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Licence Raj refers to the elaborate licences, regulations and the accompanying red tape that were required to set up business in India between 1947-1990 ^[1]. The Licence Raj was a result of India's decision to have a planned economy, where all aspects of the economy are controlled by the state and licences were given to a select few. The term was coined by Indian statesman Chakravarthi Rajagopalachari, who firmly opposed it for its potential for political corruption and economic stagnation.^[2] He founded the Swatantra Party to oppose these practices.

Long after the death of Rajagopalachari, the government of India finally initiated liberalization under the Prime Ministership of PV Narasimha Rao ^[3], which resulted in substantial growth in the Indian economy, which continues today.

The Licence Raj is considered to have been dismantled in 1990, when a macroeconomic crisis forced India to usher in economic reforms, including dismantling the licensing regulations in order to attract Foreign Direct Investment and private businesses. Despite the ongoing reforms, India still ranks in the bottom quartile of developing nations in terms of the ease of doing business; and, compared to China, the average time taken to secure the clearances for a startup or to invoke bankruptcy is much greater.

The architect of the system of Licence Raj was Jawaharlal Nehru, India's first Prime Minister. Inspired by the economy in the Soviet Union, he was determined to implement the model in India. Nehru was also an admirer of Stalin, and initiated steps for converting India into a socialistic pattern of society. This sovereign aspiration of the people of India was also articulated in the Constitution of India, the Preamble of which declares the aspiration of the people of India to solemnly resolve to constitute India into a Sovereign Socialist Secular Democratic Republic.

The key characteristic of the Licence Raj is a Planning Commission, that centrally administers the economy of the country. As a command economy, India has five-year plans on the lines of the Five Year Plans in the former Soviet Union.

See Also: Economic Reforms under Rao

The economic liberalisation of 1991, initiated by the Indian National Congress Government under P.V.Narasimha Rao, has cut down much of the red tape, deregulated, and opened up most sectors even to foreign investors in most cases.

However, manufacturing organisations still face a good amount of red tape (though not as unsurmountable as it was earlier) in procurement of land, importing equipment, etc.

Recent reversal to this liberalisation is a draft bill seeking to regulate broadcasting media concerns by broadcasters.

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