Explain in detail the main features of 1991 industrial policy resolutions
Industrial Policy Resolution, 1991:
Despite the impressive growth performance of the 1980's, serious budgetary and fiscal deficits of the Government and severe pressure on the country's balance of payments position led to a critical economic and financial situation by 1991, further aggravated by the political uncertainty. By the time there was a new Government at the Centre in June, 1991 there was no other alternative to introduction a new deregulatory and liberal economic regime and drastically reducing the Government's licensing and regulatory function's. This was the rationale behind the sweeping changes in industrial and trade policies brought about the Narsimha Rao Government in 1991.
Objectives:
To remove restrictions which have appeared in the economy.
To free domestic entrepreneur from the restrictions of MRTP Act.
To increase the profitability in the public sector.
To introduce liberalization with a view to integrate the Indian Economy with the world economy.
To maintain continuity in the increase in production.
To remove hindrances on direct foreign investment.
Salient features:
Salient features of industrial policy resolution 1991, are as follows,
Strengthening private sector
Progressive economy
Industrial licensing policy
Public sector policy
Foreign investments
MRTP Act
Greater marketing orientation.
Promoting small sector industries.
Strengthening private sector:
A major step towards a greater mercerization of the industrial economy is the abolition of the licensing system for a large number and a large variety of industries.
Besides, the existing industries in the private sector, some provisions in the policy amount to an enlargement of the field of operation for the private sector. The contraction in the field for the operation of the public sector leaves open more space for the private sector to operate. A number of activities which have so far been exclusively in the realm of the public sector have now been thrown open to the private sector. The public sector has now been left with only six reserved industries, with the remaining having been thrown open to the private sector. These include aircraft, manufacture, air transport, ship building, processing of non-ferrous metals, iron and steel, generating and distribution of electricity, telephone and telephone cable, telegraph and wireless apparatus, heavy casting and forgoing's of iron and steel, heavy plant and machinery required for iron and steel production for mining and heavy electrical plant, including large hydraulic and steam turbines. Beside these old industries, there will be few industries that will come up in the private sector. In addition to this the expansion in the private sector will take place on account of the increase in the number of industries will take place on account of the increase in the number of industries where in industries included hostels and tourism industry, and all food processing industries.
The private sector has further been strengthened as it has almost been freed from the Government restrictions in respects of its functioning. The industrial licencing for Government approval required for the creation of industrial capacities or investment, has been abolished for all projects except for 15 specified groups. These areas pertain to industries related to security and strategic concerns, social reasons, hazardous chemicals and over riding environmental reasons and items of elitist consumption. The exemption from licensing also applies to all substantial expansion of existing units.
Progressive economy:
The overall aim of the policy is to achieve a sort of development which makes industries dynamic in their growth and which renders justice to the people. To quote the policy statement, "it involves a struggle for social and economic justice, to end poverty and unemployment and to build a modern democratic, society where in "India grows as part of the world economy and not in isolation." Reduced in terms of concrete economic tasks and programmers, the policy aims at such important areas as the following: utilizing fully the indigenous capabilities of entrepreneurs, fostering R & D (i.e., Research and Development) effort for the development of indigenous technologies; raising investments, improvements in efficiency and productivity: controlling monopolistic behavior, assigning the right areas for the public sector undertakings; and ensuring welfare as also skills and facilities to the workers to enable them to deal with the inevitability for technological change.
Abolition of Industrial Licensing:
The practice of licensing industries (under Industries (under Industries (Development and Regulation Act, 1951) has been abolished for all industries except for a short list of eighteen industries related defense needs, social reasons (posing health and environmental hazards like cigarette, asbestos) and manufacture of luxury items. The number of items in respect to which industrial licensing remain has now been reduced to 15. These industries account for only 15% of value added in the manufacturing sector. Thus, industry has been made largely free of the licensing requirements thereby removing the entry barriers and the ills associated with it.
No licensing is required for industries which ensure availability of foreign exchange by means of foreign share capital. Similarly, no licencing is required for industries requiring a maximum of Rs. 2 crore for imported capital goods (effective from April 1992). Location Restrictions have been removed except where an industry is proposed in cities with over 10 Lac people. Even in the case of such big cities, production unit, which do not pollute the environment can be located 25 Kms, outside of it. Lastly on licensing required for substantial expansion of existing units.
Public sector policy (limiting the role of public sector):
The public sector has been central to our philosophy of development. Public ownership and control in critical sectors of the economy has played an important role in preventing the concentration of economic power, reducing regional disparities and ensuring that planned developed serves the common good. The industrial policy resolution of 1956 gave the public sector a strategic role in the economy. Massive investments have been made over the past four decades to build public sector which has a commanding role in the economy. Recently, a number of problems have begun to manifest themselves in many of public enterprise. In addition, public enterprise has shown a very low rate of return of the capital invested. Many of public enterprises have become a burden rather that being an asset to the Government. The original concept of the public sector has also undergone considerable dilution. The most striking example is the take over of sick units from the private sector. This category of public sector units accounts for almost one-third of the total losses of central public enterprises.
It is time that the Government adopts a new approach to public enterprise. The priority areas for growth of public enterprise in the future will be a) Essential infrastructure goods and service b) Exploration and exploitation of oil & mineral resources c) Technology development and building of manufacturing capabilities in areas which are crucial in the long terms development of the economy and where private sector investment is inadequate d) manufacture of products of strategic considerations predominate such as defense equipment.
At the same time the public sector will not be barred from entering areas not specifically reserved for it.
The Government will strengthen that public enterprise which fall in the reserved areas of operation or are generating goods or reasonable profits. Such enterprise will be provided a much greater degree of management autonomy through the system of memorandum of understanding. Competition will be induced in these areas by inviting private sector participation. In the case of selected enterprises, part of Government holdings in the equity share capital of these enterprise will be disinvested in order to provide further market discipline to the performance of public enterprises. There are a large number of chronically sick public enterprise incurring heavy losses and serve little public purpose.
Foreign Investment:
While welcoming foreign investment with its attendant advantage of technology transfer, marketing expertise, introduction of modern management techniques and export promotion, the Industrial Policy Resolution provides for automatic appraisal of foreign equity participation up to 51% in high priority industries which include 34 broad areas like metallurgy, electrical equipment transformer, food processing, hotel and tourism industry. There will be not bottlenecks of any kind in clearing proposals for foreign equity participation. Such clearance will be available in foreign equity which covers the foreign equity participation. Such clearance will be available of foreign equity which covers the foreign exchange requirement for imported capital goods. Further, the foreign equity proposals not necessarily be accompanied by foreign technology act as trading houses primarily engaged in exporting activities in order to agreements. Companies with 51% foreign equity will be encouraged to generate greater passage on Indian goods to export market.
A special empowered board will be constituted to negotiate with large international firms and encourage direct foreign investment in select areas. This would be a special programmed to attract substantial investment that would provide access to high technology and world markets.
Repatriation of dividends by companies with foreign equity will have to be met through export earnings over a period of time.
Foreign Technology Agreements:
Automatic permission will be given for foreign technology agreements in 34 high priority industries upto a lump sum payment of one crore of rupees and also subject to certain other restrictions. Automatic permission will also be available for foreign technology agreements in the non-high priority sectors if no free foreign exchange is required for any payment.
MRTP Act:
Hitherto Companies with certain assets, limits (Rs. 100 crores since 1985) were required to act clearance under the Monopolies and Restrictive Trade Practices Act before starting new industries, or expanding existing units, appointments of Directors, mergers or take areas. Now, no such prior approval from Government is required.
Emphasis has been shifted to controlling and regulating monopolistic, restrictive and unfair trade practices. In this regard MRTP commission will be authorized to take up investigations on its own or on complaints from consumers. The interest of the consumers is thus protected through the commission's watch dog role.
The definition of a monopoly company will be changed from one based on the assets of the company to a more meaningful definition using the share of the company in the market. There will be tough competition and by delicensing of the bulk of industries no one will be able to make monopoly profits.
Greater Marketing Orientation:
In achieving the various aims, the policy envisages the use of market in a big way. It intend to dismantle the restrictive and regulatory system and thereby "unshaken the industrial economy from the cobwebs of unnecessary bureaucratic control." This is to allow the private entrepreneurs to make their commercial decision their own with no Government judgment to bind them. In other words, the allocation of resources among industries in respect of they type of industries, size of their scale and he nature of products, will be determined by the market prices. This freedom will also foster competition among the entrepreneurs. The market incentive will also be used to influence the industrial development.
Promoting small sector industries:
The new industrial policy for the small sector industries, announced on 6th August 1991, envisages a number of changes in the old policy, with a view to making them strong and viable units.
A limited partnership is to be allowed which would limit the financial liability of the new and non-active partners/entrepreneurs to the extent of capital invested. This would enhance the supply of sick capital to the small scale Indian sector.
One is to ensure the supply of adequate flow of credit to these industries to meet their entire needs on a normative basis i.e. in term of what ought to be their needs on a normative basis i.e. in term of what ought to be their needs, It marks a departure from the old policy of concentrating on providing cheap credit. Besides providing credit need of industrial units, this provision also include identification of select industries in large clusters which would be provided financial support by Small Industries Development Bank of India (SIDBI). The national equity fund scheme as also the single window scheme have been enlarged to provided larger funds to projects involving large capital outlays.
Provisions have been made to ensure speedy payments arising from the sale of products of the SSI sector. One such provision is called factoring service which involves payment to the small scale industries by SSI or SIDBI and/or by agencies to be operated by commercial banks before these are collected from the buyers by these agencies. This will to a great extent, solve the problem of the delayed payments to the small sector by the large units. Another measure consists of suitable legislation to ensure prompt payment of small industries bills.
The new policy allows equity participation by other or non SSI industrial undertaking in the SSI sector, upto 24 percent of the total shareholding. This is being done to provide small units access to the Capital Market and to encourage modernization, technical upgradation, ancillarization (i.e. producing for the non-SSI firms) and sub contracting (i.e.. taking on the work in parts on contrast basis from the main contractor). The new policy also provides for the supply of new materials and marketing facilities of the SSI units. As for the indigenous raw material are concerned, the SSI units would be accorded priority by the Government while allocating those materials. It is also to be ensured that the small sector gets adequate and fair share of the raw material available, both indigenous and imported. However, it will be seen that in so doing the entry of new units in the small sector is not adversely affected. As for marketing, the policy envisages market promotion of their products to be undertaken by co-operatives, public sector institutions and other professional agencies.
Evaluation of Industries Policy Resolution, 1991:
The Industrial Policy Resolution 1991. manifested itself in the form of a set of policy measures seeking to free Indian Economy from the regime of controls and licenses. These policy measures have been hailed as radical reforms as the Indian Economy would be insulted from inefficiency. low productivity, alliance between bureaucrats and various vested interests (politicians and businessmen) and the parallel economy. The new Economy and technology. Besides, it would boost up production by removing policy is expected to stimulate inflow of needed private foreign investment inhibiting factors to which MRTP and FERA companies have been subjected All these benefits of NEP are yet to accure to the Indian economy. Hence. it is too early to pronounce judgment on NEP.
Moreover, NEP does not directly address itself to the major problems of poverty and unemployment. It can not be denied that the public sector has been instrumental in building up the runway to enable the Indian Economy to take off. Privatizations under NEP is envisaged as a panacea for all the ills of the public sector units. Should privatization be viewed as final goals of NEP? If it is so, then the stakes or liberalization is quite big. The recent experience of the Eastern Europe countries should serve an example of economic failure when transforming from the extreme 'left' to extreme 'right'.
The new economic policy has not comprehensive in its scope. The Financial sector has so far been untouched by the creeping liberalization initiated since the early 1980's. However, Narsimha Committee has recommended various measures to liberalized the banking sector from bureaucratic controls and political interference. It has also advocated the need for promoting private sector banks. In other words, liberalization of the financial sectors is on the cards.
In short, it can be said that, sweeping liberalizations leading to privatization on the whole of Indian Economy is round the corner. Consequently, Nehruvian model of growth and socialism is at stake.