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Influence of New Industrial Policy on Industrialization Process in India

Influence of New Industrial Policy on Industrialization Process in India

By Dr. Lalit Kumar Setia |  @drlalitsetia  |  drlalitsetia@gmail.com  |  December 28, 2018 12:22 a.m. PST

Policy Change in 1991:

In response to the economic crises of 1991, the govt. embarked on a wide-ranging reform of the policy regime. Prior to 1991 the Indian economy was a highly regulated economy. In the July 1991 the beginning was made to dismantle controls which over the time had become a major obstacle to industrial growth. Policy changes made to unshackle the economy from controls and to orient it towards the free market are known as the Liberalisation measures. These measures are related to

(a)  the industrial sector (b)  the trade region (c)  foreign investment & technology (d)  public sector (e)  the financial sector

In the financial sector, barriers to entry for new firms and limits on growth in the size of existing firms have been removed. Industrial licensing has been abolished for most of the industries irrespective of the levels of investment. The MRTP Act has been amended to remove the threshold limit of one billion rupees on the assets of large business houses. The prior approval from the govt. is no longer required for capacity creation, amalgamation, merger or acquisition on the part of such companies.

Foreign investment and technologies:

The policy regime for foreign investment and foreign technology has been liberalized at a rapid pace. The govt. now wants to enlarge non-debt-creating inflows. Hence, prior approval for foreign investment is not the rule. It may be required in expected cases. The liberal access to imports to technology aims at facilitating technology up-gradation, which is a necessary condition for increasing international competitiveness in industry.

Trade Policy Reforms:

The trade policy reforms have a limited quantitative restriction on imports and exports. Further, there has been a substantial reduction in tariffs on imports along With abolition of subsidies in exports. The exchange rate changes have led to a sizable depreciation of the rupee. It is hoped that the exposure of domestic firms to international competition in this manner will compels them to become more efficient
In this relatively open environment domestic firms will have to upgrade technology, reduce cost and improve the quality of product.

Liberalization phase:

Till recently the commercial banking system and the domestic capital market were over regulated and under-governed. Over the past few years and attempt has been made to improve the health of the financial sector through deregulation. With the reductions in the statutory liquidity ratio and cash reserve ratio resources received by the banks in the form of deposits are not pre-empted by the govt. but are made available to the private sector. Interest rates in the domestic capital have been deregulated.

Liberalization has definitely led to increases industrialization. Direct foreign direct investment has accelerated the industrial growth. Now, it is necessary that Indian firms penetrate foreign markets. In December 1995, the number of Indian joint ventures abroad was 592 of which 70% were concentrated in just thirteen countries.

Entry of MNCs in India:

The Indian corporate business does not consider the presence of foreign companies in India beneficial to them. In fact, many Indian companies now find that they are the target rather than beneficiaries of the increased activity of foreign MNCs. It is argued that under the present circumstances, one need not become defeatist about foreign MNCs. The correct approach is to create our own MNCs. This, however, is easier said than done. The less developed companies have failed to create major players in the global economy. Indian business at the most can hope to survive only in those industries in which major global players have little stakes.
*Copyright © 2017 Dr. Lalit Kumar. All rights reserved.
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