THE NEW INDUSTRIAL POLICY,

1991

Swapna Hegde, IMED

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 Economic Policy of 1991

Swapna Hegde, IMED

Why NIP 1991?

To overcome Reservation of Industries

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

A government is the body within an

organization that has the authority to make
and enforce rules, laws and regulations.
Swapna Hegde, IMED

New Economic 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.

Swapna Hegde, IMED

Initiatives Taken in New Economic Policy

New Economic Policy (1991)

Industrial Sector Reforms

External Trade Reforms

Public Sector Policy

Industrial Licensing Policy
MRTP Act

Foreign Investment
Foreign Technology
Agreements

Swapna Hegde, IMED

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

Swapna Hegde, IMED

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
Swapna Hegde, IMED

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
Swapna Hegde, IMED

List of Industries

Swapna Hegde, IMED

MRTP ACT

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

Swapna Hegde, IMED

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

Swapna Hegde, IMED

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.

Swapna Hegde, IMED

Industrial Policy Changes

Pre-1991 Policy

Current Policy

Industrial Licensing was the new rule

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 No such restrictions
growth 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 policy
technology

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

products for small scale sector

of Reservation list is being pruned.

Swapna Hegde, IMED

Evaluation of New Economic 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
Swapna Hegde, IMED

Evaluation of New Economic Policy - 1991

Negative Aspects:
Policy 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
Public 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
Swapna Hegde, IMED

Evaluation of New Economic Policy - 1991

Social 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

MRTP Policy
Failure

of MRTP to break the monopolistic or Oligopolistic

character of the Indian market

Swapna Hegde, IMED

THANK YOU

Swapna Hegde, IMED