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The New Industrial Policy 1991
The Indus t r ia l Pol icy announced on Ju ly 24 , 1991 hera
lded the economic re formsin I nd ia a nd sough t to d r a st i c a
l ly al t e r t he indus t r ia l s c e nar io in ou r c o un t r y
.T h e m o s t v i s i b l e s i g n o f t h e c o u n t r y s e c
on om ic c r i s i s i n e ar ly 1991 was :Ext r e m e l y l o w f
o r e i g n e xc h a n g e r e s e r v e s o f R s . 2 4 0 0 c r o
r e
( j u s t enough to buy from abroad only three weeks
requirements.)
Inflationwasashighas13.5%t h i s p o l i c y e xp a n d e d t h
e s c o p e o f t h e p r i v a t e s e ct o r b y o p e n i n g u
p m os t o f t h e i n d us t r ie s f o r t h e p r i va t e s e
ct o r a n d d i d a w ay
with the ent ry and growth res t r ic t ions . The most impor
tant in i t ia t ives a re wi th
respec t to the v i r tua l sc rapping of indus t r ia l l icens
ing and regis t ra t ion pol ic ies ,a n e n d t o t h e m o n o p
o l y l a w a n d a w e l c o m i n g a p p r o a c h t o f o r
e
i g n investments.
Objectives of the Industrial Policy of the Government are1.to
maintain a sustained growth in productivity;
2.to enhance employment;
3.to achieve optimal utilization of human resources;4.to attain
international competitiveness
5.Development of indigenous technology through greater
investmentin R&D and bring inne w te ch no lo gy to he lp In d
ia n ma nu fa ct ur in g units Incentive for industrialization of
backward
areas
6.Ensure running of PSUs on business lines and cut their
losses
7.Protect the interests of workers
8 . A b o l i s h t h e m o n o p o l y o f a n y s e c t o r i
n a n y f i e l d o f m a n u f a c t u r eexcept on strategic or
security grounds.
9 . t o t r a n s f o r m I n d i a i n t o a m a j o r p a r t
n e r a n d p l a y e r i n t h e g l o b a l are
na.
Industrial Licensing
Industrial Licensing was governed by the Industries Development
&Regulation Act, 1951.Industrial Licensing policy and
procedures have been liberalized andcontinuously changed.
Industrial
l icensing has been abolished for a llprojec ts exce p t fo r a
s h o r t l i s t o f
i n du s t r i e s re l a t e d t o se c u r i t y a n d s t r a
t e g i c c o n c e r n s , s o c i a l r e a s o n s , h a z ar d
o u s c h e m i c a l s a n d overr iding environmental reasons and
i tems of e li tist
consumption . A l l e xcept ing 18 indus t r ie s were f reed f
rom l icens ing . The
number was later reduced to six.The industries subject to
compulsory industrial licensing account for a very small share
of
the value added in the manufacturing sector.
Liberalization of ForeignInvestmentR e c e n t i n i t i a t i v
e u n d e r t h e s m a l l s c a l e p o l i c y , e q u i t y h o
l d i n g b y o t he r u ni tsinclud ing foreig n equit y in a s
mall scale unde r takin g is permissible up to 24 per cent.
Integration of the Indian Economy with the Global
Ec on o my i s o ne o f t h e o b j e c t i v e s o f t h e EXI
M P o l i c y . T h e i m p o r t p o l i c y h a s
b e e n made liberal by reducing tariff levels.Another change
has been the reform of the foreign exchange ra te policy. The
Rupee
has been mad e fu lly con vert ibl e o n t he cur ren t account.
The effort is to move towardscapi ta l accoun t convert ib il it y.
Th e C a p i t a l I s su e s C o n t r o l Ac t a n d th e o f f i
c e o f
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t h e C o n t r o l l e r o f C a p i ta l ha ve be en sc r appe
d and f r ee p r i cing o f c a p i t al i s sues
was introduced.
Foreign Technology Agreements:G o v e r n m e n t w i l l p r o
v i d e a u t o m a t i c a p p r o v a l f o r t e c h n o l o g i
c a l a g r e e
m e n t s r e l a t e d t o h i g h p r i o r i t y i n d u s t
r i e s w i t h i n s p e c i f i e d parameters.
Indian companies wi l l be f ree to negot ia te the te rms
for
technologyt r a n s f e r w i t h t h e i r f o r e i g n c o u
n t e r p a r t s a c c o r d i n g t o t h e i r
ownc om m e r c ia l judgm e n t .
Removal of MRTPRestr ic t ions M o s t o f t h e M R T P r e s t
r i c t i o n s p e r t a i n i n g t o c o n c e n t r a t i o n o
f economic power ( those requir ing permission for establishment of
new under taking,
substantial expansion, manufacture of new items and mergers and
acquisitions) were
scrapped.The thrust of the policy is on controlling and
regulating monopolistic,restrictive and unfair trade
practices.
Evaluation of the New Industrial PolicyPositives of the new
policy are:
1 . D e - l i c e n s i n g o f m o s t i n d u s t r i e s w i
l l h e l p e n t r e p r e n e u r s t o q u i c k l y seize
business opportunities.
2 . R e m o va l o f c on t r o l s u nd e r th e M R T P A c t
w i l l f a c i l i t a t e e xpansionand growth.
3.There will be greater inflow of foreign capital and technology
due to easing of restrictions.
Watch- outs:H o w e v e r , d e
b u r e a u c r a t i z a t i o n i s a c h a l l e n g i n g t
a s k . T h e bureaucracy
has a tendency to attempt to defeat measures aimed at
deregulations.4 . F u r t h e r , f o r e i g n i n v e s t o r s s
t i l l r e g a r d t h e p o l i c y a n d p r o c e d u r a l
s
y s t e m i n I n d i a c o n f u s i n g . R a t h e r m a n y
f e e l t h a t p o l i c y an d developmentenvironment in China is
superior to India.
This Policy has been criticized on the following grounds :
1 . I t w i l l l e a d t o d o m i n a t i o n o f M N C o n t
h e
I n d i a n Economy. Threatf r o m f o r e i g n c o m p e t i t
i o n d u e t o c h e a p e r i m p o r t s a n di n a b i l i t y
t o meet the challenge from MNCs due to their weak economic
strength is--via the
MNCs.
2.Trade Unions oppose the policy due to fear of unemployment
which may arisedue to privatization.
3.Monopolies and concentration of economic power in a few hands
is likely to increase.4.Government is silent about tackling the
growing industrial sickness. The Government has
not announced a clear exit policy for sick units.
Yashwant KumarBVIMR, New Delhi.
