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Reforms in the industrial sector

The following reforms were made in the industrial sector:
  • Abolition of industrial licensing: Industrial licensing was abolished for all projects except for 6 industries viz.,
    • Distillation and brewing of alcoholic drinks
    • Cigars and cigarettes of tobacco and manufactured tobacco substitutes
    • …Electronic aerospace and defence equipments
    • …Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose, and matches
    • …Hazardous chemicals
    • …Drugs and pharmaceuticals
  • Reservation in public sector: At present, there are only 3 industries reserved for the public sector, viz.,
    • …Atomic energy
    • …Substances specified in the schedule to the notification of the Government of India in the department of atomic energy
    • …Rail transport
    • …In 2001, even defence production was dereserved and left opened for private participation. A minimum capital of ₹100 crores would be required to seek entry into this industry. Foreign investment up to 26% is however being allowed
    • …In july 2013, the govt. allowed increase in FDI in defense beyond 26% but this will be on a case-to-case basis and after clearance from the cabinet committee on security headed by Prime Minister
  • Automatic clearance: Automatic clearance would be given to projects which require imported capital goods, provided that the below conditions are met.
    • …Foreign exchange availability is to be ensured through foreign equity. Automatic clearance is available for certain project imports and previous approval of RBI is now not required in most situations of import of capital goods
    • …The value of imported capital goods required should be less than 25% of the total value of plant and machinery up to a maximum of 2 crores
  • Other simplifications:
    • …Approval of the Central Government is not required for locations other than cities of more than 1 million population, except for industries subject to compulsory licensing.
    • …Industries other than those of non-polluting nature such as electronics, computers, software and printing were to be located outside 25 kms. of peripheral limits except in prior designated industrial areas.
    • …Financial institutions ceased to require compliance with the mandatory convertibility clause with respect to term loans for new projects.
    • …New projects will not be required to follow the system of phased manufacturing programmes for approval on case-by-case basis.
    • …Entrepreneurs were henceforth only required to file an information memorandum on new projects and subsequent expansions. All subsequent expansions of existing units could avail exemption from licensing.
    • …Licenses registration, exempted registration and DGTD registration etc. have been abolished.
  • Foreign investment
    The policy enables free flow of foreign investment and technology. The main provisions are:
    • …Direct foreign investment up to 51% of equity in high priority industries (totalling to 34) would be allowed.
    • …During 2000-03, 100% FDI was allowed in drugs and pharmaceuticals, hotel and tourism, courier services, oil refining, mass rapid transport system, airports, business to business e-commerce, SEZs and certain telecom industries, internet service providers, advertising, film sector, etc.
    • …74% FDI has been allowed in banking
    • …26% FDI has been allowed in defence production, insurance and print media
    • …During 2004-05, foreign investment in the banking sector was liberalised by raising FDI limit in private sector to 74% under automatic route. FDI limits in air transport services were increased up to 49%. FDI ceiling in telecom sector in certain services was increased to 74%. 100% limits is now permitted in several products
    • …FDI is prohibited in certain sectors like retail trading, atomic energy, lottery business, gambling and betting, business of chit fund, Nidhi companies, trading in transferable development rights and activities/ sectors not open to private sector investment, etc.
  • Monopolies and Restrictive Trade Practices Act (MRTP Act)
    Under the new industrial policy, 1991, companies do not have to take prior permission of the Central Government for establishment of new undertakings, expansion, merger, amalgamation and takeover. Thus, the large business houses were relieved from the constraints imposed on their growth and restructuring.

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