🇮🇳 India's New Industrial Policy, 1991: Key Features & Characteristics 📈
📜 Meaning & Objectives
On July 24, 1991, the Government of India announced its New Industrial Policy (NIP). The policy's primary goal was to unshackle the Indian industry from bureaucratic controls and make the economy more market-oriented. The main objectives were:
- To achieve international competitiveness.
- To promote the development of backward areas.
- To encourage healthy competition within the Indian industry.
- To ensure the efficient use of productive resources.
- To achieve full utilization of plant capacities, thereby generating employment.
- To facilitate the revival of weak industrial units.
🏛️ Main Features of the New Industrial Policy 1991
1. Dereservation of Public Sector 🏢
The role of the public sector was significantly reduced. Initially, the number of industries exclusively reserved for the public sector was cut to eight. After further dereservation, only three sectors remain reserved: (a) Atomic Energy, (b) Railways, and (c) specified Minerals.
2. Abolition of Industrial Licensing 📄✂️
A cornerstone of the NIP 1991 was the removal of industrial licensing requirements for all industries, except for a select group of six. These industries are considered vital for social and strategic reasons: Hazardous Chemicals, Alcohol, Cigarettes, Industrial Explosives, Defence Products, and select Drugs and Pharmaceuticals.
3. Disinvestment of Public Sector 💰🤝
The policy allowed for the disinvestment of public sector units (PSUs), which involves selling government equity to private parties. Key objectives included providing better customer service, making effective use of funds, reducing political interference, and enabling the government to focus on social development.
4. Liberalisation of Foreign Investment 🌍💸
Before 1991, government approval was mandatory for foreign investment. The NIP significantly liberalized these norms, and today, 100% foreign direct investment (FDI) is permitted in many key industries, attracting global capital and expertise.
5. Liberalisation of Foreign Technology 🌐⚙️
To foster technological advancement, the NIP 1991 liberalized access to foreign technology. For instance, automatic permission was granted for hiring foreign technicians and for testing indigenously developed technologies abroad.
6. Liberalisation of Industrial Location 🗺️🏭
The policy removed the need for Central Government approval for locating industries in most areas. However, for cities with over one million people, polluting industries were mandated to be located at least 25 km outside the city's periphery. Industries subject to compulsory licensing still required location approval.
7. Removal of Mandatory Conversion Clause ⛓️❌
Previously, financial institutions that provided loans to companies had the option to convert that debt into equity, creating a takeover threat. The NIP 1991 abolished this Mandatory Conversion Clause, giving entrepreneurs more security and control.
8. Abolition of Phased Manufacturing Programme 🏭✅
The NIP 1991 recommended abolishing the Phased Manufacturing Programme. This program, prevalent in engineering and electronics, required a progressive increase in the use of domestic components but was seen as an impediment to global competitiveness.