Describe the overall impact of the Industrial Policy, 1991 on Indian
industry. Give illustrations.
Answer. New Industrial Policy, 1991:
The New Industrial Policy of 1991 incorporated the concepts of liberalization,
globalization, internationalization, and privatization. They also incorporated the
following significant features: emphasis on consumer concerns, such as quality, cost,
and variety; encouragement of competition; quality assurance and the need to
continuously upgrade quality, and at reduced costs; a border-less, boundary-less
world, incorporating free exchange of money, ideas, and expertise; fostering of
strategic partnerships and alliances in the best service of the consumer; and human
The recent economic and industrial policy reforms call for integration of the Indian
economy and industry with their global counterparts. This calls for quantum leaps in our
levels of productivity and efficiency to survive in the face of international competition. In
addition to resource constraints, we will have to conform to international levels in terms
of energy use and environmental appropriateness, in addition to quality, reliability, and
costs. Simultaneously, we have to maximize employment opportunities. The basic
philosophy of the new policy has been summed up as continuity with change.
To consolidate the strengths built up during the last four decades of economic
planning and to build on the gains already made.
To correct the distortions or weaknesses that may have crept in the industrial
structure as it has developed over the last four decades.
To maintain a sustained growth in the productivity and gainful employment; and
To attain international competitiveness. The pursuit of these objectives will be
tempered by (a) the need to preserve the environment, and (b) the need to ensure
the efficient use of available resources.
Policy Changes Important changes in the NIP 1991, including the subsequent
changes, can be recounted as follows:
Industrial Licensing Policy
Industrial licensing has been abolished for all projects except for a short list of
industries related to security and strategic concerns, social reasons, hazardous
chemicals and overriding environmental reasons, and items of elitist consumption.
Only three industries groups where security and strategic concerns predominate
will be reserved exclusively for the public sector.
In projects where imported capital goods are required, automatic clearance will be
given in the following cases:
Where foreign exchange availability is ensured through foreign equity.
If the CIF value of imported capital goods required is less than 25 per cent of the
total value of plant and equipment, up to a maximum value of Rs.2 crore.
There is no requirement of obtaining industrial approvals from the Central
Government (except for industries under compulsory licensing) for location not
falling within 25 kms. Of cities having population of more than one million.
Industries of non-polluting nature such as electronics, computer software and
printing can hi located within 25 kms. Of the periphery of cities with more than one
million population. Other industries are permitted only if they are located in
designated industrial areas.
The mandatory convertibility clause will no longer be applicable. for term loans
from the financial institutions for new projects.
Since July 1991, Indian industry has undergone a sea-change in terms of the basic
parameters governing its structure and functioning. The major reforms include widescale
reduction in the scope of industrial licensing, simplification of procedural rules
and regulations, reduction of areas reserved exclusively for the public sector,
disinvestment of equity of selected public sector undertakings, enhancing the limits of
foreign equity participation in domestic industrial undertakings, liberalization of trade
and exchange rate policies, rationalization and reduction of customs and excise duties
and personal and corporate income-tax, extension of the scope of MODVAT etc.
Separate policy measures have been announced in the form of specific packages
aimed at upliftment of the small scale, tiny and cottage industries as well as 100 per
cent EOU's (Export Oriented Units) and units located in the EPZs (Export Processing
Zone) and Technology Parks.
It is observed
from the table that since 1992-93, all the major sectors had responded to economic
reforms with dynamism and witnessed significant acceleration of their respective
growth rates. However, during the current year until October 1996 there has been a
deceleration of industrial growth rates due to poor performance by mining and
The adoption of a New Industrial Policy in 1991 was accompanied by a series of
complementary reforms in fiscal, trade and foreign investment policies, which gradually
opened up the industrial sector to international competition. There was a shift in focus
from import substitution to competitiveness in international markets, with trade
liberalization contributing to reducing effective protection for industry.
The Foreign Direct Investment (FDI) policy was further liberalized and limits for foreign
equity participation in domestic industrial undertakings were enhanced. In 1996, a list
of nine industries, which included infrastructure, electronics and software, for which
joint ventures upto 74% foreign equity would be automatically cleared, was approved.
The number of industries eligible for automatic approval upto 51% foreign equity was
also expanded from 35 to 48.
Domestic industry is increasingly open to competition from international markets, with
quantitative restrictions on imports removed with effect from April 1, 2001 (Planning
Commission, 2001a). Tariff levels have also been decreased drastically since the
initiation of reforms. It is estimated that India's weighted import tariff has declined from
around 90% at the start of reforms to around 34% in 2001/02.
The energy and resource intensity of industrial production has been associated with
adverse environmental impacts. These can be categorized under four heads:
emissions, effluent discharges, generation of wastes including hazardous wastes and
the production of ozone-depleting substances (ODS). The quantum of industrial solid
wastes (non-hazardous) generated has nearly doubled in the last decade, from 77
MTPA (million tonnes per annum) in 1990 to 147.05 MTPA in 1999. In addition, about
7.2 million tonnes of industrial hazardous wastes are generated in the country (MoEF,
2000). A discussion of the extent of industrial emissions and effluent discharge is
presented in the chapters on Atmosphere and Water.
Employment generation and labour welfare
The industrial sector is an important source of employment in the country. The estimate
of employment in organized public and private sector stood at 27.9 million (MoF, 2002).
In addition, large numbers are employed in the unorganized sector. In the context of
economic reforms and restructuring of the industrial sector, changes in the labour
market involving redeployment and retrenchment of labour would be associated with
social costs. These costs would have to be minimized by providing for social security
mechanisms. Most importantly, productive employment generation and labour welfare
in the unorganized sector, where it will have the greatest poverty-reducing impact, will
have to be ensured.
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