The Industrial Policy of 1991

Industrial Policy of 1991 and Industrial Growth in India

• The Industrial Policy of 1991 opened up India's economy to the world during a severe economic crisis.
• The policy led to an acceleration of economic growth in India.
• Dereservation of the industrial sector allowed most industries to be opened to the private sector, except for atomic energy, mining, and railways reserved for the public sector.
• The end of industrial licensing or the license raj or red tapism was abolished, barring hazardous chemicals industries, defense, aerospace, industrial explosives, cigarettes, and tobacco.
• Loss-making public sector enterprises were sold to the private sector, and autonomy was given to PSU boards for efficient functioning.
• The new policy welcomed foreign investment, foreign technology, FDI, FPI, and loan capital to attract foreign capital.
• The Monopoly and Restricted Trade Practice Act were abolished.
• The industrial growth rate in Phase 1 (1951-67) was 6.3%, with a focus on agriculture, irrigation, and infrastructure due to domestic shortages.
• Industrial growth rate in Phase 2 (1967-80) fell to 4.1% due to various government impositions like small scale industry reservations, MRTP act, normalization of major banks.
• Industrial growth rate in Phase 3 (1980-91) increased to 7.1% due to liberalization, success of green revolution and expansionary fiscal policy, but end of phase witnessed severe balance of payment crisis.
• Phase 4 (1991-2001) introduced wide-ranging reforms like delicensing, privatization, and disinvestment, abolition of MRTP act, etc., accelerating GDP growth rate of the industrial sector to above 9%.
• Challenges arising from government policies include a difficult business environment, labor deployment rigidities, infrastructure bottlenecks, regulatory delays and lack of transparency, high cost and non-availability of commercial bank credit.