The New Industrial Policy 1991

The Industrial Policy announced on July 24, 1991 heralded the economic reforms i
n India and required to considerably change the industrial scenario in our count
ry. The most visible sign of the country’s economic crisis in early 1991.
This policy expanded the scope of the private sector by opening up most
of the industries for the private sector and did away with the entry and growth
restrictions. The most important initiatives are with respect to the essential f
ragment of industrial licensing and registration policies, an end to the monopol
y law and a welcoming approach to foreign investments.
Objectives of the Industrial Policy
To maintain a sustained growth in productivity;
To enhance employment;
To achieve optimal utilization of human resources;
To attain international competitiveness
Development of indigenous technology through greater investment in R&D and bring
in new technology to help Indian manufacturing units Incentive for industrializ
ation of backward areas
Ensure running of PSUs on business lines and cut their losses
Protect the interests of workers
Abolish the monopoly of any sector in any field of manufacture except on strateg
ic or security grounds.
To transform India into a major partner and player in the global arena.
The most important areas that covered in industrial policy 1991
Industrial Licensing
Foreign investment
Foreign technology agreement
Public sector policy
Policy relating to MRTP Act
Public Sector
Role of the Public Sector:
The number of industries reserved for the public sector was reduced to eight and
it was later pruned to two ie atomic energy and railway transport.
Also, in respect of public sector enterprises, the following measures were adopt
ed
:
Public enterprises which are chronically sick and unlikely to be turned around t
o be referred to the Board for Industrial and Financial Reconstruction for formu
lation of revival / rehabilitation schemes.
In order to encourage wider public participation, a part of the Government’s share
holding in the public sector would be offered to mutual funds, financial institu
tions.
Board of PSU to be more professional and have greater powers.
Disinvestment in selection public sector enterprises to raise finances for devel
opment bring in greater responsibility and help create a new culture in their wo
rking for improved efficiency.
Industrial Licensing
Industrial Licensing was governed by the Industries Development & Regulation Act
, 1951.
Industrial Licensing policy and procedures have been liberalized and continuousl
y changed. Industrial licensing has been abolished for all projects except for a
short list of industries related to…………….
Security and strategic concerns.
Hazardous chemicals.
Environmental reasons(central pollution control board)
Social concerns
All excepting 18 industries were freed from licensing. The number was later red
uced to six.
Liberalization of Foreign Investment
 Policy towards foreign capital and technology has been modified very significan
tly. Foreign investment will bring advantages of technology transfer, marketing
expertise, introduction of modern managerial techniques and new possibilities fo
r promotion of exports.
FDI is allowed in all industries, except industries falling in a small negative
list.
Approvals for FDI upto 51% in high priority industries requiring large investmen
ts and advanced technology will be provided.
Procedures for foreign direct investments efficiently creating a foreign investm
ent promotion board to consider individual applications case by case.
Integration of the Indian Economy with the Global Economy is one of the objectiv
es of the EXIM Policy. The import policy has been made liberal by reducing tarif
f levels.
Technology import liberalized by increasing royalty limits.
Foreign Technology Agreements:
Government will provide automatic approval for technological agreements related
to high priority industries within specified parameters.
Indian companies will be free to negotiate the terms for technology transfer wit
h their foreign counterparts according to their own commercial judgment.
Removal of MRTP Restrictions:
Most of the MRTP restrictions pertaining to concentration of economic power (tho
se requiring permission for establishment of new undertaking, substantial expans
ion, manufacture of new items and mergers and acquisitions) were scrapped.
The thrust of the policy is on controlling and regulating monopolistic, restrict
ive and unfair trade practices.
Evaluation of the New Industrial Policy
Positives of the new policy are:
De-licensing of most industries will help entrepreneurs to quickly seize busines
s opportunities.
Removal of controls under the MRTP Act will facilitate expansion and growth.
There will be greater inflow of foreign capital and technology due to easing of
restrictions.
Second Generation Reforms
The 1991 reforms have considerably helped in improving the economic growth
of the country. Yet much more needs to be done to reap the full benefits. There
is a need for Second Generation Reforms:
A. Exploiting the Knowledge based Global Economy:
Revolutionizing the telecom sector to help integrate India’s economy into the worl
d economy.
Build institutes for higher education
A system of intellectual property rights to reward innovations adequately.
B. Growing Indian Transnational Corporations:
Indian firms to enjoy flexibility in entry and exit. Freedom to diversify and cl
ose down unsuccessful units.
Liberalize and move towards capital account convertibility.
(freely move from local currency into foreign currency and back)
Second Generation Reforms
C. High Growth of Agriculture:
State to ensure that adequate investments are made in irrigation, agricultural r
esearch and infrastructure
D. Empowering the Poor:
Integrate and consolidate anti poverty measures.(Bharat Nirman Yogana)
Set up a system for old age security.
E. Human Development
Primary education to be made compulsory.
Involve private sector to provide better primary education.
F. Clean Environment:
Arrest damage to environment
Promote clean and healthy environment.
.
Amendment in Industrial Policy 1 Year, 1 Month ago
As per the existing policy, the payment of royalty under Foreign Technology Coll
aboration which provides for automatic approval for foreign technology transfers
, involving lump sum payment of US $ 2 million and royalty payment of 5 % on dom
estic sales and 8% on exports can be made. When there is no technology transfer
royalty payment of 2% on exports and 1% on domestic sales can be made.
Evaluation of the New Industrial Policy
This Policy has been criticized on the following grounds:
It will lead to domination of MNC on the Indian Economy. Threat from foreign com
petition due to cheaper imports and inability to meet the challenge from MNCs du
e to their weak economic strength vis-à-vis the MNCs.
Trade Unions oppose the policy due to fear of unemployment which may arise due t
o privatization.
Monopolies and concentration of economic power in a few hands is likely to incre
ase.
Government is silent about tackling the growing industrial sickness. The Governm
ent has not announced a clear exit policy for sick units.