New Industrial Policy 1991

Objectives, policy framework, critical analysis

Objectives

Free the Indian industrial economy from the unwanted beauracratic controls Liberalization of the economy for integration with the global economy Removal of restrictions for foreign investments Shed the load of the public sector by restructuring process Enable the MRTP Act to allow growth with regulation

Main elements of NIP 1991

(I) De-licensing policy (II) Foreign investment policy (III) Foreign technology policy (IV) Public sector policy (V) MRTP Act

(I) Industrial Licensing Policy

Licensing abolished for all projects except those related to security, strategic concerns, environmental concerns or hazardous chemicals (a list of 18 industries need lic.) SSI units do not require licenses if in the list 8 industries reserved for public sector (only 2 now) Automatic clearance for those units requiring imported capital goods where forex is brought through foreign equity (limit of 2 crores or 25% of plant & Euip.) Location policy: no license if located in cities other than 1 million population If Population > 1 million, non-polluting industries can be set up within 25 Km periphery No licenses for expansion / new articles (Broad banding)

(II) Foreign Investment Policy

(1)

(2)

(3)

(4)

Approval would be given for direct foreign investment up to 51% foreign equity in high priority industries Payment of dividends to be monitored by RBI to ensure that outflows on account of dividend payments are balanced by export earnings over a period of time To provide access to international markets, majority foreign equity holding up to 51% would be allowed for trading companies primarily engaged in exports Procedures simplified to encourage investments

(III) Foreign Technology Policy

(1)

(2)

(3)

(4)

(5)

Automatic approval for technology agreements relating to high priority industries (under conditions) No permission required for hiring foreign technicians No permission for testing indigenously developed technologies A consortium of industry and Government representatives was formed for technology transfer R&D to be encouraged through incentives

(IV) Public Sector Policy

Restrict public sector to infrastructure goods / services, exploration and exploitation of mineral resources, heavy manufacturing, defense and strategic equipments Profit making PSUs given management autonomy Sick and unviable units referred to BIFR Joint sector idea was promoted and privatization was encouraged It was the beginning of disinvestment policy MOU was signed between Govt. and management From now onwards, professionals will be appointed on the board of PSUs

(V) MRTP Act

No pre-entry scrutiny of large companies Monitoring of unfair trade practices was the main goal Inspector Raj was disbanded and regulations were relaxed At no time production would be affected even if booked under the MRTP Act Government companies and enterprises was brought under the MRTP Act In case of services provided by industries, the limit was increased Market capitalization norm of 25% relaxed

Critical Analysis

Foreign investment policy questioned No social security schemes devised before downsizing Entry into non-priority sectors No clear cut policy focus on the SSI sector Move of privatizing profitable PSUs Agriculture was neglected The measures were anti-employment No direct measures of technology upgradation