WHAT?

The Government of India announced its New Industrial Policy 1991 on July 24, 1991, with the goal of overcoming the distortions and weaknesses in the country’s industrial structure that had developed over four decades, to raise industrial efficiency to international levels and accelerate industrial growth. The main objective of this policy was to provide facilities to market forces and increase efficiency.

This new industrial policy served as the foundation for all subsequent reform initiatives such as Liberalization, Privatization, and Globalization (LPG).

Features of New Industrial Policy 1991

1. Under this policy, the government monopoly was reduced by decreasing the number of industries reserved for the public sector, from 17 to 8 industries such as arms and ammunition, atomic energy, coal, mineral oil, etc. At present, only two sectors - atomic energy and railways are reserved for the public sector.
2. This policy abolished industrial licensing, or license raj or red tapism, under which the private sector firms have to secure licenses to start an industry, except for the 13 industries. These included drugs and pharmaceuticals, hazardous chemicals, explosives such as gunpowder and detonating fuses, etc.
3. It allowed foreign companies to have a majority stake in India, for example, in 47 high-priority industries, up to 51% of FDI was allowed.
4. Public sector was reformed in many ways. The government identifies strategic and priority areas for the public sector to focus on. Loss-making PSUs were sold to the private sector. The government adopted a disinvestment policy to restructure the public sector. At the same time, autonomy has been given to PSUs boards for efficient functioning through initiatives like Maharatnas, navratnas and Miniratnas.
5. This policy has given a welcome to foreign technology. No prior permission from the government will be required in importing foreign technology, up to the limit of Rs. 1 crore. Indian companies were made free to negotiate their terms and conditions with their foreign collaborators in matters of technology transfer.
6. The New Industrial Policy of 1991 has increased the limit under the Monopoly and Restricted Trade Practise (MRTP) Act. Companies having assets of Rs. 100 crores or more were not required to take prior government permission for opening new subdivisions, for expansion, or for amalgamation of companies. Later in 2002, MRTP act was replaced by Competition Act 2002.
7. In order to remove the regional imbalances, under this industrial policy, various provisions were made to encourage industries in rural areas.
8. Various steps undertaken by the New Industrial Policy 1991 led to the abolition of industrial licensing, dismantling of price controls, dilution of reservations for small-scale industries and the virtual abolition of monopolies law, relaxation of restrictions on foreign investments, etc.