Short notes on Industrial Policy, 1991



A major shift in the industrial policy was made by the Congress (I) Government led by Mr. P.B. Narasimha Rao on July 24, 1991.

The main aim of this policy was to unshackle the country's indus­trial economy from the cobwebs of unnecessary bureaucratic control, introduce liberalisation with a view to integrate the Indian economy with the world economy, to remove restrictions on direct foreign investment and also to free the domestic entrepre­neur from the restrictions of MRTP Act. Besides, the policy aims to shed the load of the public enterprises which have shown a very low rate of return or are incurring losses over the years. The salient features of this policy are as follows:

1. Except some specified industries (security and strategic concerns, social reasons, environmen­tal issues, hazardous projects and articles of elitist consumption) industrial licensing would be abol­ished.

2. Foreign investment would be encouraged in high priority areas up to a limit of 51 per cent equity.

3. Government will encourage foreign trad­ing companies to assist Indian exporters in export activities.

4. With a view to injecting the desired level of technological dynamism in Indian industry, the gov­ernment will provide automatic approval for tech­nology agreements related to high priority indus­tries.

5. Relaxation of MRTP Act (Monopolies and Restrictive Practices Act) which has almost been rendered non-functional.

6. Dilution of foreign exchange regulation act (FERA) making rupee fully convertible on trade account.

7. Disinvestment of Public Sector Units' shares.

8. Closing of such public sector units which are incurring heavy losses.

9. Abolition of C.C.I, and wealth tax on shares.

10. General reduction in customs duties.

11. Provide strength to those public sector enterprises which fall in reserved areas of operation or in high priority areas.

12. Constitution of special boards to negoti­ate with foreign firms for large investments in the development of industries and import of technol­ogy-

Critique of the New Industrial Policy

The keynote of the new industrial policy includes liberalisation and globalisation of the economy. Liberalisation means deregularisation of the industrial sector by cutting down to the minimum administrative interference in its operation so as to allow free competition between market forces. Simi­larly globalisation means making the Indian economy an integral part of the world economy by breaking down to the maximum feasible the barriers to move­ment of goods, services, capital and technology between India and the rest of the world.

The new Industrial Policy fulfils a long-felt demand of the industry to remove licensing for all industries except 18 industries (coal, petroleum, sugar, motor cars, cigarettes, hazardous chemicals, pharmaceuticals and luxury items).

It proposes to remove the limit of assets fixed for MRTP Companies and dominant undertakings. Hence business houses intending to float new com­panies or undertake expansion will not be required to seek clearance from the MRTP Commission. This step will enable MRTP Companies to establish new undertakings, and effect plans of expansions, merg­ers, amalgamations and takeovers without prior gov­ernment approval. They shall have the right to ap­pointment of directors.

The new Industrial Policy goes all out to woo foreign capital. It provides 51% foreign equity in high priority industries and may raise the limit to 100% in case the entire output is exported.

This runs counter to the Nehruvian Model. Experts fear that this over-enthusiasm to wlecome foreign capital and to give free hand to multination­als will be detrimental for indigenous industries more so house-hold and small scale industries. This may lead to economic and political crisis in future. It is also alleged that the Policy has been framed at the instance of the IMF and is going to protect the interests of developed Western countries at the cost of national interests. Critics also argue that once foreign capital is permitted free entry the distinction between high and low priority industries will disap­pear and all lines of production will have to be opened to facilitate foreign investment. This may create Brazil or Mexico like economic crisis.

By opening the gates of the Indian economy wide to the multinationals, the self reliance aspect has been completely ignored. These multinationals with slightest of inconvenience may shift their op­erations elsewhere leaving the economy in the lurch.

Since multinational and private entrepreneurs would prefer most favourable locations for their industries it would further intensify spatial disparity in economic development. This fact has been well collaborated by the letters of intent so far approved.

While selling out public sector shares and companies to private investors the Government is not only ignoring the interests of the employees but is transferring the assets at throw away prices. These public sector companies could have been handed over to the working class or autonomous organisa­tions to manage their affairs independently.

In the absence of MRTP safeguard private companies may develop monopolistic outlook and may indulge in unfair trade practices.

There is also a risk of growing consumerism rather than strengthening the sinews of the economy. Foreign investors may prefer to invest in low priority consumer sector instead of going for high priority sector.

With the state yielding to the private enter­prise the social objectives of equity with growth and protecting the interests of the down trodden and semi-skilled labourers would be thrown to the winds. This will be against the cherished goals of our Constitution and may create socio-economic dispar­ity and tension.