Industrial development and Economic reforms in India : Major changes in industrial policy, its impact on industrial growth

<2/”>a >The Indian Government had undertaken Industrial Policy reforms since 1980, but the most radical reforms have occurred since 1991, after the severe economic crisis in fiscal year 1990-91. These reforms mainly aim

 at enhancing the efficiency and international competitiveness in Industry/”>Indian Industry. India’s industrial policy of 1991 towards liberalisation, deregulation, market orientation has been hailed as ushering in a new era of freedom from government controls, licence raj and red carpetism and one which promises greater prosperity for the Indian people.

 

Main Objectives of the Industrial Policy of the Government are –

  • to maintain a sustained Growth in productivity;
  • to enhance gainful EMPLOYMENT;
  • to achieve optimal utilisation of human Resources;
  • to attain international competitiveness and
  • to transform India into a major partner and player in the global arena.

Till 1970’s:-

• The Indian planners emphasized the role of heavy industry in Economic Development and sought to build up as rapidly as possible the Capital Goods sector.
• The plans envisaged a leading role for the public sector in this structural transformation of the economy.
• Major investments in the private sector were to be carried out, not by the test of private profitability, but according to the requirements of the overall national plan.
• The plans emphasized technological self-reliance, and for much of the period, an extreme inward orientation in the sense that if anything could be produced in the country, regardless of the cost, it should not be imported.

India’s industrial policy of 1991 towards liberalisation, deregulation, market orientation has been hailed as ushering in a new era of freedom from government controls, licence raj and red carpetism and one which promises greater prosperity for the Indian people. Industrial licensing was liberalized or abolished. Moreover, the Monopolies and Restricted Trade Practices (MRTP) Act deregulated. The numbers of activities reserved for the public sector enterprises (PSE) were also reduced.

Promotion of Investment/”>Foreign Direct Investment (FDI) forms an integral part of the Industrial Policy. FDI helps in accelerating economic growth by means of infusion of capital, technology and modern management practices. Government has put in place a liberal and transparent foreign investment regime, wherein FDI, upto 100%, is allowed, under the automatic route, in most sectors/activities. The FDI Policy is announced through issue of Consolidated FDI Policy Circulars.

Merits of the New Industrial policy :

1.To raise the level of industrial efficiency, time consuming hurdles of regulations, licenses and restrictions would either be done away with or made industry friendly. Inflow of FDI and foreign technology transfers would be encouraged.
2.Additions to the supply of investible resources and technology would result in increased industrial production and productivity.
3.With the abolition of licensing system in most industries except 5, the wave of Liberalization-2/”>Liberalization would boost the entrepreneurial skills in the economy.
4.Pruning/de reservatioin of Industries for the public sector would boost professionalism in this secotr. Increased autonomy would usher in dynamism for the betterment.
5.NIP-1991 made a special mention about the role and importance of small scale industries. The state would initiate measures to promote and strengthen small, tiny and village industries, which have large potential to deal with the problems like Unemployment, regional disparities, income inequalities and Inflation.
6.As the government of the country is obliged to protect the interest of workers, this policy would lay special emphasis to enhance the welfare and upgrade the economic and social status of the worker. To ensure long-lasting and cordial relations between the workers and the management, they (workers) would participate in the management decisions of the enterprises.

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India’s industrial policy has undergone a significant transformation since the early 1990s. Prior to the Economic Reforms, the Indian government had a highly interventionist approach to industrial development, with a focus on import substitution and heavy industry. However, the reforms led to a significant liberalization of the Industrial Sector, with a focus on Export Promotion and private sector participation.

Industrial policy in India before economic reforms

Prior to the economic reforms, the Indian government had a highly interventionist approach to industrial development. The government controlled the licensing of new industrial units, the allocation of scarce resources, and the setting of prices and production targets. This approach was designed to promote self-reliance and to protect domestic industries from foreign competition. However, it also led to a number of inefficiencies and distortions in the industrial sector.

Major changes in industrial policy after economic reforms

The economic reforms of the early 1990s led to a significant liberalization of the industrial sector. The government abolished the licensing system, deregulated the prices of industrial goods, and opened up the sector to foreign investment. These reforms were designed to promote competition, efficiency, and innovation in the industrial sector.

Impact of industrial policy reforms on industrial growth

The industrial policy reforms have had a significant impact on industrial growth in India. The growth rate of the manufacturing sector has increased from an Average of 5.5% per year in the 1980s to 8.5% per year in the 1990s. The reforms have also led to a significant increase in foreign direct investment in the manufacturing sector.

Conclusion

The industrial policy reforms of the early 1990s have had a significant impact on industrial growth in India. The reforms have led to a more competitive, efficient, and innovative industrial sector. This has contributed to the rapid growth of the manufacturing sector in recent years.

The following are some of the major changes in industrial policy after the economic reforms:

  • Abolition of the licensing system: The government abolished the licensing system, which was a major source of inefficiency in the industrial sector. The licensing system required firms to obtain government approval before they could start production or expand their capacity. This system led to delays, Corruption, and a lack of competition.
  • Deregulation of prices: The government deregulated the prices of industrial goods, which had been controlled by the government. This led to lower prices for consumers and increased competition among firms.
  • Opening up of the sector to foreign investment: The government opened up the industrial sector to foreign investment. This led to increased investment in the sector and helped to improve its competitiveness.
  • Promotion of exports: The government promoted exports by providing subsidies and other incentives to exporters. This helped to increase the share of exports in GDP and made the industrial sector more competitive in the global market.

The industrial policy reforms have had a significant impact on industrial growth in India. The growth rate of the manufacturing sector has increased from an average of 5.5% per year in the 1980s to 8.5% per year in the 1990s. The reforms have also led to a significant increase in foreign direct investment in the manufacturing sector.

The reforms have also led to a number of other positive changes in the industrial sector. These include:

  • Increased competition: The reforms have led to increased competition among firms in the industrial sector. This has led to lower prices for consumers and improved quality of products.
  • Improved efficiency: The reforms have led to improved efficiency in the industrial sector. This has been achieved through a number of measures, including the abolition of the licensing system, deregulation of prices, and opening up of the sector to foreign investment.
  • Increased innovation: The reforms have led to increased innovation in the industrial sector. This has been achieved through a number of measures, including the promotion of exports, the provision of subsidies and other incentives to exporters, and the establishment of research and development centers.

The industrial policy reforms have been a major success in India. They have led to significant improvements in the industrial sector, including increased growth, increased competition, improved efficiency, and increased innovation.

Here are some frequently asked questions about industrial development and Economic Reforms In India, along with short answers:

  1. What are the major changes in industrial policy in India?

The major changes in industrial policy in India include the following:

  • The introduction of the New Industrial Policy in 1991, which liberalized the economy and opened it up to foreign investment.
  • The delicensing of industries, which allowed companies to set up factories without government approval.
  • The reduction of tariffs, which made it cheaper to import raw materials and equipment.
  • The introduction of tax incentives, which encouraged companies to invest in India.

  • What has been the impact of these changes on industrial growth?

The impact of these changes on industrial growth has been significant. Industrial output has grown at an average rate of 8% per year since 1991, compared to just 4% per year in the previous decade. This growth has been driven by a number of factors, including the liberalization of the economy, the delicensing of industries, the reduction of tariffs, and the introduction of tax incentives.

  1. What are the challenges facing industrial development in India?

The challenges facing industrial development in India include the following:

  • The lack of Infrastructure-2/”>INFRASTRUCTURE, such as roads, railways, and power supply.
  • The shortage of skilled labor.
  • The high cost of doing business, due to factors such as high taxes and corruption.
  • The competition from other countries, such as China, which have lower labor costs and more developed infrastructure.

  • What are the opportunities for industrial development in India?

The opportunities for industrial development in India include the following:

  • The large and growing domestic market.
  • The abundance of Natural Resources.
  • The low cost of labor.
  • The government’s commitment to economic development.

  • What is the future of industrial development in India?

The future of industrial development in India is bright. The country has a number of advantages, such as a large and growing domestic market, a low cost of labor, and the government’s commitment to economic development. These advantages will help India to become a major industrial power in the years to come.

  1. The Industrial Policy Resolution of 1956 was a major turning point in India’s industrial development. Which of the following was NOT a feature of this policy?
    (A) The public sector was given a dominant role in the industrial sector.
    (B) The private sector was allowed to operate in certain areas, but was subject to government controls.
    (C) Foreign investment was encouraged in certain areas.
    (D) The government would provide subsidies and other incentives to industries that it considered to be important.

  2. The Industrial Policy Reforms of 1991 were a major liberalization of India’s industrial policy. Which of the following was NOT a feature of these reforms?
    (A) The public sector was no longer given a dominant role in the industrial sector.
    (B) The private sector was allowed to operate in all areas, without government controls.
    (C) Foreign investment was encouraged in all areas.
    (D) The government would no longer provide subsidies and other incentives to industries.

  3. The impact of the Industrial Policy Resolution of 1956 on India’s industrial growth was mixed. On the one hand, the policy led to rapid growth in the public sector. On the other hand, the policy also led to a number of problems, including inefficiency, corruption, and lack of innovation.

  4. The impact of the Industrial Policy Reforms of 1991 on India’s industrial growth was positive. The reforms led to a rapid increase in private investment, which in turn led to a rapid increase in industrial output.

  5. India’s industrial development has been a major success story. The country has experienced rapid industrial growth in recent decades, and is now one of the world’s leading industrial powers. This success is due in part to the country’s Sound Industrial Policies, which have helped to create a favorable Environment for businesses to operate in.

  6. India’s industrial development has also had a positive impact on the country’s economy. The growth of the industrial sector has created millions of new jobs, and has helped to reduce POVERTY and inequality. In addition, the industrial sector has contributed significantly to the country’s exports, helping to boost the economy.

  7. However, India’s industrial development has also faced some challenges. One challenge is the country’s infrastructure, which is not yet adequate to support the rapid growth of the industrial sector. Another challenge is the shortage of skilled workers. In order to address these challenges, the government has taken a number of steps, including investing in infrastructure and Education.

  8. Despite the challenges, India’s industrial development is expected to continue to grow in the coming years. The country has a number of advantages, including a large and growing Population, a young workforce, and a favorable investment Climate. In addition, the government is committed to promoting industrial development, and has taken a number of steps to support the sector.