Industrial development and Economic reforms in India : Major changes in industrial policy, its impact on industrial growth

The Indian Government had undertaken industrial policy reforms since 1980, but the most radical reforms have occurred since 1991, after the severe economic crisis in fiscal year 1990-91. These reforms mainly aim

 at enhancing the efficiency and international competitiveness in Indian industry. India’s industrial policy of 1991 towards liberalisation, deregulation, market orientation has been hailed as ushering in a new era of freedom from government controls, licence raj and red carpetism and one which promises greater prosperity for the Indian people.

 

Main Objectives of the Industrial Policy of the Government are –

  • to maintain a sustained growth in productivity;
  • to enhance gainful employment;
  • to achieve optimal utilisation of human resources;
  • to attain international competitiveness and
  • to transform India into a major partner and player in the global arena.

Till 1970’s:-

• The Indian planners emphasized the role of heavy industry in economic development and sought to build up as rapidly as possible the capital goods sector.
• The plans envisaged a leading role for the public sector in this structural transformation of the economy.
• Major investments in the private sector were to be carried out, not by the test of private profitability, but according to the requirements of the overall national plan.
• The plans emphasized technological self-reliance, and for much of the period, an extreme inward orientation in the sense that if anything could be produced in the country, regardless of the cost, it should not be imported.

India’s industrial policy of 1991 towards liberalisation, deregulation, market orientation has been hailed as ushering in a new era of freedom from government controls, licence raj and red carpetism and one which promises greater prosperity for the Indian people. Industrial licensing was liberalized or abolished. Moreover, the Monopolies and Restricted Trade Practices (MRTP) Act deregulated. The numbers of activities reserved for the public sector enterprises (PSE) were also reduced.

Promotion of Foreign Direct Investment (FDI) forms an integral part of the Industrial Policy. FDI helps in accelerating economic growth by means of infusion of capital, technology and modern management practices. Government has put in place a liberal and transparent foreign investment regime, wherein FDI, upto 100%, is allowed, under the automatic route, in most sectors/activities. The FDI policy is announced through issue of Consolidated FDI Policy Circulars.

Merits of the New Industrial policy :

1.To raise the level of industrial efficiency, time consuming hurdles of regulations, licenses and restrictions would either be done away with or made industry friendly. Inflow of FDI and foreign technology transfers would be encouraged.
2.Additions to the supply of investible resources and technology would result in increased industrial production and productivity.
3.With the abolition of licensing system in most industries except 5, the wave of liberalization would boost the entrepreneurial skills in the economy.
4.Pruning/de reservatioin of Industries for the public sector would boost professionalism in this secotr. Increased autonomy would usher in dynamism for the betterment.
5.NIP-1991 made a special mention about the role and importance of small scale industries. The state would initiate measures to promote and strengthen small, tiny and village industries, which have large potential to deal with the problems like unemployment, regional disparities, income inequalities and inflation.
6.As the government of the country is obliged to protect the interest of workers, this policy would lay special emphasis to enhance the welfare and upgrade the economic and social status of the worker. To ensure long-lasting and cordial relations between the workers and the management, they (workers) would participate in the management decisions of the enterprises.

 

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