Indian Economy
General Knowledge

New Industrial Policy, 1991

New Industrial Policy, 1991

This new policy deregulates the industrial economy in a substantial manner. The Major Features of NIP, 1991 are :

Abolition of industrial licensing :
In a major move to liberalise the economy, the new industrial policy abolished all industrial licensing, irrespective of the level of investment, except for certain industries related to security and strategic concerns, social reasons, concerns related to safety and over-riding environmental issues, manufacture of products of hazardous nature and articles of elitist consumption.

Entry of foreign investment and technology made easier :
For the promotion of exports of Indian products in world markets, the government would encourage foreign trading companies to assist Indian exporters in export activities. Approval would be given for direct foreign investment up to 51% foreign equity in high priority industries.

Public sector's role diluted :
The new industrial policy has removed all these (the number of industries reserved for the public sector since 1956 was 17) industries from the Reserved List. Industries that continue to be reserved for the public sector are in areas where security and strategic concerns predominate. These areas are :
(i) arms and ammunition and allied items of defence equipment, defence aircraft and warships,
(ii) atomic energy,
(iii) mineral oils and minerals specified in the schedule to the atomic energy (control of production and use) order, 1953,
(iv) railways.

MRTP Act :
Under the MRTP Act, all firms with assets above a certain size (Rs. 100 crore since 1985) were classified as MRTP firms. Such firms were permitted to enter selected industries only and this also on a case- by-case approval basis. The new industrial policy scrapped the threshold limit of assets in respect of 'MRTP' and dominant undertakings.

Liberalisation of Industrial location policy :
The new Industrial policy provides that in locations other than cities of more than one million population, there will be no requirement of obtaining industrial approvals from the centre, except for industries subject to compulsory licensing. In cities with a population of more than one million, industries other than those of a non-polluting nature will be located outside 25 kms. of the periphery.

Abolition of Phased Manufacturing Programmes for new projects :
To force the pace of indigenisation in manufacturing, Phased Manufacturing Programmes have been in force in a number of engineering and electronic industries.

Mandatory convertibility clause removed :
A large part of industrial investment in India is financed by loans from banks and financial institutions. These institutions have followed a mandatory practice of including a convertibility clause in their lending operations for new projects. This has provided them an option of converting part of their loans into equity, if felt necessary by their management. This has often been interpreted as an unwarranted threat to private firms of takeover by financial institutions. This mandatory convertibility clause put forward by the financial institutions has been abolished by the new industrial policy.

In the Union Budget of 1997-98, nine public sector undertakings, which performed very well were given the name of "Navratna" and were made autonomous. These "Navratnas" included :

SAIL Steel Authority of India Limited
IOC (Sept. 1964) Indian Oil Corporation
BPCL (Aug. 1,1977) Bharat Petroleum Corporation Limited
HPCL (Est. July 15,1974) Hindustan Petroleum Corporation Limited
BHEL Bharat Heavy Electricals Limited
NTPC National Thermal Power Corporation
BEL Bharat Electronics Limited
HAL Hindustan Aeronautics Limited
ONGC (Est Aug. 14,1956) Oil and Natural Gas Corporation

Following undertakings were also included in this list later :

GAIL (Aug. 1984) Gas Authority of India Limited
MTNL Mahanagar Telephone Nigam Limited
NMDC National Mineral Development Corporation
PFC Power Finance Corporation
PGCIL Power Grid Corporation of India Limited
REC Rural Electrical Corporation Limited
NALCO National Aluminium Company
SCI Shipping Corporation of India
CIL Coal India Limited

Navratna Public sector enterprises have been given enhanced autonomy and delegation of powers to incur capital expenditure (without any momentary ceiling), to enter into technology joint ventures, to raise capital I rom domestic and international market, to establish financial joint ventures .md to wholly own subsidiary.