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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