Q.Critically examine the Industrial Policy Resolution, 1991.

The 1991 New Industrial Policy (the industrial part of the LPG reforms) ended the 'licence-permit raj': it scrapped licensing for most industries, cut the public-sector reserved list, welcomed foreign investment and technology and freed large firms from MRTP limits. It boosted growth and efficiency but is criticised for job insecurity, foreign dominance and widening inequality.

Background

By 1991 India faced a deep balance-of-payments crisis, high fiscal deficit and very low foreign-exchange reserves. The response was Liberalisation, Privatisation and Globalisation (LPG), of which the New Industrial Policy was the industrial pillar.

Main provisions

1. Abolition of industrial licensing for all but a few industries (security, strategic, hazardous).
2. Reduced public-sector reservation: industries reserved only for the public sector were cut sharply.
3. Liberalised foreign investment: automatic approval for foreign equity up to high limits in many industries.
4. Free import of technology to modernise industry.
5. Dilution of the MRTP Act: large firms no longer needed prior approval to expand.
6. Disinvestment of part of government equity in public-sector undertakings.

Merits

• Faster industrial and overall growth; better quality and wider choice for consumers.
• Higher efficiency and large inflow of foreign investment and technology.
• Growth of private enterprise and the services sector.

Critical points

• Fear of closures and job losses in weak public-sector and small units facing competition. …