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Industrial Policy Revolution

Industrial Policy Resolution of 1948 Industrial Policy Resolution of 1956 Industrial Policy Resolution of 1973 Industrial Policy Resolution of 1977 Industrial Policy Resolution of 1980 New Industrial Policy of 1991

Why NIP 1991??????

To overcome Reservation of Industries To overcome Entry & Growth Restrictions To overcome Restriction on Foreign Capital & Tech.

New Industrial Policy - 1991

Announced by Narasimha Rao in July, 1991 Aim of New Industrial Policy (NIP) of 1991:

Unshackling the Indian Industrial Economy from the cobwebs of unnecessary bureaucratic control, Introducing liberalization with a view to integrate the Indian Economy with the world economy, Removing restriction on direct foreign investment as also to free the domestic entrepreneur from the restriction of MRTP Act, and Shedding the load of Public Enterprises, which have shown a very low rate of return or were incurring losses over the years.

Initiatives Taken in New Economic Policy

New industrialPolicy (1991)

Industrial Sector Reforms

Public Sector Policy Industrial Licensing Policy MRTP Act

External Trade Reforms

Foreign Investment Foreign Technology Agreements

Public Sector Policy

Public enterprises producing a very low rate of return on the capital invested resulting in a burden rather than being an asset to the government NIP 1991 adopted a new approach to public enterprises, with a priority in following areas:

Essential infrastructure goods and services Exploration and exploitation of oil and mineral resources Technology development and building of manufacturing capabilities in areas, which are crucial in the long term development of the economy and where private sector investment is inadequate Manufacture of the products where strategic considerations predominate such as defence equipment

Public Sector Policy..CONTD

Existence of large number of chronically sick public enterprises incurring heavy losses, operating in a competitive market and serving little or no public purpose Measures:

Portfolio of public sector investments reviewed with a view to focus the public sector on strategic, high tech and essential infrastructure Public Enterprises which are chronically sick and which are unlikely to be turned around referred to the Board for Industrial and Financial Reconstruction (BIFR) for revival/rehabilitation schemes Part of the governments shareholdings in the public sector would be offered to mutual funds, financial institutions, the general public and workers to raise resources and encourage wider public participation Instilling professionalism in board of public sector companies Greater thrust on performance improvement and greater autonomy to management

Industrial Licensing Policy

Role of the government changed from that of only exercising control to one of providing help and guidance by making essential procedures fully transparent and by eliminating delays Industrial licensing to be abolished for all projects except for a short list of industries related to securities and strategic concerns Areas where security and strategic concerns predominate will continue to be reserved for the public sector

In projects where imported capital goods are required, automatic clearance will be given in cases where foreign exchange availability is ensured through foreign equity
Location other than cities of more than 1 million population, there will be no requirement of obtaining industrial approvals from the central Government except for industries subject to compulsory licensing

List of Industries

Reserved for the Public Sector

Compulsory Industrial Licensing

Need for achieving economies of scale for ensuring higher productivity and competitive advantage in the international market, the interference of the government through the MRTP Act has to be restricted: Removal of pre-entry scrutiny of investment decisions by so-called MRTP companies Emphasis to be on controlling and regulating monopolistic, restrictive and unfair trade practices Thrust of policy to be on controlling unfair or restrictive business practices

Foreign Investment

Aimed at encouraging foreign trading companies to assist Indian exporters in export activities: Approval would be given for direct foreign investment upto 51% foreign equity in high priority industries Import of the components, raw materials and intermediate goods, and payment of know how fees and royalties would be governed by the general policy applicable to other domestic units, the payment of dividends would be monitored through the Reserve Bank of India Majority foreign equity holding upto 51% equity would be allowed for trading companies primarily engaged in export activities

Foreign Technology Agreements

In order to inject the desired level of technological dynamism in Indian industry Automatic permission will be given for foreign technology agreements in high priority industries (list attached) upto a lumpsum payment of Rs. 1 crore, 5% royalty for domestic sales and 8% for exports, subject to total payment of 8% of sales over a 10 year period from date of agreement or 7 years from commencement of production. In respect of industries other than those in below list, automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments. No permission will be necessary for hiring of foreign technicians, foreign testing of indigenously developed technologies.

Industrial Policy Changes

Pre-1991 Policy
Industrial Licensing was the new rule

Current Policy
Licensing is an exception

Public sector monopoly/dominance in All but two industries are open to the strategic, basic and heavy industries private sector

MRTP Act restriction on entry and growth No such restrictions of large companies
Foreign investment allowed only in select industries that too subject to normally, a ceiling of 40% of total equity and prior permissions Restrictive technology policy towards Foreign investment allowed in a large number of industries, including up to 100% or equity in many of them. Automatic route available subject to specified conditions. foreign Very liberal policy towards foreign technology

Reservation of large number of products Reservation list is being pruned. for small scale sector

Evaluation of New Industrial Policy - 1991

Positive Aspects:

Fulfilled a long-felt demand of the corporate sector for declaring in very clear terms that licensing was abolished for all industries except 18 industries which included coal, petroleum, sugar, motor cars, cigarettes, hazardous, chemicals, pharmaceuticals and some luxury items Business houses intending to float new companies or undertake substantial expansion were not required to seek clearance from the MRTP Commission Bottlenecks created by the bureaucracy were struck down by this singular decision of the Government NIP unshackled many of the provisions, which acted as brakes on the growth of large private corporate sector Overall relief in the dismantling of industrial licensing and regime of controls

Evaluation of New Economic Policy - 1991

Negative Aspects:

regarding Foreign Capital:

Assertions by critics assert that the welcome foreign capital may lead us to selling of our sovereignty to multinationals Prudence demanded that utmost care to be taken to invite foreign capital in high priority industries only Monitoring of payment of dividends by RBI


Sector Policy:

The govt. should concentrate on improving the performance of the redeemable and surplus generating public sector enterprises which constitute 85% of the investment

Evaluation of New Economic Policy - 1991


Security Policy

Industrial Policy sidetracked issues and generated a fear in the mind of the workers that the govt. was not sincere in protecting the interests of the workers Govt. of India could successfully go in for shedding its load of loss-making enterprises and help the working class to assume the ownership role and nurse these enterprises to health



Failure of MRTP to break the monopolistic or Oligopolistic character of the Indian market