19 Jul New Industrial Policy
New Industrial Policy, 1991
The New Industrial Policy, 1991 had the main objective of providing facilities to market forces and to increase efficiency.
Larger roles were provided by
- L – Liberalization (Reduction of government control)
- P – Privatization (Increasing the role & scope of the private sector)
- G – Globalisation (Integration of the Indian economy with the world economy)
Because of LPG, old domestic firms have to compete with New Domestic firms, MNC’s and imported items
The government allowed Domestic firms to import better technology to improve efficiency and to have access to better technology. The Foreign Direct Investment ceiling was increased from 40% to 51% in selected sectors.
The maximum FDI limit is 100% in selected sectors like infrastructure sectors. Foreign Investment promotion board was established. It is a single-window FDI clearance agency. The technology transfer agreement was allowed under the automatic route.
Phased Manufacturing Programme was a condition on foreign firms to reduce imported inputs and use domestic inputs, it was abolished in 1991.
Under the Mandatory convertibility clause, while giving loans to firms, part of the loan will/can be converted to equity of the company if the banks want the loan in a specified time. This was also abolished.
Industrial licensing was abolished except for 18 industries.
Monopolies and Restrictive Trade Practices Act – Under his MRTP commission was established. MRTP Act was introduced to check monopolies. The MRTP Act was relaxed in 1991.
On the recommendation of the SVS Raghavan committee, Competition Act 2000 was passed. Its objectives were to promote competition by creating an enabling environment.
To know more about the Competition Commission of India, check the linked article.
Review of the Public sector under this New Industrial Policy, 1991 are:
- Public sector investments (Disinvestment of Public sector)
- De-reservations –Industries reserved exclusively for the public sector were reduced
- Professionalization of Management of PSUs
- Sick PSUs to be referred to the Board for Industrial and financial restructuring (BIFR).
- The scope of MoUs was strengthened (MoU is an agreement between a PSU and concerned ministry).
There are some state-wise Industrial policies that would be relevant for UPSC aspirants to understand Industrial Policies better and in-depth.