Industrial Policy and Economic Reforms of India

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This article provides a review of the industrial policy and economic

reforms of India.
Industrial Policy of India:
Industrial policy is a comprehensive package of policy measures which
covers various issues connected with different industrial enterprises of
the country. This policy is essential for devising various procedures,
principles, rules and regulations for controlling such industrial
enterprises of the country.

The pace, pattern and structure of industrialization in a country is highly

influenced by its industrial policy. The industrial policy consists of a
philosophy to determine the pattern of industrial development of
country, procedures, principles, rules and regulations for the control of
industries.

The policy also incorporates fiscal policy, monetary policy, the tariff
policy, labour policy and the Governments attitude towards the public
and private sectors of the country. Before independence there was no
proper policy for determining industrial development of the country. It is
only after independence a beginning has been made in this direction.

Industrial Policy, 1948:

On April 6, 1948, the Government of India adopted the industrial policy
resolutions for accelerating the industrial development of the country.
The policy resolution contemplated a mixed economy which included
both the public sector as well as private sector on the industrial front.
ADVERTISEMENTS:

This policy divided the various Indian industries into four broad
categories:
(a) In this first category of exclusive state monopoly, the manufacture of
arms and ammunition, the production and control of atomic energy and
ownership and management of railway transport were included.
(b) The second category included coal, iron and steel, aircraft
manufacture, ship-building, manufacture of telephone, telegraphs and
wireless sets and mineral oil industries. In this category all new factories
would be owned and managed by the public sector although the existing
units of such industries would continue to be run by the private
industrial establishments. Thus, the State would have the exclusive right
in setting up of new undertaking included in this category.
ADVERTISEMENTS:

(c) The third category of industries included 20 important large scale and
basic industries which were kept reserved for the time being to the
private sector although the state reserves the right to plan, regulate and
control as and when necessary. In this category various industries such
as salt, automobiles, tractors, prime movers, heavy chemical, electric
engineering, machine tools, fertilizers, electro-chemical industries,
rubber manufactures, power and industrial alcohol, non-metals, cotton
and woolen textiles, sugar, paper, cement, newsprint, air and sea
transport, minerals and industries related to defence were included.
(d) The fourth category comprised of the remainder of the industrial
field which was kept open to private sector including both individual as
well as co-operative.
In this industrial policy, special emphasis was laid on the development
of cottage and small scale industries. Besides proper steps were taken to
design a suitable tariff policy, taxation policy and also for maintaining
sound industrial relation between management and labour.

Regarding foreign capital, the industrial policy recognized the need for
security and participation of foreign capital and enterprise especially in
respect of industrial technique and knowledge for enhancing the pace of
industrialization in the country. But the policy was to lay down the
foundation of mixed economy with the participation of both public and
private sector for accelerating the pace of industrial development in the
country.

Industrial Policy Resolution, 1956:

Alter the proclamation of industrial policy, 1948, Indian economy had to
face a series of economic and political changes which necessitated the
formulation of a fresh industrial policy for the country. In the mean time,
the First Five Year Plan was completed and socialistic pattern of society
was accepted as the major objective of the countrys social and
economic policy. Thus, on April 30, 1956, a second Industrial Policy
Resolution was adopted in India replacing the policy Resolution of 1948.

ADVERTISEMENTS:
Following are some of the important provisions of the 1956 policy:
(i) New Classification of Industries:
In this new policy, industries were re-classified into three schedules.

ADVERTISEMENTS:

These schedules were:

(a) Schedule A:
In the schedule A, seventeen industries were included and the future
developments of these industries were to be the exclusive responsibility
of the State. These industries include arms and ammunition, atomic
energy, iron and steel, heavy castings and forgings of iron and steel,
heavy machinery, heavy electrical industries, coal, mineral oil, mining;
iron ore and other important minerals like, copper, lead and zinc; railway
transport, aircraft, ship building, telephone, telegraph and wireless
equipment, and generation and distribution of electricity.

(b) Schedule B:
In this schedule 12 industries were placed which will be progressively
state- owned. In this schedule, the state would gradually set up new units
and the private industries would also be expected to supplement the
effort of the state in this regard.

These twelve industries include aluminum, other mining industries and

other non-ferrous metals not included in the schedule A, machine tools,
Ferro alloys and tool, steels, fertilizers, the chemical industry, antibiotics
and other essential drugs, synthetic rubber, carbonization of coal,
chemical pulp, road transport and sea transport.
(c) Schedule C:
In this schedule all the remaining industries were included and their
future development would be left to the initiative and enterprise of the
private sector. The state would facilitate and encourage the development
of all these industries in the private sector as per the programmes
finalized in the Five Year Plans of the country. These industries were
controlled by the state in terms of the Industries (Development and
Regulation) Act of 1951 and other relevant legislations.

(ii) No water-tight Classification:

It is important to note that the grouping of industries into three schedules
was not placed in water-tight compartments. As these classifications
remained open, thus the State may start any industry even in schedule C
and similarly privately owned units may be permitted to establish
industrial units even in schedule A in appropriate cases.

(iii) Fair and Non-discriminatory Treatment for the Private Sector:

The State would facilitate and encourage the private sector industries by
ensuring infrastructural facilities like power, transport and other services
and provide non-discriminatory treatment to both public and private
owned units.

(iv) Encouraging Cottage and Small Scale Industries:

The State would continue to support cottage, village and small scale
industries by restricting the volume of production in the large scale
industrial units, by imposing differential taxation or by direct subsidies
and would concentrate to improve their competitive strength by
modernizing the techniques of production.
(v) Removal of Regional Disparities:
In order to secure a balanced development, the policy emphasized to
remove regional disparities in respect of industrial development and tries
to attain higher standard of living for the people of the country.

(vi) Amenities for Labour:

The Resolution recognized the importance of labour and recommended
to associate the workers and technicians with management
progressively. The policy stressed the need for improving the living and
working conditions of workers and also to raise their standard of
efficiency.

(vii) Attitude towards Foreign Capital:

Regarding the foreign capital the resolution maintained the same attitude
as enunciated in our Industrial Policy, 1948. The policy recognized the
importance of foreign capital and has given clear assurance for the safety
and facilities for investment of the foreign investors.

Thus the Industrial Policy Resolution, 1956 has made a clear-cut

provision for the expansion of both public sector and private sector
enterprises in the country in co-ordinated manner with high degree of
flexibility in its policies. Further, the policy resulted in the rapid
expansion of the public sector in basic and heavy industries of the
country.

Industrial Policy Statement, 1977:

In December 1977, the Janata Government announced its New Industrial
Policy through a statement in the Parliament.
Following are the main elements of the new policy:
1. Development of Small Scale Industrial Sector:
The main thrust of the new policy was the effective promotion of cottage
and small industries widely dispersed in rural areas and small towns. In
this policy the small sector was classified into three groupscottage and
household sector, tiny sector and small scale industries.

This policy suggested following measures for the promotion of small

scale and cottage industries of the country:
(a) Expanding the list of items from 180 to 807 items.
(b) Establishment of District Industries Centre for the development of
cottage and small scale industries.
(c) Revamping Khadi and Village Industries Commission.
(d) Special arrangement for widespread application of suitable
technology for small scale and village industries.
2. Areas for Large Scale Sector:
The 1977 Industrial Policy prescribed the following areas for large scale
industrial sector:
(a) Basic industries,

(b) Capital goods industries,

(c) High technology industries and

(d) Other industries outside the list of reserved items for the small scale
sector.

3. Big Business Houses:

The 1977 Industrial Policy restricts the scope of large business houses so
that no unit of the same business group acquired a dominant and
monopolistic position in market.

4. Role of the Public Sector:

The new policy prescribed the expansion of the role of public sector
especially in respect of strategic goods of basic nature. The public sector
was also encouraged to develop ancillary industries and to transfer its
expertise in technology and management to small scale and cottage
industry sectors.

5. Promotion of Technological Self-reliance through the inflow of

technology in sophisticated areas is another feature of the 1977 policy.

6. The policy recommended a consistent line of approach towards sick

industrial units of the country.

7. Management-labour Relations:
The new policy of 1977 put emphasis on reducing the occurrence of
labour unrest. The Government encouraged the workers participation in
management from shop floor level to board level. But the industrial
Policy 1977, is subjected to serious criticism as there was absence of
effective measures to curb the dominant position of large scale units and
the policy did not envisage any socioeconomic transformation of the
economy for curbing the role of big business houses and multinationals.

Industrial Policy of 1980:

On 3rd July, 1980 the Congress (I) Government announced its new
industrial policy. This new policy seeks to promote the concept of
economic federation, to raise the efficiency of public sector and to
reverse trend of industrial production of the past three years and
reaffirms its faith in the Monopolies and Restrictive Trade Practices
(MRTP) Act and the Foreign Exchange Regulation Act (FERA). While
preparing this policy statement, the 1956 resolution was considered as its
basis.

Socio-economic Objectives of the Policy:

The industrial policy statement, 1980 has laid down the following
objectives:
(i) Optimum utilization of installed capacity;
(ii) Maximizing production and to achieve higher productivity and
higher employment generation;
(iii) Correction of regional imbalance through a preferential
development of industrially backward areas;
(iv) Strengthening of the agricultural base according to a preferential
treatment to agro-based industries and promoting optimum inter-sectoral
relationship;

(v) Faster promotion of export-oriented and import substitution

industries;

(vi) Promoting economic federalism with an equitable spread of

investment over small but growing unit in the rural as well as urban
areas; and

(vii) Revival of the economy by removing the infrastructural gaps.

Policy Measures:
Besides in this industrial policy, 1980 the following policy measures
were proposed to normalize the situation and to put the economy again
on its feet:
1. Effective Operational System of Management of the Public Sector:
The new policy reaffirmed its faith in the public sector in-spite of having
erosion of faith in it in recent years. Thus, the Government decided to
launch a time bound programme in order to revive the efficiency of
public sector undertakings.

2. Integrating Industrial Development in the Private Sector by Promoting

the Concept of Economic Federalism:
The policy statements state that for integrated industrial development, it
would promote the concept of economic federalism with setting up of a
few nucleus plants in each district, identified as industrially backward
district, to generate as many ancillaries and small and cottage units as
possible.

3. Nucleus Plants:
The new policy has introduced the concept of nucleus plants which
would concentrate on assembling the products of the ancillary units
falling within its orbit, on producing the inputs needed by a large
number of smaller units and making adequate marketing arrangements.
The nucleus plant would also make provision for upgrading the
technology of small units.

4. Redefining Small Units:

In view of the sufficient changes in the price level, price escalation and
to develop the cottage and small scale industries, the Government
decided:
(a) To raise the limit of investment in respect of tiny units from Rs. 1
lakh to Rs. 2 lakh;

(b) To raise the investment limits in case of small scale units from Rs. 10
lakh to Rs. 20 lakh; and

(c) To raise the investment limit in case of ancillary units from Rs. 15
lakh to Rs. 25 lakh.

Thus, the upward revision of investment limits would eliminate the

tendency to circumvent the present limit by under-estimating the value
of machinery and equipment, falsification of accounts or resort to
benami units. This would also help the qualified entrepreneurs in order
to set up genuine small scale units and also facilitate the long overdue
modernization of the existing small scale units.

Further, the new policy also provides other facilities like financial
support to small units, buffer stocks of critical inputs for small units,
marketing support and reservation of items for small scale industries as a
whole.

5. Promotion of Industries in the Rural Areas:

The policy statement emphasized the necessity to promote suitable
industries in the rural areas in order to generate bigger employment and
for raising per capita income of the rural people without disturbing
ecological balance in rural areas. In this respect the development of
handloom, handicrafts and khadi and village industries would be given
greater attention.

6. Removal of Regional Imbalance:

The policy encourages dispersal of industry and setting up of industrial
units in industrially backward areas for making necessary correction in
regional imbalances.

7. Liberalisation of Existing Capacities:

The policy statement gave recognition to the excess productive capacity
as a result of replacement and modernization, and regularized these
unauthorized excess capacities on selective basis.

8. Automatic Expansion:
The policy also gave concession to the large scale units about their
extension and simplification for automatic expansion until now
permitted to 15 industries.

9. Industrial Sickness and State Policy:

The policy statement also proposed to introduce a checklist to serve as
early warning system for identifying symptoms of sickness and also to
take stern measures about deliberate mismanagement and financial
improprieties leading to sickness. In exceptional cases only the
management of sick units would be taken over on public interests.

Conclusion:
In conclusion it can be observed that the New Industrial Policy (1980) is
guided mainly by the considerations of growth. The policy liberalized
licensing for large and big business, wanted to promote large scale
industries at the cost of small scale units. Thus the policy favours a more
capital intensive path for development and paves the way for the
expansion of large and big industrial houses.

Industrial Licensing Policy:

Industries (Development and Regulation) Act, 1951:
The Industries (Development and Regulation) Act, 1951 was passed by
the Parliament in October 1951 in order to control and regulate the
process of industrial development.

The main objectives of the Act were:

(a) To regulate industrial investment and production as per priorities and
targets of plan;

(b) To protect small industries from large industries;

(c) To prevent growth of monopoly and concentration of ownerships;

and

(d) To attain balanced regional development.

The following are some of the important provisions of the Act which can
be broadly classified as restrictive and reformative provisions:
1. Restrictive provisions:
In order to check the unfair practices adopted by industries the following
restrictive provisions were made:
(a) Registration and licensing:
Any new industry, whether under private sector and public sector,
included in the schedule of this Act must be registered during its
establishment. Extension of the existing units also require government
permission.

(b) Enquiry of industries:

The Government has the responsibility to make necessary enquiry
against the unsatisfactory performances of any industry whose
production has fallen or which is using resources of national importance
or which is harming the interests of shareholders and consumers.

(c) Cancellation:
Another restrictive provision is that the government may cancel the
registration and license offered to any industry if it has submitted wrong
information and failed to set up the project within the stipulated period.

2. Reformative Provisions:
In order to make necessary reforms in those industries, the following
reformative measures were undertaken:
(a) Direct regulation or control by government:
Provision had been made to issue directions for reforms of those
industries which were showing unsatisfactory performances. In the
extreme case the government might take over the management and
control of such unit.

(b) Control on price and supply:

Provision was made through this Act to empower the government to
regulate and control the prices, distribution and supply of the product
produced by any industrial unit included in the schedule of the Act.

(c) Constructive measures:

In order to raise mutual confidence and to elicit co-operation from the
workers, the government established a Central Advisory Council along
with a number of Development Councils for different products. Initially
37 industries were brought under the purview of the Act and later on
their number was raised to 70. Although initially capital investment limit
was fixed at Rs. 1 lakh but later on it was decided that any industrial
units employing less than 100 workers and maintaining fixed capital less
than Rs. 10 lakh should not be brought under the purview of the Act.

This investment exemption limit was later raised to Rs. 25 lakh in 1963,
Rs. 1 crore in 1970, Rs. 3 crore in 1978 and then to Rs. 5 crore. In 1988-
89, the government announced the industrial de-licensing package in
which the system of licensing was abolished for those industries set up
in backward areas having investment less than Rs. 50 crore and for those
industries located in non-backward areas.

Conclusion:
But this licensing policy was criticized on the ground that it led to under-
utilization of production capacity, expansion of large industrial houses
and economic concentration, increased regional imbalances and
promotion of inefficient enterprises.

Industrial Licensing Policy, 1970: Dutt Committee Report:

Considering the loopholes of licensing policy as mentioned by Hazari
Report, the government appointed an Industrial Licensing Policy
Enquiry Committee in July 1967 in order to enquire the working of the
licensing system, under the chairmanship of Mr. Subimal Dutt. The
Committee submitted its report in July, 1969.
Dutt Committee Recommendations:
The Dutt Committee suggested a number of measures for improving the
licensing system. The Committee advocated for the establishment of a
Core sector consisting of industries of basic, critical and strategic
importance to the economy and the industrial houses should be restricted
to this core sector only.

The committee felt that it would check the infiltration and proliferation
of large industrial houses in large number of products and industries and
this would also limit them to a restricted area of lumpy investment. The
Committee also advocated for the setting up of a joint sector.

The committee also recommended that the government should take an

active part in direction and control of the aided industrial projects so
as to ensure their management as per the overall policies laid down by
the government.

Industrial Licensing Policy, 1970:

As per the recommendations of Dutt. Committee, the Government of
India announced a new Industrial Licensing Policy in February 1970.

Following are some of the basic features of this policy:

1. A core sector was introduced which consisted of basic industries and
industries related to defence requirements and of critical and strategic
importance.

The core sector included industries divided into 9 sectors which were
consisted of:
(i) Agricultural inputs,
(ii) Iron and steel,

(iii) Non-ferrous metals,

(iv) Petroleum,

(v) Cooking coal,

(vi) Heavy industry machinery

(vii) Ship building and building of dredgers,

(viii) Newsprint and

(ix) Electronics.

Industries which were earlier reserved for public sector in the 1956
policy would continue to be reserved and in other sectors, large
industrial house and foreign companies would be allowed to develop.

2. The 1970 Licensing Policy mentioned about another sectors as heavy

investment sector which included all those industries having investment
more than Rs. 5 crore. Excluding all those areas restricted for public
sector all other areas of this sector would be opened to private sector.

This was no doubt a huge concession to the large houses and foreign
companies which were playing a limited role in the core sector only.
This policy opened up the possibilities for the large houses to enter into
various luxury industries.
3. The middle sector consisting of all those industries having
investment between Rs. 1 crore and Rs. 5 crore, would be considerably
liberalized and their licensing procedures would be simplified to a large
extent.

4. Industries having investment less than Rs. 1 crore were placed in the
Unlicensed sector where to set up any industry no license henceforth
would be required.

5. This licensing policy (1970) accepted the concept of joint sector as

suggested by Dutt Committee. It is mentioned that while sanctioning
loans or subscribing to debentures in future, all public financial
institutions should have the option to convert them into equity within the
definite period of time.

In respect of small scale sector, the existing policy of reservation was

continued and the area of such reservation was extended.

Industrial Licensing Policy 1973:

In February, 1973, another industrial Licensing Policy statement was
adopted in which a new definition of large industrial houses was
adopted. In 1973 policy this definition for large houses was adopted as
per the MRTP Act in which any industrial establishment having assets
more than Rs. 20 crore would be called large houses as against the limit
of Rs. 35 crore permitted earlier by 1970 licensing policy.

In this new policy two previous recommendations, of 1970 policy i.e.,

exemption limit from licensing (raised from Rs. 25 lakh to Rs. 1 crore in
1970) and the joint sector were maintained. This 1973 licensing policy
also expanded the area of core sector which would now include 19
industry groups as compared to 9 industries permitted in 1970 policy.

This was major concession to large industrial houses as the sector now
included low priority but highly profitable industries like man-made
fibres and synthetic detergents. It was claimed that the new policy
would net in more large industrial houses. But the claim was not
justified.

In fact, the net coverage of large houses shrunk due to difficulty in

establishing inter-connection and the vague and the loose criteria
provided in Section 2(g) of the MRTP Act for such purpose. The asset
limit of MRTP companies was later raised to Rs. 100 crore in 1985 as
compared to previous limit of Rs. 20 crore.

In March 1978, another important policy statement was announced

which carried the liberalisation more further. In this policy, the
exemption limit for licensing was raised from Rs. 1 crore to Rs. 3 crore
which was again raised to Rs. 5 crore subsequently. In 1988-89, this
exemption limit of licensing was further raised to Rs. 50 crore for
backward areas and Rs. 55 crore for non-backward areas along with
certain restrictions and conditions.

Industrial Policy Development in EightiesLiberalisation Wave:

During eighties, various steps were taken by the Government for
liberalizing the industrial policy of the country.

These steps were as follows:

1. Exemption from Licensing:
In order to liberalise the industries, the exemption limit of licensing was
continuously enhanced from non-MRTP and non-FERA companies. The
exemption limit which was Rs. 3 crores in 1978, gradually enhanced to
Rs. 5 crores in 1983 and then substantially to Rs. 55 crores for those
projects to be located in non-backward areas and to Rs. 50 crores for
those projects located in backward areas in 1988-89.

2. Relaxation to MRTP and FERA Companies:

The government made provision for various relaxations to those
companies under MRTP Act (Monopolies and Restrictive Trade
Practices Act) and FERA (Foreign Exchange Regulation Act) in order to
expand industrial production and also to promote exports.

These relaxations include:

(a) Raising the limit of MRTP companies from Rs. 20 crores to Rs. 100
crores in March, 1985;

(b) Allowing the MRTP to set up new capacities in those industries of

high national importance and with import substitution potential or using
sophisticated technology without the approval to government in 1983
(May);

(c) Giving permission for unrestricted entry of large industrial houses

and companies governed by FERA in 21 high technology items of
manufacture in December, 1985. Accordingly, large industrial houses
under the purview of MRTP Act and FERA companies were given
permission to freely undertake the manufactures of 83 items.
(d) Specifying a list of 33 broad group of industries under Appendix I
where MRTP and FERA companies were given permission to set up
capacities provided these items are not in the reserved list of small scale
sector or public sectors;

(e) Making provision for various other concessions such as

regularisation of excess capacity and capacity re-endorsement, special
facilities to set up industries in backward areas etc. to MRTP and FERA
companies.

3. Delicensing:
In order to encourage industries, the government delicensed 28 broad
categories of industries and 82 bulk drug and their formulations. These
industries would now require any registration with the Secretariat for
Industrial Approval and thus no licence had to be obtained by these
industries under the Industries (Development and Regulation) Act if
these industries do not fall within the purview of MRTP Act or FERA,
do not produce articles reserved for small scale industries and the
undertaking is not located in an urban area. In 1989-90, provision has
been made for delicensing of some more industries.

4. Re-endorsement of Capacity:
In order to achieve maximum capacity utilisation, in April 1982, the
scheme of capacity re-endorsement was announced. Again in 1986, this
scheme was liberalised further to permit those undertakings in availing
such facility which achieved 80 per cent capacity utilization (previously
94 per cent). The industries which were not permitted for automatic re-
endorsement of capacity was reduced from 77 to 26.
5. Broad Banding Industries:
In 1984, the scheme of broad banding of industries was introduced in
order to classify these industries into broad categories. This was done to
enable the producers to change their product-mix rapidly in order to
match the changing demand pattern.

6. Minimum Economic Scales of Operation:

In 1986 the government introduced the minimum economic scales of
operation in order to encourage relations of economies of scale through
the expansion of its installed capacities. Till 1989, minimum economic
capacities (MECs) were specified gradually for 108 industries and in
1989-90 some more industries were specified under MECs.

7. Development of Backward Areas:

In order to develop backward areas, the government extended the
scheme of delicensing in March 1986 to MRTP or FERA Companies
engaged in 20 industries in Appendix I for their location in backward
areas declared centrally. Later on the scheme was extended to 49
industries.

Again in 1988- 89, the government set up 100 grown centres throughout
the country to provide infrastructural facilities to these backward areas.
Moreover, in 1988 income tax reliefs were announced for promoting
industrialisation of backward areas.

Accordingly, new industries established in notified backward areas were

entitled to income tax relief under Section 80HH of I.T. Act by way of
20 per cent deduction from profits for a period of 10 years. Again under
Section 80- I of Act, all new industrial undertakings were entitled to
income tax relief by way of 25 per cent deduction of the profits for a
period of 8 years.

8. Incentives for Export Production:

In order to promote exports, the government announced various
concessions in its industrial policy and export (Exim) policy. Again, all
100 per cent export- oriented industries were exempted from Section 21
and 22 of the Act which were set in Free-Trade Zones. Some more
industries were identified from export angle which were permitted 5 per
cent automatic growth rate annually over and above their normal
capacity.

9. Enhancement of Investment of Small Scale and Ancillary Units:

The investment limits for small scale units and ancillary units which was
Rs. 20 lakhs and 25 lakhs respectively as per 1980 policy statement,
gradually enhanced to Rs. 35 lakhs and Rs. 45 lakhs respectively in 1985
and Rs. 2 lakhs for tiny units.

In 1991, these limits were again raised to Rs. 60 lakhs and Rs. 75 lakhs
for both the small scale and ancillary units respectively. Moreover about
200 times which were earlier reserved, were completely de-reserved and
kept open for large and medium scale sector.

New Industrial Policy, 1991 and Economic Reforms:

The Congress (I) led by Narasimha Rao Government has announced its
new industrial policy on July 24, 1991. In line with the liberalisation
move introduced during the 1980s, the new policy radically liberalized
the industrial policy itself and de-regulates the industrial sector
substantially.

Objectives:
The prime objectives of the new industrial policy are to unshakle the
Indian industrial economy from the cobwebs of unnecessary
bureaucratic controls, and to build on the gains already experienced, to
correct the distortions or weakness involved in the system, to introduce
liberalisation measures in order to integrate Indian economy with world
economy, to abolish restrictions on direct foreign investment, to liberate
the indigenous enterprise from the restrictions of MRTP Act, to maintain
a sustained growth in productivity and employment and also to achieve
international competitiveness. Moreover, the policy also made provision
for reducing the load of public sector enterprises showing either low rate
of return or incurring losses over the year.

Thus to fulfill these objectives, the government introduced a series of

initiatives in the new industrial policy in the following areas:
1. Abolition of Industrial Licensing:
In order to liberalise the economy and to bring transparency in the
policy, the new industrial policy has abolished the system of industrial
licensing for all industrial undertaking, irrespective of the level of
investment, except for a short list of industries related to security and
strategic concerns, social reasons, hazardous chemicals and overriding
environmental concerns and items of elitist consumption. As per
Annexure II of the policy there are only 18 industries for which
licensing is compulsory.
These include:
(1) Coal and lignite;

(2) Petroleum (other than crude) and its distillation products;

(3) Distillation and brewing of alcoholic drinks;

(4) Sugar;

(5) Animal fat and oils;

(6) Cigars and Cigarettes of tobacco and manufactured tobacco

substitutes;

(7) Asbestos and asbestos based products;

(8) Plywood and decorative veneers and other wood based products;

(9) Raw hides and skins, leather, chamois leather and patent leather,

(10) Tanned and dressed skins;

(11) Motor car;

(12) Paper and newsprint except bagasse based units;

(13) Electronic aerospace and defence equipmentall types;

(14) Industrial explosives;

(15) Hazardous chemicals;

(16) Drugs and Pharmaceuticals;

(17) Entertainment Electronics;

(18) White goods such as domestic refrigerators, washing machines,

microwave ovens and air conditioners.

The compulsory licensing provision would not apply in respect of the

small scale units taking up the manufacture of any of the above items
reserved for exclusive manufacture in the small scale sector.

2. Policy regarding Public Sector:

In-spite of its huge investment, the public sector enterprises could yield
a very low rate of return on capital invested. A good number of public
sector enterprises are incurring huge amount of loss regularly. Thus, in
order to face the situation, the Government should restructure the
potentially viable units.

The priority areas for the growth of future public sector enterprises
includedessential infrastructure, exploration and exploitation of
minerals and oil, technology development and products with strategic
consideration.

The new policy has now reduced the list of industries under public
sector to 8 as against the 17 industries reserved earlier as per 1956
policy. The industries which are now removed from the list of reserved
industries includeiron and steel, electricity, air transport, ship
building, heavy machinery industries, telecommunication cables and
instruments.
Those 8 industries which remained in the reserved list for the public
sector are :
(1) Arms and ammunition and allied defence equipment, defence aircraft
and warships;

(2) Atomic energy;

(3) Coal and lignite;

(4) Mineral oil;

(5) Mining of iron ore, manganese ore, chrome, gypsum, sulphur, gold
and diamond;

(6) Mining of copper, lead, zinc, tin, molybdenum and wolfarm;

(7) Minerals specified in the schedule to the Atomic Energy (Control of

Production and Use) Order, 1953; and

(8) Rail transport.

The new industrial policy states that the government will raise the
strength of those public sector units included in the list of reserved
industries or in the priority group of those earning reasonable profits.
The government will now make review of the existing public sector
industries.

Industries earning higher profit will be provided with much higher

degree of management autonomy through the system of MOU. Private
sector participation would be invited to raise the competitive capacity of
these industries. Sick units will now be referred to the Board of
Industrial Finance and Reconstruction (BIFR) for getting advice about
its rehabilitation and reconstruction.

The government has also taken a decision to disinvest the equity shares
of selected public units for bringing market discipline in their
performances. In 1991-92, Rs. 3,038 crore was raised and in 1992-93
Rs. 1,866 crore was raised through disinvestment of PSE shares.
Accordingly, a part of the shares of PSEs is now being offered for sale to
mutual funds, financial institutions, general public and workers.

3. MRTP Limit:
As per the MRTP Act any firm with assets over a certain size (Rs. 100
crore since 1985) was classified as MRTP firms and such firm was
allowed to start only selected industries on a case by case approval. But
the government now felt that this MRTP limit has become deleterious in
its effects on the industrial growth of the country.

Thus, the new policy states that the pre-entry scrutiny of investment
decisions by the so-called MRTP companies will no longer be required.
Instead emphasis will be on controlling and regulation of monopolistic,
restrictive and unfair trade practices rather than making it necessary for
the monopoly houses to obtain approval of the centre for expansion,
establishment of new undertaking, merger, amalgamation and take over
and appointment of certain director. The thrust of the policy will be
more on controlling unfair or restrictive business practices.
Simultaneously, provisions of the MRTP Act will be strengthened in
order to enable the MRTP Commission to take appropriate action in
respect of monopolistic, restrictive and unfair trade practices.

4. Foreign Investment and Foreign Technology:

From the very beginning, foreign investment in India was regulated by
the government. Thus, for any foreign investment or foreign technology
agreements, prior approval of the government was necessary. All these
were resulting in unnecessary delays and thus hampered the decision
making in business.

The new industrial policy thus prepared a specified list of high

technology and high investment priority industries (Annexure III) in
which automatic permission will be available for direct foreign
investment up to 51 per cent foreign equity. The Annexure III included
34 priority industries. Such as metallurgy, boilers and steam generating
plants, electrical equipment, telecommunication equipments,
transportation, industrial and agricultural machinery, industrial
investments, chemicals, food processing, hotel and tourism industry.

In respect of foreign technology agreements automatic permission will

be provided in high- priority industry up to a sum of Rs. 1 crore, 5 per
cent royalty for domestic sales and 8 per cent of the sale over a 10 year
period from the date of agreement or seven years from commencement
of production. No permission will be required for hiring foreign
technicians or for testing of indigenously developed technology abroad.

5. Location Policy Liberalised:

The new policy mentioned that in location other than cities of more than
1 million population, no industrial approvals from the centre will be
required except for industries subject to compulsory licensing. In cities
with more than 1 million population, industries other than those of non-
polluting in nature, will be located outside 25 kms of its periphery.

6. Abolition of Phased Manufacturing Programmes:

Phased manufacturing programme was enforced in order to increase the
pace of indigenization. The new policy has totally abolished such
programmes as the government feels due to substantial reforms of trade
policy and devaluation of rupee there is no need to enforce such
programmes.

7. Removal of Mandatory Convertibility Clause:

From the very beginning a large part of industrial investment was
financed by loans from banks and financial institutions who have
followed a mandatory convertibility clause in their lending operations
for new industrial projects. This has provided an option to convert loans
into equity if it was felt necessary by the management.

This was an unwarranted threat to private firm. The new industrial

policy removed this system and henceforth, financial institutions will not
impose this mandatory convertibility clause.

Appraisal of the Policy:

Merits:
It is quite logical to think that a country like India is trying to achieve a
faster industrial growth. Thus, the new industrial policy (1991) paves the
way for liberalisation which will again result in a faster industrial growth
as the industrial sector is being relieved of unnecessary control and
regulation. J.C. Sandesara argued that the new policy will accelerate
industrial production as it reduces project time and project cost of
production, attract capital, technology and managerial expertise from
abroad and improve the level of efficiency of production; enhance the
allocative efficiency of the public sector by opening up nine areas from
public sector and improve its performance and finally greater powers of
the MRTP Commission will curb the monopolistic and oligopolistic
behaviour and thus promote their competition and efficiency.

Criticism:
But some economists have also criticised this new policy on various
grounds. The new policy made the provision for too much opening up of
economy to foreign influences. H.K. Paranjape agreed that those 34 high
priority industries having provision for automatic permission for foreign
investment would make it possible for large trans-national to dominate
certain growing areas of our country and push to the wall any Indian
concerns which attempt to stand out of their own. Indigenous R&D will
be doomed.

Moreover, past record of the multinationals working in India suggests

that these companies are in operation more as trading than as
manufacturing and exporting concerns. Considering our huge manpower
resources, we need a labour intensive and capital saving technologies but
the multinationals coming from a reverse situation will find it very
difficult to adopt with such technology.
Moreover, liberalisation of foreign investment up to 51 per cent foreign
equity and even 100 per cent export oriented company will counter the
Nehruvian Model where foreign capital was permitted only during
transitional phase with the goal to become self-reliant.

Moreover, free entry of foreign capital will remove the distinction

between high priority and low priority industries and accordingly foreign
investment would enter into all different lines of production. But
considering our huge external debt burden, entry of foreign capital
should be restricted to only priority industries. Allowing foreign equity
in trading companies was also not justified.

The main idea behind the free flow of foreign capital is backed by the
arguments that firstly, it would provide much needed foreign exchange
and then secondly, it would lead to huge volume of foreign direct
investment in the high priority industries. But in this connection, there is
a fear that while doing so we may sell our economic sovereignty to
multinationals.

However, the government should be very much careful about the hidden
financial implications of reverse outflow of foreign exchange in the form
of remittance of profit, dividends and royalties of the foreign capitalists.
Therefore, considering the existing huge foreign debt burden, the
Government must take proper care to invite foreign capital only in high
priority industries and the country should not suffer by following the
path followed by Brazil or Mexico.
The new industrial policy also mentioned about loss incurring public
sector enterprises which would be referred to BIFR. Thus, while passing
this sick enterprises to private business houses or to close such sick
enterprises adequate social security measures must be undertaken. But
the new policy neglected this provision.

It would be better if the ownership of such sick enterprises be transferred

to workers co-operative and the government should provide adequate
financial and technical assistance in order to revive such industrial units.

Moreover, the MRTP commissions capacity to control and regulate the

monopolistic and unfair practices is doubtful as the past experience
suggests that the commission has failed in this respect.

From the foregoing analysis we can conclude that the new industrial
policy has introduced certain challenging issues in order to restructure
and revive the industrial sector of the country. The policy will rationalise
the industrial investments will pave the way for growing
competitiveness and profitability outlook among the Indian industries in
near future.

The policy will attract foreign investment, no doubt, but its capacity to
generate employment is doubtful. The exit policy will render many
workers unemployed. Lastly, giving excessive freedom to foreign capital
may also affect our economic sovereignty and will push the country
towards debt trap. Thus, considering all these apprehensions sufficient
care should be taken in near future to keep the industrial economy in
right track.
Exit Policy, National Renewal Fund (NRF) and Voluntary Retirement
Scheme (VRS):
In order to safeguard the interest of workers who may be affected by
technological up-gradation of industry or closure of chronically sick
units the government established a National Renewal Fund (NRF) in
February 1992. It marks the launching of a process of industrial
restructuring in the wake of new economic policies aimed at taking the
country globally competitive.

The government has decided that the structural adjustment would be

done with a human face though it does not mean keeping loss making
units intact. Thus, the government has mentioned in its budget that NRF
would provide a safety net for workers while an exit policy formulated
to give recognition of the right to exit when a unit cannot be run
economically or is terminally sick.

Thus, the NRF is designed to be the safety mechanism which would

provide retraining and rehabilitation of workers adversely affected by
structural adjustments and technological change. Considering the
magnitude of the problems of sickness in industry and the scale of effort
needed to retain or redeploy or reequip workers, the size of the NRP has
to be very large.

It is visualized that the fund would be build up gradually not only with
budgetary provision from centre but also by contributions from the
states, financial institutions and the private sectors. The World Bank has
offered substantial support for the safety net programme.
It is initially decided that the fund would have Rs. 2,200 crore out of
which Rs. 200 crore would come from the budgetary provision of 1991-
92 budget, Rs. 1,000 crore expected from disinvestment of equity of
public sector enterprises and another Rs. 1,000 crore from the World
Bank and other International Development Agencies.

Accordingly, a sum of Rs. 200 crore had been earmarked for the
National Renewal Fund in the 1991-92 budget. This has been
supplemented by a substantial input of IDA resources at concessional
interest rates to the fund of Rs. 500 crore in 1992-93. The first tranche of
these resources has been received.

Another Rs. 500 crore was available from IDA during 1993-94. An
amount of Rs. 542.23 crore was released from NRF during 1993-94 and
an estimated 75,000 workers had opted for voluntary retirement under
the scheme.

Objectives:
The following are the different objectives of NRF:
(i) To provide assistance to firms to cover the cost of retraining and re-
deployment of employees arising as a result of modernization and
technological up-gradation of existing capacities and from industrial
restructuring;

(ii) To provide funds for compensation to employees affected by

restructuring or closure of industrial units, both in public and private
sectors; and
(iii) To provide funds for employment generation schemes in the
organized and unorganized sectors in order to provide a social safety net
for labour. The department of Industrial Development which administers
NRF, has now taken up the first set of cases relating to the National
Textile Corporation units.

Thus, in order to protect the interest of public sector workers, the

National Renewal Fund was successfully set up and various schemes
have been proposed to assist the employees in re-training, redeployment
and counseling. To implement the NRF schemes an empowered
authority has been created and a provision of Rs. 700 crore has been
made in budget for the year 1993-94.

Additional amount of Rs. 320 crore was approved for NRF in the
supplementary budget in December 1993. An amount of Rs. 786.24
crore was already released from NRF (upto October 1993) and an
estimated number of 60,000 workers had opted for voluntary retirement
under the scheme. A major portion of the amount has been utilized in the
textile sector.

Voluntary Retirement Scheme (VRS):

As a part of the Exit policy and also as an integral part of NRF, the
voluntary retirement scheme (VRS) was introduced simultaneously and
at the initial stage it was known popularly as Golden Handshake
Scheme. As per this scheme, the unviable public sector units have been
empowered to introduce the scheme in their units to have the way for
voluntary retirement of workers and staff accepting the on-time
compensation instead of continuing as a sick entity.
The Government intends to encourage marginally profit making PSEs to
promote VRS by raising money from banks against Government
guarantees and interest subsidy. PSEs would also be encouraged to issue
bonds to workers opting for VRS with the Government guaranteeing the
repayment of such bonds and fully reimbursing interest payments.

Though VRS is nothing new and has been in vogue in Central and State
Government jobs including FSUs since long, but what has made it more
important and acceptable now is the lucrative contents of employees
parting package of monetary gains that the employer is now ready to
offer to him against his voluntary retirement.

The Exit Policy guided by National Renewal Fund has created market
friendly globalized economic reforms. The NRF set up under the
Ministry of Industries with an allocation of Rs. 500 crore has three
components to take care of viz., the voluntary retirement scheme (VRS),
retaining and redeploying of surplus staff and creation of an insurance
fund with contribution by employers as employees for the provident
fund.

While the concept of insurance fund died premature death, the

component of retaining and re-deployment of surplus workers got
sidelined, which had badly exposed the hollowness of the scheme.

Upto 31st March, 1997, 2.17 lakh employees of PSUs have opted for the
voluntary retirement scheme and an amount of Rs. 2,373.37 crore has
been paid to them as compensation money.
The Centre is exploring the possibilities of the formation of a National
Reconstruction Fund in place of the National Renewal Fund with a
separate corpus outside the budget to help revive sick PSUs.

In the mean time, the Central Government has spent Rs. 2,310 crore on
the implementation of VRS in 85 public sector undertaking till 1998-99.

The wave of liberalisation and outward looking market orientation has

made necessary the revival of the VRS with more attractive and larger
package of benefits. At present, almost all PSUs including government
offices come to severely suffer from excess staff.

Liberalisation has exposed the organisations to global competition which

is governed by the rule of survival of the fittest. Under such a situation,
the public sector organisations must have the right kind of competence
and skill and have to dispense with the redundant manpower since they
cannot continue to stay in the market with unproductive employment
and inefficient cost structure.

What is necessary is that the organisations have to correctly identify not

only dispensable employees but also redeploy-able part of the work
force to fill the competency gap.

Thus, the VRS should necessarily be a well thought out plan with its
foresight on retention of competence capability of facing technological
revolution with unrestricted competition and redeployment of right men
in high places.
In the meantime, some organisations have already implemented the
scheme, while others are sorting out the offer of aspirant workers.
However, in practice, the scheme has been made open to all employees
who have attained certain minimum age or have completed a certain
period of service.

While implementing the scheme, the VRS has assumed different

patterns of benefit packages in different organisations. As a result of
unrestricted opening up of the scheme and also due to more than
expected parting gains, there are some organisations like State Bank of
India which faced a large scale exodus of competent employees.

Accordingly, the organisation had to restrict the passage of the scheme

to those executive officials who have attained 55 years of age. This is
not indicative of a well thought-out scheme of dispensing with surplus
staff of the PSUs. The scheme has offered full gross salary for the
remaining period of service after voluntary retirement. Giving such
excessive benefit is perhaps one of the important reasons for large scale
exodus.

It seems that the scheme does not appear to have properly planned
redeployment of surplus workers. Thus, it is an imperative on the part of
the Government to re-examine the scheme in the light of aforesaid
failure of Centres exit policy and National Renewal Fund in the early
1990s.

New VRS Policy for PSUs:

On March 16, 2000, the Government of India approved a uniform
voluntary retirement scheme (VRS) for all public sector units (PSUs).
Under the new VRS scheme, all public sector enterprises will be divided
into three distinct categories. Firstly, a VRS scheme for those public
sector units which are financially sound or are profit making
organisations. Secondly, a different scheme for marginally profit making
or loss making public sector enterprises and finally a scheme for
terminally sick or unviable units.

As per the new VRS policy, financially viable public sector units which
are capable of meeting their enhanced costs will now be allowed to
implement their own variant of VRS. Again, a marginally loss or profit
making PSU, whose viability can be restored and whose performance
can be improved with a little effort, can now adopt the Gujarat pattern
of VRS, while enterprises which have been declared terminally sick can
now adopt the VRS scheme enunciated by the Department of Heavy
Industries in 1988, within specific time period stipulated for exercising
the VRS.

Employees who have already completed 10 years of service or have

attained 40 years of age and are working in terminally sick companies
can now avail of the VRS scheme. Those opting for this scheme will be
entitled not only to terminal benefits but exgratia payment equivalent to
one and a half months pay plus dearness allowance for each year of
completed service. Otherwise, they can avail of monthly pay plus
dearness allowance at the time of retirement multiplied by the months of
service left whichever is less.
For the marginally sick or profit-making companies, the so called
Gujarat pattern of VRS offers three different schemes. In addition to
the terminal benefits, persons who wish to avail of the VRS can either
lake 35 days of salary for every year of completed service or they can
settle for 25 days of salary.

Finally, persons can settle for Rs. 2,500 for every year of service left. In
the Gujarat pattern, salary includes basic pay plus dearness allowance,
personal allowance, house rent allowance.

Finally, to make VRS attractive for persons working in the profit-

making organisation, the government has added new incentives. For
persons willing to avail of the VRS scheme and those who have
completed 30 years of service, a maximum of 60 months or five years
salary or wages as compensation will be granted.

Execution of Industrial Policy Reforms:

The major policy changes initiated in the industrial sector since July
1991 so far include removal of entry barriers, reduction of areas reserved
exclusively for public sector, rationalisation of the approach towards
monopolistic and restrictive practices, liberalization of foreign
investment policy, for reaching liberalization of import policy with
respect to intermediate and capital goods, measures to bring about
regional balance, especially the development of backward areas and
encouraging the growth of employment intensive small and tiny sector.

The major policy changes brought about and executed since mid-1991
include the following reforms in the industrial sector:
(a) The number of items, in respect of which industrial licensing
remains, reduced to 15. These industries account for only 15 per cent
value added in manufacturing sector.

(b) The number of industries reserved for the public sector reduced to 6,
viz., defence products, atomic energy, coal and lignite, mineral oils,
railway transport, minerals specified in the schedule to the Atomic
Energy order 1953. Private participation in some of these sectors is also
permitted on a case by case basis.

(c) More and more private initiative are encouraged in the development
of infrastructure like power, roadways, telecommunication, shipping and
ports, airports, civil aviation etc.

(d) The manufacture of readymade garmentsan item reserved for

exclusive manufacture by the ancillary or small scale industrial
undertaking is opened to large scale undertakings, subject to an export
obligation of 50 per cent and investment limit of Rs. 3 crore.

(e) Automatic approval of foreign investment up to 51 per cent and

foreign technology agreements is permitted for 35 priority industries
which account for about 50 per cent value added in the manufacturing
sector.

(f) Foreign investment has also been liberalized in many other sectors.

In recent years, many state governments have undertaken significant

procedural and policy reforms. In line with the liberalisation undertaken
by the Centre, most of the state governments have initiated reforms for
promoting foreign investment, encouraging private participation in the
development of ports, power generation and the development and
management of industrial estates, restructuring of District Industrial
Centres (DIC) and removing artificial barriers within states.

Other reform measures include decentralisation of decision making, time

bound clearance of projects and initiatives relating to privatization and
closure of loss making state public sector enterprises. In keeping with
Indias federal structure, a number of investment incentives are also
provided by the State Governments in addition to the benefits offered by
the Central Government.

While the incentive package varies from one state to another, depending
upon its investment priorities, the package generally include an
investment subsidy, tax breaks, exemption/deferent of sales tax and
other duties and power tariff concessions.

Complementary to industrial policy changes, significant transformation

has been brought about in monetary fiscal and external sector policies.
The changes include transition to market determined exchange rates and
interest rates, removal of physical control on imports, rationalisation and
reduction of taxes and duties to enhance competitiveness of Indian
industries.

Unprecedented Response to New Industrial Policy Reforms:

The industrial policy reforms as introduced since July 1991 have
resulted in an unprecedented response of both foreign direct investment
and domestic investment and also in respect of industrial growth rate.
Industrial Growth Rate:
There has been a modest recovery of industrial growth at 2.3 per cent
during 1992-93 and 6.0 per cent during 1993-94 from an almost stagnant
output (0.6 per cent during 1991-92).

Again, the industrial sector in India is experiencing a vibrant, broad-

based recovery with industrial growth of 9.6 per cent in 1994-95. The
manufacturing sector is growing even faster at 10.3 per cent and the
capital goods sector is growing impressively at 24.8 per cent.

Again, the overall growth in industrial production in 1995-96 was 12.8

per cent supported by a growth of 10.3 per cent in mining, 13.8 per cent
in manufacturing and 8.1 per cent in electricity. In 1996-97. 1997-98,
1999-2000 and 2006-07, the industrial growth rate declined to 6.1 per
cent, 6.7 per cent, 6.7 per cent and then increased to 11.6 per cent
respectively.

In 2007-08 and 2008-09, the industrial growth rate declined to 8.5 per
cent and then to 2.4 per cent respectively as a result of global slowdown.
Again during 2009-10 (April-Nov.), the industrial growth are recovered
to 7.7 per cent.

During 2004-05, the industrial sector of the country recorded a higher

growth over the previous year. The overall industrial production during
April to December 2009-10 registered an increase of 7.7 per cent,
supported by a growth rate of 8.2 per cent in manufacturing, 5.8 per cent
in electricity and a mere 8.4 per cent, in mining.

Investment Climate:
Structural reforms introduced in the industrial sector have resulted in a
positive impact on the investment climate in the country. They have also
evoked a strong positive response from foreign investors and portfolio
managers. The conventional indicators suggest that the investment
climate has remained buoyant. The buoyancy is reinforced by
information on forthcoming capital issues as well as Euro issues floated
by Indian companies.

The overall investment scenario in the country continues to be buoyant

and promising. The number of Industrial Entrepreneurs Memorandum
(IEMs) and Letters of Intent (LOIs) filed from 1991 to December 2005
totaled 62,508 with overall investment intention of Rs. 17,76,870 crore
and estimated employment of 11.1 million.

Foreign Direct Investment:

There has been an unprecedented response by foreign investors to the
new industrial policy reforms. There has been a spurt in foreign direct
investment in the post- liberalisation period. During the period from
August 1991 to October 1996, total number of foreign direct investment
(FDI) proposals approved was 5,434 with a proposed investment of Rs.
780.30 billion.

More than 75 per cent of these approvals are in high priority sectors such
as power generation, oil refinery, electrical equipment, chemicals and
export related sectors. Even in areas still reserved for the public sector
(such as hydrocarbons, coal, railways and postal services) and in
infrastructure sectors (roads, highways, bridges, ports,
telecommunications) the government has adopted a more liberal
approach towards private investment including foreign investment.

The actual inflow of foreign direct investment from 1991 to September

2004 stands at Rs. 1,31,385 crore of which nearly 15 per cent (Rs. 193.6
billion) has come during 1997 itself.

Domestic Investment:
There has also been an encouraging trend in domestic investment
particularly after the introduction of new industrial policy, 1991, as is
evident from the developments in the capital market and the financial
assistance sanctioned by All India Financial Institutions. Sanctions by all
India financial institutions were aggregated to Rs. 32,675.4 crore in
1992-93 and Rs. 41,444 crore during 1993-94. Accordingly, the
aggregate disbursements by all financial institutions were Rs. 22,269.6
crore during 1992-93 and Rs. 25,632 crore during 1993-94.

In terms of aggregate annual inflows, FDI maintained its declining trend

for the second successive years after 1997-98. FDI inflows in India for
the year 2003-04 (US $2,776 million) were lower than the previous year
($3,134 million). Inflows in the current year 2004-05, however, are
showing signs of improvement. During April to November, 2004-05,
aggregate FDI inflows have been higher (US $ 2,549 million) than the
comparable period of 1999-2000 (US $1,489 million). The number of
Industrial Entrepreneurs memorandum (IEM) filed from 1991 to 2005
totaled 62,508 with an overall investment intention of Rs. 17,76,870
crore.
Industrial Employment:
The status of overall employment in industry in India has also been
improving in recent years, particularly in response to new industrial
policy reforms, which can be seen from Table 4.3.

The Table 4.3 reveals that all the three sub-sectors absorbing industrial
population, i.e., manufacturing, small scale and ASI factory indicate a
progressive rise in levels of employment over the years. Total number of
employment in the manufacturing sector has increased from 32.70
million in 1990-91 to 33.80 million in 1993-94. Again the number of
persons employed in the small scale sector has increased considerably
from 12.53 million in 1990-91 to 14.66 million in 1994-95.

Moreover, the employment in the ASI factory has also increased from
8.16 million in 1990-91 to 8.71 million in 1992-93. The growth of
employment in the small scale sector is highly encouraging as this
displays the sector is still very much in a position to absorb large amount
of idle labour.

Government Initiatives:
In-spite of introducing various measures for industrial policy reforms,
the overall growth rate of the industrial sector remained very poor. In
order to consolidate the situation, the government has taken certain
initiatives during 1993-94. During the year, the Department of industrial
development has attempted to focus more sharply on the implementation
and facilitation aspects of industrial approvals as also on measures
which would reduce difficulties faced by entrepreneurs and investors.

The Department of Industrial Development has decided that in line with

the facility of live year tax holiday to new industrial undertakings in
backward states, transport subsidy would henceforth be available to
industrial units located in eligible zones for the first five year only
starting from the date of commencement of commercial production.

Moreover, this facility of five year tax holiday to new industrial

undertaking has recently extended to new industrial units of backward
districts of other states from the year 1994-95. The government has so
far received project report of 57 growth centres out of which 7 have been
appraised and creation of infrastructural facility for dispersal of
industries.

The Planning Commission has approved a new scheme to establish

modern industrial infrastructure parks in all states as a part of the
centres continuing efforts to boost exports. The centre would bear 75
per cent of the cost of the building the infrastructure parks and the
remaining 25 per cent plus the land would have to be provided by the
respective state governments.

Again on 10th December, 1997, the Government of India announced a

substantially pruned set of guidelines for public sector enterprises,
deleting as many as 696 regulations considered irrelevant in the new
market oriented economic regime.