Chapters :

Industry & Infrastructure – 03

Industrial Sector Reforms

The new industrial policy was announced on July 24, 1991. The new policy radically liberalized the industrial policy itself and de-regulated the industrial sector substantially. The primary objectives of the industrial policy were:

  • To promote major industries from the clutches of bureaucrats.
  • To abolish restrictions on foreign direct investment.
  • To liberate the indigenous enterprise from the restrictions of MRTP Act.
  • To maintain a sustained growth in productivity and employment and also to achieve international competitiveness.

Important Initiatives by the Government towards Industrial Policy

The policy has brought changes in the following aspects of industrial regulation:
1. Industrial de-licensing
2. De-reservation of the industrial sector
3. Public sector policy (de-reservation and reform of PSEs)
4. Abolition of MRTP Act
5. Foreign investment policy and foreign technology policy

Industrial de-licensing policy:

The most important objective of the new industrial policy of 1991 was the end of the industrial licensing or the license raj or red tapism. Under the industrial licensing policies, private sector firms had to secure licenses to start an industry.

De-reservation of the industrial sector:

Previously, the public sector was given reservation especially in the capital goods and key industries. Under industrial deregulation, most of the industrial sectors were opened to the private sector as well. Under the new industrial policy, only three sectors viz., atomic energy, mining and railways will continue as reserved for public sector. All other sectors have been opened for private sector participation.

Reforms related to the Public sector enterprises: Reforms in the public sector were aimed at enhancing efficiency and competitiveness of the
sector. The government identified strategic and priority areas for the public sector to concentrate. Loss making PSUs were sold to the private sector.

Abolition of MRTP Act:

The New Industrial Policy of 1991 has abolished the Monopoly and Restrictive Trade Practices Act 1969. In 2010, the Competition Commission has emerged as the watchdog in monitoring competitive practices in the economy. The policy caused big changes including emergence of a strong and competitive private sector and a sizable number of foreign companies in India.

Foreign investment policy:

Another major feature of the economic reform
was red carpet welcome to foreign investment and foreign technology. This measure has enhanced the industrial competition and improved business environment in the country. Foreign investment including FDI and FPI were allowed. In 1991, the government announced a specified list of high-technology and high investment priority industries wherein automatic permission was granted for foreign direct investment (FDI) up to 51 percent foreign equity.
The limit was raised to 74 percent and subsequently to 100 percent for many of these industries. Moreover, many new industries have been added to the list over the years. Foreign Investment Promotion Board (FIPB) has been set up to negotiate with international firms and approve foreign direct investment in select areas.

Impact of LPG on Agricultural Reforms

Since the inception of economic reforms, Indian economy has achieved a remarkable rate of growth in industry and service sector. However, this growth process bypassed the agricultural sector, which showed sharp deceleration in the growth rate (3.62 percent during 1984/85 – 1995/96 to 1.97 percent in 1995/96 – 2004/05).

The sector has recorded wide variations in yield and productivity and there was a shift towards cash crop cultivation. Moreover, agricultural indebtedness pushed several farming households into poverty and some of them resorted to extreme measures like suicides.

Agrarian Crisis after Reforms

High input Costs: The biggest input for farmers is seeds. Before liberalisation,
farmers across the country had access to seeds from state government 9.8 institutions. The institutions produced own seeds and were responsible for their quality and price. With liberalization, India’s seed market was opened up to global agribusinesses. Also, following the deregulation many state government
institutions were closed down in 2003. These hit farmers doubly hard: seed
prices shot up, and fake seeds made an appearance in a big way.

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