PRESENTATIO

N
ON
INDUSTRIAL
POLICY, 1991
BY: YAMAN
KAUSHIK
SYNOPSIS

•MEANING: INDUSTRIAL POLICY

•OBJECTIVES OF NEW INDUSTRIAL POLICY 1991
•FEATURES OF NIP 1991
•CRITICAL EVALUATION OF INDUSTRIAL POLICIES
1991
•SUMMARY
MEANING: INDUSTRIAL POLICY

Industrial policy means rules, regulations ,

principles , policies , and procedures laid down
by government for regulating , developing and
controlling industrial undertakings in the
country. It prescribes the respective roles of the
public, private joint and cooperative sectors for
the development of industries. It also indicates
the role of the large , medium , and small sector
. It incorporates fiscal and monetary policies,
tariff policy , labour policy and the government
attitude towards foreign capital, and role to be
played by multinational corporations in the
development of the industrial sector.
OBJECTIVES OF INDUSTRIAL POLICY

Accelerating the overall rate of Preventing monopolies and

growth through industrialization.
Expanding the industrial base in
relation to industrialization needs
of the country.
Generating employment and
reducing poverty.
concentration of industrial
power.
Creating competitive conditions
and encouraging the growth of
entrepreneurship

Promoting balanced industrial

development.
Promoting linkages with others
sectors of the economy.
Assisting small enterprises
Encouraging the growth of
industrial research and
development
OBJECTIVES OF NEW INDUSTRIAL POLICY
Attainment of
international
competitiveness.

Revival of Development of
weak units. backward areas.

Full utilization
Encouraging
of plant
competition
capacities to
within Indian
generate
industry.
employment.
Efficient use of
productive
resources.
FEATURES OF NIP

• DE-RESERVATION OF PUBLIC SECTOR: THE NUMBER OF INDUSTRIES RESERVED FOR

PUBLIC SECTOR WAS REDUCED TO 8 INDUSTRIES. AT PRESENT, THERE ARE ONLY THREE
INDUSTRIES RESERVED FOR PUBLIC SECTOR WHICH INCLUDE. (A) ATOMIC ENERGY (B)
RAILWAYS, AND (C) SPECIFIED MINERALS.
• DE-LICENSING: -THE MOST IMPORTANT FEATURES OF NIP, 1991 WAS THE ABOLITION OF
INDUSTRIAL LICENSING OF ALL INDUSTRIES EXCEPT SIX INDUSTRIES. THE SIX INDUSTRIES
ARE OF SOCIAL AND STRATEGIC CONCERN. THE SIX INDUSTRIES ARE
1. HAZARDOUS CHEMICALS. 2. ALCOHOL 3. CIGARETTES 4. INDUSTRIAL EXPLOSIVES 5.
DEFENSE PRODUCTS, AND 6. DRUGS.
• DISINVESTMENT OF PUBLIC SECTOR: -THE NIP 1991 PERMITTED DISINVESTMENT OF
PUBLIC SECTOR UNITS. DISINVESTMENT IS A PROCESS OF SELLING GOVERNMENT EQUITY
IN PSUS IN FAVOUR OF PRIVATE PARTIES. DISINVESTMENTS AIM AT CERTAIN OBJECTIVES. (1)
TO PROVIDE BETTER CUSTOMER SERVICE. (2) TO MAKE EFFECTIVE USE OF DISINVESTMENT
FUNDS. (3) TO OVERCOME THE PROBLEM OF POLITICAL INTERFERENCE. (4) TO ENABLE THE
GOVERNMENT TO CONCENTRATE ON SOCIAL DEVELOPMENT.
FEATURES OF NIP,1991 (CONT…..)
• FOREIGN INVESTMENT: APPROVAL WILL BE GIVEN FOR DIRECT FOREIGN
INVESTMENT UP TO 51 PERCENT FOREIGN EQUITY IN HIGH PRIORITY
INDUSTRIES . THERE SHALL BE NO BOTTLENECKS OF ANY KIND IN THIS
PROCESS
• FOREIGN TECHNOLOGY AGREEMENTS: AUTOMATIC PERMISSION WILL BE
GIVEN FOR FOREIGN TECHNOLOGY AGREEMENTS IN HIGH PRIORITY
INDUSTRIES UP TO A LUMP SUM 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. NO PERMISSION WILL BE NECESSARY FOR
HIRING OF FOREIGN TECHNICIANS, FOREIGN TESTING OF INDIGENOUSLY
DEVELOPED TECHNOLOGIES.
• MRTP ACT: EMPHASIS WILL BE PLACED ON CONTROLLING AND REGULATING
MONOPOLISTIC, RESTRICTIVE AND UNFAIR TRADE PRACTICES.
SIMULTANEOUSLY, THE NEWLY EMPOWERED MRTP COMMISSION WILL BE
AUTHORIZED TO INITIATIVE INVESTIGATIONS ON COMPLAINTS RECEIVED FROM
INDIVIDUAL CONSUMERS OR CLASSES OF CONSUMERS IN REGARD TO
MONOPOLISTIC, RESTRICTIVE AND UNFAIR TRADE PRACTICES.
(FEATURES OF NIP,1991 CONT…..)
• PUBLIC SECTOR POLICY : THE PRIORITY AREAS FOR GROWTH
OF PUBLIC ENTERPRISES IN Y: THE FUTURE WILL BE THE
FOLLOWING:
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 PRODUCTS WHERE STRATEGIC
CONSIDERATIONS PREDOMINATE SUCH AS DEFENSE
EQUIPMENT.
 FEATURES OF NIP,1991 (CONT…..)
• PROMOTING SMALL SCALE INDUSTRIES: THE NEW INDUSTRIES POLICY FOR
THE SMALL SECTOR INDUSTRIES WAS ANNOUNCED ON 6TH AUGUST,
1991.THE MOST IMPORTANT FEATURES ARE:

 THE NEW POLICY PROVIDES FOR THE SUPPLY OF RAW MATERIALS AND
MARKETING FACILITIES TO THE SSI UNITS. AS FOR MARKETING , THE
POLICY ENVISAGES MARKET PROMOTION OF THEIR PRODUCTS BE
UNDERTAKEN BY CO-OPRATIVES, PUBLIC SECTOR INSTITUTIONS AND
OTHER PROFESSIONAL AGENCIES

WIDENING AND DEEPENING THE COMPLEMENTARITY IN THE PRODUCTION

PROGRAMMES OF LARGE, MEDIUM AND SMALL SECTORS. THIS WILL BE
ENSURED THROUGH PRODUCTION OF PARTS , COMPONENTS, ETC. WHICH
ARE REQUIRED BY THE LARGE PUBLIC AND PRIVATE INDUSTRIES.
(FEATURES OF NIP,1991 CONT…..)
 THE INVESTMENT LIMIT IN ANY PLANT OR INDUSTRY IN A UNIT HAS BEEN
RAISED FROM RS. 5 LAKH TO RS. 25 LAKH TO PROVIDE FOR THE INCREASE
IN THE PRICES OF CAPITAL GOODS

SPECIAL MEASURES HAVE BEEN TAKEN FOR HANDLOOM, HANDICRAFTS,

KHADI AND VILLAGE INDUSTRIES.
CRITICAL EVALUATION OF NEW
INDUSTRIAL POLICY 1991
• POSITIVE EFFECTS ON THE ECONOMY:
 INCREASE PRODUCTION: FOREIGN INVESTMENT AND FOREIGN
TECHNOLOGY AGREEMENTS ARE DESIGNED TO ATTRACT CAPITAL,
TECHNOLOGY AND MANAGERIAL EXPERTISE FROM ABROAD. THIS INFLOW
OF FOREIGN INVESTMENT AND BETTER TECHNOLOGY WILL HELP TO RAISE
PRODUCTION . THESE RESOURCES WILL BE MORE EFFECTIVELY
ALLOCATED SO THAT INDUSTRIAL PRODUCTION WILL INCREASE.

INCREASE COMPETITION: EASY ENTRY OF MULTINATIONAL

COMPANIES , REMOVAL OF ASSET LIMIT ON MRTP COMPANIES, LIBERAL
LICENSING WILL INCREASE COMPETITION I OUR ECONOMY. COMPETITION
WILL RESULT IN MORE EFFICIENCY , BETTER QUALITY OF PRODUCTS AND
LOWER PRICES.
[CRITICAL EVALUATION OF NEW
INDUSTRIAL POLICY 1991 CONT…..]
INCREASE EFFICIENCY OF PUBLIC SECTOR: THE REDUCTION
IN NUMBER OF INDUSTRIES RESERVED FOR PUBLIC SECTOR FROM 17 TO 3
AND THAT THREAT OF CLOSURE OF SICK PUBLIC SECTOR ENTERPRISES
WOULD RESULT BIN RAISE IN THEIR EFFICIENCY. MEASURES LIKE
PROFESSIONAL MANAGEMENT AND GREATER AUTONOMY ARE EXPECTED
TO IMPROVE PERFORMANCE OF PUBLIC SECTOR ENTERPRISES.

INCREASE EXPORTS: IN THE NIP 191, EXPORT-ORIENTED UNITS ARE

GIVEN VARIOUS CONCESSIONS LIKE LIBERAL LOANS , SETTING UP OF
SPECIAL ECONOMIC ZONE, LIBERAL IMPORT OF CAPITAL GOODS , RAW
MATERIALS, TECHNOLOGY, ETC. ALL THIS WILL HELP TO ACHIEVE
BALANCED REGIONAL DEVELOPMENT.
[CRITICAL EVALUATION OF NEW
INDUSTRIAL POLICY 1991 CONT…..]
REDUCE ECONOMIC BURDEN ON GOVERNMENT: AREA OF
PUBLIC SECTOR HAS BEEN REDUCED DRASTICALLY. NOW ONLY 3 AREAS
ARE RESERVED FOR PUBLIC SECTOR . ALL OTHER AREAS HAVE BEEN
OPENED FOR PRIVATE SECTOR. SICK UNITS ARE EITHER CLOSED OR OPEN
TO PRIVATE SECTOR S. ALL THIS HAS REDUCED THE ECONOMIC BURDEN ON
THE GOVERNMENT.

BRING BALANCED REGIONAL DEVELOPMENT: IN NIP 1991,

SPECIAL PROVISIONS HAVE BEEN MADE TO SET UP BIG INDUSTRIES IN
BACKWARD REGIONS. INDUSTRIES LOCATED IN BACKWARD REGIONS ARE
GIVEN VARIOUS INCENTIVES. ALL THIS WILL HELP TO ACHIEVE BALANCED
REGIONAL DEVELOPMENT.
[CRITICAL EVALUATION OF NEW
INDUSTRIAL POLICY 1991 CONT…..]
GIVE MORE SIGNIFICANCE TO SMALL SCALE
INDUSTRIES: THE NEW INDUSTRIAL POLICY PROVIDED FOR THE FIRST
TIME A SEPARATE STRATEGY FOR THE GROWTH OF SMALL-SCALE AND
COTTAGE INDUSTRIES. THIS STRATEGY INCORPORATES SEVERAL
MEASURES FOR PROMOTING AND STRENGTHENING SMALL, TINY, VILLAGE
ENTERPRISES. NIP 1991, WILL PROVIDE ENHANCED SUPPORT TO THE SMALL
SCALE SECTORS SO THAT THEY FLOURISH IN AN ENVIRONMENT OF
ECONOMIC EFFICIENCY AND CONTINUOUS TECHNOLOGICAL UP
GRADATION.
[CRITICAL EVALUATION OF NEW
INDUSTRIAL POLICY 1991 CONT…..]
• MAIN POINTS OF CRITICISM OF NIP 1991:-
LEADS TO MORE CONCENTRATION OF ECONOMIC POWER:
THE AMENDMENT OF THE MRTP ACT TO REMOVE THE THRESHOLD LIMIT F
ASSETS IN RESPECT OF MRTP COMPANIES AND CONFINING ONLY TO THE
MALPRACTICES OF THE BUSINESS HOUSES MEANS NO CONCERN FOR THE SIZE
OF THE COMPANIES. THIS PROVISION IS COUNTER

LEAD TO LESS REGIONAL BALANCE: THE OBJECTIVES OF

REDUCING INEQUALITIES IN THE INDUSTRIAL DEVELOPMENT OF DIFFERENT
REGIONS OR STATES WILL REMAIN A DISTANT DREAM. THIS IS OBVIOUS FROM
THE FACT THAT WHILE LIBERALIZING OF LICENSING PROCEDURES GIVES THE
FREEDOM TO SET UP ANY INDUSTRY AND THE LOCATIONAL POLICY SHOWS
CONCERN ABOUT THE BIG CITIES (OVER 1 MILLION POPULATION) AND RURAL
AND BACKWARD AREAS; IT IS WITHOUT LEAST REGARD FOR THE REGIONAL
BALANCES. AS SUCH, THE NIP GOES AGAINST THE OBJECTIVES OF ENSURING
REGIONAL BALANCE.
[CRITICAL EVALUATION OF NEW
INDUSTRIAL POLICY 1991 CONT…..]
• LEAD TO EXCESSIVE COMPETITION FOR SMALL SECTOR:
IN NIP, THE MARKET FORCES FOSTERED BY DE LICENSING, UNRESTRICTED
GROWTH OF MONOPOLIES, EASY ENTRY OF FOREIGN DIRECT INVESTMENT
AND TECHNOLOGY ETC., IS VERY LIKELY TO AFFECT ADVERSELY. THE
SMALL SECTOR. THE LARGE SECTOR, BY TURNING SMALL UNITS , MAY
CORNER MOST OF THE BENEFITS.

• INCREASE UNEMPLOYMENT: RATHER THAN INCREASING

EMPLOYMENT, THE NIP MAY ACTUALLY WORSEN IT.FOREIGN INVESTMENT
ALONG WITH FOREIGN TECHNOLOGIES THAT THE NIP ALLOWS FREELY, CAN
DO LITTLE TO RAISE EMPLOYMENT BECAUSE THESE ARE CAPITAL-
INTENSIVE IN NATURE
[CRITICAL EVALUATION OF NEW
INDUSTRIAL POLICY 1991 CONT…..]
• RAISE THREAT FROM FOREIGN COMPANIES: IN THE NEW
LIBERALIZED SCENARIO THAT HAS EMERGED IN THE P[OST-1991 REFORM
PHASE, INDIAN BUSINESSMAN ARE FACING UNEQUAL COMPETITION FROM
MNC’S . UNEQUAL COMPETITION IS DUE TO NUMBER OF REASONS :

a) INDIAN COMPANIES SUFFERS FROM ‘SIZE DISADVANTAGES’ AS THEY ARE

VERY SMALL IN COMPARISON OF MNC’S.

b) THE COST OF CAPITAL TO INDIAN BUSINESS IS MUCH HIGHER THAN THE

MNC.

c) THE INDIAN ENTERPRISES ARE VERY WEAK FINANCIALLY IN

COMPARISON WITH MNC
[CRITICAL EVALUATION OF NEW
INDUSTRIAL POLICY 1991 CONT…..]
• LEAD TO LITTLE RESEARCH AND DEVELOPMENT: VARIOUS
POLICY PRONOUNCEMENTS OF THE GOVERNMENT IN RECENT YEARS
INDICATE THAT IT EXPECTS FOREIGN INVESTMENT TO HELP
TECHNOLOGICAL UPGRADATION OF THE INDUSTRIAL SECTOR AND PUSH UP
EXPORT EARNING.HOWEVER , THIS FAITH IN FOREIGN INVESTMENT IS
MISPLACED. AS POINTED BY H.K. PARANJAPE , NONE OF THE MNC
OPERATING IN THIS COUNTRY HAVE ATTEMPTED TO DEVELOP INDIA AS AN
IMPORTANT BSE FOR A ISGNIFICANT PART OF ITS WORLD-WIDE RESEARCH
AND DEVELOPMENT WORK.
INDUSTRIAL POLICIES
Industrial Industrial
policy policy
resolution resolution
of 1991 of 1948

Industrial Industrial
policy policy
resolution resolution
of 1980 of 1956

Industrial Industrial
policy policy
resolution resolution
of 1977 of 1973
SUMMARY:
oMAJOR FEATURES OF NIP 1991:
1. INDUSTRIAL LICENCING: IT IS NOW COMPULSARY IN ONLY 5
INDUSTRIES- ALCHOHOL, CIGRETTES, HAZARDOUS CHEMICALS,
ELECTRONICS, AEROSCAPE AND DEFENCE EQUIPMENTS.

2. PUBLIC SECTOR POLICY: NOW ONLY 3 INDUSTRIES ARE RESERVED FOR

PUBLIC SECTOR-ATOMIC ENERGY, MINERALS SPECIFIED IN THE
SCHEDULE OF THE ATOMIC ENERGY (CONTROL OF PRODUCTION AND
USE) ORDER 1953, AND RAIL TRANSPORT.

3. MRTP: LIMIT HAS BEEN ABOLISHED.

4. MANY STEPS HAS BEEN ANNOUNCED TO PROMOTE FOREIGN

INVESTMENT AND TECHNOLOGY. 100 PERCENT FOREIGN INVESTMENT
IS NOW ALLOWED. FDI IS PROHIBITED ONLY IN THE FOLLOWING0
SECTORS: (1). RETAIL SECTOR(EXCEPT SINGLE BRAND PRODUCT
RETAILING);(2) ATOMIC ENERGY;(#) LOTTERY BUSINESSAND ($)
GAMBLING AND BETTING.
SUMMARY:
5. SMALL SCALE SECTOR HAS BEEN PROMOTED.

oCRITICAL EVALUATION OF NIP[ 1991

SOME MERITS OF NIP 1991 ARE:
1. INCREASE IN PRODUCTION
2. INCREASE IN COMPETITION
3. INCREASE IN EFFICIENCY OF PUBLIC SECTOR
4. INCREASE IN EXPORTS
5. REDUCTION IN ECONOMIC BURDUN ON GOVERNMENT
6. BALANCED REGIONAL DEVELOPMENT
7. MORE SIGNIFICANCE GIVEN TO SMALL SCALE INDUSTRIES
SUMMARY:
SOME CRITICISM OF NIP 1991 ARE:
1. IT WILL LEADS TO MORE CONCERNTRATION OF ECONOMIC POWER

2. IT WILL LEAD TO LESS REGIONAL BALANCE

3. IT WILL LEAD TO EXCESSIVE COMPETITION FOR SMALL SECTOR

4. IT WILL INCREASE UNEMPLOYMENT

5. IT WILL THREAT FROM FOREIGN COMPANIES

6. IT WILL LEAD TO LITTLE RESEARCH AND DEVELOPMENT.

THANK
YOU