What economic changes were initiated by the government under the Industrial Policy, 1991? What impact have these changes made on the business and industry?
What economic changes were initiated by the government under the Industrial Policy, 1991? What impact have these changes made on the business and industry?
Government of India introduced the Industrial Policy, in July1991. Major highlights of the policy are as follows.
(i) Abolition of Licensing- Under the new industrial policy 1991, compulsory licensing system was abolished. In other words, with the industrial reforms the private players were free to start a new venture without the need to obtain a license. However, the system of licensing was retained in six industries namely, liquor, cigarette, defence equipment, dangerous chemicals, industrial explosives, and drugs and pharmaceuticals.
(ii) Dereservation- The number of industries exclusively reserved for the public sector was considerably reduced. The private sector was allowed operation in majority of the industries with only 3 industries under the exclusive purview of the government namely, railways, atomic mineral and atomic energy.
(iii)Augmentation of Production Capacity- Prior to the policy, industries had to obtain permission from the government in order to expand the scale of production. With liberalisation policy the MRTP companies (companies having assets worth more than Rs 100 crore) were free to expand the scale of their business according to the market conditions.
(iv) Freedom in Importing Capital Goods- Under the policy, industrialists were permitted to import capital goods from the foreign countries.100 percent FDI was allowed in the foreign capital.
(v) Reforms in the Small Scale Industries- In India, small scale industries are defined on the basis of maximum investment that is allowed in the unit. With the commencement of reforms the maximum limit has been increased from Rs 5 lakh to Rs 1 crore. This encouraged development and modernisation of the industries. Further, the number of products reserved for the small scale industries was reduced.
(vi)Disinvestment- The process of disinvestment was carried out for many public sector enterprises. That is, an increasing share of the assets of the public industrial enterprises was sold to the private sector.
(vii)Foreign Investment Promotion Board- This board was set up to encourage and channelise foreign investment in India.
The impact of these changes on the business and industry is highlighted in the following points.
(a) Increased Competition: As a result of the policies such as abolition of the licensing policy, dereservation the competition faced by the domestic companies has increased. India companies experienced competition in service industry such as telecommunication, banking, insurance, etc.
(b) Increased Demand: With increased competition the choice of goods and services for the consumers has also increased. Thus, consumers also gain from quality products and greater variety.
(c) Change in Business Policies: The government policies under new industrial policy directly affected the functioning of the business enterprises. As a result, they altered their policies and operations appropriately.
(d) Technological Changes: With the increase in competition, firms tend to find new and innovative ways to survive in the market. They increasingly adopt new technology and engage in further research and development.
(e) Need for Trained Personnel: Due to innovations and improvement in product, application of improved technologies, the demand for skilled, trained and competent personnel has increased. Thus, there arises a need for the development of human resources.
(f) Greater Market Orientation: With increased competition, it has become imperative for the enterprises to change the production as per the market demand. That is, the production has become market oriented.
(g) Less Reliance on Budgetary Support by Public Sector Enterprises: To survive the increased competition, the public sector enterprises have realised the need for improving the efficiency and productivity. They have reduced their reliance on budgetary support to cover their losses.
Government of India introduced the Industrial Policy, in July1991. Major highlights of the policy are as follows.
(i) Abolition of Licensing- Under the new industrial policy 1991, compulsory licensing system was abolished. In other words, with the industrial reforms the private players were free to start a new venture without the need to obtain a license. However, the system of licensing was retained in six industries namely, liquor, cigarette, defence equipment, dangerous chemicals, industrial explosives, and drugs and pharmaceuticals.
(ii) Dereservation- The number of industries exclusively reserved for the public sector was considerably reduced. The private sector was allowed operation in majority of the industries with only 3 industries under the exclusive purview of the government namely, railways, atomic mineral and atomic energy.
(iii)Augmentation of Production Capacity- Prior to the policy, industries had to obtain permission from the government in order to expand the scale of production. With liberalisation policy the MRTP companies (companies having assets worth more than Rs 100 crore) were free to expand the scale of their business according to the market conditions.
(iv) Freedom in Importing Capital Goods- Under the policy, industrialists were permitted to import capital goods from the foreign countries.100 percent FDI was allowed in the foreign capital.
(v) Reforms in the Small Scale Industries- In India, small scale industries are defined on the basis of maximum investment that is allowed in the unit. With the commencement of reforms the maximum limit has been increased from Rs 5 lakh to Rs 1 crore. This encouraged development and modernisation of the industries. Further, the number of products reserved for the small scale industries was reduced.
(vi)Disinvestment- The process of disinvestment was carried out for many public sector enterprises. That is, an increasing share of the assets of the public industrial enterprises was sold to the private sector.
(vii)Foreign Investment Promotion Board- This board was set up to encourage and channelise foreign investment in India.
The impact of these changes on the business and industry is highlighted in the following points.
(a) Increased Competition: As a result of the policies such as abolition of the licensing policy, dereservation the competition faced by the domestic companies has increased. India companies experienced competition in service industry such as telecommunication, banking, insurance, etc.
(b) Increased Demand: With increased competition the choice of goods and services for the consumers has also increased. Thus, consumers also gain from quality products and greater variety.
(c) Change in Business Policies: The government policies under new industrial policy directly affected the functioning of the business enterprises. As a result, they altered their policies and operations appropriately.
(d) Technological Changes: With the increase in competition, firms tend to find new and innovative ways to survive in the market. They increasingly adopt new technology and engage in further research and development.
(e) Need for Trained Personnel: Due to innovations and improvement in product, application of improved technologies, the demand for skilled, trained and competent personnel has increased. Thus, there arises a need for the development of human resources.
(f) Greater Market Orientation: With increased competition, it has become imperative for the enterprises to change the production as per the market demand. That is, the production has become market oriented.
(g) Less Reliance on Budgetary Support by Public Sector Enterprises: To survive the increased competition, the public sector enterprises have realised the need for improving the efficiency and productivity. They have reduced their reliance on budgetary support to cover their losses.
