The document summarizes India's New Industrial Policy of 1991. It overcame restrictions on industries, foreign capital, and technology from previous policies. The 1991 policy aimed to liberalize and integrate India's economy by removing unnecessary bureaucratic controls and restrictions on foreign investment. It abolished industrial licensing for most industries, reduced restrictions of the Monopolies and Restrictive Trade Practices Act, and allowed more foreign investment and technology transfers.

1. THE NEW INDUSTRIAL POLICY,
1991
Swapna Hegde, IMED

2. 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

3. 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

4. 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

5. Initiatives Taken in New Economic Policy
New Economic Policy (1991)
Industrial Sector Reforms External Trade Reforms
 Public Sector Policy  Foreign Investment
 Industrial Licensing Policy  Foreign Technology
 MRTP Act Agreements
Swapna Hegde, IMED

6. 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

7. 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 government’s 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

8. 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

9. List of Industries
List Of Industries - List of Industtries -
Public Sector Industrial Licensi
Swapna Hegde, IMED

10. 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

11. 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

12. 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

13. 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 Foreign investment allowed in a large
select industries that too subject to number of industries, including up to
normally, a ceiling of 40% of total 100% or equity in many of them.
equity and prior permissions Automatic route available subject to
specified conditions.
Restrictive policy towards foreign Very liberal policy towards foreign
technology technology
Reservation of large number of Reservation list is being pruned.
products for small scale sector
Swapna Hegde, IMED

14. 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

15. 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

16. 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
 Failureof MRTP to break the monopolistic or Oligopolistic
character of the Indian market
Swapna Hegde, IMED

17. THANK YOU
Swapna Hegde, IMED

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Swapna Hegde, IMED

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Swapna Hegde, IMED

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Swapna Hegde, IMED