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Indian Economy / Industry Sector

New Industrial Policy 1991


    The New Industrial Policy, 1991 is considered to be the biggest economic reform launched during the early 1990s. The reform measures that followed later were derived from the New Industrial Policy. It brought about exhaustive changes in the economic regulation in India. It made opening up of the Indian economy.

    Reforms of Industrial Policy 1991

    The reform measures that were undertaken by this Policy, were related to different areas of the industrial sector. The major reforms were

    • Removal of Industrial Licencing - There was abolition of compulsory licensing or red tapism for all industries except for the specified core and strategic industries ( liberalization and privatization ). Earlier, private sector entities had to acquire licenses to start an industry which used to create long delays in establishing the industries.
    • Deregulation of Industries for the Public Sector - Under this policy, Government reserved the core sectors of security and strategic concerns like railway transport, mines, arms manufacturing, atomic energy for public sector enterprises and opened up most of the other industrial sectors to the private sector. Government offered a part of its equity holding in the public sector enterprises to Employees, General Public, Financial Institutions, Mutual Funds, etc. through its Disinvestment policy. Similarly, loss making public enterprises were sold to private sector. For efficient functioning, autonomy has been provided to Public Sector Enterprise boards.
    • Foreign Investment Policy - Foreign Direct Investment ( FDI ) was being allowed in high priority industries and there was establishment of a special empowered board, which is known as Foreign Investment Promotion Board ( FIPB ), to negotiate with a number of MNCs and approve FDI in select areas.
    • Foreign Technology Agreements - It was given automatic permission to the high priority industries for foreign technology agreements and also there was an easement by the Government in hiring foreign technicians.
    • Amendment of MRTP Act - Under Monopolies and Restrictive Trade Practices ( MRTP ) Act, all large business houses, worth of having Rs. 100 crores or more, had to obtain clearance from the MRTP Commission for establishing new industrial units. It was a big hindrance for industrial development. The New Industrial Policy, 1991 abolished those provisions of the MRTP Act which mandated for clearance from MRTP Commission for establishment of new projects. Currently, MRTP Act was replaced by Competition Act 2002 and MRTP Commission was being replaced by Competition Commission of India.

    The Industrial Policy of 1991 is the big and most effective economic reform that is introduced in Indian economy from the time of independence. It made a huge impact by bringing in big changes, which included the growth of strong, efficient and competitive private sector and arrival of huge number of multinational companies in India.