- JAYATI SINGH

INTRODUCTION

 The industrial policy was announced on July 24, 1991 by the
government, headed by prime minister P.V Narasimha Rao. The
New Industrial Policy (NIP) was a big departure from the
erstwhile industrial policy.
 The important objectives are:
(a) The key objective of industrial policy was rapid
industrialisation of the country.
(b) to maintain sustained growth in the productivity and
gainful employment, and
(c) to attain international competitiveness. Therefore, the
basic philosophy of the NIP, 1991 has been the continuity with
change.
These changes pertain broadly to five areas viz.,

(a) Industrial licensing.

(b) Public sector policy.
(c) MRTP Act, 1969.
(d) Foreign investment.
(e) Foreign technology agreements.

The new government assumed office in June 1991. it

made a decision to organize sale of gold.

The exchange rate of the rupee was adjusted, and massive

devaluation of the rupee was carried against major currencies
to improve the trade and payment situation.

In this situation, India needed major economic overhauling.

 Reasons for
implementing LPG

 Excess of consumption and expenditure over
revenue resulting in heavy govt. borrowings.
 Growing inefficiency on the use of resources.
 Over protection to industries.
 Mismanagement of the firm and the economy.
 Increase in losses for public sector enterprises.
 Various distortion like poor technological
development, shortage of foreign exchange and
borrowing from abroad.
 Low foreign exchange reserves.
 Inflation
 Liberalisation

 Liberalisation refers to relaxation of previous
government restrictions usually in areas of social and
economic policies.

 Thus, when government liberalizes trade it means it

has removed the tariff, subsidies and other
restrictions on the flow of goods and services
between countries
 Path of liberalization

 Relief for foreign investors
 Devaluation of Indian rupees
 New industrial Policy
 New trade policy
 Removal of import Restrictions
 Liberalization of NRI remittances
 Freedom to import technology
 Encouraging foreign tie-ups
 MRTP relaxation
 Privatization of public sector
 Introduction of
Liberalisation

 In 1991, after India faced a balance of payments
crisis, it had to sell 67 tons of gold to the
International Monetary Fund (IMF) as part of a
bailout deal, and promise economic restructuring.
 The government of P. V. Narasimha Rao and his
finance minister Manmohan Singh (the present
Prime Minister) started breakthrough reforms.
 
 The new neo-liberal policies included opening for
international trade and investment, deregulation,
initiation of privatization, tax reforms, and inflation-
controlling measures.
 The main objective of the government was to
transform the economic system from socialism to
capitalism so as to achieve high economic growth
and industrialize the nation for the well-being of
Indian citizens. Today India is mainly characterized
as a market economy.
 Meaning

 Liberalisation of the economy means to free it from
direct or physical controls imposed by the government.
 Economic reforms were based on the assumption that
market forces could guide the economy in a more
effective manner than government control.
 Examples of one of other undeveloped countries like
Korea, Thailand, Singapore, etc.
 That had achieved rapid economic development as a
result of liberalization were kept in consideration
 Reforms taken during
Liberalisation

 Abolition of industrial licensing and registration
 Liberalizing the MRTP act
 Freedom for expansion and production
 Increase in the investment limit of the small
industries
 Freedom to import capital goods
 Freedom to import technology
 Free determination of interest rates
 Impact

 Average annual growth of services shifted to 8.1%
during 1991-2001 from 6.9% during 1981-1991.

 A rate of growth that will double average income in a

decade.

 Rapid Growth in communication services, financial

services, business service & community services.

 Exports of information technology enabled services

particularly strong.
 Industrial licensing

 Industrial licensing is governed by industries
(Development and Regulation) act 1951. it is a very
effective tool used by the government to regulate the
private sector.

 It abolished all industrial licensing, irrespective of the

level of investment, except for 18 industries related to
security and strategic concern, social reasons, concerns
related to safety and overriding environment issues,
manufacture of products of hazardous nature and
articles of elitist consumption.
 Industrial licensing

 Later, this list was trimmed, and as of now license is
required only for 6 items listed in Annexure II. These are
as follows.
 1. Distillation and brewing of alcoholic drinks.
 2. Cigars and cigarettes of tobacco and manufactured
tobacco substitutes.
 3. Electronic Aerospace and defence equipment.
 4. Industrial explosives including detonating fuses, safety
fuses, gun powder, nitrocellulose and matches.
 5. Hazardous chemicals.
 6. Drugs and pharmaceuticals.
 Public Sector

 The statement of industry policy 1991 reduce the list of
industries reserved for the public sector to eight from 70
and further for more area where de resaved which
trimmed the list of four.
 Public sector monopoly was limited only for 8 industries
of security and strategic relevance. This was also later
trimmed and only railways, arms and ammunition and
allied items of defence equipments, defence aircraft and
warships, atomic energy, minerals specified in the
schedule to the atomic energy, remained. Presently, only
2 sector are under public sector monopoly: Atomic
energy & Railway transport.
 Various Sector

 A. Industry and services

 Industry accounts for 28% of the GDP and employ

14% of the total workforce.

 The Indian industrial sector underwent significant

changes as a result of the economic reforms of 1991,
which removed import restrictions, brought in
foreign competition, led to privatisation of certain
public sector industries.
 
 India is 13th in services output. The services sector
provides employment to 23% of the work force and
is growing quickly, with a growth rate of 7.5% in
1991– 2000, up from 4.5% in 1951–80.
 Even sectors like Insurance which were earlier
reserved for public sector were not only opened for
private sector, when foreign investment was allowed
up to 26%.
 Under the 1997, WTO financial servicers agreement,
India is committed to permit 12 foreign bank
branches annually.
 
 100% foreign investment is permitted in information
technology Unit setup exclusively for exports.

 100% of FDI is allowed in E commerce. Automatic

approval is allowed for Foreign equity in software &
almost all area of Electronics.
 B. Agriculture

 India ranks second worldwide in farm output.
Agriculture and allied sectors like forestry, logging and
fishing accounted for 15.7% of the GDP in 2009–10,
employed 52.1% of the total workforce,
 Yields per unit area of all crops have grown since 1950,
due to the special emphasis placed on agriculture in the
five-year plans and steady improvements in irrigation,
technology, application of modern agricultural practices
and provision of agricultural credit and subsidies since
the Green Revolution in India.
 
 India is the largest producer in the world of milk,
jute and pulses, and also has the world's second
largest cattle population with 175 million animals in
2008.
 It is the second largest producer of rice, wheat,
sugarcane, cotton and groundnuts, as well as the
second largest fruit and vegetable producer,
accounting for 10.9% and 8.6% of the world fruit and
vegetable production respectively.
C. Banking and finance

 Prime Minister Indira Gandhi nationalized 14 banks
in 1969, followed by six others in 1980, and made it
mandatory for banks to provide 40% of their net
credit to priority sectors like agriculture, small-scale
industry, retail trade, small businesses, etc.
 To ensure that the banks fulfil their social and
developmental goals. Since then, the number of bank
branches has increased from 8,260 in 1969 to 72,170
in 2007.
 MRTP Act, 1969

 MRTP Act, 1969 The New Industrial Policy, 1991 proposes to
amend suitably the Monopolies and Restrictive Trade
Practices Act, 1969.
 MRTP can be divine into four part :
1. Monopolistic practices
2. Restrictive trade practices
3. Unfair tread practices
4. Controlling the concentration of economic power.
 Principle objective of MRTP act are as under:
1. Prevention of concentration of economic power & control of
monopolies
2. Prohibition of monopolistic, restrictive and unfair trade
practices.
 
 This restricted the growth of Indian industry and
units like TISCO,TELCO,HINDALCO and Ranbaxy,
which through having the capacity to become global
players, remained confined to India, producing
substandard goods.

 In 1991, the MRTP Act was restructured and pre-

entry restrictions removed with respect to new
undertaking, Expansion ,amalgamation, merger,
takeover, registration, etc.
 Foreign investment

 The 1956 Industrial policy accepted the role of
foreign equity, since independence we have always
looked at foreign equity as some sort of economic
slavery.

 But in last 50 years, the enormous underutilization of

resources, unemployment, poor infrastructure and
pervasive poverty compelled the government to
open the doors for foreign equity.
 
 Today, India welcomes foreign equity in almost every
sector. In 1991, it allowed:
1) Automatic approval for foreign equity participation up
to 51% granted to high priority industries listed in
Annexure IV.
2) Foreign trading companies are allowed to invest up to
51% in Indian trading house engaged in export activity.
3) In hotel and tourism related industry, up to 51% foreign
equity is allowed.
4) Even in the mining sector foreign investment up to 50%
was allowed.
 Foreign Technology
Agreements

 Foreign Technology Agreements The New Industrial
Policy proposes to give automatic permission for
foreign technology agreements in identified high
priority industries. Further, it also proposes to allow
other industries to import foreign technology subject
to the fulfilment of certain conditions.
 The RBI grants automatic approval by the means of
the regional offices to Indian industries for foreign
technology collaboration
 The royalty period should not exceed 7 years from
the date of starting of the business or 10 years from
the date mentioned in the agreement
 Balance of Payments

 Since independence, India's balance of payments on
its current account has been negative. Since
economic liberalisation in the 1990s, precipitated by
a balance of payment crisis.

 India's exports rose consistently, covering 80.3% of

its imports in 2002–03, up from 66.2% in 1990–
91.However, the global economic slump followed by
a general deceleration in world trade saw the exports
as a percentage of imports drop to 61.4% in 2008–09.
 BOP

 India's growing oil import bill is seen as the main
driver behind the large current account deficit,
which rose to $118.7 billion, or 9.7% of GDP, in 2008–
09. Between January and October 2010, India
imported $82.1 billion worth of crude oil.
 India's reliance on external assistance and
concessional debt has decreased since liberalisation
of the economy, and the debt service ratio decreased
from 35.3% in 1990– 91 to 4.4% in 2008–09.
 BOP

 In India, External Commercial Borrowings (ECBs), or
commercial loans from non-resident lenders, are
being permitted by the Government for providing an
additional source of funds to Indian corporate.

 India's foreign exchange reserves have steadily risen

from $5.8 billion in March 1991 to $283.5 billion in
December 2009.
 Advantages

 Industrial licensing
 Increase the foreign investment.
 Increase the foreign exchange reserve.
 Increase in consumption and Control over price.
 Check on corruption.
 Reduction in dependence on external commercial
borrowings
 Disadvantages

 Increase in unemployment.
 Loss to domestic units.
 Increase dependence on foreign nations
 Unbalanced development
 Privatisation

 It refers to the transfer of assets or service functions
from public to private ownership or control and the
opening of the hitherto closed areas to private sector
entry.
 Privatisation can be achieved on many ways
franchising, leasing, contracting and divesture
 Need for Privatisation

 Though the PSUs have contributed heavily to develop the
industrial base of the country, they continue, even today,
to suffer from a number of shortcomings which are
identified below very briefly :-
 A sizable number of PSUs have been incurring and
reporting losses on a continual basis. Consequently, a
large number of PSUs have already been referred of loss
giving units;
 Multiplicity of authorities to whom the PSUs are
accountable;
 Delay in implementation of projects leading to cost
escalation and other consequences;
 
 Ineffective and widespread inefficiency on
management;
 With a view to provide opportunities for more and
more unemployed youths, more number of people,
than required, were recruited and therefore, many
PSUs are over-staffed resulting in lower labour
productivity, bad industrial relations, etc.;
 A number of sick companies (40 companies) which
were in the private sector was taken over by public
sector mainly to protect the employees. These sick
units are causing a big drain on the resources of the
state; etc.
 Different Ways in
Privatization

 Liberalization Approach
 Relative Share Enlargement Approach
 Association of Private Sector Management Approach
 Transfer of Minority Equity Ownership Approach
 Transfer of Complete Ownership Approach
 Advantages

 Privatization helps to reduce the burden on Govt.
 It will help profit making public sector unit to modernize
and diversify their business.
 It will help in making public sector unit more competitive.
 It will help to improving the quality of decision making,
because the decisions are free from any political
interference.
 Privatization may help in reviving sick units which are
the liability of the public sector.
 Industrial growth.
 Increase the foreign investment.
 Increase in efficiency.
 Disadvantages

 Industrial sickness.
 Lack of welfare.
 Class struggle.
 Increase in inequality
 Opposition by employees.
 Problem of financing.
 Increase in unemployment.
 Ignores the weaker sections.
 Ignores the national importance
 Examples

 Lagan Jute Machinery Company Limited (LJMC)
 Videsh Sanchar Nigam Limited (VSNL)
 Hindustan Zinc Limited (HZL)
 Hotel Corporation Limited of India (HCL)
 Bharat Aluminum Company limited (BALCO)
 Globalisation

 Globalisation means integrating the domestic
economy with the world economy.

 It is a process which draws countries out of their

insulation and makes them join rest of the world in
its march towards a new world economic order.
 
 According to IMF: -”The growing economic
interdependence of countries worldwide through
increasing volume and variety of cross border
transaction in goods and services and of
international capital cash flows, and through the
more rapid and widespread diffusion of
technology.”
 Features of
Globalization

 Opening and planning to expand business
throughout the world.
 Erasing the difference between domestic market and
foreign market.
 Buying and selling goods and services from/to any
countries in the world.
 Locating the production and other physical facilities
on a consideration of the global business dynamics,
irrespective of national consideration.
 
 Basing product development and production
planning on the global market consideration.
 Global sourcing of factor of production i.e. raw-
material, components, machinery, technology,
finance etc. are obtained from the best source
anywhere in the world.
 Global orientation of organizational structure and
management culture
 Foreign market entry
strategies

 Exporting
 Licensing/Franchising
 Contract manufacturing
 Management contract
 Assembly operations
 Fully owned manufacturing facilities
 Joint venturing
 Merger and acquisition
 Strategic alliance
 Countertrade
 ADVANTAGES

 Free flow of capital and increase in the total capital
employed.
 Free flow of technology.
 Increase in industrialization.
 Spread of production facilities throughout the globe.
 Balanced development of world economies.
 Increase in production and consumption.
 Commodities at lower price with high quality.
 Increase in jobs and income.
 Higher Standard of living.
 Balanced human development
 DISADANTAGES

 Loss of domestic industries
 Exploits Human resource
 Decline in income
 Unemployment
 Transfer of natural resources
 Lead to commercial and political colonies
 Widening gap between rich and poor
 Dominance of foreign institutions