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 The New Industrial Policy 1991(NIP)


Faced with rising inflation and a balance of payments crisis is mid 1991, the Indian

Government introduced a comprehensive policy-reform package. In order to redress the situation, the New Industrial Policy in 1991 was announced. The major objectives of this policy are (i) to build on the gains already made; (ii) to correct distortions that could have crept in to maintain international competitiveness.

The Government announced a series of initiatives in respect of policies relating to the following areas:

  1. Industrial
  2. Public Sector
  3. Foreign Investment and Foreign Technology Agreement
  4. MRTP Act.

 Industrial Licensing Policy


The important change relating to licensing in the NIP are:

  1. Industrial licensing has been abolished for all projects for a list of 18 industries (now reduced to 6) related to security and strategic concerns, social reasons, hazardous chemicals and overriding environment reasons.
  2. In locations other than cities of more than 1 million population, there will be no requirement of obtaining Industrial approvals from the Central Government, except for Industries subject to compulsory licensing.
  3. Banks and financial institutions which gave loans to industrial units normally include a convertibility clause in their lending operations for new projects. This mandatory clause has aced as an unwarranted threat to private firms of takeover by financial institutions.
  4. All existing schemes (the licenses registration, exempted registration) will be abolished.
  5. Entrepreneurs will henceforth only be required to file an information memorandum on new project and subsequent expansion.
 Public Sector

The number of industries reserved for the public sector in 1956 policy was 17. This number has now been reduced to 3 industries. Earlier, many core industries like iron and steel, electricity, air transport, ship-building, heavy machinery industries were reserved for the public sector. The 1991 policy has removed the above industries from the reserved list of public sector.

  • The Government will review the continuance of the existing public enterprises in low technology, small scale and non-strategic areas.
  • Public sector will be allowed to enter into areas not reserved for it. Similarly it may invite participation by the private sector in important areas of the economy.
  • Chronically sick public units will henceforth be referred to the Board for Industrial and Financial Reconstruction (BIFR)
  • Board of public sector companies will be made professional and given greater power.

Foreign Investment And Foreign Technology Agreement

The NIP has made suitable policy changes to enable almost free flow of foreign investment and foreign technology. The following are the main provisions in this regard:

  1. In high technology and high investment priority industries (34 Industries) where foreign exchange availability is ensured, approval for importing capital goods is not required.
  2. Foreign equity holding upto 51 percent by international trading companies is also now allowed. During 2000-03, 100% FDI was allowed in drug and pharmaceuticals, hotel and tourism, courier services, oil refining, mass rapid transport system, airport, E-commerce, internet service provider; 74 % FDI is allowed in private banking and 26% FDI in defence production insurance and print media.
  3. The new policy also provides for automatic approval to foreign technology agreements in the case of priority industries within certain guidelines.
  4. No permission will be required for hiring foreign technicians and testing indigenously developed technology abroad.

Under the Act, all firms with assets worth above a certain limit (Rs.100 crore) were called MRTP firms. These firms were allowed to enter into selected fields only and that to on a case-by case I approval basis. Apart from getting licenses, these were also required to get separate approval for any investment proposals. The NIP therefore removed the threshold limit of assets in respect of MRTP and dominant undertakings. These firms are now no longer required to seek prior approval of the Government for investment in the delicensed industries and now are at par with other firms. The amended Act gives more emphasis to the prevention and control of monopolistic, restrictive and unfair trade practices to protect the interests of consumers.

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