Licence Raj

The Licence Raj or Permit Raj (rāj, meaning "rule" in Hindi) was the elaborate system of licences, regulations and accompanying red tape that were required to set up and run businesses in India between 1947 and 1990.

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 are given to a select few. Up to 80 government agencies had to be satisfied before private companies could produce something and, if granted, the government would regulate production.

Reforms since the mid-1980s have significantly reduced regulation, but Indian labour laws still prevent manufacturers from reducing their workforce without prohibitive burdens.

The term plays off "British Raj", the period of British rule in India. It was coined by Indian statesman Chakravarthi Rajagopalachari, who firmly opposed it for its potential for political corruption and economic stagnation and founded the Swatantra Party to oppose these practices.

In his newspaper, Rajagopalachari wrote:

I want the corruptions of the Permit/Licence Raj to go. [...] I want the officials appointed to administer laws and policies to be free from pressures of the bosses of the ruling party, and gradually restored back to the standards of fearless honesty which they once maintained. [...] I want real equal opportunities for all and no private monopolies created by the Permit/Licence Raj.

The architect of the system of Licence Raj was Jawaharlal Nehru, India's first Prime Minister. Private players could manufacture goods only with official licences. The quantity of goods they were allowed to produce was determined by the licence regime, not by free-market demand.

The key characteristic of the Licence Raj is a Planning Commission that centrally administers the economy of the country. Like a command economy, India had Five-Year Plans on the lines of the Five-Year Plans in the Soviet Union.

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