➢ New Congress Government took office in June, 1991 and announced New Industrial Policy on July 24, 1991.With the gradual liberalization of the 1956 Industrial Policy, the tempo of the industrial development started picking up but the industries were still burdened by many controls and regulations.

➢ Thus, this policy was made to fight current economic crisis and to increase the rate of industrialization by distorting excessive controls and regulations. For the faster growth of industries it was necessary to remove these impediments.

The major objectives of New Industrial Policy (NIP) are as follows:-

a) To liberate the industry from the regulatory devices such as licenses and control.
b) To increase competitiveness of industries for the benefit of the common public.
c) To ensure running if the public enterprises on business lines and thus cutting their losses.
d) To enhance support to small scale sector.
e) To provide more incentives for industrialization of the backward areas.
f) To ensure rapid industrial development in a competitive environment.

The major provisions of New Industrial Policy (NIP) are as follows:-

1) Abolition of Industrial Licensing

In this policy, all industries were made free from licensing policy except for those which were sensitive and insecure from social point of view.

Initially 18 were announced under Licensing policy but later on it was reduced to only 6 industries. These are –

i. Alcoholic drinks.
ii. Cigars, cigarettes, tobacco substitutes.
iii. Defenceequipments
iv. Industrial explosives, detonating fuse, gun powder
v. Hazardous chemicals
vi. Pharmaceuticals

2) De-reservation of Industries for Public Sector

a)Reduced Reservation for Public Sector –

Out of 17 industries reserved for the public sector under the 1956 Industrial Policy, the New Industrial Policy reserved only 8 industries. Later on only 4 industries were under public sector.

i. Defence production
ii. Atomic Energy
iii. Railways
iv. Radioactive Minerals (minerals used in the generation of atomic energy)

b)Disinvestment in Selected PSU’s

• In order to raise larger resources and introduce wider private participation in public sector units, the government would sell a part of its shareholding of these industries to mutual funds, financial institutions etc.
• For this purpose, Government of India set up a ‘Disinvestment Commission’ in August 1996 to work out the modalities of disinvestment.

c)Greater Autonomy to Public Enterprises

This policy seeks to greater autonomy to the public enterprises in their day to day working. The thrust would be on performance improvement through greater autonomy and accountability.

3) Liberalized Policy towards Foreign Capital and Technology/FDI

• Foreign investment limit was raised to 51% from 40% in 34 specified high priority industries. In some industries the foreign equity was raised to 74%.
• Foreign Direct Investment (FDI) was further liberalized and now 100% foreign equity is permitted in mining, coal and lignite, pollution control related equipments, electricity generation, ports, harbours, oil refining, etc.
• This policy also allowed Indian companies to have Technology Agreements with foreign companies and import foreign technology.

4)Changes in the MRTP Act

• Under the Monopolies and Restrictive Trade Practices Act, 1969, all big companies and large business houses were required to obtain a license and MRTP clearance from the MRTP Commission for setting up any new industrial unit, because such companies (MRTP Companies) were allowed to invest only in some selected industries.
• This was a big impediment for the industrial growth as big business houses which had the resources for development could not grow and diversify their activities.
• Thus, Industrial Policy of 1991 abolished the provision of any prior approval or clearance from MRTP Commission.
• Under the amended Act, the MRTP Commission is only concerned with the control of Monopolies and Restrictive Trade Practices that are unfair and restrict competition to the detriment of consumer’s interest.

5) Greater Support to Small-Scale Industries

• New Industrial Policy provided all possible support to increase the efficiency of SSI’s. Government made various agencies to support small-scale industries financially and technologically.
• This policy allowed large industries to contribute 24% equity participation of their total shareholding in the small-scale sector in order to have access to the capital market.
• To encourage the upgradation and modernization of small-scale sector.

6)Other Provisions

a) To establish Foreign Investment Promotion Board to negotiate with international companies for direct investment in industries in India.
b) National Renewal Fund (NRF)-
Setting up of a fund to provide social security to retrenched workers and to provide relief to those workers who have been rendered unemployed due to technological changes.
c) Removal of entry barriers
d) Rationalization of approach towards monopolistic and restrictive practices.
e) Liberalization, Privatization and Globalization (LPG).