Q.Explain the salient features of the New Industrial Policy (NIP), 1991.

The New Industrial Policy of 1991 marked a decisive shift from state control towards market-driven liberalisation of Indian industry.

Facing a severe balance-of-payments crisis in 1991, the Government of India adopted a package of Liberalisation, Privatisation and Globalisation (LPG) reforms, of which the New Industrial Policy (NIP) was the industrial component. It reversed the direction of the 1956 Resolution, which had emphasised extensive state control and licensing.

1. Abolition of industrial licensing: Prior government approval (an 'industrial licence') was abolished for setting up or expanding almost all industries, except a short list retained for reasons of security, strategic concern, or environmental hazard. This dismantled what had come to be called the 'License-Permit-Quota Raj'.

2. Reduction of the public-sector-exclusive list: The list of industries reserved exclusively for the public sector under the 1956 Resolution's Schedule A was drastically cut down, eventually to a small number of strategic industries such as atomic energy and railways, opening most core and capital-goods industries to private investment.

3. Disinvestment: The government began selling part of its equity holding in selected public sector undertakings, both to raise resources and to bring greater market discipline and efficiency to these enterprises.

4. Removal of the MRTP threshold: Large firms had previously required prior government approval under the Monopolies and Restrictive Trade Practices (MRTP) Act before undertaking expansion, mergers, or new projects beyond a certain asset size. The NIP removed this automatic requirement, freeing large firms to grow and compete without pre-emptive anti-monopoly scrutiny (the MRTP Act was itself later replaced by the Competition Act, 2002, which regulates anti-competitive conduct after the fact rather than firm size in advance).

5. Liberalisation of foreign investment: Foreign Direct Investment was actively encouraged, with automatic approval granted up to specified equity ceilings in a wide range of industries, replacing the earlier case-by-case, restrictive approach.

6. Liberalisation of foreign technology agreements: Restrictions on Indian firms entering into foreign technology-collaboration agreements were eased, giving industry easier access to modern know-how.

7. Location policy relaxed: Industrial-location restrictions (other than for a small list of highly polluting industries) were relaxed, giving firms greater freedom to choose sites based on commercial logic.

The cumulative effect of these changes was to shift Indian industry from a heavily regulated, state-directed structure towards a competitive, market-oriented one, exposed to both domestic and international competition — a shift that enabled the kind of large-scale private and foreign investment seen since the 1990s in states such as Gujarat, particularly in its petrochemical, pharmaceutical, and export-oriented manufacturing sectors.

Students often confuse the New Industrial Policy, 1991 with the broader LPG reform package as a whole, or omit disinvestment and the MRTP-threshold change, mentioning only 'licensing abolished' and 'FDI allowed' — a complete answer needs the fuller set of distinct features.