Indian Industrial Policy

Topics: Monetary policy, Macroeconomics, Investment Pages: 20 (5721 words) Published: January 8, 2009
Industrial Policy, 1991

The industrial policies pursued till 1990 enabled India to develop a vast and diversified industrial structure. India attained self–sufficiency in a wide range of consumer goods. But the industrial growth was not rapid enough to generate sufficient employment, to reduce regional disparities and to alleviate poverty. It was felt that government controls and regulations had put shackles on the growth of different segments of Indian Industry. Lack of adequate competition resulted in inadaquate emphasis on the reduction of costs, up-gradation of technology and improvement of quality standards. It is to reorient and accelerate industrial development with emphasis on the productivity, growth and quality improvement to achieve international competitiveness that the Industrial Policy of 1991 was announced.

Objectives of IP, 1991:
IP, 1991 has the following objects:
to build on the gains already made
to correct the distortions or weaknesses that have crept in to maintain a sustained growth in productivity and employment, and to attain the international competitiveness.

Elements of IP, 1991:
To achieve these objectives, IP, 1991 introduced changes with respect to: Industrial licensing
Foreign investment
Foreign technology agreements
Public sector policy and the

Till the 1990s, licensing was compulsory for almost every industry, which was not reserved for the public sector. This licensing system was applicable to all industrial enterprises having investment in fixed assets (which include land, buildings, plant & machinery) above a certain limit. With progressive liberalization and deregulation of the economy, industrial license is required in very few cases. Industrial licenses are regulated under the Industries (Development and Regulation) Act 1951. At present, industrial license is required only for the following:

i. Industries retained under compulsory licensing (five industries are reserved under this category). ii. Manufacture of items reserved for small scale sector by larger units: An industrial undertaking is defined as small scale unit if the capital investment does not exceed Rs. 10 million (approximately $ 222,222). The Government has reserved certain items for exclusive manufacture in the small-scale sector. Non small-scale units can manufacture items reserved for the small-scale sector if they undertake an obligation to export 50% of the production after obtaining an industrial license. iii. When the proposed location attracts locational restriction: Industrial undertakings to be located within 25 kms of the standard urban area limit of 23 cities having a population of 1 million as per 1991 census require an industrial license.

Thus, excluding these, investors are free to set up a new industrial enterprise, expand an industrial enterprise substantially, change the location of an existing industrial enterprise and manufacture a new product through an already established industrial enterprise. The objective of industrial delicencing would be to enable business enterprises to respond to the fast changing external conditions. Entrepreneurs will be free to make investment decisions on the basis of their own commercial judgment. This will facilitate the technological dynamism and international competitiveness. Further industries will have freedom to take advantage of ‘economies of scale’ as well as ‘economies of scope’ in the current industrial policy environment.

2. Removal of Threshold Limits on Asset Size of Companies through amendment of MRTP Act, 1969:
An important objective of India’s earlier industrial policies was to prevent emergence of private monopolies and concentration of economic power in a few individuals. Accordingly, Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 was enacted and MRTP Commission was set up as a permanent body to periodically review industrial ownership, advice the...
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