Indian Economy & Industrial

Policies
An Assessment

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 Concept of IPRs
• An Industrial Policy Statement
1. Is announced by the Industry Ministry
2. Clarifies commitments of the public and
private sectors in industrial sector
3. Is expected to provide clarity of the
several aspects relating to the sector
4. Facilitates the long term plans for the
private sector (domestic/ foreign) in a
mixed economy framework
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 Earlier IPRs In India
• No definite interval, based on the
relevance or major changes in policy
thrusts
• IPRS were announced in India in 1948,
1956, 1973, 1977, 1980.
• The IPR 1956 was a major milestone for
India’s industrialization process
• State assumed direct responsibility to
overcome capital scarcity and develop
entrepreneurship in the country
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 Earlier IPRs In India..contd
• IPR 1973 identified industries where
investment from large industrial houses and
foreign companies would be permitted
• IPR 1977 laid emphasis on
– Decentralization
– Role of small-scale, cottage, and tiny industries
• IPR 1980 focussed attention on
– Promoting competition
– Technological upgradation and modernization

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 Achievements
• On the eve of the Seventh FYP (1985-90):
1. Broad-based infrastructure had been built
up
2. High degree of self-reliance in a large
number of items (raw materials,
intermediates, finished goods)
3. New Growth Centres of industrial activity
emerged
4. A new generation of entrepreneurs created
5. A large number of engineers, technicians,
and skilled workers trained
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 Objectives of the IPR 1991
• Announced on July 24, 1991 by the
Ministry of Industry, GoI. Major objectives
are:
1. To build on the gains already made
2. To correct distortions that crept in
3. Maintain a sustained growth in
productivity
4. Attain international competitiveness

6
 New Initiatives
• To achieve the IPR 1991 objectives, a
series of unprecedented initiatives in the
following areas:
1. Industrial Licensing
2. Foreign Investment
3. Foreign Technology Agreements
4. MRTP Act
5. Public Sector Policy
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 Industrial Licensing
• Major procedural reforms are called for to assist
Indian entrepreneurs to exploit and meet emerging
domestic opportunities & challenges
• Letting them to make investment decisions on the
basis of their own commercial judgment
• The Govt. has ABOLISHED INDUSTRIAL
LICENSING for all industries, except Specified
industries.
• (coal & lignite, Petroleum (non-crude) & distillery
products, Brewing of alcoholic drinks, sugar, animal
fats & Oils, Cigars, cigarettes & tobacco substitutes,
Asbestos, plywood, raw hides & skins, leather).

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 Foreign Investment
• Foreign investment has the following merits:
1. Technology transfer
2. Marketing expertise
3. Modern managerial techniques
4. New possibilities for promoting exports
• Foreign investments up to 51% will be
approved in high priority areas where large
investment and advanced technology are
needed

9
 Foreign Technology Agreements
• Automatic approval for technology
agreements relating to high priority
industries
• Indian companies will be free to negotiate
the terms of technology transfer as per
their commercial judgment
• Existing method of prior permissions for
hiring of foreign technicians, foreign
testing of indigenously developed
technologies withdrawn 10
 Public Sector Policy
• It has been central to our philosophy of
development
• Played an important role in preventing
concentration of economic power
• But, serious problems like
1. Low productivity
2. Poor project management
3. Over-manning
4. Lack of continuous technological upgradation
5. Inadequate attention to R&D, and HRD.
• End result is low Return on Capital Employed
• Many PSEs have become burden than being
assets to the government 11
 Public Sector Policy (contd.)
• Greater commitment to PSEs that are essential for the
industrial economy
• A new lease of life will be given to some of the PSEs
that are currently faltering but have a hope to revive.
1. Essential infrastructure
2. Oil and Mineral resources
3. Manufacturing of Defence equipment
• Review of public investments will be taken up
• In case of selected enterprises, share capital of the
Government will be DISINVESTED to provide further
market discipline among PSEs.

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 MRTP Act
• The principal objectives of the MRTP Act (June
1970) were:
– Prevention of concentration of economic power, control of
monopolies
– Prevention of monopolistic, restrictive & unfair trade
practices
• Major amendments in the Act carried out in 1982,
1984 to remove impediments to growth & expansion
• IPR 1991 abolished pre-entry scrutiny of investment
decisions for MRTP companies

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 MRTP Act. (contd.)
• Freedom from obtaining prior Central
Government approvals on:
1. Expansion
2. Establishment of new undertakings
3. Merger
4. Amalgamation and Takeover
5. Appointment of certain Directors

• MRTP Act (1970) was scrapped subsequently on

Dec.07, 2002 and was replaced with CCI 2001

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 Government Decisions
• Series of measures have been initiated
to strengthen Indian industrial economy:

1. Removal of unnecessary bureaucratic

controls
2. Trade policy reforms
3. Exchange rate management
4. Fiscal policy
5. Financial sector reforms 15
 Foreign Investment
• No bottlenecks for FDI up to 51% of foreign
equity in High-priority industries (Annex III).
• If foreign equity covers forex needs for
import of foreign capital goods, FERA 1973
shall be amended.
• Payment of dividends by such companies
would be monitored by RBI

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 Foreign Technology Agreements
• Automatic approvals for FTA in high
priority industries up to a lump sum
payment of:
1. Rs. 1 crore
2. A 5% of royalty for domestic sales
3. An 8% for export receipts
• The above are subject to total payment of
8% of sales over a 10-year period from
date of agreement / 7 years from
commencement of production 17
 Public Sector
• Public sector enterprises that are chronic
would be referred for revival/ rehabilitation
to:
1. BIFR or
2. Other similar high level institutions created for it.
• A social security mechanism will be created
to protect the interests of workers likely to
be affected by the rehabilitation packages.

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 Assessment of the IPR 1991
• Greater freedom for the private and public sector
industries from de-licensing
• Larger investments and broadening of industrial
base
• Over 100 exploration licenses awarded under
NELP
• Automobiles/ Telecommunications/ Civil Aviation/
other sectors of economy attracting foreign
investments
• Improvement in volume of investments and
quality of industrial infrastructure
• Continuously increasing international confidence
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