Import Substituting Regulatory Policy Regime

Policy Regime:
Import substituting Regulatory policy
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Industrial Policy, 1948:
On April 6, 1948, the Government of India adopted its first industrial
policy
The policy laid a foundation of a mixed economy which included both
the public sector as well as private sector for accelerating the
industrial development of the country.
1. Division of Industrial Sector:
(a) Industries with complete state Monopoly:
In this first category the manufacture of arms and ammunition, the
production and control of atomic energy and ownership and
management of railway transport were included. Their expansion,
development and new construction was the responsibility of the
government.

(b) Mixed Sector:
The second category included coal, iron and steel, aircraft manufacture,
ship-building, manufacture of telephone, telegraphs and wireless sets and
mineral oil industries.
(c) The Sector of Government control:
In this category various industries such as salt, automobiles, tractors, prime
movers, heavy chemical, electric engineering, machine tools, fertilizers,
electro-chemical industries, rubber manufactures, power and industrial
alcohol, non-metals, cotton and woollen textiles, sugar, paper, cement,
newsprint, air and sea transport, minerals and industries related to defence
were included.
(d) Private Sector
All the remaining industries were placed in the fourth category which were
kept open to private sector including both individual as well as co-operative

2. Role of cottage and Small Scale Industries:
Employment creation, safeguard from competition
3. Role of Foreign Capital:
Regarding foreign capital, the industrial policy recognized the need for
security and participation of foreign capital and enterprise especially
in respect of technology and knowledge.
4. Harmonious Relation between Management and Labour:
The policy emphasised the need for harmonious industrial relations
and evolving a machinery which would ensure congenial working
atmosphere.

Industrial Licensing Policy:
Industries (Development and Regulation) Act, 1951:
The IDRA Act, 1951 was passed by the Parliament in October
1951 in order to control and regulate the process of industrial
development.
The main objectives of the Act were:
(a) To regulate industrial investment and production as per
priorities and targets of plan;
(b) To protect small industries from large industries;
(c) To prevent growth of monopoly and concentration of
ownerships; and
(d) To attain balanced regional development.
(e) Optimum utilisation of scarce foreign capital

1. Restrictive provisions in the Act: The following are some of
the important restrictive provisions in the IDRA Act to check the
unfair practices adopted by industries.
(a)Registration and licensing:
License will be essential for establishment of any industry
whether in Public or Private sector
Extension of the existing units also require government
permission.
(b) Enquiry of Industries:
(c) Cancellation of Registration:
2. Reformative Provisions:
In order to make necessary reforms in those industries, the
following reformative measures were undertaken:

(a) Direct regulation or control by government:
Provisions were made to issue directions for reforms of those industries
which were showing unsatisfactory performances. In the extreme case
the government might take over the management and control of
mismanaged unit.
(b) Control on price and supply:
Provision was made through this Act to empower the government to
regulate and control the prices, distribution and supply of the product
produced by any industrial unit included in the schedule of the Act.
(c) Constructive measures:
Government established Central Advisory Council along with a number
of Development Councils for different products. Initially 37 industries
were brought under the purview of the Act and later on their number
was raised to 70.

Although initially capital investment limit was fixed at Rs. 1 lakh but later
on it was decided that any industrial units employing less than 100
workers and maintaining fixed capital less than Rs. 10 lakh should not be
brought under the purview of the Act.
This investment exemption limit was later raised to Rs. 25 lakh in 1963, Rs.
1 crore in 1970, Rs. 3 crore in 1978 and then to Rs. 5 crore. In 1988-89, the
government announced the industrial de-licensing package in which the
system of licensing was abolished for those industries set up in backward
areas having investment less than Rs. 50 crore and for those industries
located in non-backward areas.
But this licensing policy was criticized on the ground that it led to
under-utilization of production capacity, expansion of large industrial
houses, economic concentration, increased regional imbalances, and
promotion of inefficient enterprises.
***

Industrial Policy Resolution, 1956:
On April 30, 1956, a second Industrial Policy Resolution was
adopted in India replacing the policy Resolution of 1948. It was a
socialist, progressive and well defined industrial policy
Objectives:
To accelerate the rate of growth and industrialization
To develop heavy industries and machine making industries
To expand public sector
To reduce inequalities in income and wealth
To build-up large and growing cooperative sector
To prevent Monopolies and Concentration of wealth and income in
the hands of a few.

In this new policy, industries were re-classified into three schedules.
(a) Schedule A:
In the schedule A, 17 industries were listed and the future
developments of these industries were to be the exclusive
responsibility of the State.
These industries include arms and ammunition, atomic energy, iron
and steel, heavy castings and forgings of iron and steel, heavy
machinery, heavy electrical industries, coal, mineral oil, mining; iron
ore and other important minerals like, copper, lead and zinc; railway
transport, aircraft, ship building, telephone, telegraph and wireless
equipment, and generation and distribution of electricity.

(b) Schedule B:
In this schedule 12 industries were placed which will be
progressively state- owned.
In this schedule, the state would gradually set up new units and the
private industries would also be expected to supplement the effort of
the state in this regard.
These twelve industries include aluminium, other mining industries
and other non-ferrous metals not included in the schedule A, machine
tools, Ferro alloys and tool, steels, fertilizers, the chemical industry,
antibiotics and other essential drugs, synthetic rubber, carbonization
of coal, chemical pulp, road transport and sea transport.

(c) Schedule C:
In this schedule all the remaining industries were included and their
future development would be left to the initiative and enterprise of
the private sector.
The state would facilitate and encourage the development of all these
industries in the private sector as per the programmes finalized in the
Five Year Plans of the country.
These industries were controlled by the state in terms of the
Industries (Development and Regulation) Act of 1951 and other
relevant legislations.

(ii) No water-tight Classification:
It is important to note that the grouping of industries into three
schedules was not placed in water-tight compartments. As these
classifications remained open, thus the State may start any industry
even in schedule C and similarly privately owned units may be
permitted to establish industrial units even in schedule A in
appropriate cases.
(iii) Fair and Non-discriminatory Treatment for the Private
Sector:
The State would facilitate and encourage the private sector industries
by ensuring infrastructural facilities like power, transport and other
services and provide non-discriminatory treatment to both public
and private owned units.

(iv) Encouraging Cottage and Small Scale Industries:
The State would continue to support cottage, village and small scale
industries by restricting the volume of production in the large scale
industrial units, by imposing differential taxation or by direct subsidies
and would concentrate to improve their competitive strength by
modernizing the techniques of production.
(v) Removal of Regional Disparities:
In order to secure a balanced development, the policy emphasized to
remove regional disparities in respect of industrial development and
tries to attain higher standard of living for the people of the country.

(vi) Amenities for Labour:
The Resolution recognized the importance of labour and recommended
to associate the workers and technicians with management
progressively. The policy stressed the need for improving the living and
working conditions of workers and also to raise their standard of
efficiency.
(vii) Attitude towards Foreign Capital:
Regarding the foreign capital the resolution maintained the same attitude
as enunciated in our Industrial Policy, 1948. The policy recognized the
importance of foreign capital and has given clear assurance for the safety
and facilities for investment of the foreign investors.
Thus the policy laid a strong foundation for a mixed economy in the
country.

Industrial Licensing Policy, 1970:
As per the recommendations of Dutt Committee, the Government of
India announced a new Industrial Licensing Policy in February 1970.
Following are some of the basic features of this policy:
1. A ‘core sector’ was introduced which consisted of basic industries
and industries related to defence requirements and of critical and
strategic importance.
2. The 1970 Licensing Policy mentioned about another sector as
‘heavy investment sector’ which included all those industries having
investment more than Rs. 5 crore.
3. Other middle sector and delicensed sector were open for private
investment except those reserved for the public sector.

The core sector industries were divided into 9 sectors which
were consisted of:
(i) Agricultural inputs,
(ii) Iron and steel,
(iii) Non-ferrous metals,
(iv) Petroleum,
(v) Cooking coal,
(vi) Heavy industry machinery
(vii) Ship building and building of dredgers,
(viii) Newsprint and
(ix) Electronics.
Industries which were earlier reserved for public sector in the 1956
policy would continue to be reserved and in other sectors, large
industrial house and foreign companies would be allowed to develop.

3. The ‘middle sector’ consisting of all those industries having
investment between Rs. 1 crore and Rs. 5 crore, would be
considerably liberalized and their licensing procedures would be
simplified to a large extent.
4. Industries having investment less than Rs. 1 crore were placed in
the ‘Unlicensed sector’ where to set up any industry no license
henceforth would be required.
5. Joint sector-It is mentioned that while sanctioning loans or
subscribing to debentures in future, all public financial institutions
should have the option to convert them into equity within the
definite period of time.
In respect of small scale sector, the existing policy of reservation was
continued and the area of such reservation was extended.

Industrial Licensing Policy 1973:
In February, 1973, another industrial Licensing Policy statement was
adopted in which a new definition of ‘large industrial houses’ was
adopted. In 1973 policy this definition for large houses was adopted
as per the MRTP Act in which any industrial establishment having
assets more than Rs. 20 crore would be called large houses as against
the limit of Rs. 35 crore permitted earlier by 1970 licensing policy.

In this new policy two previous recommendations, of 1970 policy i.e.,
exemption limit from licensing (raised from Rs. 25 lakh to Rs. 1 crore
in 1970) and the joint sector were maintained. This 1973 licensing
policy also expanded the area of core sector which would now
include 19 industry groups as compared to 9 industries permitted in
1970 policy.
This was major concession to large industrial houses as the sector
now included “low priority but highly profitable industries like man-
made fibres and synthetic detergents”. It was claimed that the new
policy would net in more large industrial houses. But the claim was
not justified.

Industrial Policy Development in Eighties—Liberalisation Wave:
During eighties, various steps were taken by the Government for
liberalizing the industrial policy of the country.
These steps were as follows:
1. Exemption from Licensing:
In order to liberalise the industries, the exemption limit of licensing
was continuously enhanced from non-MRTP and non-FERA
companies. The exemption limit which was Rs. 3 crores in 1978,
gradually enhanced to Rs. 5 crores in 1983 and then substantially to
Rs. 55 crores for those projects to be located in non-backward areas
and to Rs. 50 crores for those projects located in backward areas in
1988-89.

2. Relaxation to MRTP and FERA Companies:
The government made provision for various relaxations to those
companies under MRTP Act (Monopolies and Restrictive Trade
Practices Act) and FERA (Foreign Exchange Regulation Act) in order
to expand industrial production and also to promote exports.
These relaxations include:
(a) Raising the limit of MRTP companies from Rs. 20 crores to Rs. 100 crores in
March, 1985;
(b) Allowing the MRTP to set up new capacities in those industries of high
national importance and with import substitution potential or using
sophisticated technology without the approval to government in 1983 (May);
(c) Giving permission for unrestricted entry of large industrial houses and
companies governed by FERA in 21 high technology items of manufacture in
December, 1985. Accordingly, large industrial houses under the purview of MRTP
Act and FERA companies were given permission to freely undertake the
manufactures of 83 items.

(d) Specifying a list of 33 broad group of industries under Appendix I
where MRTP and FERA companies were given permission to set up
capacities provided these items are not in the reserved list of small
scale sector or public sectors;
(e) Making provision for various other concessions such as
regularisation of excess capacity and capacity re-endorsement,
special facilities to set up industries in backward areas etc. to MRTP
and FERA companies.
3. Delicensing:
Government delicensed 28 broad categories of industries and 82 bulk
drug and their formulations.

4. Re-endorsement of Capacity:
In order to achieve maximum capacity utilisation, in April 1982, the
scheme of capacity re-endorsement was announced.
Again in 1986, this scheme was liberalised further to permit those
undertakings in availing such facility which achieved 80 per cent
capacity utilization (previously 94 per cent).
The industries which were not permitted for automatic re-
endorsement of capacity was reduced from 77 to 26.
5. Broad Banding Industries:
In 1984, the scheme of broad banding of industries was introduced in
order to classify these industries into broad categories. This was
done to enable the producers to change their product-mix rapidly in
order to match the changing demand pattern.

6. Minimum Economic Scales of Operation:
In 1986 the government introduced the minimum economic scales of
operation in order to encourage relations of economies of scale
through the expansion of its installed capacities. Till 1989, minimum
economic capacities (MECs) were specified gradually for 108
industries and in 1989-90 some more industries were specified
under MECs.
7. Development of Backward Areas: In March 1986 the Scheme
of delicensing was extended to MRTP and FERA companies.
Later on the scheme was extended to 49 industries. Again in 1988-
89, the government set up 100 growth centres throughout the
country to provide infrastructural facilities to these backward areas.
Moreover, in 1988 income tax reliefs were announced for
promoting industrialisation of backward areas.

8. Incentives for Export Production:
In order to promote exports, the government announced various
concessions in its industrial policy and export (Exim) policy. Again,
all 100 per cent export- oriented industries were exempted from
Section 21 and 22 of the Act which were set in Free-Trade Zones.
Some more industries were identified from export angle which were
permitted 5 per cent automatic growth rate annually over and above
their normal capacity.

9. Enhancement of Investment of Small Scale and Ancillary Units:
The investment limits for small scale units and ancillary units which
was Rs. 20 lakhs and 25 lakhs respectively as per 1980 policy
statement, gradually enhanced to Rs. 35 lakhs and Rs. 45 lakhs
respectively in 1985 and Rs. 2 lakhs for tiny units.
In 1991, these limits were again raised to Rs. 60 lakhs and Rs. 75
lakhs for both the small scale and ancillary units respectively.
Moreover about 200 times which were earlier reserved, were
completely de-reserved and kept open for large and medium scale
sector.

Industrial Policy Statement, 1977:
In December 1977, the Janata Party Government announced its New
Industrial Policy through a statement in the Parliament.
1. Development of Small Scale Industrial Sector:
The main thrust of the new policy was the effective promotion of
cottage and small industries widely dispersed in rural areas and
small towns. In this policy the small sector was classified into three
groups—cottage and household sector, tiny sector and small scale
industries.

This Industrial policy 1977, suggested following measures for
the promotion of small scale and cottage industries of the
country:
(a) Expanding the list of items from 180 to 807 items.
(b) Establishment of ‘District Industries Centre’ for the development
of cottage and small scale industries.
(c) Revamping Khadi and Village Industries Commission.
(d) Special arrangement for widespread application of suitable
technology for small scale and village industries.

2. Areas for Large Scale Sector:
The 1977 Industrial Policy prescribed the following areas for
large scale industrial sector:
(a) Basic industries,
(b) Capital goods industries,
(c) High technology industries and
(d) Other industries outside the list of reserved items for the small
scale sector.
3. Big Business Houses:
The 1977 Industrial Policy restricts the scope of large business
houses so that no unit of the same business group acquired a
dominant and monopolistic position in market.

4. Role of the Public Sector:
The new policy prescribed the expansion of the role of public sector
especially in respect of strategic goods of basic nature. The public
sector was also encouraged to develop ancillary industries and to
transfer its expertise in technology and management to small scale
and cottage industry sectors.
5. Promotion of Technological Self-reliance through the inflow of
technology in sophisticated areas was another feature of the 1977
policy.
6. The policy recommended a consistent line of approach towards
sick industrial units of the country.

7. Management-labour Relations:
The new policy of 1977 put emphasis on reducing the occurrence of
labour unrest. The Government encouraged the worker’s
participation in management from shop floor level to board level.
But the industrial Policy 1977, is subjected to serious criticism as
there was absence of effective measures to curb the dominant
position of large scale units and the policy did not envisage any
socioeconomic transformation of the economy for curbing the role of
big business houses and multinationals.

Adverse consequences:
• Dominance of public sector- industrial policy 1948,1956
• Trade and exchange control, Tariff, Quota, Taxes
• Selective access to foreign investment, FERA
• Industrial licensing, MRTP
• Administered prices MSP, import restrictions
• Subsidy to private sector
• Increasing Role of the State

• Huge losses in the Public Sector
• Fiscal deficit
• Debt Burden
• Low savings and investment
• Poor efficiency and low competitiveness
• Low productivity
• Increased prices
• Unemployment
• Balance of Payment crisis
• Slow growth in exports
• Regional disparities
• Slow rate of economic growth

1980-1990, a phase of piecemeal and Ad-hoc
Policy Regime

Industrial Policy of 1980:
On 3rd July, 1980 the Congress (I) Government announced its new
industrial policy. This new policy seeks to promote the concept of
economic federation, to raise the efficiency of public sector and to
reverse trend of industrial production of the past three years and
reaffirms its faith in the Monopolies and Restrictive Trade Practices
(MRTP) Act and the Foreign Exchange Regulation Act (FERA). While
preparing this policy statement, the 1956 resolution was considered
as its basis.

Socio-economic Objectives of the Policy:
The industrial policy statement, 1980 has laid down the following
objectives:
(i) Optimum utilization of installed capacity;
(ii) Maximizing production and to achieve higher productivity and higher
employment generation;
(iii) Correction of regional imbalance through a preferential development of
industrially backward areas;
(iv) Strengthening of the agricultural base according to a preferential
treatment to agro-based industries and promoting optimum inter-sectoral
relationship;
(v) Faster promotion of export-oriented and import substitution industries;
(vi) Promoting economic federalism with an equitable spread of investment
over small but growing unit in the rural as well as urban areas; and
(vii) Revival of the economy by removing the infrastructural gaps.

Policy Measures:
Besides in this industrial policy, 1980 the following policy
measures were proposed to normalize the situation and to put the
economy again on its feet:
1. Effective Operational System of Management of the Public
Sector:
The new policy reaffirmed its faith in the public sector in-spite of
having erosion of faith in it in recent years. Thus, the Government
decided to launch a time bound programme in order to revive the
efficiency of public sector undertakings.

2. Integrating Industrial Development in the Private Sector by
Promoting the Concept of Economic Federalism:
The policy statements state that for integrated industrial development,
it would promote the concept of economic federalism with setting up
of a few nucleus plants in each district, identified as industrially
backward district, to generate as many ancillaries and small and
cottage units as possible.
3. Nucleus Plants:
The new policy has introduced the concept of nucleus plants which
would concentrate on assembling the products of the ancillary units
falling within its orbit, on producing the inputs needed by a large
number of smaller units and making adequate marketing
arrangements. The nucleus plant would also make provision for
upgrading the technology of small units.

4. Redefining Small Units:
In view of the sufficient changes in the price level, price escalation and to
develop the cottage and small scale industries, the Government decided:
(a) To raise the limit of investment in respect of tiny units from Rs. 1 lakh to Rs. 2
lakh;
(b) To raise the investment limits in case of small scale units from Rs. 10 lakh to
Rs. 20 lakh; and
(c) To raise the investment limit in case of ancillary units from Rs. 15 lakh to Rs.
25 lakh.
Thus, the upward revision of investment limits would eliminate the tendency to
circumvent the present limit by under-estimating the value of machinery and
equipment, falsification of accounts or resort to ‘benami’ units. This would also
help the qualified entrepreneurs in order to set up genuine small scale units and
also facilitate the long overdue modernization of the existing small scale units.
Further, the new policy also provides other facilities like financial support to
small units, buffer stocks of critical inputs for small units, marketing support and
reservation of items for small scale industries as a whole.

5. Promotion of Industries in the Rural Areas:
The policy statement emphasized the necessity to promote suitable industries in
the rural areas in order to generate bigger employment and for raising per capita
income of the rural people without disturbing ecological balance in rural areas. In
this respect the development of handloom, handicrafts and khadi and village
industries would be given greater attention.
6. Removal of Regional Imbalance:
The policy encourages dispersal of industry and setting up of industrial units in
industrially backward areas for making necessary correction in regional
imbalances.
7. Liberalisation of Existing Capacities:
The policy statement gave recognition to the excess productive capacity as a
result of replacement and modernization, and regularized these unauthorized
excess capacities on selective basis.

8. Automatic Expansion:
The policy also gave concession to the large scale units about their extension and
simplification for automatic expansion until now permitted to 15 industries.
9. Industrial Sickness and State Policy:
The policy statement also proposed to introduce “a checklist” to serve as ‘early
warning system’ for identifying symptoms of sickness and also to take stern
measures about deliberate mismanagement and financial improprieties leading to
sickness. In exceptional cases only the management of sick units would be taken
over on public interests.
Conclusion:
In conclusion it can be observed that the New Industrial Policy (1980) is guided
mainly by the considerations of growth. The policy liberalized licensing for large
and big business, wanted to promote large scale industries at the cost of small
scale units. Thus the policy favours a more capital intensive path for development
and paves the way for the expansion of large and big industrial houses.

Industrial Policy 1991:
 Reduction in the scope of industrial licensing
 Simplification of Procedures, Rules and Regulations
 Reforms in MRTP Act
 Reduction in areas reserved for public sector to only 8
 disinvestment
 Enhancing limits of foreign equity participation
 Liberalization of Trade
 Reduction in customs and excise duties and personal and
corporate income tax
 Extension the scope of Modified Value Added Tax.

Industrial Licensing Policy 1991:
 Abolition of industrial licensing for all the new projects and expansion
of existing projects except for security and strategic concern, social
reasons, hazardous chemicals, overriding environmental reasons and
items of elitist consumption.
 Only 8 industries reserved for the public sector
 Automatic clearance for import of project machinery
 No requirement for industrial approval except for cities population
over one million
 Mandatory convertibility clause will no longer be applicable for term
loan from financial institutions
 Phase manufacturing programmes will not be applicable for new
projects
 Entrepreneurs to file information on new projects and subsequent
expansions.

Concentration of Economic Power and MRTP Act 1969
Restrictions on Large industrial houses and Dominant undertakings.
Prior approval from the Central Government for establishing
new project, merger or take over.
Regulation and prevention of Monopolistic trade practices
MRTP commission was empowered to enquire into any restrictive trade
practice and issue suitable orders.
Enquire into unfair trade practices.
In 1991 the act was amended and the clause of enquiry for restrictive
trade practice and unfair practice were abolished.
Dominant undertakings were defined. Definitions of goods and services
enlarged. More strict penalty provisions. Amended the definition of
unfair trade practice. Powers of the Commission widened. No prior
permission for investment.

Competition Law for India was triggered by Articles 38 and 39 of the
Constitution of India. These articles are the part of Directive principles of
state policy it was first adopted in 1969 and then amended in 2002.
Salient Features
1. IDRA Act 1951 not necessary
2. Industrial Dispute Act 1947 to be amended for easy exit
3. BIFR should be abolished
4. WTO provisions to be examined for competition clauses
5. MRTP act to be repealed.
Components of the competition Act:
1. Anti-competition Agreements
2. Abuse of Dominance
3. Combinations Regulations
4. Competition Advocacy

Earlier Development efforts during planned era initiated the
process of development-
Dominance of public sector- industrial policy 1948,1956
Trade and exchange control, Tariff, Quota, Taxes
Selective access to foreign investment, FERA
Industrial licensing, MRTP
Administered prices MSP, import restrictions
Subsidy to private sector
Increasing Role of the State

Adverse consequences
Dominance of public sector- industrial policy 1948,1956
Trade and exchange control, Tariff, Quota, Taxes
Selective access to foreign investment, FERA
Industrial licensing, MRTP
Administered prices MSP, import restrictions
Subsidy to private sector
Increasing Role of the State

New Economic Policy-1991
The Congress (I) led by Narasimha Rao Government has announced
its new industrial policy on July 24, 1991. In line with the
liberalisation move introduced during the 1980s, the new policy
radically liberalized the industrial policy itself and de-regulates the
industrial sector substantially.

Objectives:
The prime objectives of the new industrial policy are
to promote the growth
to build on the gains already experienced,
to correct the distortions or weakness involved in the system,
to introduce liberalisation measures in order to integrate Indian
economy with world economy,
to abolish restrictions on direct foreign investment,
to liberate the indigenous enterprise from the restrictions of MRTP Act,
to maintain a sustained growth in productivity and employment
to achieve international competitiveness.
to contain inflation
To reduce the role of public sector incurring loss

Thus to fulfil these objectives, the government introduced a series of
initiatives in the new industrial policy in the following areas:
1. Industrial sector Policy Reforms:
In order to liberalise the economy and to bring transparency in the
policy, the new industrial policy has abolished the system of
industrial licensing for all industrial undertaking, irrespective of
the level of investment, except for a short list of industries related to
security and strategic concerns, social reasons, hazardous chemicals
and overriding environmental concerns and items of elitist
consumption. As per Annexure II of the policy there are only 18
industries for which licensing was made compulsory.

These include:
(1) Coal and lignite;
(2) Petroleum (other than crude) and its distillation products;
(3) Distillation and brewing of alcoholic drinks;
(4) Sugar;
(5) Animal fat and oils;
(6) Cigars and Cigarettes of tobacco and manufactured tobacco substitutes;
(7) Asbestos and asbestos based products;
(8) Plywood and decorative veneers and other wood based products;
(9) Raw hides and skins, leather, chamois leather and patent leather,
(10) Tanned and dressed skins;
(11) Motor car;
(12) Paper and newsprint except bagasse based units;
(13) Electronic aerospace and defence equipment—all types;
(14) Industrial explosives;
(15) Hazardous chemicals;
(16) Drugs and Pharmaceuticals;
(17) Entertainment Electronics;
(18) White goods such as domestic refrigerators, washing machines, microwave ovens and air
conditioners.

2. Public Sector Policy reforms:
Reduced the role of public sector loss making units to be closed
The government decided to disinvest the equity shares of selected
public units
The priority areas for the growth of future public sector enterprises
included—essential infrastructure, exploration and exploitation of
minerals and oil, technology development and products with
strategic consideration.
The new policy has now reduced the list of industries under public
sector to 8 as against the 17 industries reserved earlier as per 1956
policy. The industries which are now removed from the list of
reserved industries include—iron and steel, electricity, air transport,
ship building, heavy machinery industries, telecommunication
cables and instruments.

Those 8 industries which remained in the reserved list for the
public sector are :
(1) Arms and ammunition and allied defence equipment, defence
aircraft and warships;
(2) Atomic energy;
(3) Coal and lignite;
(4) Mineral oil;
(5) Mining of iron ore, manganese ore, chrome, gypsum, sulphur,
gold and diamond;
(6) Mining of copper, lead, zinc, tin, molybdenum and wolfarm;
(7) Minerals specified in the schedule to the Atomic Energy (Control
of Production and Use) Order, 1953; and
(8) Rail transport.

Industries earning higher profit will be provided with much higher
degree of management autonomy through the system of MOU.
Private sector participation would be invited to raise the
competitive capacity of these industries. Sick units will now be
referred to the Board of Industrial Finance and Reconstruction
(BIFR) for getting advice about its rehabilitation and reconstruction.

Exit Policy, National Renewal Fund (NRF) and Voluntary
Retirement Scheme (VRS):
In order to safeguard the interest of workers who may be affected by
technological up-gradation of industry or closure of chronically sick
units the government established a National Renewal Fund (NRF)
in February 1992. It marks the launching of a process of industrial
restructuring in the wake of new economic policies aimed at taking
the country globally competitive. NRF would provide a safety net for
workers while an “exit policy” formulated to give recognition of the
right to “exit” when a unit cannot be run economically or is
terminally sick.

3. MRTP Limit:
MRTP firms were allowed to start only selected industries on a case
by case approval.
Monopolistic, restrictive and unfair trade practices to be controlled.
Thus, the new policy states that the pre-entry scrutiny of investment
decisions by the so-called MRTP companies will no longer be
required.
Abolished the system to obtain approval of the centre for expansion,
establishment of new undertaking, merger, amalgamation and take
over and appointment of certain Director by the monopoly houses.
“The thrust of the policy will be more on controlling unfair or
restrictive business practices”.

4. Foreign Investment Policy reforms:
Automatic Approval for foreign technology in high technology and high
priority industries up to 51% foreign equity.
The Annexure III included 34 priority industries.
Such as metallurgy, boilers and steam generating plants, electrical
equipment, telecommunication equipment’s, transportation, industrial
and agricultural machinery, industrial investments, chemicals, food
processing, hotel and tourism industry.
No permission will be required for hiring foreign technicians or for
testing of indigenously developed technology abroad

5. Location Policy Liberalised:
The new policy mentioned that in location other than cities of more
than 1 million population, no industrial approvals from the centre will
be required except for industries subject to compulsory licensing. In
cities with more than 1 million population, industries other than those
of non-polluting in nature, will be located outside 25 kms of its
periphery.

6. Fiscal Monetary and price policy reforms:
 Reducing non-plan revenue expenditure
 Mobilization of resources through tax and non-tax sources
 Reducing borrowing
 Controlling public expenditure
 Rationalizing the subsidy
 Ensuring the fiscal discipline
 Decontrol prices in case of petroleum products, gas etc.
Containing Government Expenditure-
Resource mobilization and tax reforms

7. Foreign investment Policy Reforms:
 Relatively open foreign investment
 Ensure BoP solution and inflow of latest technology
 Selective approach
 Simplification of rules
 Automatic approval
 RBI controlling the outflow of foreign currency in the form of
profit / dividend
 A special board to approve the FDI

8. Reforms in Trade Technology and Capital
plans:
 Easy procedures
 Single window clearances
 Removing of licencing system
 Reduction in quantitative restrictions
 Import policy- reducing tariffs
 Capital inflow flow
 Automatic approval to foreign technological collaboration
 Automatic clearance for import of capital goods

9. Financial Sector Reforms:
 Liberalization of financial sector in India
 Dismantling of the system of administered interest rates.
 Security market reforms
 Banking sector reforms
 External sector reforms
 Setting up institutions in the private sector
 Non-Banking Financial Institutions (NBFCs) registration with
RBI essential.

Fiscal Monetary and price policy reforms:
 Reducing non-plan revenue expenditure
 Mobilization of resources through tax and non-tax sources
 Reducing borrowing
 Controlling public expenditure
 Rationalizing the subsidy
 Ensuring the fiscal discipline

Foreign investment Policy Reforms:
 Relatively open foreign investment
 Ensure BoP solution and inflow of latest technology
 Selective approach
 Simplification of rules
 Automatic approval
 RBI controlling the outflow of foreign currency in the form of
profit / dividend
 A special board to approve the FDI

Reforms in Trade Technology and Capital plans:
 Easy procedures
 Single window clearances
 Removing of licencing system
 Reduction in quantitative restrictions
 Import policy- reducing tariffs
 Capital inflow flow
 Automatic approval to foreign technological collaboration
 Automatic clearance for import of capital goods

Import Substituting Regulatory Policy Regime

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