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Introduction
The Industrial Policy indicates the respective roles of the public, private, joint and co-operative sectors; small, medium and large scale industries. It underlines the national priorities and the economic development strategy. It also spells the Governments policy towards industries- their establishment, functioning, growth and management; foreign capital and technology, labor policy, tariff policy etc. in respect of the industrial sector.
The Industrial Policy of India has determined the pattern of economic and industrial development of the economy. The Industrial Policy reflected the socio-economic and political ideology of development.
The Industrial Policy announced on July 24, 1991 heralded the economic reforms in India and sought to drastically alter the industrial scenario in our country. The most visible sign of the countrys economic crisis in early 1991 was: Extremely low foreign exchange reserves of Rs. 2400 crore (just enough to buy from abroad only three weeks requirements.) Inflation was as high as 13.5%
This policy expanded the scope of the private sector by opening up most of the industries for the private sector and did away with the entry and growth restrictions. The most important initiatives are with respect to the virtual scrapping of industrial licensing and registration policies, an end to the monopoly law and a welcoming approach to foreign investments, apart from redefining the role of the public sector. Words like dramatic, revolutionary and drastic have been used to describe this policy.
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The priority areas for growth of public enterprises will be the essential infrastructure goods and services industry; exploration 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. The policy also seeks selective privatization and withdrawal of the public sector from industries.
Also, in respect of public sector enterprises, the following measures were adopted: Portfolio of public sector investments to be reviewed periodically with a view to focus the public sector on strategic, high tech and essential infrastructure. Public enterprises which are chronically sick and unlikely to be turned around to be referred to the Board for Industrial and Financial Reconstruction (BIFR) for formulation of revival / rehabilitation schemes. In order to encourage wider public participation, a part of the Governments shareholding in the public sector would be offered to mutual funds, financial institutions and the general public. Board of PSU to be more professional and have greater powers. Thrust to be on performance improvement and management would be granted more autonomy in operation.
Industrial Licensing was governed by the Industries Development & Regulation Act, 1951. Industrial Licensing policy and procedures have been liberalized and continuously changed. Industrial licensing has been abolished for all projects except for a short list of industries All excepting 18 industries were freed from licensing. The number was later reduced to five. Distillation and brewing of alcoholic drinks; cigars and cigerattes; electronic aerospace; hazardous chemicals and industrial explosives The industries subject to compulsory industrial licensing account for a very small share of the value added in the manufacturing sector. Industries are free to select the location of the industry. However, in cities with a population of over 1 million, the industries are to be located in the areas designated as industrial areas or 25 kms away from the Standard Urban area limits of the city. However, industries of a non polluting nature were exempt. The locational policy was abolished in 2008.
FDI is allowed in all industries, except industries falling in a small negative list. Approvals for FDI upto 51% in high priority industries requiring large investments and advanced technology will be provided. Since 1992-93, the Indian stock market is open for investment by Foreign Institutional Investors (FIIs) and Indian companies satisfying certain conditions may access foreign capital market by Euro issues. Some of the recent initiatives taken to further liberalise the FDI regime, include opening up of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%)
Recent initiative under the small scale policy, equity holding by other units including foreign equity in a small scale undertaking is permissible up to 24 per cent. However there is no bar on higher equity holding for foreign investment if the unit is willing to give up its small scale status. Integration of the Indian Economy with the Global Economy is one of the objectives of the EXIM Policy. The import policy has been made liberal by reducing tariff levels. Another change has been the reform of the foreign exchange rate policy. The Rupee has been made fully convertible on the current account. The effort is to move towards capital account convertibility. The Capital Issues Control Act and the office of the Controller of Capital has been scrapped and free pricing of capital issues was introduced.
No permission is necessary for hiring of foreign technicians and foreign testing of indigenously developed technologies. Government will encourage foreign trading companies to assist in our export activities
Removal of MRTP Restrictions: Most of the MRTP restrictions pertaining to concentration of economic power (those requiring permission for establishment of new undertaking, substantial expansion, manufacture of new items and mergers and acquisitions) were scrapped. Existing units will be provided a new broad branding facility to enable them to produce any article without additional investment. The thrust of the policy is on controlling and regulating monopolistic, restrictive and unfair trade practices.
Watch- outs : However, de-bureaucratization is a challenging task. The bureaucracy has a tendency to attempt to defeat measures aimed at deregulations. The policy environment is much more conducive for both domestic and foreign investment than in the past. However, a host of countries are now trying to woo foreign investment with a much more conducive economic environment than in India. Also, cultural factor do also tend to tilt the balance in favor of other nations. Further, foreign investors still regard the policy and procedural system in India confusing. Rather many feel that policy and development environment in China is superior to India.
The policy is a total departure from Nehrus model of socialism. It will lead to domination of MNC on the Indian Economy. Threat from foreign competition due to cheaper imports and inability to meet the challenge from MNCs due to their weak economic strength vis--vis the MNCs. CII did raise the point that we have moved away from too much protectionism to too little protectionism. Trade Unions oppose the policy due to fear of unemployment which may arise due to privatization. Monopolies and concentration of economic power in a few hands is likely to increase. Distortion in industrial pattern would occur due to slow pace of investment in few basic and strategic industries. Absence of a mechanism would slow down the development of backward areas. Government is silent about tackling the growing industrial sickness. The Government has not announced a clear exit policy for sick units.
The 1991 reforms have considerably helped in improving the economic growth of the country. Yet much more needs to be done to reap the full benefits. There is a need for Second Generation Reforms: A. Exploiting the Knowledge based Global Economy:
Revolutionizing the telecom sector to help integrate Indias economy into the world economy. Build institutes for higher education A system of intellectual property rights to reward innovations adequately. Venture capital funds to finance risk projects of the knowledge based economy. B. Growing Indian Transnational Corporations: Indian firms to enjoy flexibility in entry and exit. Freedom to diversify and close down unsuccessful units. Liberalize and move towards capital account convertibility.