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New Industrial Policy 1991

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  • Last Updated : 06 Jun, 2022

What’s India’s Industrial Policy?

After independence in 1947, the GOI started working on the Industrial policy and the main aim of such industrial policy was to define the state’s role in industrial growth. To ensure rapid and continuous growth of industries, GOI enacted IDR (Industries development and regulation) Act in 1951. The main aim of this act was to prepare a proper framework that promotes industrial growth and allows the union government to attract more investment in the industrial sector. The first industrial policy was launched in April 1956 and it consisted of the basic economic policies of that time. However soon many new industrial policies were introduced by the GOI in a short period. Finally, to correct the weakness and distortion of the Industrial Structure of the country that had developed before 1990, the new industrial policy of 1991 was introduced.

New Industrial Policy (NIP), 1991:

In the economic reforms of India, this policy proved to be very effective and brought significant changes in the economic regulation in the country. As the name suggests the policy focused on developing and sustaining industries, however, these industries were divided among various sectors.

  • Under this policy, the government shifted its focus from PSUs (Public Sector Undertakings), and thus its role has been redefined. Many significant changes have been made in the public sector industries under NIP 1991 and the disinvestment program was one among them. Also, the private sector has been awarded more opportunities, even providing some from the reserved public sector units.
  • Additionally, the government focused on creating more foreign direct investment (FDI). The biggest advantage of NIP, in 1991 was that it ended industrial licensing, which turn into a great relief for investors. However still in some hazardous industries, industrial licensing is required for example tobacco and chemical industries. In comparison with the last industrial policies, the NIP 1991 came with many significant changes and thus proved to be more effective.
  • The new industrial policy didn’t only focus on the economic reforms but also on LPG(Liberalization, Privatization, and Globalization). Through this policy, privatization started on a large scale and in almost every industrial sector. In NIP, 1991 GOI’s main focus was to increase investment and thus in this government liberal policy on foreign trade and foreign investment.
  • With the end of industrial licensing in 1991 after the launch of NIP, there were only sectors left for which industrial licensing was required. This resulted in rapid industrial growth and a rapid increase in the GDP of India. The era of Red Tapism just ended after the end of industrial licensing. The NIP, 1991 focused mainly on liberalization, privatization, and globalization, and that bought significant changes in industrial regulation.

Main Features of New Industrial Policy, 1991:

  • The End of Red Tapism via Industrial Delicensing Policy:

The red Tapism just ended in India as the GOI launched the industrial delicensing policy in 1991. Now anyone can easily start his/her industry without any license if that industry doesn’t come under the 15 sectors for which a license is required. With the ease of licensing the growth of industries begins at a rapid pace. At present, there are only 13 sectors left for which industrial licensing is required.

  • Reform in Foreign Investment Policy:

One of the most important features of NIP, in 1991 was the foreign investment policy. Under which GOI has provided ease in foreign trade and investment. This resulted in increased competition among industries and attracted more FDI in India.

  • Dereservation Policy:

Before the launch of NIP, 1991 the public sector held reservations in some of the key industries and capital goods. However after the launch of NIP, in 1991 the reservation policy was abolished that providing equal opportunity to the private sector to invest in these key industries. However, still, three sectors are reserved for the PSUs and they are mining, atomic energy, and railways.

  • Abolition of MRTP Act:

In 1991 the MRTP (Monopoly and Restricted Trade) act was abolished under the NIP. Thus from 2010, the competition commission jumped into the monitoring and supervision of competitive practices.

  • Reforms related to PSUs:

The NIP, 1991 aimed to enhance the productivity and efficiency of the PSUs. Government identifies new strategies and priority areas for PSUs. Also, the Public Sectors Undertaking that was in the loss were sold to private sectors.

Advantages of New Industrial Policy,1991: 

The new industrial policy of 1991 provided to be quite advantageous for the Indian economy and some of its major advantages are listed below.

  1. Liberalization of industrial regulations helped the industry grow at a rapid pace as there were fewer restrictions on the industrial sector.
  2. The rapid industrial growth due to NIP, in 1991 increased the GDP.
  3. Industrial production capacity increased significantly and the industries became more precise and efficient than ever before.
  4. With the liberalization of foreign trade and investment, retail investors got a chance to compete in the global market.
  5. The revenue of the government increased by a significant percentage.

Drawbacks of New Industrial Policy, 1991:

As such there are not many drawbacks of the new industrial policy (NIP), 1991 but still, some of them are discussed below.

  • The new industrial policy mainly focuses on the large-scale industries with good capital, thus exploiting the small-scale industries.
  • Liberalization of foreign trade allowed many multinational companies to do business in India which exploited the local business of India.
  • The privatization of PSUs was a major feature of NIP 1991, however, it’s one of the main options for underprivileged people to earn a job, and get good quality services at lower prices. Thus it can exploit the poor and underprivileged section of society.
  • With the end of licensing process, many industries got developed leading to an increased level of pollution.
  • The NIP, 1991 focused on cherishing industries but it didn’t have any provision for employment generation and fixed labour wages.
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