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THE NEW INDUSTRIAL POLICY,
          1991




          Swapna Hegde, IMED
Industrial Policy Revolution


•   Industrial Policy Resolution of 1948
•   Industrial Policy Resolution of 1956
•   Industrial Policy Resolution of 1973
•   Industrial Policy Resolution of 1977
•   Industrial Policy Resolution of 1980
•   New Economic Policy of 1991


                       Swapna Hegde, IMED
Why NIP 1991?


• To overcome Reservation of Industries
• To overcome Entry & Growth Restrictions
• To overcome Restriction on Foreign Capital & Tech.


• A government is the body within an
  organization that has the authority to make
  and enforce rules, laws and regulations.

                      Swapna Hegde, IMED
New Economic Policy - 1991
•   Announced by Narasimha Rao in July, 1991


•   Aim of New Industrial Policy (NIP) of 1991:

      Unshackling the Indian Industrial Economy from the cobwebs of
       unnecessary bureaucratic control,
      Introducing liberalization with a view to integrate the Indian
       Economy with the world economy,
      Removing restriction on direct foreign investment as also to free the
       domestic entrepreneur from the restriction of MRTP Act, and
      Shedding the load of Public Enterprises, which have shown a very
       low rate of return or were incurring losses over the years.




                                Swapna Hegde, IMED
Initiatives Taken in New Economic Policy



                       New Economic Policy (1991)




Industrial Sector Reforms                            External Trade Reforms

 Public Sector Policy                                Foreign Investment
 Industrial Licensing Policy                         Foreign Technology
 MRTP Act                                             Agreements




                                Swapna Hegde, IMED
Public Sector Policy

•   Public enterprises producing a very low rate of return on the capital
    invested resulting in a burden rather than being an asset to the
    government
•   NIP 1991 adopted a new approach to public enterprises, with a priority
    in following areas:
            Essential infrastructure goods and services
            Exploration and exploitation 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
            Manufacture of the products where strategic considerations
             predominate such as defence equipment



                                Swapna Hegde, IMED
Public Sector Policy……..CONTD
•   Existence of large number of chronically sick public enterprises incurring
    heavy losses, operating in a competitive market and serving little or no
    public purpose
•   Measures:
      Portfolio of public sector investments reviewed with a view to focus the
        public sector on strategic, high tech and essential infrastructure
      Public Enterprises which are chronically sick and which are unlikely to be
        turned around referred to the Board for Industrial and Financial
        Reconstruction (BIFR) for revival/rehabilitation schemes
      Part of the government’s shareholdings in the public sector would be
        offered to mutual funds, financial institutions, the general public and
        workers to raise resources and encourage wider public participation
      Instilling professionalism in board of public sector companies
      Greater thrust on performance improvement and greater autonomy to
        management

                                  Swapna Hegde, IMED
Industrial Licensing Policy
• Role of the government changed from that of only exercising control to
  one of providing help and guidance by making essential procedures fully
  transparent and by eliminating delays

• Industrial licensing to be abolished for all projects except for a short list of
  industries related to securities and strategic concerns

• Areas where security and strategic concerns predominate will continue to
  be reserved for the public sector

• In projects where imported capital goods are required, automatic
  clearance will be given in cases where foreign exchange availability is
  ensured through foreign equity

• Location other than cities of more than 1 million population, there will be
  no requirement of obtaining industrial approvals from the central
  Government except for industries subject to compulsory licensing
                                  Swapna Hegde, IMED
List of Industries



List Of Industries -              List of Industtries -
    Public Sector                  Industrial Licensi




                       Swapna Hegde, IMED
MRTP ACT


•   Need for achieving economies of scale for ensuring higher productivity
    and competitive advantage in the international market, the interference
    of the government through the MRTP Act has to be restricted:

•   Removal of pre-entry scrutiny of investment decisions by so-called
    MRTP companies

•   Emphasis to be on controlling and regulating monopolistic, restrictive
    and unfair trade practices

•   Thrust of policy to be on controlling unfair or restrictive business
    practices




                                 Swapna Hegde, IMED
Foreign Investment

•   Aimed at encouraging foreign trading companies to assist Indian
    exporters in export activities:

•   Approval would be given for direct foreign investment upto 51% foreign
    equity in high priority industries

•   Import of the components, raw materials and intermediate goods, and
    payment of know how fees and royalties would be governed by the
    general policy applicable to other domestic units, the payment of
    dividends would be monitored through the Reserve Bank of India

•   Majority foreign equity holding upto 51% equity would be allowed for
    trading companies primarily engaged in export activities



                               Swapna Hegde, IMED
Foreign Technology Agreements


• In order to inject the desired level of technological dynamism in Indian
  industry Automatic permission will be given for foreign technology
  agreements in high priority industries (list attached) upto a lumpsum
  payment of Rs. 1 crore, 5% royalty for domestic sales and 8% for
  exports, subject to total payment of 8% of sales over a 10 year period
  from date of agreement or 7 years from commencement of production.
• In respect of industries other than those in below list, automatic
  permission will be given subject to the same guidelines as above if no
  free foreign exchange is required for any payments.
• No permission will be necessary for hiring of foreign technicians, foreign
  testing of indigenously developed technologies.




                               Swapna Hegde, IMED
Industrial Policy Changes

          Pre-1991 Policy                           Current Policy
Industrial Licensing was the new rule    Licensing is an exception
Public sector monopoly/dominance in All but two industries are open to the
strategic, basic and heavy industries private sector
MRTP Act restriction on entry and No such restrictions
growth of large companies
Foreign investment allowed only in     Foreign investment allowed in a large
select industries that too subject to  number of industries, including up to
normally, a ceiling of 40% of total    100% or equity in many of them.
equity and prior permissions           Automatic route available subject to
                                       specified conditions.
Restrictive policy   towards   foreign Very liberal policy towards foreign
technology                             technology
Reservation of large number          of Reservation list is being pruned.
products for small scale sector

                               Swapna Hegde, IMED
Evaluation of New Economic Policy - 1991
• Positive Aspects:
      Fulfilled a long-felt demand of the corporate sector for declaring in
       very clear terms that licensing was abolished for all industries except
       18 industries which included coal, petroleum, sugar, motor cars,
       cigarettes, hazardous, chemicals, pharmaceuticals and some luxury
       items

      Business houses intending to float new companies or undertake
       substantial expansion were not required to seek clearance from the
       MRTP Commission

      Bottlenecks created by the bureaucracy were struck down by this
       singular decision of the Government

      NIP unshackled many of the provisions, which acted as brakes on the
       growth of large private corporate sector

      Overall relief in the dismantling of industrial licensing and regime of
       controls
                                Swapna Hegde, IMED
Evaluation of New Economic Policy - 1991
• Negative Aspects:
    Policy regarding Foreign Capital:


       Assertions by critics assert that the welcome foreign capital
        may lead us to selling of our sovereignty to multinationals
       Prudence demanded that utmost care to be taken to invite
        foreign capital in high priority industries only
       Monitoring of payment of dividends by RBI


    Public Sector Policy:


       The govt. should concentrate on improving the performance
        of the redeemable and surplus generating public sector
        enterprises which constitute 85% of the investment

                             Swapna Hegde, IMED
Evaluation of New Economic Policy - 1991
 Social Security Policy

    Industrial Policy sidetracked issues and generated a fear in
     the mind of the workers that the govt. was not sincere in
     protecting the interests of the workers
    Govt. of India could successfully go in for shedding its load of
     loss-making enterprises and help the working class to assume
     the ownership role and nurse these enterprises to health


 MRTP Policy

    Failureof MRTP to break the monopolistic or Oligopolistic
     character of the Indian market



                         Swapna Hegde, IMED
THANK YOU

    Swapna Hegde, IMED
Title
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        Swapna Hegde, IMED
Title

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                    Swapna Hegde, IMED
Title

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                    Swapna Hegde, IMED

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Industrial policy

  • 1. THE NEW INDUSTRIAL POLICY, 1991 Swapna Hegde, IMED
  • 2. Industrial Policy Revolution • Industrial Policy Resolution of 1948 • Industrial Policy Resolution of 1956 • Industrial Policy Resolution of 1973 • Industrial Policy Resolution of 1977 • Industrial Policy Resolution of 1980 • New Economic Policy of 1991 Swapna Hegde, IMED
  • 3. Why NIP 1991? • To overcome Reservation of Industries • To overcome Entry & Growth Restrictions • To overcome Restriction on Foreign Capital & Tech. • A government is the body within an organization that has the authority to make and enforce rules, laws and regulations. Swapna Hegde, IMED
  • 4. New Economic Policy - 1991 • Announced by Narasimha Rao in July, 1991 • Aim of New Industrial Policy (NIP) of 1991:  Unshackling the Indian Industrial Economy from the cobwebs of unnecessary bureaucratic control,  Introducing liberalization with a view to integrate the Indian Economy with the world economy,  Removing restriction on direct foreign investment as also to free the domestic entrepreneur from the restriction of MRTP Act, and  Shedding the load of Public Enterprises, which have shown a very low rate of return or were incurring losses over the years. Swapna Hegde, IMED
  • 5. Initiatives Taken in New Economic Policy New Economic Policy (1991) Industrial Sector Reforms External Trade Reforms  Public Sector Policy  Foreign Investment  Industrial Licensing Policy  Foreign Technology  MRTP Act Agreements Swapna Hegde, IMED
  • 6. Public Sector Policy • Public enterprises producing a very low rate of return on the capital invested resulting in a burden rather than being an asset to the government • NIP 1991 adopted a new approach to public enterprises, with a priority in following areas:  Essential infrastructure goods and services  Exploration and exploitation 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  Manufacture of the products where strategic considerations predominate such as defence equipment Swapna Hegde, IMED
  • 7. Public Sector Policy……..CONTD • Existence of large number of chronically sick public enterprises incurring heavy losses, operating in a competitive market and serving little or no public purpose • Measures:  Portfolio of public sector investments reviewed with a view to focus the public sector on strategic, high tech and essential infrastructure  Public Enterprises which are chronically sick and which are unlikely to be turned around referred to the Board for Industrial and Financial Reconstruction (BIFR) for revival/rehabilitation schemes  Part of the government’s shareholdings in the public sector would be offered to mutual funds, financial institutions, the general public and workers to raise resources and encourage wider public participation  Instilling professionalism in board of public sector companies  Greater thrust on performance improvement and greater autonomy to management Swapna Hegde, IMED
  • 8. Industrial Licensing Policy • Role of the government changed from that of only exercising control to one of providing help and guidance by making essential procedures fully transparent and by eliminating delays • Industrial licensing to be abolished for all projects except for a short list of industries related to securities and strategic concerns • Areas where security and strategic concerns predominate will continue to be reserved for the public sector • In projects where imported capital goods are required, automatic clearance will be given in cases where foreign exchange availability is ensured through foreign equity • Location other than cities of more than 1 million population, there will be no requirement of obtaining industrial approvals from the central Government except for industries subject to compulsory licensing Swapna Hegde, IMED
  • 9. List of Industries List Of Industries - List of Industtries - Public Sector Industrial Licensi Swapna Hegde, IMED
  • 10. MRTP ACT • Need for achieving economies of scale for ensuring higher productivity and competitive advantage in the international market, the interference of the government through the MRTP Act has to be restricted: • Removal of pre-entry scrutiny of investment decisions by so-called MRTP companies • Emphasis to be on controlling and regulating monopolistic, restrictive and unfair trade practices • Thrust of policy to be on controlling unfair or restrictive business practices Swapna Hegde, IMED
  • 11. Foreign Investment • Aimed at encouraging foreign trading companies to assist Indian exporters in export activities: • Approval would be given for direct foreign investment upto 51% foreign equity in high priority industries • Import of the components, raw materials and intermediate goods, and payment of know how fees and royalties would be governed by the general policy applicable to other domestic units, the payment of dividends would be monitored through the Reserve Bank of India • Majority foreign equity holding upto 51% equity would be allowed for trading companies primarily engaged in export activities Swapna Hegde, IMED
  • 12. Foreign Technology Agreements • In order to inject the desired level of technological dynamism in Indian industry Automatic permission will be given for foreign technology agreements in high priority industries (list attached) upto a lumpsum payment of Rs. 1 crore, 5% royalty for domestic sales and 8% for exports, subject to total payment of 8% of sales over a 10 year period from date of agreement or 7 years from commencement of production. • In respect of industries other than those in below list, automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments. • No permission will be necessary for hiring of foreign technicians, foreign testing of indigenously developed technologies. Swapna Hegde, IMED
  • 13. Industrial Policy Changes Pre-1991 Policy Current Policy Industrial Licensing was the new rule Licensing is an exception Public sector monopoly/dominance in All but two industries are open to the strategic, basic and heavy industries private sector MRTP Act restriction on entry and No such restrictions growth of large companies Foreign investment allowed only in Foreign investment allowed in a large select industries that too subject to number of industries, including up to normally, a ceiling of 40% of total 100% or equity in many of them. equity and prior permissions Automatic route available subject to specified conditions. Restrictive policy towards foreign Very liberal policy towards foreign technology technology Reservation of large number of Reservation list is being pruned. products for small scale sector Swapna Hegde, IMED
  • 14. Evaluation of New Economic Policy - 1991 • Positive Aspects:  Fulfilled a long-felt demand of the corporate sector for declaring in very clear terms that licensing was abolished for all industries except 18 industries which included coal, petroleum, sugar, motor cars, cigarettes, hazardous, chemicals, pharmaceuticals and some luxury items  Business houses intending to float new companies or undertake substantial expansion were not required to seek clearance from the MRTP Commission  Bottlenecks created by the bureaucracy were struck down by this singular decision of the Government  NIP unshackled many of the provisions, which acted as brakes on the growth of large private corporate sector  Overall relief in the dismantling of industrial licensing and regime of controls Swapna Hegde, IMED
  • 15. Evaluation of New Economic Policy - 1991 • Negative Aspects:  Policy regarding Foreign Capital:  Assertions by critics assert that the welcome foreign capital may lead us to selling of our sovereignty to multinationals  Prudence demanded that utmost care to be taken to invite foreign capital in high priority industries only  Monitoring of payment of dividends by RBI  Public Sector Policy:  The govt. should concentrate on improving the performance of the redeemable and surplus generating public sector enterprises which constitute 85% of the investment Swapna Hegde, IMED
  • 16. Evaluation of New Economic Policy - 1991  Social Security Policy  Industrial Policy sidetracked issues and generated a fear in the mind of the workers that the govt. was not sincere in protecting the interests of the workers  Govt. of India could successfully go in for shedding its load of loss-making enterprises and help the working class to assume the ownership role and nurse these enterprises to health  MRTP Policy  Failureof MRTP to break the monopolistic or Oligopolistic character of the Indian market Swapna Hegde, IMED
  • 17. THANK YOU Swapna Hegde, IMED
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