The industrial policy of 1991 was a significant shift in the approach toward India’s economy. It was made to meet the challenges that India faced at the turn of the 20th century. The problems were an industry growth rate that was sluggish, government control excessive, and the public sector inefficient. It brought liberalization, globalization, and privatization to breathe new life into India’s industrial sector.
The New Industrial Policy (NIP) of 1991 brought about several reforms that changed the industrial and economic framework of India. This policy aimed at increasing industrial growth, improving competitiveness, and opening up markets for foreign investments. The features of Industrial Policy 1991 reflect its comprehensive and transformative nature. These features include localization policy, liberalization policy, foreign investment, the role of the public sector, worker’s participation in management, and the adoption of foreign technology.
What is New Industrial Policy 1991?
The New Industrial Policy 1991 was a bold and strategic move by the Indian government to modernize the country’s industrial sector. It came into existence during a time when India was facing an economic crisis, marked by rising inflation, a balance of payments crisis, and low industrial output. The policy aimed to address these issues by transforming the economic structure and moving towards a more open, market-driven economy.
The core idea of the policy was to reduce governmental interference in the industrial sector and to allow market forces to play a more critical role. It introduced measures to upgrade industrial productivity, enhance the competitiveness of the country, and attract foreign investments. The major thrust of the policy was the idea of deregulation itself, meaning the removal of unnecessary controls and restrictions that hampered industrial growth.
Key Objectives of New Industrial Policy 1991
The New Industrial Policy 1991 aimed to achieve several objectives to guide India’s economic transformation. These objectives included:
- Liberalization: Reducing government control over industries.
- Privatization: Encouraging private sector participation in economic development.
- Globalization: Opening up the economy to international trade and investment.
- Increased Industrial Efficiency: Promoting competition to improve industrial productivity.
Through these objectives, the Indian government sought to create a more dynamic and competitive industrial environment.
Key Features of Industrial Policy 1991
The features of industrial policy 1991 revolved around opening up the economy, encouraging private investment, and boosting the industrial sector. Let’s explore the key features in more detail:
Localization Policy
Localization policy was the most important characteristic of Industrial Policy 1991. The aim was to increase the production of industries within the country and decrease dependency on imports. The government wanted to establish indigenous industries that could satisfy the local demand and make the country less dependent on foreign products.
Under this policy, the Indian government encouraged local manufacturers to produce essential goods such as consumer electronics and machinery, which were previously imported. This policy was meant to protect and nurture local industries until they became competitive enough to compete globally.
Apart from that, the localization policy encouraged job creation because of its positive impact on the establishment of industries in several industries. This in turn limited the importation of products while increasing their production domestically hence lowering the trade deficit.
Liberalization Policy
Liberalization means that the government reduces controls over various sectors of the economy, such as industry, trade, and foreign investment. The liberalization of the Indian economy freed industries from the stringent licensing and permits. Earlier, Indian businesses were required to obtain government clearances for setting up and expansion of industries. The NIP of 1991 relaxed most of these regulations, allowing businesses to operate freely. The policy opened up several key sectors for private and foreign investment, such as telecommunications, automobiles, and pharmaceuticals.
It also liberalized the import duties and tariffs, which made it easier for Indian companies to access foreign goods and raw materials. This policy encouraged healthy competition and improved the quality of products and services in the Indian market.
Foreign Investment
Foreign investment was the other important feature of the Industrial Policy 1991. It aimed at attracting FDI into India by easing foreign entry into the Indian market. The government recognized that foreign capital and technology could assist Indian industries to become modern and competitive at the global level.
The Indian government encouraged foreign investments by easing the percentage share of the foreign equity participation level in businesses in India, besides reducing taxes and relaxing the requirements for utilizing foreign exchange. This induced a great many foreign direct investments in industries such as telecommunications, IT, and automobile manufacturing, among others, in India.
Role of Public Sector
The role of the public sector in India’s industrial horizon underwent significant changes once the Industrial Policy 1991 came into place. Before the policy came into place, the public sector led many industries. The government-owned and managed numerous public enterprises operating some of the key sectors including steel, coal, and electricity.
However, the 1991 policy was an attempt to reduce the role of the public sector in the economy by promoting privatization and competition. The government decided to disinvest in many public sector enterprises to make them more efficient and competitive.
With all these changes, the public sector continued to play a key role in sectors considered essential to national development, such as defense and infrastructure. This policy ensured that the public sector remained strong but focused on strategic areas where private sector participation was not feasible.
Worker’s Participation in Management
Another important feature of the Industrial Policy 1991 was workers’ participation in management. The policy encouraged active worker involvement in all decision-making processes of companies.
In return, the government would hope that this move to encourage a harmonious work environment by the co-operation of the management with the workers will be attained. The government encouraged workers to present their ideas regarding improving efficiency, reducing waste, and quality of the products. This was totally in contrast with the previous scenario where there existed adversarial labor-management relationships.
Worker participation helped improve job satisfaction and promoted a sense of ownership by the employees, which in turn led to greater commitment and productivity in the workplace.
Foreign Technology
Foreign technology adoption was an essential element of the Industrial Policy 1991. To enhance industrial efficiency and competitiveness, Indian authorities promoted the use of high-tech foreign technologies. This was particularly vital in industries where India was otherwise behind the rest of the world, such as in electronics and engineering.
The policy facilitated the transfer of foreign technology through joint ventures, licensing agreements, and collaborations with multinational companies. Importing foreign technology and adapting it to Indian conditions would modernize Indian industries and improve their productivity.
In some cases, foreign companies brought in cutting-edge technologies that were not available in India at the time. The government provided incentives to make technology transfer more attractive, including tax benefits and easier foreign exchange regulations.
Reason to Implement 1991 Policy
A mix of internal and external factors was behind the decision to adopt the Industrial Policy of 1991. The country was then facing an economic crisis, and the government needed drastic measures to address the piling problems.
Economic Crisis
India was facing a serious economic crisis at the beginning of the 1990s. The country was suffering from an increasingly growing fiscal deficit, increased inflation, and rapidly draining foreign exchange reserves. In this scenario, India could not service its external debt. Thus, the country stood a chance of defaulting on loans.
The government understood that the current economic model was not viable due to the presence of heavily controlled state-owned enterprises and bureaucratic regulations. The policy aimed to deal with these challenges by promoting economic reforms, reducing inefficiencies, and fostering industrial growth.
Globalization
The world was becoming increasingly interconnected, and India could not remain isolated from global economic trends. The Industrial Policy 1991 was implemented in response to the growing wave of globalization, which required India to open up its markets to international trade and investment. With the policy, globalization opened up windows for India to access newer technologies, enter international markets, and attract foreign capital.
Need for Modernization
India’s industrial sector was outdated and inefficient, and there was a growing need for modernization. The government realized that Indian industries were competing very stiffly with foreign companies that were technologically advanced. Thus, to bridge the gap, the Industrial Policy 1991 focused on the modernization of Indian industries by encouraging new technologies, improvement in management practices, and promoting competition.
Features of Industrial Policy 1991 FAQs
What is the key aim of the New Industrial Policy 1991?
The key aim of the New Industrial Policy 1991 was to liberalize, privatize, and globalize the Indian economy. It focused on reducing government control over industries, promoting foreign investment, and encouraging private sector growth to enhance industrial efficiency.
How did the New Industrial Policy 1991 impact the public sector?
The New Industrial Policy 1991 reduced the dominance of the public sector by privatizing and disinvesting in many public sector enterprises. However, the public sector continued to play a crucial role in strategic industries such as defense and infrastructure.
What was the significance of foreign investment in the policy?
Foreign investment was a major component of the Industrial Policy 1991. The policy attracted foreign capital and expertise, which helped modernize Indian industries and introduced advanced technologies to boost productivity and competitiveness.
What role did worker’s participation in management play?
The Industrial Policy 1991 encouraged worker’s participation in management, fostering better industrial relations. Workers were involved in decision-making, improving productivity, efficiency, and job satisfaction.
Why was the industrial policy of 1991 implemented?
The industrial policy of 1991 was implemented in response to India’s economic crisis, the need for modernization, and the challenges posed by globalization. The policy aimed to liberalize the economy, attract foreign investments, and improve industrial productivity.
