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Industrial Policy and Its effects on Industrial growth- Part 2 Lesson-1 Presented By : Roman Saini
In This Lesson Industrial Policy New Industrial Policy, 1991
Industrialization India faced an unprecedented economic crisis in 1991 due to the following reasons: Macro-economic mismanagement throughout the 1980s High fiscal deficits, in particular the revenue deficits and the monetized deficit. . Investment increased but savings decreased. This increase in investment was mainly on account of large capital expenditures and import of machinery and raw materials, including oil. This eventually necessitated heavy borrowing from abroad and the consequent liability of external debt. .Foreign debt increased from US$ 23.50 billion in 1980 to US$ 63.40 billion in 1991
Industrialization Expanding fiscal deficit due to government subsidies of fertilizers, food and exports and by the state governments' of power, transport and irrigation. The inefficient functioning of many of the central and state public sector enterprises further burdened the government budget. . Furthermore, the current account deficit, mounting capital account expenditures by the government and public enterprises had to be financed through public borrowing. The foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks. .It is in this context, India undertook series of economic reforms to revive Indian economy and New industrial Policy- 1991 is one such game changer in the history of independent India.
Industrialization New Industrial policy- 1991 (NIP- 1991) NIP- 1991 set out directions for industrialisation in an economy that began its journey in liberalisation .It emphasized on the need to promote further industrial development based on consolidating the gains already made and correct the distortion or weaknesses that might have crept in, and attain international competitiveness. The liberalized Industrial Policy aims at rapid and substantial economic growth, and integration with the global economy in a harmonized manner. . It dealt with liberalising licensing and measures to encourage foreign investments. A policy for public sector enterprises and the Monopolies and Restrictive Trade Practices Act were introduced
Industrialization Objectives of the New Industrial Policy- 1991 To maintain a sustained growth in productivity and gainful employment and attain international competitiveness. Self reliance or building up the ability to pay our import bills through our owr foreign exchange earnings and developing indigenous capacity in technology and manufacturing Pursue sound policy framework encompassing encouragement to entrepreneurship, development of indigenous technology, dismantling of the regulatory system. . Development of capital markets and increasing competitiveness .
Industrialization Spread of industrialization to backward areas through appropriate incentives, institutions and infrastructure investments. Encourage foreign investment and technology collaboration. Abolish monopoly of any sector or any individual enterprise in any field of manufacture except on strategic and military considerations and open all manufacturing activity to competition. Ensure that public sector plays its rightful role in strategic areas of national importance. .Protect the interests of labour, enhance their welfare and equip them to deal with technology change
Industrialization .To achieve these objectives, the Policy focus is on deregulating Indian industry .Allowing freedom and flexibility to the industry in responding to market forces and providing a policy regime that facilitates and fosters growth. Government took a series of initiatives in regard to policies in the following four broad areas: 1) Industrial Licensing 2) Foreign Investment 3) Foreign Technology agreements 4) Public Sector Policy 5) Monopolies and Restrictive Trade Practices (MRTP) Act, 1969
Industrialization Industrial Licensing Policy Industrial licensing was abolished for all industries irrespective of their level of investment except specified industries. These specified industries will continue to be subject to compulsory licensing for reasons related to security and strategic concerns, social concerns, problems related to safety and environmental issues, manufacture of products of hazardous nature and articles of elitist consumption. . The requirement of obtaining an industrial license for manufacturing activities is now limited only to the following: Industries reserved for the public sector related to security and strategic concerns such as atomic energy, atomic minerals and railways .
Industrialization Five industries of strategic, social or environmental concern such as (1) Distillation and brewing of alcoholic drinks (2) Cigars and cigarettes of tobacco; (3) Electronics aerospace and defence equipment; (4) Industrial explosives and (5) Hazardous chemicals 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 .