The progress of industrial revolution in the 20th century was accompanied by a replacement of the police state by a welfare state. The state came to be an active actor in the economic life of the society.
In the socialist states, state ownership of means of production and distribution became the rule and state controlled command economies were operationalise and regarded as the best means for rapid socio-economic development.
In many other countries, nationalisation of key industries and enterprises was undertaken with a view to provide goods and services to the people. State began performing several socioeconomic functions.
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In our country, the decision to adopt a mixed economic model was taken and ownership and control over key industries was entrusted to the public sector. Even insurance and banking were nationalised for securing a better mobilisation of resources, and consequently for rendering better services to the people.
State regulation of economy and industry was practised and the public sector was patronised by the state as the sector committed to provide essential goods and services to the public.
The state, acting in the name of checking monopolies, undue concentration of wealth in some hands and economic inequalities, formulated and enforced strict regulation and control systems.
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However, the experience with the working of common economies and mixed economic model, with a distinct leaning in favour of public sector was found to be inadequate slow and unproductive of desired results.
Around 1985, Indian economy began showing big strains. Indian public sector now appeared to be a liability and foreign exchange reserves came to be in very bad shape. Industrial growth became regressive and inflation was assuming alarming proportions.
Around late 1980s this time the world was heading for several big changes. The socialist economies, in particular, the Soviet economy and political system was collapsing.
Even Perestroika and Glasnost could not save the USSR. It collapsed as a state. The weaknesses of the socialist economic model became fully clear. All the socialist countries of Europe began witnessing a process of overthrow of socialist systems.
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Liberalisation of society, politics and economy came to be recognised as the necessity of the day. All countries of the world began realising the merits of the market economy, free trade, privatisation, liberalisation, free international intercourse, delicensing and deregulation of trade, industry and business.
In July 1991 the Government of India decided to go in for liberalisation of Indian economy. A new economic policy was formulated and implemented with an emphasis new upon economic reforms. These were governed by the principles of liberalisation, privatisation, market economy, free trade, deregulation and relicensing.
These reforms paved the way for initiating the process of liberalisation and globalisation of Indian economy. It began developing as an outwardly opening economy, with the aim of linking, integrating and unifying domestic economy with world economy.
Similar changes were adopted by other states. The Information Revolution of the last two decades of the 20th Century gave speed and strength to the process of globalization.