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STATEMENT ON INDUSTRIAL POLICY
New Delhi, July 24, 1991. POLICY OBJECTIVES Pandit Jawaharlal Nehru laid the foundations of modern India. His vision and determination have left a lasting impression on every facet of national endeavour since Independence. It is due to his initiative that India now has a strong and diversified industrial base and is a major industrial nation of the world. The goals and objectives set out for the nation by Pandit Nehru on the eve of Independence, namely, the rapid agricultural and industrial development of our country, rapid expansion of opportunities for gainful employment, progressive reduction of social and economic disparities, removal of poverty and attainment of self-reliance remain as valid today as at the time Pandit Nehru first set them out before the nation. Any industrial policy must contribute to the realisation of these goals and objectives at an accelerated pace. The present statement of industrial policy is inspired by these very concerns, and represents a renewed initiative towards consolidating the gains of national reconstruction at this crucial stage. 2. In 1948, immediately after Independence, Government introduced the Industrial Policy Resolution. This outlined the approach to industrial growth and development. It emphasised the importance to the economy of securing a continuous increase in production and ensuring its equitable distribution. After the adoption of the Constitution and the socio-economic goals, the Industrial Policy was comprehensively revised and adopted in 1956. To meet new challenges, from time to time, it was modified through statements in 1973, 1977 and 1980. 3. The Industrial Policy Resolution of 1948 was followed by the Industrial Policy Resolution of 1956 which had as its objective the acceleration of the rate of economic growth and the speeding up of industrialisation as a means of achieving a socialist pattern of society. In 1956, capital was scarce and the base of entrepreneurship not strong enough. Hence, the 1956 Industrial Policy Resolution gave primacy to the role of the State to assume a predominant and direct responsibility for industrial development. 4. The Industrial Policy statement of 1973, inter alia, identified high-priority industries where investment from large industrial houses and foreign companies would be permitted. 5. The Industrial Policy Statement of 1977 laid emphasis on decentralisation and on the role of small-scale, tiny and cottage industries. 6. The Industrial Policy Statement of 1980 focussed attention on the need for promoting competition in the domestic market, technological upgradation and modernisation. The policy laid the foundation for an increasingly competitive export based and for encouraging foreign investment in high-technology areas. This found expression in the Sixth Five Year Plan which bore the distinct stamp of Smt. Indira Gandhi. It was Smt. Indira Gandhi who emphasised the need for productivity to be the central concern in all economic and production activities. 7. These policies created a climate for rapid industrial growth in the country. Thus on the eve of the Seventh Five Year Plan, a broad-based infrastructure had been built up. Basic industries had been established. A high degree of self-reliance in a large number of items - raw materials,
intermediates, finished goods - had been achieved. New growth centres of industrial activity had emerged, as had a new generation of entrepreneurs. A large number of engineers, technicians and skilled workers had also been trained. 8. The Seventh Plan recognised the need to consolidate on these strengths and to take initiatives to prepare Indian industry to respond effectively to the emerging challenges. A number of policy and procedural changes were introduced in 1985 and 1986 under the leadership of Shri Rajiv Gandhi aimed at increasing productivity, reducing costs and improving quality. The accent was on opening the domestic market to increased competition and readying our industry to stand on its own in the face of international competition. The public sector was freed from a number of constraints and given a larger measure of autonomy. The technological and managerial modernisation of industry was pursued as the key instrument for increasing productivity and improving our competitiveness in the world. The net result of all these changes was that Indian industry grew by an impressive average annual growth rate of 8.5% in the Seventh Plan period. 9. Government is pledged to launching a reinvigorated struggle for social and economic justice, to end poverty and unemployment and to build a modern, democratic, socialist, prosperous and forward-looking India. Such a society can be built if India grows as part of the world economy and not in isolation. 10. While Government will continue to follow the policy of self-reliance, there would be greater emphasis placed on building up our ability to pay for imports through our own foreign exchange earnings. Government is also committed to development and utilisation of indigenous capabilities in technology and manufacturing as well as its upgradation to world standards. 11. Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of the capital markets and increasing competitiveness for the benefit of the common man. The spread of industrialisation to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments. 12. Government will provide enhanced support to the small-scale sector so that it flourishes in an environment of economic efficiency and continuous technological upgradation. 13. Foreign investment and technology collaboration will be welcomed to obtain higher technology, to increase exports and to expand the production base. 14. Government will endeavour to abolish the monopoly of any sector or any individual enterprise in any field of manufacture, except on strategic or military considerations and open all manufacturing activity to competition. 15. The Government will ensure that the public sector plays its rightful role in the evolving socio-economic scenario of the country. Government will ensure that the public sector is run on business lines as envisaged in the Industrial Policy Resolution of 1956 and would continue to innovate and lead in strategic areas of national importance. In the 1950s and 1960s, the principal instrument for controlling the commanding heights of the economy was investment in the capital of key industries. Today, the State has other instruments of intervention, particularly fiscal and monetary instruments. The State also commands the bulk of the nation's savings. Banks and financial institutions are under State control. Where State intervention is necessary, these instruments will prove more effective and decisive. 16. Government will fully protect the interests of labour, enhance their welfare and equip them in all respects to deal with the inevitability of technological change. Government believes that no
All sector of industry whether small. 19. In order to achieve the objectives of the strategy for the industrial sector for the 1990s and beyond it is necessary to make a number of changes in the system of industrial approvals. 21. Foreign Investment C. A. Workers cooperatives will be encouraged to participate in packages designed to turn around sick companies. This can be done only if the role played by the government were to . Workers' participation in management will be promoted. MRTP Act. Foreign Technology Agreements. Public Sector Policy E. leaving workers to bear its pains. Over the years. Industrial licensing policy and procedures have also been liberalised from time to time. the policy has undergone modifications. The bedrock of any such package of measures must be to let the entrepreneurs make investment decisions on the basis of their own commercial judgement. Major policy initiatives and procedural reforms are called for in order to actively encourage and assist Indian entrepreneurs to exploit and meet the emerging domestic and global opportunities and challenges. private or cooperative sector will be encouraged to grow and improve on their past performance. A full realisation of the industrial potential of the country calls for a continuation of this process of change. keeping in view the changing industrial scene in the country. correct the distortions or weaknesses that may have crept in. 1951. Industrial Licensing is governed by the Industries (Development & Regulation) Act. B. Government policy and procedures must be geared to assisting entrepreneurs in their efforts. In pursuit of the above objectives. Intensive training. belonging to the public. The major objectives of the new industrial policy package will be to build on the gains already made. Government will continue to visualise new horizons. Industrial Licensing. A package for the Small and Tiny Sectors of industry is being announced separately. D. Government have decided to take a series of initiatives in respect of the policies relating to the following areas. medium or large. those that would be permitted for development through private enterprise with or without State participation. 17. INDUSTRIAL LICENSING POLICY 20. skill development and upgradation programmes will be launched. maintain a sustained growth in productivity and gainful employment and attain international competitiveness. and those in which investment initiatives would ordinarily emanate from private entrepreneurs.small section of society can corner the gains of growth. 18. Labour will be made an equal partner in progress and prosperity. A. The pursuit of these objectives will be tempered by the need to preserve the environment and ensure the efficient use of available resources. The attainment of technological dynamism and international competitiveness requires that enterprises must be enabled to swiftly respond to fast changing external conditions that have become characteristic of today's industrial world. The Industrial Policy Resolution of 1956 identified the following three categories of industries: those that would be reserved for development in public sector. Government's policy will be continuity with change.
These specified industries (AnnexII). The industrial licensing system has been gradually moving away from the concept of capacity licensing. requiring large investments and advanced technology. As a whole the Indian economy will benefit by becoming more competitive.be changed from that of only exercising control to one of providing help and guidance by making essential procedures fully transparent and by eliminating delays. Foreign investment would bring attendant advantages of technology transfer. 26. industrial licensing will henceforth be abolished for all industries. The Government will appoint a special board to negotiate with such firms so that we can engage in purposive . 22. will continue to be subject to compulsory licensing for reasons related to security and strategic concerns. irrespective of levels of investment. There shall be no bottlenecks of any kind in this process. The system of reservations for public sector undertakings has been evolving towards an ethos of greater flexibility and private sector enterprise has been gradually allowed to enter into many of these areas on a case by case basis. In view of the significant development of India's industrial economy in the last 40 years. and to world markets. social reasons. In order to invite foreign investment in high priority industries. This calls for bold and imaginative decisions designed to remove restraints on capacity creation. FOREIGN INVESTMENT 24. B. The exemption from licensing will be particularly helpful to the many dynamic small and medium entrepreneurs who have been unnecessarily hampered by the licensing system. 23. Further impetus must be provided to these changes which alone can push this country towards the attainment of its entrepreneurial and industrial potential. marketing expertise. problems related to safety and over-riding environmental issues. manufacture of products of hazardous nature and articles of elitist consumption. Such a framework will make it attractive for companies abroad to invest in India. Attraction of substantial investment and access to high technology. This group of industries has generally been known as the "Appendix I Industries" and are areas in which FERA companies have already been allowed to invest on a discretionary basis. it has been decided to provide approval for direct foreign investment upto 51% foreign equity in such industries. While freeing Indian industry from official controls. The government will therefore welcome foreign investment which is in the interest of the country's industrial development. except those specified. In the above context. more efficient and modern and will take its rightful place in the world of industrial progress. involves interaction with some of the world's largest international manufacturing and marketing firms. the general resilience. introduction of modern managerial techniques and new possibilities for promotion of exports. This change will go a long way in making Indian policy on foreign investment transparent. To the extent that expertise of this nature is not well developed so far in India. Promotion of exports of Indian products calls for a systematic exploration of world markets possible only through intensive and highly professional marketing activities. This is particularly necessary in the changing global scenario of industrial and economic cooperation marked by mobility of capital. the relationship between domestic and foreign industry needs to be much more dynamic than it has been in the past in terms of both technology and investment. and the significant changes that have also taken place in the world industrial economy. 25. Government will encourage foreign trading companies to assist us in our export activities. often closely held. The winds of change have been with us for some time. ensuring that over-riding national interests are not jeopardised. size and level of sophistication achieved. opportunities for promoting foreign investments in India should also be fully exploited. while at the same.
This has inhibited their ability to regenerate themselves in terms of new investments as well as in technology development. 30. Greater competitive pressure will also induce our industry to invest much more in research and development and they have been doing in the past. Another category of public enterprises. In order to help this process. The public sector has been central to our philosophy of development. individually or as a part of industrial or investment approvals. a number of problems have begun to manifest themselves in many of the public enterprises. The Industrial Policy Resolution of 1956 gave the public sector a strategic role in the economy. Indian companies will be free to negotiate the terms of technology transfer with their foreign counterparts according to their own commercial judgement. The most striking example is the take over of sick units from the private sector. FOREIGN TECHNOLOGY AGREEMENT 27. With a view to injecting the desired level of technological dynamism in Indian industry. over-manning.negotiation with such large firms. The original concept of the public sector has also undergone considerable dilution. Government will provide automatic approval for technology agreement related to high priority industries within specified parameters. C. 28. The predictability and independence of action that this measure is providing to Indian industry will induce them to develop indigenous competence for the efficient absorption of foreign technology. Today key sectors of the economy are dominated by mature public enterprises that have successfully expanded production. Massive investments have been made over the past four decades to build a public sector which has a commanding role in the economy. The Indian entrepreneur has now come of age so that he no longer needs such bureaucratic clearances of his commercial technology relationships with foreign technology suppliers. In the pursuit of our development objectives. Indian industry can scarcely be competitive with the rest of the world if it is to operate within such a regulatory environment. The result is that many of the public enterprises have become a burden rather than being an asset to the Government. reducing regional disparities and ensuring that planned development serves the common good. and provide the avenues for large investments in the development of industries and technology in the national interest. Similar facilities will be available for other industries as well if such agreements do not require the expenditure of free exchange. In addition. which does not fit into the original idea of . In the fast changing world of technology the relationship between the suppliers and users of technology must be a continuous one. poor project management. lack of continuous technological upgradation. There is a great need for promoting an industrial environment where the acquisition of technological capability receives priority. will also not require prior clearance as prescribed so far. PUBLIC SECTOR POLICY 29. public enterprises have shown a very low rate of return on the capital invested. the hiring of foreign technicians and foreign testing of indigenously developed technologies. 31. opened up new areas of technology and built up a reserve of technical competence in a number of areas. This category of public sector units accounts for almost one third of the total losses of central public enterprises. D. Serious problems are observed in the insufficient growth in productivity. Such a relationship becomes difficult to achieve when the approval process includes unnecessary governmental interference on a case to case basis involving endemic delays and fostering uncertainty. After the initial exuberance of the public sector entering new areas of industrial and technical competence. public ownership and control in critical sector of the economy has played an important role in preventing the concentration of economic power. and inadequate attention to R&D and human resource development.
part of Government holdings in the equity share capital of these enterprises will be disinvested in order to provide further market discipline to the performance of public enterprises. areas with low or nil social considerations or public purpose. Measures must be taken to make these enterprises more growth oriented and technically dynamic. Technology development and building of manufacturing capabilities in areas which are crucial in the long term development of the economy and where private sector investment is inadequate. Manufacture of products where strategic considerations predominate such as defence equipment. The principal objectives sought to be achieved through the MRTP Act are as follows: . Competition will also be induced in these areas by inviting private sector participation. Government will strengthen those public enterprises which fall in the reserved areas of operation or are in high priority areas or are generating good or reasonable profits. Prohibition of monopolistic and restrictive and unfair trade practices. E. It is time therefore that the Government adopt a new approach to public enterprises. There must be a greater commitment to the support of public enterprises which are essential for the operation of the industrial economy. 33. The priority areas for growth of public enterprises in the future will be the following. the 35. This process of change was given a new momentum in 1985 by an increase of threshold limit of assets. and ii.the public sector being at the commanding heights of the economy. 34. Such enterprises will be provided a much greater degree of management autonomy through the system of memoranda of understanding. • • • • Essential infrastructure goods and services. 32. small scale and non-strategic areas. inefficient and unproductive areas. MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT (MRTP ACT) i. In view of these considerations. 36. The MRTP Act became effective in June 1970. Exploration and exploitation of oil and mineral resources. major amendments to the MRTP Act were carried out in 1982 and 1984 in order to remove impediments to industrial growth and expansion. With the growing complexity of industrial structure and the need for achieving economies of scale for ensuring high productivity and competitive advantage in the international market. 37. is the plethora of public enterprises which are in the consumer goods and services sectors. There are a large number of chronically sick public enterprises incurring heavy losses. These need to be attended to. This review will be in respect of industries based on low technology. control of monopolies. operating in a competitive market and serve little or no public purpose. With the emphasis placed on productivity in the Sixth Plan. Government will review the existing portfolio of public investments with greater realism. and areas where the private sector has developed sufficient expertise and resources. Prevention of concentration of economic power to the common detriment. Units which may be faltering at present but are potentially viable must be restructured and given a new lease of life. At the same time the public sector will not be barred from entering areas not specifically reserved for it. The country must be proud of the public sector that it owns and it must operate in the public interest. In the case of selected enterprises.
the provisions regarding restrictions on acquisition of and transfer of shares will be appropriately incorporated in the Companies Act. Industrial Licensing Policy i. A. emphasis will be on controlling and regulating monopolistic. imports of capital goods will require clearance from the Secretariat for Industrial Approvals (SIA) in the Department of Industrial Development according to availability of foreign exchange resources. restrictive and unfair trade practices. F. automatic clearance will be given a. and takeover will also be repealed. The thrust of policy will be more on controlling unfair or restrictive business practices. amalgamation.interference of the Government through the MRTP Act in investment decisions of large companies has become deleterious in its effects on Indian industrial growth. These measures complement the other series of measures being taken by Government in the areas of trade policy. ii. Areas where security and strategic concerns predominate. The MRTP Act will be restructured by eliminating the legal requirement for prior governmental approval for expansion of present undertakings and establishment of new undertakings. upto a maximum value of Rs. The newly empowered MRTP Commission will be encouraged to require investigation suo moto or on complaints received from individual consumers or classes of consumers. iii. will continue to be reserved for the public sector (list attached as Annex I). there will be no requirement of obtaining industrial approvals from the Central Government except for . The provisions relating to merger. this scheme (i. Simultaneously.e. 1992. restrictive and unfair trade practices rather than making it necessary for the monopoly house to obtain prior approval of Central Government for expansion. 2 crore. financial sector reform and overall macro economic management. Similarly. Industrial licensing will be abolished for all projects except for a short list of industries related to security and strategic concerns. if the CIF value of imported capital goods required is less than 25% of total value (net of taxes) of plant and equipment. provisions of the MRTP Act will be strengthened in order to enable the MRTP Commission to take appropriate action in respect of the monopolistic. 38. merger. iv. In view of the considerations outlined above Government have decided to take a series of measures to unshackle the Indian industrial economy from the cobwebs of unnecessary bureaucratic control. DECISIONS OF GOVERNMENT 39. (iii) b) will come into force from April. social reasons. in cases where foreign exchange availability is ensured through foreign equity or b. hazardous chemicals and overriding environmental reasons. establishment of new undertakings. In projects where imported capital goods are required. In other cases. fiscal policy. and items of elitist consumption (list attached as Annex II). In view of the current difficult foreign exchange situation. In locations other than cities of more than 1 million population. Industries reserved for the small scale sector will continue to be so reserved. The pre-entry scrutiny of investment decisions by so called MRTP companies will no longer be required. amalgamation and takeover and appointment of certain directors. Instead. exchange rate management.
To provide access to international markets. Consequential amendments to the Foreign Exchange Regulation Act (1973) shall be carried out. except in prior designated industrial areas. such trading houses shall be at par with domestic trading and export houses in accordance with the Import Export Policy. raw materials and intermediate goods. The system of phased manufacturing programmes run on an administrative case by case basis will be applicable to new projects. Zoning and Land Use Regulation and Environmental Legislation will continue to regulate industrial locations. and payment of knowhow fees and royalties will be governed by the general policy applicable to other domestic units.industries subject to compulsory licensing. All existing registration schemes (Delicensed Registration. the payment of dividends would be monitored through the Reserve Bank of India so as to ensure that outflows on account of dividend payments are balanced by export earnings over a period of time. Foreign Investment i. Such clearance will be available if foreign equity covers the foreign exchange requirement for imported capital goods.The mandatory convertibility clause will no longer be applicable for term loans from the financial institutions for new projects. industries other than those of a non polluting nature such as electronics. xi. In respect of cities with population greater than 1 million. will continue to need prior clearance. iii. DGTD registration) will be abolished. x. Other foreign equity proposals. Appropriate incentives and the design of investments in infrastructure development will be used to promote the dispersal of industry particularly to rural and backward areas and to reduce congestion in cities. v. The lists at Annex II and Annex III will be notified in the Indian Trade (Harmonised System). majority foreign equity holding upto 51% equity will be allowed for trading companies primarily engaged in export activities. While the import of components. Existing units will be provided a new broad banding facility to enable them to produce any article without additional investment. Foreign equity proposals need not necessarily be accompanied by foreign technology agreements. While the thrust would be on export activities. vii. A flexible location policy would be adopted in respect of such cities (with population greater than 1 million) which require industrial regeneration. Exempted Industries Registration. Approval will be given for direct foreign investment upto 51 percent foreign equity in high priority industries (Annex III). Procedural consequences ix. viii. vi. on Classification . ii. computer software and printing will be located outside 25 kms. B. Entrepreneurs will henceforth only be required to file an information memorandum new projects and substantial expansions. iv. of the periphery. The exemption from licensing will apply to all substantial expansions of existing units. There shall be no bottlenecks of any kind in this process. Existing projects with such programmes will continue to be governed by them. including proposals involving 51% foreign equity which do not meet the criteria under (I) above.
subject to total payment of 8% of sales over a 10 year period from date of agreement or 7 years from commencement of production. a part of the government's shareholding in the public sector would be offered to mutual funds. 1 crore. Automatic permission will be given for foreign technology agreements in high priority industries (Annex III) upto a lumpsum payment of Rs. be referred to the Board for Industrial and Financial Reconstruction (BIFR). Foreign Technology Agreements i. There will be a greater thrust on performance improvement through the Memoranda of understanding (MOU) systems through which managements would be granted greater autonomy and will be held accountable. for the formulation of revival/rehabilitation schemes. In respect of industries other than those in Annex III. Public enterprises which are chronically sick and which are unlikely to be turned around will. free from pre-determined parameters or procedures. In order to raise resources and encourage wider public participation. Public Sector i. A special Empowered Board would be constituted to negotiate with a number of large international firms and approve direct foreign investment in select areas. . iv. v. A social security mechanism will be created to protect the interests of workers likely to be affected by such rehabilitation packages. ii. iii. Boards of public sector companies would be made more professional and given greater powers. To facilitate a fuller discussion on performance. Similarly the public sector will also be allowed entry in areas not reserved for it. While focussing on major management issues. Payment may be made from blanket permits or free foreign exchange according to RBI guidelines. 5% royalty for domestic sales and 8% for exports. general public and workers. vi.v. This would be a special programme to attract substantial investment that would provide access to high technology and world markets. the MOU signed between Government and the public enterprise would be placed in Parliament. Portfolio of public sector investments will be reviewed with a view to focus the public sector on strategic. D. iii. ii. Whereas some reservation for the public sector is being retained there would be no bar for areas of exclusivity to be opened up to the private sector selectively. this would also help place matters on day to day operations of public enterprises in their correct perspective. automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments. The prescribed royalty rates are net of taxes and will be calculated according to standard procedures. No permission will be necessary for hiring of foreign technicians. The investment programmes of such firms would be considered in totality. financial institutions. All other proposals will need specific approval under the general procedures in force. foreign testing of indigenously developed technologies. or other similar high level institutions created for the purpose. iv. Technical expertise on the part of the Government would be upgraded to make the MOU negotiations and implementation more effective. high-tech and essential infrastructure. C.
gypsum. Coal and Lignite. 6. Mineral oils. molybdenum and wolfram. MRTP Act i. Necessary comprehensive amendments will be made in the MRTP Act in this regard and for enabling the MRTP Commission to exercise punitive and compensatory powers. the newly empowered MRTP Commission will be authorised to initiative investigations suo moto or on complaints received from individual consumers or classes of consumers in regard to monopolistic. Simultaneously. zinc. Coal and lignite. 2. Defence aircraft and warships. iii. restrictive and unfair trade practices. amalgamation and takeover and appointment of Directors under certain circumstances. ANNEX II LIST OF INDUSTRIES IN RESPECT OF WHICH INDUSTRIAL LICENSING WILL BE COMPULSORY 1. merger. 1953. Animal fats and oils. 8. 4. 5. Petroleum (other than crude) and its distillation products. Mining of copper. 4. This eliminates the requirement of prior approval of Central Government for establishment of new undertakings. Railway transport. ANNEX I PROPOSED LIST OF INDUSTRIES TO BE RESERVED FOR THE PUBLIC SECTOR 1. 7. Emphasis will be placed on controlling and regulating monopolistic. expansion of undertakings. lead. The MRTP Act will be amended to remove the threshold limits of assets in respect of MRTP companies and dominant undertakings. chrome ore. restrictive and unfair trade practices. Sugar. Mining if iron ore. ii. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order. manganese ore. 3. sulphur. Distillation and brewing of alcoholic drinks. 2. gold and diamond. Arms and ammunition and allied items of defence equipment.E. tin. . Atomic Energy. 3. 5.
Internal combustion engines. Tanned or dressed furskins. safety fuse. Pig iron. Ferro alloys. ANNEX III LIST OF INDUSTRIES FOR AUTOMATIC APPROVAL OF FOREIGN TECHNOLOGY AGREEMENTS AND FOR 51% FOREIGN EQUITY APPROVALS 1. Programmable Domestic Washing Machines. vi. 16. leather. Drugs and Pharmaceuticals (according to Drug Policy). Plywood. and other wood based products such as particle board. Raw hides and skins. 10. 14. Electronic aerospace and defence equipment. Sponge iron and pelletisation.6. iv. Gas/hydro/steam turbines upto 60 MW. 9. gun powder. Hazardous chemicals. v. Industrial explosives. block board. including detonating fuse. 18. nitrocellulose and matches. Castings and forgings. 13. White Goods (Domestic Refrigerators. . Microwave ovens. Motor cars. 17. iii. decorative veneers. 12. Asbestos and asbestos-based products. colour TVs. ii. Paper and Newsprint except bagasse-based units. chamois leather and patent leather. Cigars and cigarettes of tobacco and manufactured tobacco substitutes. C. 15. 8. 11. iv. iii. 2. Non-ferrous metals and their alloys. 7. Players. Industrial turbines. Domestic Dishwashing machines. Metallurgical Industries i. Entertainment electronics (VCRs. Tape Recorders). Boilers and Steam Generating Plants Prime Movers (other than electrical generators) i. Large diameter steel welded pipes of over 300 mm diameter and stainless steel pipes.D. All types. 3. ii. Note: The compulsory licensing provisions would not apply in respect of the small-scale units taking up the manufacture of any of the above items reserved for exclusive manufacture in small scale sector. Alternate energy systems like solar wind etc. Airconditioners). medium density fibre board. and equipment therefor.
Engineering production aids such as cutting and forming tools. 7. Component wires for manufacture of lead-in wires. Jelly-filled telecommunication cables. 9. Midget carbon electrodes. industrial locomotives. Industrial machinery and equipment. Ship ancillaries. ii. Electrical Equipment i. Hydro/steam/gas generators/generating sets upto 60 MW. xi. fixtures. iii. Shock absorbers for railway equipment and v. industrial furnaces and induction heating equipment. Earth moving machinery and construction machinery and components thereof. Jigs. and iii. tools. Optic fibre. components including subscribers' end telecommunication equipments. tooling. X-ray equipment. x. power relays. patterns and dies and 8. iii. Industrial Machinery i. iii. 6. Electrical furnaces. public transport vehicles including automotive commercial three wheeler jeep type vehicles. (b) (c) Automotive two wheelers and three wheelers.000 DWT including fishing trawlers. iv. viii. Agricultural Machinery i.Generating sets and pumping sets based on internal combustion engines.4. Electronic equipment. iv. vii. ii. Electrical motors. i. Energy efficient lamps and xii. Automotive components/spares and ancillaries. Equipment for transmission and distribution of electricity including power and distribution transformers. ix. tools and dies of specilised types and cross land . Mechanised sailing vessels upto 10. HT-switch gear synchronous condensers. v. Tractors. ii. Rice transplanters. (a) Commercial vehicles. ii. Machine tools and industrial robots and their controls and accessories. vi. Earth Moving Machinery i. Brake system for railway stock and locomotives. Self-propelled Harvestor Combines. 5. Transportation i.
Inorganic fertilizers under '18-Fertilizers' in the First Schedule to IDR Act.in large volumes. urethanes. d. Refrigerant gases like liquid nitrogen. ix. g. rate of flow weights levels and the like. According to Drug Policy. vi. Industrial explosives. i. Heavy inorganic chemicals. f. . Catalysts and catalyst supports. 11. vii. weedicides. Miscellaneous chemicals (for industrial use only) a. Polyols. viii. 12. Coal tar distillation and product therefrom. Speciality chemicals for enhanced oil recovery. v. carbondioxide etc. Synthetic detergents x. l. Indicating. Paper and pulp including paper products. Organic fine chemicals. Heating fluids. e. 14. 13. Synthetic resins and plastics. i. Argon and other rare gases. Tonnage plants for the manufacture of industrial gases. j. Heavy organic chemicals including petrochemicals. iii. Photographic chemicals. Scientific and Electromedical Instruments and Laboratory Equipment. Industrial Instruments i. fungicides. Drugs and Pharmaceuticals 15. temperatures. High altitude breathing oxygen/medical oxygen.10. i. iv. c. Synthetic rubber. k. Chemicals (other than fertilizers). Nitrous oxide. and the like. b. h. 1951. Man made fibres. Alkali/acid resisting cement compound o. recording and regulating devices for pressures. Leather chemicals and auxiliaries. n. Isocyanates.Technical grade insecticides. m. ii. Rubber chemicals. etc. Nitrogenous & Phosphatic Fertilizers falling under i.
Portland cement. Pretensioned High Pressure RCC Pipes.000 or more impressions per hour. Carbon and Carbon Products i. i. i. Rubber reinforced and lined fire fighting hose pipes. v. Welding Electrodes other than those for Welding Mild Steel Industrial Synthetic Diamonds. 21. Engineering and industrial plastic products. ii. Pheromones. 19.000 or more impressions per hour. Impervious graphite blocks and sheets. i. . H. Glass fibres of all types. Industrial laminates. Gypsum boards. wall boards and the like. vi. iii. 16. 23. Photo composing/type setting machines. ii. ii. Graphite electrodes and anodes. Genetically modified free living symbiotics nitrogen fixer. Photosynthesis improvers. iii. Multi-colour sheet-fed off-set printing machines of sizes 18"x25" and above. Glass shells for television tubes. 18.T. 26. iv. ii. High Technology Reproduction and Multiplication Equipment. iii. ii. Rubber Machinery Printing Machinery. Web-fed high speed off-set rotary printing machine having output of 30. iv. Bio-insecticides. High pressure braided hoses. iv. High speed rotograture printing machines having output of 30. 17. 24. i. 20. 22. iv. ii. 25. Cement Products i. Float glass and plate glass. Plate Glass i. iii.ii. Rubberised conveyor beltings. 27. Automobile tyres and tubes. insulators. Rubberised heavy duty industrial beltings of all types. Ceramics Ceramics for industrial uses.
v. iii. Soya Products i. January 21. 32. iv. and flour. 29. 33. but excluding the items reserved for small-scale sector. Soya protein concentrates. ii. though started in mid-1980s. All items of packaging for food processing industries excluding the items reserved for small scale sector. 2011 About us | Contact us | Feedback | Advertise (Weekly) | Editorial Calender 2008 | Career |Bo Lead Story News Edit Page PM Interview The process of reforms and liberalisation of the Indian economy. malted foods. Soya protein isolates. (a) Certified high yielding hybrid seeds and synthetic seeds and (b) Certified high yielding plantlets developed through plant tissue culture. ARTICLE 2 Home Friday. Soya texture proteins. All food processing industries other than milk food. 34. Other specialised products of soyabean.28. Extraction and Upgrading of Minor Oils Pre-fabricated Building Material. Hotels and tourism-related industry. From liberation to liberalisation . Winterised and deodourised refined soyabean oil. 31. 30.
reservation on five drugs reserved for public sector was also abolished. cold chain and warehousing and under licensing in distilleries. FDI up to 100 per cent is allowed under the automatic route in the food parks. Imports of capital goods including second hand machines are exempt from customs duties. Pharmaceutical: In 1991. exchange rate was allowed to be determined by market forces. companies were allowed to tap the capital markets freely by abolishing the office of Controller of Capital Issues. industrial license not required for setting up food & agro processing plants. Industry was freed from Licence Raj'. The liberalisation policy unveiled in July 1991. says Shashikant Hegde. public sector monopoly was removed from most of the sectors. Further. ports. Sugar companies are now free to set up new factories or expand their existing capacities without requiring any license. in February 1999. upper cap on sectoral FDI was raised considerably or removed completely. the compulsory levy on sugar was reduced from 40 per cent of its production in 1991 to 10 per cent in March 2002. automatic Sister Concern Archives . was passed in May 2002 to extend finance from the Fund for co-generation units and for production of anhydrous alcohol or ethanol from alcohol. initiated wide ranging policy and regulatory reforms. As per the new policy. quantitative restrictions on imports were either reduced or removed completely. roadways. The sector was dominated by small organization. Further. Further. Foreign investment through automatic route is allowed up to 100 per cent. Sugar: Sugar was subject to a number of controls regulating its production. Below an attempt is made to list out reform measures taken in major sectors. The only stipulation required is maintenance of radial distance of 15 km between the existing sugar factory and the new one. supply and prices in the pre-liberalisation period. financial markets were liberalized. Food processing: Food processing industry was one of the heavy beneficiaries of the liberalization. Sugar Development Fund (Amendment) Act.New Projects Orders & Contracts Transport Power Special Feature: India Infrastructure received a big push in 1991. The dereservation of sectors identified for small scale sector attracted increased investment by large corporates and MNCs. The sector was delicensed in September 1998. etc. the industrial licensing for the manufacture of all drugs and pharmaceuticals (except a few bulk drugs) was abolished. the number of industries reserved for small scale sector was pruned considerably and private investment was invited in sectors like electricity. On the financial front. telecommunications.
The total cement . foreign companies can invest up to 100 per cent of the equity in any venture in the petroleum sector subject to approval of the government. New Exploration Licensing Policy (NELP) was launched in January 1999 by the government for accelerating the pace of hydrocarbon exploration in the country. Textiles: Though licensing was abolished in 1991. a separate National Textile Policy was formulated in 2000 with an object to facilitate the textiles sector to attain and sustain global standing in the manufacture and export of clothing. the scheme was extended to the small scale textile and jute mills.approval for Foreign Technology Agreements is being given in the case of all bulk drugs and formulations. It has also been listed as a priority industry in Schedule III of the Industry Policy Statement making it eligible for automatic approval for foreign investment up to 51 per cent. 2002. The Government has opened up the refining sector to private investment. FDI up to 100 per cent is allowed. The success of this measure is yet to be seen as the country's crude oil production has stagnated at around 33. Cement: Cement industry was one of the first sectors to experience the benefits of liberalization. Rebate is also given on in-house R&D expenses. MRTP/FERA companies were allowed to set up projects. Technology Upgradation Fund Scheme was made operational from 1 April 1999. The industry has responded very well to the government policies and today is the second largest producer of cement in the world. the sector has started attracting Indian as well as foreign companies' attention off late. With effect from January 1. productivity enhancement and increased exports are the main thrust areas of the policy.00 mtpa for the last 15 years. except a few. Private companies are also encouraged to invest in the marketing of petroleum products. Today around 75 per cent of the drugs manufactured by the pharma companies are outside price control. After the initial hiccup. The total refining capacity is expected to cross 220 million tonne mark by 2012. Cement was decontrolled fully in March 1989 and delicensed in July 1991. Oil & hydrocarbons: As per the prevailing policy. Technological upgradation. The Indian textile industry suffers from severe technological obsolescence and lack of economies of scale. In February 1982 partial decontrol was introduced in cement and a liberal policy was adopted in respect of price and distribution. The industry wants complete freedom from price controls. To assist textile companies to modernise. So far 199 blocks have been awarded under six rounds of NELP.
Large Indian steel companies Tata. Restrictions on external trade. Besides aiming to tap the growing domestic market. both in import and export have also been removed. The total steel making capacity is expected to cross 120 million tonne by 2012. Though enough private proposals are pending for setting up new capacities. around 116 MoUs are signed to produce around 180 million tonne of steel. Price and distribution controls have been removed from January. The new auto policy announced by the government in 2002 opened the automobile sector to 100 per cent foreign direct investment and removed the minimum capital investment norm for fresh entrants. power sector grew at a very slow pace. This led to a spate of investment intentions in the passenger cars and commercial vehicles segment. Automatic approval of foreign equity investment up to 100 per cent is allowed. In the recent years. Power: The passage of the Electricity Act 2003 in June 2003 is termed as an important landmark in the liberalisation of the power sector. Automobiles: Auto industry is one of the beneficiaries of the industrial reforms. Power distribution: To strengthen the power distribution system in the country and to lessen the . As per the extant policy. Import duty rates have been reduced drastically. Till date. captive generation was set free from all controls. almost every major international automobile manufacturer has a presence in India. Despite these measures. the country has seen huge increase in project investment in this sector. Following this. the power generation was delicensed.manufacturing capacity is expected to increase from 170 million tonne to 250 million tonne by 2012. the government also set up the Central Electricity Regulatory Commission (CERC). Steel: The Indian iron and steel industry was deregulated in January 1992. multinationals intends to make India as an export hub to cater to their global demands. Further. power trading was recognized as an independent activity and open access was granted on transmission and distribution activities. Jindal and Essar are also expanding their overseas capacities through acquisition route. no license is required to setup steel mills. 1992. the State Electricity Regulatory Commissions (SERCs) to fix and regulate tariffs from time to time. delay in clearance of projects and the poor financial conditions of state electricity boards have prevented them from committing huge investments. the industry has been removed from the list of industries reserved for the public sector. Today. The erstwhile control mechanism was dismantled paving the way for a market-centric industry. In addition to amending the Electricity Act twice.
The Central government has created a dedicated fund called Central Road Fund (CRF) from collection of cess on petrol and diesel. Though private companies are willing to invest in road building. expects to achieve a target of 40 million internet subscribers and 20 million broadband subscribers by 2010. If government ensures . Further. state roads and rural roads. to strengthen the rural connectivity the Pradhan Mantra Gramodaya Yojana (PMGY) was launched in December 2000 to provide connectivity to rural India.000 crore.transmission loss the government of India approved a scheme called Accelerated Power Development and Reforms Programme (APDRP) in March 2003. The 'Broadband Policy' announced in October 2004. The total number of telecom subscribers has already crossed the 200 million landmark and is expected to grow further. The Telecom Regulatory Authority of India (TRAI) was constituted in 1997 as an independent regulator in this sector. national long distance and Internet services. Roads: For sustained economic growth existence of well connected roadways network is a must. The scheme has also identified 63 distribution circles as ideal for distribution reforms. The fund is utilised for development and maintenance of national highways. Though the government faltered in the beginning in privatising the sector. In all 24. The growth of Indian telecom network has been over 30 per cent consistently during the last five years.2. Under this scheme the central government will fund 50 per cent of the project cost undertaken by state governments. NHAI announced National Highway Development Programme to upgrade the national highways in 1995.000 km length national highways will be created in the next 10 ten years. Though 16 states have opted for the scheme the pace of reforms is very slow.20. the corrective measures taken through the new National Telecom policy of 1999 ensured enough competition in areas like basic and cellular services. NHAI was entrusted with the responsibility of implementing a greatly expanded National Highways Development Project spread over seven phases with an estimated expenditure of Rs. they are currently wary of decent returns on their investments. Model concession code is being developed to ensure higher participation from private parties. NHAI intends to execute most portion of the NHDP through public private partnership. To ensure this. Telecommunications: The phenomenal growth recorded in the telecom sector shows what economic reforms can achieve. the government established the National Highways Authority of India.
as shown in Table 1. minerals. embarking on the process in earnest only in 1991. in the wake of an exceptionally severe balance of payments crisis. Industrial policy prior to the reforms was characterized by multiple controls over private investment which limited the areas in which private investors were allowed to operate. industrial and trade policy. infrastructure development and social sector development Reforms in Industrial and Trade Policy Reforms in industrial and trade policy were a central focus of much of India’s reform effort in the early stages. as many countries in east Asia achieved high growth and poverty reduction through policies which emphasized greater export orientation and encouragement of the private sector. We review policy changes in five major areas covered by the reform program: fiscal deficit reduction. growth in the 1990s was accompanied by remarkable external stability despite the east Asian crisis. India’s economic performance in the post-reforms period has many positive features. This growth record is only slightly better than the annual average of 5. India took some steps in this direction in the 1980s. Bhagwati and Desai. The requirement that investments by large industrial houses needed a separate clearance under the Monopolies and Restrictive Trade Practices Act to discourage the concentration of economic . mining.has been drastically reduced to three: defense aircrafts and warships. The costs imposed by these policies had been extensively studied (for example. and a restructuring of the role of government. Industrial licensing by the central government has been almost abolished except for a few hazardous and environmentally sensitive industries. but it was not until 1991 that the government signaled a systemic shift to a more open economy with greater reliance upon market forces. telecommunications and telecom equipment. Ahluwalia.which used to cover 18 industries.0 percent. air transport services and electricity generation and distribution -. agricultural policy. which puts India among the fastest growing developing countries in the 1990s.India was a latecomer to economic reforms. but it can be argued that the 1980s growth was unsustainable. The need for a policy shift had become evident much earlier. 1985) and by 1991 a broad consensus had emerged on the need for greater liberalization and openness. Industrial Policy Industrial policy has seen the greatest change. atomic energy generation. The average growth rate in the ten year period from 1992-93 to 2001-02 was around 6.7 percent in the 1980s. A great deal has been achieved at the end of ten years of gradualist reforms. heavy plant and machinery. 1971. and often also determined the scale of operations. and even the technology to be used. In sharp contrast. Bhagwati and Srinivasan. with most central government industrial controls being dismantled. The list of industries reserved solely for the public sector -. oil. the location of new investment. including iron and steel. and at a faster rate than in the 1980s according to some studies (as Ravallion and Datt discuss in this issue). a larger role for the private sector including foreign investment. and railway transport. fuelled by a buildup of external debt which culminated in the crisis of 1991. The industrial structure that evolved under this regime was highly inefficient and needed to be supported by a highly protective trade policy. Poverty also declined significantly in the post-reform period. 1965. often providing tailormade protection to each sector of industry.
but much more needs to be done. these changes are very recent and it will take some years before they are reflected in economic performance. Complaints of delays. Procedures for obtaining . driven by the belief that this would increase the total volume of investment in the economy. Both reports recommended that the policy of reservation should be abolished and other measures adopted to help smallscale industry. Investors perceived a 30 percent cost advantage in some states over others. Bihar and West Bengal). The items include garments.power was abolished and the act itself is to be replaced by a new competition law which will attempt to regulate anticompetitive behavior in other ways.000. About 800 items were covered by this policy since the late 1970s. Private investors require many permissions from state governments to start operations. Gujarat. Some states have taken initiatives to ease these interactions. and increase access to world markets. the pay off from pursuing good policies has increased. Industrial liberalization by the central government needs to be accompanied by supporting action by state governments. Karnataka. and toys had high export potential and the failure to permit development of production units with more modern equipment and a larger scale of production severely restricted India’s export competitiveness. shoes. all of which are potentially important for exports. the investment ceiling for certain items was increased to $1 million. sanitation. telecommunications and airlines. Foreign Direct Investment Liberalizing foreign direct investment was another important part of India’s reforms. Because liberalization has created a more competitive environment. A recently completed joint study by the World Bank and the Confederation of Indian Industry (Stern. shoes. 2002). improve production technology. The policy now allows 100 percent foreign ownership in a large number of industries and majority ownership in all except banks. workers’ welfare and safety. being concentrated in what are seen as the more investor-friendly states (Maharashtra. some policy changes have been made very recently: fourteen items were removed from the reserved list in 2001 and another 50 in 2002. insurance companies. However. corruption and harassment arising from these interactions are common. These differences across states have led to an increase in the variation in state growth rates. In addition. The main area where action has been inadequate relates to the long standing policy of reserving production of certain items for the small-scale sector. with some of the less favored states actually decelerating compared to the 1980s (Ahluwalia. which meant that investment in plant and machinery in any individual unit producing these items could not exceed $ 250. toys and auto components. Andhra Pradesh and Tamil Nadu) to the disadvantage of other states (like Uttar Pradesh. The Report of the Committee on Small Scale Enterprises (1997) and the Report of the Prime Minister’s Economic Advisory Council (2001) had both pointed to the remarkable success of China in penetrating world markets in these areas and stimulating rapid growth of employment in manufacturing. They must also interact with the state bureaucracy in the course of day-to-day operations because of laws governing pollution. like connections to electricity and water supply and environmental clearances. especially foreign investment. on account of the availability of infrastructure and the quality of governance. thereby increasing the importance of state level action. While such a radical change in policy was unacceptable. and such. 2001) found that the investment climate varies widely across states and these differences are reflected in a disproportional share of investment. Many of the reserved items such as garments. Infrastructure deficiencies will take time and resources to remove but deficiencies in governance could be handled more quickly with sufficient political will.
Computer Maintenance Corporation. These reforms have created a very different competitive environment for India’s industry than existed in 1991. an Indian subsidiary of the Anglo-Dutch multinational Unilever. which has led to significant changes. several hotels. 2000). the change from the pre-reform situation is impressive. was sold with full management control to Hindustan Lever. New dynamic firms have displaced older and less dynamic ones: of the top 100 companies ranked by market capitalization in 1991. Disinvestment receipts were consistently below budget expectations and the average realization in the first five years was less than 0. Foreign investment inflows increased from virtually nothing in 1991 to about 0. though there was some expectation that private shareholders would increase the commercial orientation of public sector enterprises. a policy described as “disinvestment” to distinguish it from privatization.al. opening a window for portfolio investment in existing companies. Indian companies have upgraded their technology and expanded to more efficient scales of production. (a public sector breadmaking company with 2000 employees).1 The first such privatization occurred in 1999. a major petrochemicals unit and Maruti Udyog. or for a higher share of equity than is automatically permitted in listed industries. an aluminium company. The principal motivation was to mobilize revenue for the budget. The presence of foreign-owned firms and their products in the domestic market is evident and has added greatly to the pressure to improve quality. when 74 percent of the equity of Modern Foods India Ltd. Although this figure remains much below the levels of foreign direct investment in many emerging market countries (not to mention 4 percent of GDP in China). foreign institutional investors were allowed to purchase shares of listed Indian companies in the stock market. the government announced its willingness to reduce its shareholding to 26 percent and to transfer management control to private stakeholders purchasing a substantial stake in all central public sector enterprises except in strategic areas. India’s largest automobile producer which was a joint venture with Suzuki Corporation which has now acquired full managerial controls. They have also restructured through mergers and acquisitions and refocused their activities to concentrate on areas of competence.permission were greatly simplified by listing industries that are eligible for automatic approval up to specified levels of foreign equity (100 percent. . VSNL. Potential foreign investors investing within these limits only need to register with the Reserve Bank of India. the government adopted a limited approach of selling a minority stake in public sector enterprises while retaining management control with the government. but although privatization has been a prominent component of economic reforms in many countries. 74 percent and 51 percent). This was followed by several similar sales with transfer of management: BALCO. India has been ambivalent on the subject until very recently. Hindustan Zinc.25 percent of GDP compared with an average of 1.7 percent in seventeen countries reported in a recent study (see Davis et. Initially. Privatization The public sector accounts for about 35 percent of industrial value added in India. In 1998. For investments in other industries. IPCL. In 1993. There was clearly limited appetite for purchasing shares in public sector companies in which government remained in control of management. about half are no longer in this group. This policy had very limited success. which was until recently the monopoly service supplier for international telecommunications. Lagan Jute Machinery Manufacturing Company. applications are considered by a Foreign Investment Promotion Board that has established a track record of speedy decisions.5 percent of GDP.
However. although these are precisely the companies where privatization can generate large revenues. there is little public support for selling public sector enterprises that are making large profits such as those in the petroleum and domestic telecommunications sectors. it appears to have been accepted by the public.The privatization of Modern Foods and BALCO generated some controversy. not so much on the principle of privatization. . Subsequent sales have been much less problematic and although the policy continues to be criticized by the unions. These are mostly loss making enterprises and are unlikely to yield significant receipts but privatization will eliminate the recurring burden of financing losses. is the decision to earmark the proceeds of privatization to finance additional expenditure on social sector development and for retirement of public debt. but it can help fill critical gaps in the next five to ten years while longer term solutions to the fiscal problem are attempted. there are several companies in the pipeline for privatization which are likely to be sold and this will reduce resistance to privatizing profitmaking companies. especially for public sector enterprises that are making losses or not doing well. but on the transparency of the bidding process and the fairness of the price realized. Privatization is clearly not a permanent source of revenue. These companies are unlikely to be privatized in the near future. which may increase public acceptance of privatization. but even so. Many states have also started privatizing state level public sector enterprises.2 An important recent innovation.
1 2 .