government as the facilitator
  2. Increased role of private sector
  3. Abolishing license requirements
  4. Freedom in business decision (establish and liquidate business )
  5. Removal of restriction (movement of goods within and between )
  6. Reduction of tax rate (corporate tax‚ tariffs etc)
  7. Simplification of foreign trade.
  8. Facilitate FDI and technology transfer
  9. Current account and capital account reform ( current a/c reform: making foreign exchange convertible‚ capital a/c reform: maintaining account in convertible currencies)

Internal and External Liberalization

  1. Internal liberalization: It means reducing the restriction in business operation. It can be done in various forms:
    1. Financial sector reform: The main objective behind financial sector reform is to create financial stability and economic development. It includes:
      1. Deregulation of investment rate ‚which can allow banks to determine the interest rate under certain range given by central bank.
      2. Restructuring of government owned banks like Nepal bank limited and Rastriya Banijya Bank.
      3. Enactment of different Nepal Rastra Bank Act.
      4. Banking sector is opened for foreign Etc.
    2. Fiscal reforms: These reforms include‚ reform in tax‚ convertibility of Nepalese currency etc.
      1. Introduction of VAT
      2. Private sector is allowed to borrow money from foreign source etc.
    3. Monetary policies: It includes deregulation in interest rates‚ foreign exchange rate etc.
    4. One window policy: Providing every business service from a single place for prompt services. 
    5. Removal of subsidies
    6. Insurance sector reform
    7. Capital market reform etc.
  2. External Liberalization: It includes liberalization on trade and foreign exchange
    1. Reforms in trade sector
    2. Reforms in foreign exchange
      1. Current account reform
      2. Capital account reform

Effects of liberalization on Nepalese Business:

  1. Growth of private sectors
  2. Rise of financial institutions
  3. Increase in FDI
  4. Rise of MNCs
  5. Rising trade deficit
  6. Development of capital market and insurance
  7. Changing role of government
  8. Changing market scenario.