NEW INDUSTRIAL POLICY

1991
ECONOMICS PROJECT
Introduction
The industrial policy is a statement which defines the role of the
government in industrial development, the place of the public and
private sectors in industrialization of the company, the relative role of
large and small industries, the role of foreign capital etc.

In Brief:-
1. Defines spheres of activity of the public and private sectors.
2. It is the rules and procedures that would govern the growth and pattern of
industrial policy.
3. It is neither fixed nor inflexible.
4. It is amended, modified and redrafted according to the changed situations,
and prospective of development.
General Objectives of Industrial policy
Accelerating the overall rate of growth through industrialization

Expanding the industrial base in relation to industrialization needs of

the country.
Generating employment and reducing poverty.

Reducing regional disparities in industrial development

Preventing monopolies and concentration of industrial power

Promoting balanced industrial development

Promoting linkages with others sectors of the economy.

Assisting small enterprises

Encouraging the growth of industrial research and development.

What does an industrial policy contain?
Comparative roles of public , private , joint and
cooperative sectors in the economy
Categorization of industries from the point of view
of assistance , market entry , control and regulation
Jurisdiction
Structure of control of the private sectors
Role , attitude and policy towards foreign
investment of the companies
Thrust or priority areas of industrialization
Role of cottage and small industries vis a vis large
industries
 INDUSTRIAL POLICY 1948

FOUR CATEGORIES

-- Arms New
New undertakings
undertakings inin
Arms and
and The
ammunition
-- Coal
Coal The remainder
remainder of of
ammunition -- Iron
Iron and
and steel the
-- Atomic
steel the industrial field ,,
industrial field
Atomic energy
energy -- Aircraft manufacture
Aircraft manufacture was
-- Railway was left
left open
open to
to
Railway transport
transport -- Ship
Ship building
building
PRIVATE
-- Telephone
Telephone & & wireless
wireless PRIVATE enterprise,
enterprise,
apparatus
apparatus etc.
etc. INDIVIDUAL
INDIVIDUAL as as well
well
To
To be
be the
the monopoly
monopoly henceforth as COOPERATIVE
henceforth be be undertaken
undertaken as COOPERATIVE
of
of CENTRAL
CENTRAL GOVT.
GOVT. only
only by the
by the STATE
STATE
Industrial policy resolution of 1956
THREE CATEGORIES

Schedule
Schedule AA Schedule
Schedule B
B industries
industries progressively
progressively
industries
industries were treated as
were treated as the
the state owned
state owned
exclusive
exclusive responsibility
responsibility of
of the
the state
state
Schedule C industries
Eg.
were left for private
Eg. Arms
Arms and
and ammunition
ammunition & & defence
defence Eg.
equipments,
equipments, Atomic energy, Iron and
Atomic energy, Iron and steel,
steel, Coal
Coal Eg. Antibiotic
Antibiotic and
and other
other drugs,
drugs, Fertlisers,
Fertlisers, sector
and Lignite, Aircraft, Railway transport, Synthetic
Synthetic rubber,Carbonization of
rubber,Carbonization of coal,
coal, Chemical
Chemical
and Lignite, Aircraft, Railway transport, pulp,
Shipbuilding,
Shipbuilding, Telephone
Telephone etc
etc pulp, Road
Road transport,
transport, Sea
Sea transport
transport etc.
etc.
Industrial ●

●
Extension of the industrial policy resolution 1956
Basic objectives growth, social justice and self

Policy 1973
reliance

Industrial ●

●
It was consumption oriented and labor intensive
policy
Thrust was to generate rural employment

Policy 1977 opportunities

Industrial ●
Committed to rapid and balanced industrialization
for benefiting the common masses

Policy 1980
●
Growth oriented policy
Industrial Licensing
 Restricted entry
 Every private industry is required to take license before commencement of
business.

Objectives:-
 To regulate the development of industries in accordance with the plans of
overall economic development.
 To control monopolistic tendencies and prevent concentration of economic
power.
 To protect small scale sector from the competition by the large scale industries.
 To encourage development of industries in the industrially backward areas.
Crisis In 1990
Because of the crisis in 1990, Indian Govt. was forced to adopt the new Industrial Policy in
1991. Reasons for the crisis in 1990 are:

 From 1950 to 1980, the Indian economy grew at a slow rate of 3.6 percent.

 This gave rise to foreign borrowing on a small scale.

 The result was increase in foreign debt and repayment liability.

 Foreign debt increased from US$23.5 billion in 1980 to $63.40 billion in 1991.

 Nearly 28% of total export revenue went to service the debt.

 Lead to Fiscal deficit (expenditure exceeds the revenue)

New Industrial Policy Of 1991
 Launched in July 1991.

 Seeks to liberate the industry from the shackles of licensing system.

 Drastically reduce the role of public sector

 Encourage foreign participation in India’s industrial development.

 Integration with world economy with dismantling of tariff wall.

 Financial stability.

 Upgrading the technology of production.

Abolition Of Industrial Licensing
 Earlier , industries were subjected to tight regulation through the licensing
system.

 New Policy abolished industrial Licensing for all industrial projects except six
industries.

 These industries include Security & Strategic industries & the industries which
have compelling social reasons for strictly regulating their growth.

 Hazardous Chemicals and Industries adversely affecting environment were also

to be continued under the licensing requirements.

 The industry has been almost completely liberated from the stringent, costly
and time consuming provision of industrial licensing.
Disinvestment and Privatisation
 Disinvestment is done through sale of shares of public sector companies to
private institutions and companies.

 In Disinvestment majority of shares are with Government.

 When Government sells majority of its holding to the private sector so that
management control also passes on to private hands, it is called privatization.

 The government seeks to introduce more efficiency and competitiveness in

industries through disinvestment and privatization.
Foreign Capital And Technology
 The inflow of foreign capital and import of technology was tightly regulated
under the earlier Industrial Policy.
 Each proposal of foreign investment was to be cleared by the government in
advance.
 Free flow of technology
 Free movement of labor capital among different countries.
 Reduction in trade barriers.
 Outsourcing
MRTP Act
The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted:
 To ensure that the operation of the economic system does not result in the
concentration of economic power in hands of few,
 To provide for the control of monopolies, and
 To prohibit monopolistic and restrictive trade practices.

In New Industrial Policy:

 MRTP Act was almost abolished, & a new MRTP commission came into
existence.

 MRTP commission conducts investigation on complaints received from

consumers or consumer groups.
Evaluation of the New Industrial Policy
This Policy has been criticized on the following grounds:
 The policy is a total departure from Nehru’s model of socialism.
 It will lead to domination of MNC on the Indian Economy.
 Trade Unions oppose the policy due to fear of unemployment which
may arise due to privatization.
 Monopolies and concentration of economic power in a few hands is
likely to increase.
 Distortion in industrial pattern would occur due to slow pace of
investment in few basic and strategic industries.
 The Government has not announced a clear exit policy for sick units.
Some latest
changes in the Industrial policy

On 11th Feb 2000, Automatic approval was made

available for the following:
   Up to 74% FDI in Advertising sector.
   Up to 100% FDI in Film industry

With a view to further liberalizing the FDI regime,

the Government also permitted FDI up to 100% on
the automatic route in the advertising sector.
Changes in the Industrial policy
Govt in 2002 permitted FDI up to 100% for
development of integrated townships, including
housing,commercial premises,resorts,city and
regional level urban infrastructure facilities
On 5th July 2002, As part of the ongoing
liberalization of the FDI regime, the
Government decided to allow FDI up to
100% in tea sector, including tea plantation
Changes in the Industrial policy
On 13th January 2006, govt. decided to allow

 FDI up to 49% with prior approval of the

Government for setting up Up-linking
teleports;
 FDI up to 100% with prior approval of the
Government for Up-linking a Non-News &
Current Affairs TV Channel;
Changes in Industrial policy(2007)
The following industries require compulsory
industrial license:
Distillation and brewing of alcoholic drinks.
Tobacco and manufactured tobacco
substitutes;
Electronic Aerospace and defense equipment
 Industrial explosives
Hazardous chemicals
(HCN,phosgene,isocyanides etc)
 MRTP ACT
Replaced by

COMPETITION BILL
 Competition Bill
MRTP Act : 14 Restricted trade practices

Now : Only 4

Cartelization and sharing of territories

Restricting production and supply
Collusive bidding
Predatory pricing