PRESENTATION

ON INDUSTRIAL

POLICY, 1991BY: YAMAN KAUSHIK

SYNOPSIS

•MEANING: INDUSTRIAL POLICY

•OBJECTIVES OF NEW INDUSTRIAL POLICY 1991

•FEATURES OF NIP 1991

•CRITICAL EVALUATION OF INDUSTRIAL POLICIES 1991

•SUMMARY

MEANING: INDUSTRIAL POLICY

Industrial policy means rules, regulations , principles , policies , and procedures laid down by government for regulating , developing and controlling industrial undertakings in the country. It prescribes the respective roles of the public, private joint and cooperative sectors for the development of industries. It also indicates the role of the large , medium , and small sector . It incorporates fiscal and monetary policies, tariff policy , labour policy and the government attitude towards foreign capital, and role to be played by multinational corporations in the development of the industrial sector.

OBJECTIVES OF INDUSTRIAL POLICY

Accelerating the overall rate of growth through industrialization.

Expanding the industrial base in relation to industrialization needs

of the country.

Generating employment and reducing poverty.

Preventing monopolies and concentration of industrial

power.

Creating competitive conditions and encouraging the growth of

entrepreneurship

Promoting balanced industrial development.

Promoting linkages with others sectors of the economy.

Assisting small enterprisesEncouraging the growth of

industrial research and development

OBJECTIVES OF NEW INDUSTRIAL POLICY

Attainment of international

competitiveness.

Development of backward areas.

Encouraging competition

within Indian industry.

Efficient use of productive resources.

Full utilization of plant

capacities to generate

employment.

Revival of weak units.

FEATURES OF NIP

• DE-RESERVATION OF PUBLIC SECTOR: THE NUMBER OF INDUSTRIES RESERVED FOR PUBLIC

SECTOR WAS REDUCED TO 8 INDUSTRIES. AT PRESENT, THERE ARE ONLY THREE INDUSTRIES

RESERVED FOR PUBLIC SECTOR WHICH INCLUDE. (A) ATOMIC ENERGY (B) RAILWAYS, AND (C)

SPECIFIED MINERALS.

• DE-LICENSING: -THE MOST IMPORTANT FEATURES OF NIP, 1991 WAS THE ABOLITION OF INDUSTRIAL

LICENSING OF ALL INDUSTRIES EXCEPT SIX INDUSTRIES. THE SIX INDUSTRIES ARE OF SOCIAL AND

STRATEGIC CONCERN. THE SIX INDUSTRIES ARE

1. HAZARDOUS CHEMICALS. 2. ALCOHOL 3. CIGARETTES 4. INDUSTRIAL EXPLOSIVES 5. DEFENSE

PRODUCTS, AND 6. DRUGS.

• DISINVESTMENT OF PUBLIC SECTOR: -THE NIP 1991 PERMITTED DISINVESTMENT OF PUBLIC

SECTOR UNITS. DISINVESTMENT IS A PROCESS OF SELLING GOVERNMENT EQUITY IN PSUS IN

FAVOUR OF PRIVATE PARTIES. DISINVESTMENTS AIM AT CERTAIN OBJECTIVES. (1) TO PROVIDE

BETTER CUSTOMER SERVICE. (2) TO MAKE EFFECTIVE USE OF DISINVESTMENT FUNDS. (3) TO

OVERCOME THE PROBLEM OF POLITICAL INTERFERENCE. (4) TO ENABLE THE GOVERNMENT TO

CONCENTRATE ON SOCIAL DEVELOPMENT.

FEATURES OF NIP,1991 (CONT…..)• FOREIGN INVESTMENT: APPROVAL WILL BE GIVEN FOR DIRECT FOREIGN

INVESTMENT UP TO 51 PERCENT FOREIGN EQUITY IN HIGH PRIORITY INDUSTRIES

. THERE SHALL BE NO BOTTLENECKS OF ANY KIND IN THIS PROCESS

• FOREIGN TECHNOLOGY AGREEMENTS: AUTOMATIC PERMISSION WILL BE

GIVEN FOR FOREIGN TECHNOLOGY AGREEMENTS IN HIGH PRIORITY INDUSTRIES

UP TO A LUMP SUM 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. NO PERMISSION WILL BE NECESSARY FOR

HIRING OF FOREIGN TECHNICIANS, FOREIGN TESTING OF INDIGENOUSLY

DEVELOPED TECHNOLOGIES.

• MRTP ACT: EMPHASIS WILL BE PLACED ON CONTROLLING AND REGULATING

MONOPOLISTIC, RESTRICTIVE AND UNFAIR TRADE PRACTICES.

SIMULTANEOUSLY, THE NEWLY EMPOWERED MRTP COMMISSION WILL BE

AUTHORIZED TO INITIATIVE INVESTIGATIONS ON COMPLAINTS RECEIVED FROM

INDIVIDUAL CONSUMERS OR CLASSES OF CONSUMERS IN REGARD TO

MONOPOLISTIC, RESTRICTIVE AND UNFAIR TRADE PRACTICES.

(FEATURES OF NIP,1991 CONT…..)• PUBLIC SECTOR POLICY : THE PRIORITY AREAS FOR GROWTH

OF PUBLIC ENTERPRISES IN Y: THE FUTURE WILL BE THE

FOLLOWING:

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 PRODUCTS WHERE STRATEGIC

CONSIDERATIONS PREDOMINATE SUCH AS DEFENSE EQUIPMENT.

FEATURES OF NIP,1991 (CONT…..)• PROMOTING SMALL SCALE INDUSTRIES: THE NEW INDUSTRIES

POLICY FOR THE SMALL SECTOR INDUSTRIES WAS ANNOUNCED ON 6TH

AUGUST, 1991.THE MOST IMPORTANT FEATURES ARE:

THE NEW POLICY PROVIDES FOR THE SUPPLY OF RAW MATERIALS AND

MARKETING FACILITIES TO THE SSI UNITS. AS FOR MARKETING , THE

POLICY ENVISAGES MARKET PROMOTION OF THEIR PRODUCTS BE

UNDERTAKEN BY CO-OPRATIVES, PUBLIC SECTOR INSTITUTIONS AND

OTHER PROFESSIONAL AGENCIES

WIDENING AND DEEPENING THE COMPLEMENTARITY IN THE PRODUCTION

PROGRAMMES OF LARGE, MEDIUM AND SMALL SECTORS. THIS WILL BE

ENSURED THROUGH PRODUCTION OF PARTS , COMPONENTS, ETC. WHICH

ARE REQUIRED BY THE LARGE PUBLIC AND PRIVATE INDUSTRIES.

(FEATURES OF NIP,1991 CONT…..) THE INVESTMENT LIMIT IN ANY PLANT OR INDUSTRY IN A UNIT HAS BEEN

RAISED FROM RS. 5 LAKH TO RS. 25 LAKH TO PROVIDE FOR THE INCREASE

IN THE PRICES OF CAPITAL GOODS

SPECIAL MEASURES HAVE BEEN TAKEN FOR HANDLOOM, HANDICRAFTS,

KHADI AND VILLAGE INDUSTRIES.

CRITICAL EVALUATION OF NEW INDUSTRIAL POLICY 1991 • POSITIVE EFFECTS ON THE ECONOMY:

INCREASE PRODUCTION: FOREIGN INVESTMENT AND FOREIGN

TECHNOLOGY AGREEMENTS ARE DESIGNED TO ATTRACT CAPITAL,

TECHNOLOGY AND MANAGERIAL EXPERTISE FROM ABROAD. THIS INFLOW

OF FOREIGN INVESTMENT AND BETTER TECHNOLOGY WILL HELP TO RAISE

PRODUCTION . THESE RESOURCES WILL BE MORE EFFECTIVELY

ALLOCATED SO THAT INDUSTRIAL PRODUCTION WILL INCREASE.

INCREASE COMPETITION: EASY ENTRY OF MULTINATIONAL

COMPANIES , REMOVAL OF ASSET LIMIT ON MRTP COMPANIES, LIBERAL

LICENSING WILL INCREASE COMPETITION I OUR ECONOMY. COMPETITION

WILL RESULT IN MORE EFFICIENCY , BETTER QUALITY OF PRODUCTS AND

LOWER PRICES.

[CRITICAL EVALUATION OF NEW INDUSTRIAL POLICY 1991 CONT…..]INCREASE EFFICIENCY OF PUBLIC SECTOR: THE REDUCTION IN

NUMBER OF INDUSTRIES RESERVED FOR PUBLIC SECTOR FROM 17 TO 3 AND

THAT THREAT OF CLOSURE OF SICK PUBLIC SECTOR ENTERPRISES WOULD

RESULT BIN RAISE IN THEIR EFFICIENCY. MEASURES LIKE PROFESSIONAL

MANAGEMENT AND GREATER AUTONOMY ARE EXPECTED TO IMPROVE

PERFORMANCE OF PUBLIC SECTOR ENTERPRISES.

INCREASE EXPORTS: IN THE NIP 191, EXPORT-ORIENTED UNITS ARE

GIVEN VARIOUS CONCESSIONS LIKE LIBERAL LOANS , SETTING UP OF SPECIAL

ECONOMIC ZONE, LIBERAL IMPORT OF CAPITAL GOODS , RAW MATERIALS,

TECHNOLOGY, ETC. ALL THIS WILL HELP TO ACHIEVE BALANCED REGIONAL

DEVELOPMENT.

[CRITICAL EVALUATION OF NEW INDUSTRIAL POLICY 1991 CONT…..]REDUCE ECONOMIC BURDEN ON GOVERNMENT: AREA OF

PUBLIC SECTOR HAS BEEN REDUCED DRASTICALLY. NOW ONLY 3 AREAS

ARE RESERVED FOR PUBLIC SECTOR . ALL OTHER AREAS HAVE BEEN

OPENED FOR PRIVATE SECTOR. SICK UNITS ARE EITHER CLOSED OR OPEN

TO PRIVATE SECTOR S. ALL THIS HAS REDUCED THE ECONOMIC BURDEN ON

THE GOVERNMENT.

BRING BALANCED REGIONAL DEVELOPMENT: IN NIP 1991,

SPECIAL PROVISIONS HAVE BEEN MADE TO SET UP BIG INDUSTRIES IN

BACKWARD REGIONS. INDUSTRIES LOCATED IN BACKWARD REGIONS ARE

GIVEN VARIOUS INCENTIVES. ALL THIS WILL HELP TO ACHIEVE BALANCED

REGIONAL DEVELOPMENT.

[CRITICAL EVALUATION OF NEW INDUSTRIAL POLICY 1991 CONT…..]GIVE MORE SIGNIFICANCE TO SMALL SCALE

INDUSTRIES: THE NEW INDUSTRIAL POLICY PROVIDED FOR THE FIRST

TIME A SEPARATE STRATEGY FOR THE GROWTH OF SMALL-SCALE AND

COTTAGE INDUSTRIES. THIS STRATEGY INCORPORATES SEVERAL

MEASURES FOR PROMOTING AND STRENGTHENING SMALL, TINY, VILLAGE

ENTERPRISES. NIP 1991, WILL PROVIDE ENHANCED SUPPORT TO THE SMALL

SCALE SECTORS SO THAT THEY FLOURISH IN AN ENVIRONMENT OF

ECONOMIC EFFICIENCY AND CONTINUOUS TECHNOLOGICAL UP

GRADATION.

[CRITICAL EVALUATION OF NEW INDUSTRIAL POLICY 1991 CONT…..]• MAIN POINTS OF CRITICISM OF NIP 1991:-

LEADS TO MORE CONCENTRATION OF ECONOMIC POWER: THE AMENDMENT OF THE MRTP ACT TO REMOVE THE THRESHOLD LIMIT F

ASSETS IN RESPECT OF MRTP COMPANIES AND CONFINING ONLY TO THE

MALPRACTICES OF THE BUSINESS HOUSES MEANS NO CONCERN FOR THE SIZE

OF THE COMPANIES. THIS PROVISION IS COUNTER

LEAD TO LESS REGIONAL BALANCE: THE OBJECTIVES OF REDUCING

INEQUALITIES IN THE INDUSTRIAL DEVELOPMENT OF DIFFERENT REGIONS OR

STATES WILL REMAIN A DISTANT DREAM. THIS IS OBVIOUS FROM THE FACT THAT

WHILE LIBERALIZING OF LICENSING PROCEDURES GIVES THE FREEDOM TO SET

UP ANY INDUSTRY AND THE LOCATIONAL POLICY SHOWS CONCERN ABOUT THE

BIG CITIES (OVER 1 MILLION POPULATION) AND RURAL AND BACKWARD AREAS;

IT IS WITHOUT LEAST REGARD FOR THE REGIONAL BALANCES. AS SUCH, THE NIP

GOES AGAINST THE OBJECTIVES OF ENSURING REGIONAL BALANCE.

[CRITICAL EVALUATION OF NEW INDUSTRIAL POLICY 1991 CONT…..]• LEAD TO EXCESSIVE COMPETITION FOR SMALL SECTOR:

IN NIP, THE MARKET FORCES FOSTERED BY DE LICENSING, UNRESTRICTED

GROWTH OF MONOPOLIES, EASY ENTRY OF FOREIGN DIRECT INVESTMENT

AND TECHNOLOGY ETC., IS VERY LIKELY TO AFFECT ADVERSELY. THE

SMALL SECTOR. THE LARGE SECTOR, BY TURNING SMALL UNITS , MAY

CORNER MOST OF THE BENEFITS.

• INCREASE UNEMPLOYMENT: RATHER THAN INCREASING

EMPLOYMENT, THE NIP MAY ACTUALLY WORSEN IT.FOREIGN INVESTMENT

ALONG WITH FOREIGN TECHNOLOGIES THAT THE NIP ALLOWS FREELY, CAN

DO LITTLE TO RAISE EMPLOYMENT BECAUSE THESE ARE CAPITAL-

INTENSIVE IN NATURE

[CRITICAL EVALUATION OF NEW INDUSTRIAL POLICY 1991 CONT…..]• RAISE THREAT FROM FOREIGN COMPANIES: IN THE NEW

LIBERALIZED SCENARIO THAT HAS EMERGED IN THE P[OST-1991 REFORM

PHASE, INDIAN BUSINESSMAN ARE FACING UNEQUAL COMPETITION FROM

MNC’S . UNEQUAL COMPETITION IS DUE TO NUMBER OF REASONS :

a) INDIAN COMPANIES SUFFERS FROM ‘SIZE DISADVANTAGES’ AS THEY ARE

VERY SMALL IN COMPARISON OF MNC’S.

b) THE COST OF CAPITAL TO INDIAN BUSINESS IS MUCH HIGHER THAN THE

MNC.

c) THE INDIAN ENTERPRISES ARE VERY WEAK FINANCIALLY IN

COMPARISON WITH MNC

[CRITICAL EVALUATION OF NEW INDUSTRIAL POLICY 1991 CONT…..]• LEAD TO LITTLE RESEARCH AND DEVELOPMENT: VARIOUS

POLICY PRONOUNCEMENTS OF THE GOVERNMENT IN RECENT YEARS

INDICATE THAT IT EXPECTS FOREIGN INVESTMENT TO HELP

TECHNOLOGICAL UPGRADATION OF THE INDUSTRIAL SECTOR AND PUSH UP

EXPORT EARNING.HOWEVER , THIS FAITH IN FOREIGN INVESTMENT IS

MISPLACED. AS POINTED BY H.K. PARANJAPE , NONE OF THE MNC

OPERATING IN THIS COUNTRY HAVE ATTEMPTED TO DEVELOP INDIA AS AN

IMPORTANT BSE FOR A ISGNIFICANT PART OF ITS WORLD-WIDE RESEARCH

AND DEVELOPMENT WORK.

INDUSTRIAL POLICIESIndustrial

policy resolution of 1948

Industrial policy

resolution of 1956

Industrial policy

resolution of 1973

Industrial policy

resolution of 1977

Industrial policy

resolution of 1980

Industrial policy

resolution of 1991

SUMMARY:oMAJOR FEATURES OF NIP 1991:

1. INDUSTRIAL LICENCING: IT IS NOW COMPULSARY IN ONLY 5

INDUSTRIES- ALCHOHOL, CIGRETTES, HAZARDOUS CHEMICALS,

ELECTRONICS, AEROSCAPE AND DEFENCE EQUIPMENTS.

2. PUBLIC SECTOR POLICY: NOW ONLY 3 INDUSTRIES ARE RESERVED FOR

PUBLIC SECTOR-ATOMIC ENERGY, MINERALS SPECIFIED IN THE

SCHEDULE OF THE ATOMIC ENERGY (CONTROL OF PRODUCTION AND

USE) ORDER 1953, AND RAIL TRANSPORT.

3. MRTP: LIMIT HAS BEEN ABOLISHED.

4. MANY STEPS HAS BEEN ANNOUNCED TO PROMOTE FOREIGN

INVESTMENT AND TECHNOLOGY. 100 PERCENT FOREIGN INVESTMENT

IS NOW ALLOWED. FDI IS PROHIBITED ONLY IN THE FOLLOWING0

SECTORS: (1). RETAIL SECTOR(EXCEPT SINGLE BRAND PRODUCT

RETAILING);(2) ATOMIC ENERGY;(#) LOTTERY BUSINESSAND ($)

GAMBLING AND BETTING.

SUMMARY:

5. SMALL SCALE SECTOR HAS BEEN PROMOTED.

oCRITICAL EVALUATION OF NIP[ 1991

SOME MERITS OF NIP 1991 ARE:

1. INCREASE IN PRODUCTION

2. INCREASE IN COMPETITION

3. INCREASE IN EFFICIENCY OF PUBLIC SECTOR

4. INCREASE IN EXPORTS

5. REDUCTION IN ECONOMIC BURDUN ON GOVERNMENT

6. BALANCED REGIONAL DEVELOPMENT

7. MORE SIGNIFICANCE GIVEN TO SMALL SCALE INDUSTRIES

SUMMARY:

SOME CRITICISM OF NIP 1991 ARE:

1. IT WILL LEADS TO MORE CONCERNTRATION OF ECONOMIC POWER

2. IT WILL LEAD TO LESS REGIONAL BALANCE

3. IT WILL LEAD TO EXCESSIVE COMPETITION FOR SMALL SECTOR

4. IT WILL INCREASE UNEMPLOYMENT

5. IT WILL THREAT FROM FOREIGN COMPANIES

6. IT WILL LEAD TO LITTLE RESEARCH AND DEVELOPMENT.

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