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The government announced a New Industrial Policy on July 24, 1991. This new
policy deregulates the industrial economy in a substantial manner.
The major objectives of the new policy are to build on the gains already made,
correct the distortions or weaknesses that might have crept in, maintain a
sustained growth in productivity and gainful employment, and attain
international competitiveness. In pursuit of these objectives, the government
announced a series of initiatives in the new industrial policy as outlined below:
1. Abolition of Industrial Licensing:
In a major move to liberalise the economy, the new industrial policy abolished
all industrial licensing irrespective of the level of in vestment except for certain
industries related to security and strategic concerns, and social reasons.
Now there are only 6 industries for which licensing is compulsory as amended
in February 1999. These are alcohol, cigarettes, hazardous chemicals, drugs and
pharmaceuticals, electronics, aerospace and defense equipments, and industrial
explosives.
2. Public Sectors Role Diluted:
The number of industries reserved for the public sector since 1956 was
seventeen. This number has now been reduced to three. They are arms and
ammunition and allied items of defense equipment, atomic energy and rail
transport.
The main elements of Government Policy towards Public Sector Undertakings
(PSUs) are:
(i) Bring down government equity in all non-strategic PSUs to 26 per cent or
lower, if necessary;
(ii) Restructure and revive potentially viable PSUs;
(iii) Close down PSUs which cannot be revived; and
(iv) Fully protect the interests of workers.
3. Abolition of Phased Manufacturing Programmes:
Devaluation of currency and increasing FDI led government to liberalise local
content requirement for indigenous firms.
4. MRTP Act:
MRTP Act has been amended to remove the threshold limits of assets in respect
of MRTP companies and dominant undertakings.
The new industrial policy also states that the government will undertake review
of the existing public enterprises in low technology, small-scale and nonstrategic areas. Sick units will be referred to the Board for Industrial and
Financial Reconstruction for advice about rehabilitation and reconstruction.
For enterprises remaining in the public sector it is stated that they will be
provided a much greater degree of management autonomy through the system of
Memorandum of Understanding (MOU).
5. Free Entry to Foreign Investment and Technology:
The Government is committed to promote increased flow of Foreign Direct
Investment (FDI) for better technology, modernisation, exports and for
providing products and services of international standards.
Therefore, the policy of the Government has been aimed at encouraging foreign
investment particularly in core infrastructure sectors so as to supplement
national efforts. The salient features of the FDI policy are:
(i) There are two modalities for FDI approval: a) automatic approval by the
Reserve Bank, and b) approval by Foreign Investment Promotion Board
(FIPB)/Government.
(ii) 34 categories/groups of high priority industries identified on the basis of
National Industrial Classification qualify for automatic approval up to
50/51/74/100 per cent FDI depending on the nature of activity.
(iii) Projects for electricity generation, transmission and distribution, and
construction and maintenance of roads, highways, vehicular tunnels, vehicular
bridges, ports and harbours have permitted foreign equity participation up to 100
per cent under the automatic route.
(iv) FIPB is required to dispose of applications for FDI within a time frame of
six weeks.
(v) FDI is not permissible in agriculture, real estate and insurance activities.
(vi) Full repatriation of original investment and returns except for dividend
balancing and foreign exchange neutrality conditions in certain sectors.