The New Industrial Policy

The New Industrial Policy, 1991 had the main objective of providing facilities to market forces and to increase
efficiency.
Larger roles were provided by
 L – Liberalization (Reduction of government control)

 P – Privatization (Increasing the role & scope of the private sector)
 G – Globalisation (Integration of the Indian economy with the world economy)
Because of LPG, old domestic firms have to compete with New Domestic firms, MNC’s and imported items
The government allowed Domestic firms to import better technology to improve efficiency and to have access to better technology.
The Foreign Direct Investment ceiling was increased from 40% to 51% in selected sectors.
The maximum FDI limit is 100% in selected sectors like infrastructure sectors. Foreign Investment promotion board was established.
It is a single-window FDI clearance agency. The technology transfer agreement was allowed under the automatic route.
Phased Manufacturing Programme was a condition on foreign firms to reduce imported inputs and use domestic inputs, it was
abolished in 1991.
Under the Mandatory convertibility clause, while giving loans to firms, part of the loan will/can be converted to equity of the company
if the banks want the loan in a specified time. This was also abolished.
Industrial licensing was abolished except for 18 industries.
Monopolies and Restrictive Trade Practices Act – Under his MRTP commission was established. MRTP Act was introduced to
check monopolies. The MRTP Act was relaxed in 1991.
On the recommendation of the SVS Raghavan committee, Competition Act 2000 was passed. Its objectives were to promote
competition by creating an enabling environment.
To know more about the Competition Commission of India, check the linked article.
Review of the Public sector under this New Industrial Policy, 1991 are:
 Public sector investments (Disinvestment of Public sector)

 De-reservations –Industries reserved exclusively for the public sector were reduced
 Professionalization of Management of PSUs
 Sick PSUs to be referred to the Board for Industrial and financial restructuring (BIFR).
 The scope of MoUs was strengthened (MoU is an agreement between a PSU and concerned ministry).
(a) Microeconomics
Microeconomics is the study of the economic behaviour of individuals, households, and firms in decision making and
allocation of resources.
Microeconomics is concerned with the following:
 Supply and demand in individual markets (Example: Textile)

 Individual consumer behaviour (Example: Consumer choice theory)
 Individual producer behaviour
 Individual labour markets (Example: Demand for labour wage determination in that individual market)
(b) Macroeconomics
Macroeconomics is the branch of economics that deals with the behaviour and performance of an economy as a
whole.
It is generally the study of central issues like:
 Employment
 The growth rate of national output
 GDP
 Inflation
 General price level and stability
The law of supply states that an increase in the price of goods or services results in an increase in the quantity that
suppliers make available to the market. Existing suppliers increase production of higher-priced goods to maximize
profits, while new suppliers may also enter the market.
What is short-term market?
Short-term trading refers to those trading strategies in stock market or futures market in which the time duration
between entry and exit is within a range of few days to few weeks. There are two main school of thoughts: swing
trading and trend following.
What is long-term market?
What is a Long Term Investment? Long term investments are investments that offer higher returns after several
years; typically five years or more. These involve more market risks and higher returns thus allowing you to invest in
aggressive market instruments.
What is WTO and its role?
In brief, the World Trade Organization (WTO) is the only international organization dealing with the global rules of
trade. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
What are the three main functions of WTO?
The WTO has many roles: it operates a global system of trade rules, it acts as a forum for negotiating trade
agreements, it settles trade disputes between its members and it supports the needs of developing countries.
What are two examples of direct and indirect taxes?
Examples of indirect taxes are excise tax, VAT, and service tax. Examples of direct taxes are income tax, personal
property tax, real property tax, and corporate tax.
What is positive and normative economics?
In economics, a positive statement is one that attempts to assess an objective reality without making a value
judgment. For example, a study on rental costs would be an example of positive economics. A study that claims that
the rent is too high is an example of normative economics

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The New Industrial Policy, 1991 had the main objective of providing facilities to market forces and to increase

 L – Liberalization (Reduction of government control)

 Public sector investments (Disinvestment of Public sector)

 Supply and demand in individual markets (Example: Textile)

What is short-term market?

What is long-term market?

What is WTO and its role?

What are the three main functions of WTO?

What are two examples of direct and indirect taxes?

What is positive and normative economics?

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