NEW ECONOMIC POLICY - PART 2

CHAPTER – 3

ECONOMIC REFORMS IN INDIA SINCE 1991

PART - 2

(Liberlisation - Industrial Sector Reforms)

LIBERLISATION

The government of India announced some liberlisation measures in the latter half of 1980s. However, in 1991, comprehensive liberlisation measures were announced. ‘Liberalisation means removing all unnecessary controls and restrictions like permits, licenses, protectionist duties, etc., imposed by the government.’ It involves deregulation and reduction of government controls and greater freedom of private sector investors, to make economy more competitive. In this process, business is given free hand and is allowed to run on commercial lines.

OBJECTIVE OF LIBERLISATION

(i)      To increase internal competitiveness of industrial production;

(ii)     To increase foreign investment and technology;

(iii)    To reduce debt burden of the country;

(iv)    To get opportunity to export to developed countries and to import capital goods and machinery for them.

The liberlisation measures include the following reforms:

1. Industrial Sector Reforms

2. Financial Sector Reforms

3. Tax Reforms

4. Foreign Exchange Reforms / External Sector Reforms

5. Trade and Foreign Investment Policy Reforms

INDUSTRIAL SECTOR REFORMS

Liberlisation virtually implied de-regulation of industrial sector of the economy. In order to industrial sector reforms Government of India has announced its new industrial policy on 24 July 1991. The following measures have been taken:

(1) ABOILATION OF INDUSTRIAL LICENSING – Under this new industrial policy, industrial licensing was completely abolished except for the five industries namely, Liquor, Cigarette, Defence Equipments, Industrial Explosive and Dangerous Chemicals.

Now, No license were needed:

* To setup new units.

* To expand or diversify the existing line of manufacture.

(2) CONTRACTION THE ROLE OF PUBLIC SECTOR – Under the new industrial policy, number of industries reserved for public sector was reduced from 17 (in IPR-1956) to 8 and then 5. After some years the number reduced to 3, namely, (i) Arms an ammunition and allied items of defence equipments. In 2010-11, the number of reserved industries for public sector reduced to 2 i.e. Atomic Energy and Railways.

(3) DE-RESERVATION UNDER SAMLL SCALE INDUSTRIES – Micro, Small and Medium Enterprises Development Act was enacted in 2006 which gives legal framework for recognition of the concept of enterprises and integrating the three tiers of these enterprises, viz. micro, small and medium.

The investment ceiling on plant and machinery for small undertaking enhanced to rupees one crore. Since 08 February 2018, government has decide too categories the micro, small and medium industries on the basis of annual turnover. (0-5 crore = Micro Enterprises; 5-75 crore = Small Scale Enterprises; and 75-250 crore medium enterprises.)

Prior to 1991 (till July 1989), production of 836 items was reserved for small scale industries.  After 1991, on recommendation of ABID HUSSAIN COMMITTEE (1955) government has adopted a policy of de-reservation. As a result, the number of items reserved for SSI comes down from 836 to 20 on 30.07.2010. Since 10.04.2015, all items are now de-reserved. (See detail in table)

RESERVATION AND DE-RESRVATION OF ITEMS FOR SSI
RESERVATION		DE-RESERVATION
YEAR	NO.	YEAR	NO.
1967	47	1997	15
1970	55 (102)	1999	9
1971	128 (230)	2001	15
1974	177 (407)	20.05.2002	51
1976	180 (587)	May 2003	75
1978	220 (807)	20.10.2004	85
1989	29 (836)	28.05.2005	108
		16.05.2006	180
		22.01.2007	87
		13.03.2007	125
		05.02.2008	79
		10.10.2008	14
		30.07.2010	01
		10.04.2015	20

(4) MONOPOLY AND RESTRICTIVE TRADE PRACTICES (MRTP) ACT 1969 – Prior to 1991, companies with Rupees 100 crore assets, were classified as MRTP firms. These firms have to take permission from government to select industries. Under new industrial policy, these firms are now on par with other firms and do not require prior government approval for investment. MRTP Act 1969 is replaced with Competition Act 2002, which came in to force from 01 September 2009. The approval of Competition Commission of India (CCI) is now mandatory for any merger and acquisition of the companies.

(5) EXPANSION OF PRODUCTION CAPACITY – In the new industrial policy, the firms / producer’s have given free hand to decide the ‘what to produce’ and ‘how to produce’.

(6) FREEDOME TO IMPORT CAPITAL – Under new industrial policy, industries are given automatic permission for foreign technology agreements and now free to import technology. Indian industries are also free to buy raw-materials from abroad.

(7) LOCATION – Industries are given freedom to setup their establishment near to city areas also.

Reference Videos

2. New Economic Policy / Economic Reforms 1991 – Part 2

(Industrial Sector Reforms)

https://youtu.be/oSR8uCDvU38

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Regards 

Dr. Asad Ahmad

KV IIM, Lucknow

##pls share other educational / official school group, so that more students will get benefit. Thanks a lot.

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