Question 5

What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?

Answer

The government of India announced a new industrial policy in july1991. Highlights of the policy are as follow:

1. The Government reduced the number of industries under compulsory licensing to six and that industries are liquor, cigarette, defence equipment, dangerous chemicals, industrial explosives, and drugs and pharmaceuticals.
2. It provided a greater role to the private sector and reduced the role of the public sector. The role of the public sector was limited to only industries of strategic importance.
3. Disinvestment was carried out in case of many public sector industrial enterprises.
4. Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 percent foreign direct investment (FDI) was permitted.
5. Automatic permission was now granted for technology agreements with foreign companies.
6. Foreign investment promotion board (FIPB) was set up to promote and channelize foreign investment in India.

The impact have these changes made on business and industry are:

1. Increasing competition: Changes in the rules of industrial licensing and entry of foreign firms, has increased the competition for Indian firms especially in service industries such as banking, communication, health, etc.

2. More demanding customers: Due to increase in competition, wider choices of products are available in the market. As a result, customers are becoming more chossy.

3. Rapidly changing technological Environment: The increased competition in the market forces the firms to develop new ways to survive and grow in the market. And due to this the small firms’ faces face tough challenges for transformations in processes, technology, machines and products.

4. Necessity for change: Frequent changes in the market, forces the enterprises to continuously modify their operations.

5. Need for developing human resources: The new market conditions need people with required skills and greater commitment. So, the need for developing human resources is increasing.

6. Market orientation: Earlier firms were production oriented; they produce first and then sell goods in the market. But now in the changing world production oriented technique is changed to market oriented where firms study and analyse the market first and produce goods accordingly.

7. Loss of budgetary support to the public sector: The budgetary support for financing the public sector has declined over the years. So the public sector undertakings have to realize that in order to survive, they will have to develop their own resources and be more efficient.

What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?

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