New Industrial Policy of 1991

The New Industrial Policy of 1991 reduced the need for businesses to obtain government permission before setting up or expanding factories. Announced on 24 July 1991, it made freedom from industrial licensing the general rule, while retaining compulsory licensing for a limited list of industries.

From prior permission to delicensing

Under the earlier industrial licensing system, the government controlled entry and expansion through permissions covering matters such as the establishment of industrial undertakings and their production capacity. The 1991 policy substantially dismantled this system.

• It abolished industrial licensing for all industries except a specified list, irrespective of the level of investment.
• For industries outside that list, entrepreneurs no longer needed an industrial licence to establish a new undertaking or undertake substantial expansion.
• This reduced administrative control over investment decisions and gave firms greater freedom to respond to demand, competition and technological change.

A limited set of exceptions remained

The original policy retained compulsory licensing for 18 industry groups. Thus, the reform was extensive delicensing, not the complete abolition of industrial regulation.

• The exceptions reflected security, strategic, social and environmental concerns, including risks associated with hazardous products.
• Examples included tobacco products, alcoholic drinks, industrial explosives, hazardous chemicals, and aerospace and defence equipment.
• Reservation of certain products for the small-scale sector continued, so delicensing did not automatically open every product to large enterprises.
• Applicable environmental requirements and locational restrictions remained relevant even where an industrial licence was no longer required.

Related controls on large firms were relaxed

The policy also reduced entry barriers arising from the Monopolies and Restrictive Trade Practices Act, 1969. These changes complemented delicensing by reducing additional approvals imposed on large business houses.

• The asset threshold used to identify large companies for prior government scrutiny under the Act was removed.
• Prior approval requirements under the Act for establishing new undertakings and undertaking substantial expansion were eliminated.
• The policy shifted the emphasis from controlling firms merely because of their size towards addressing monopolistic, restrictive and unfair trade practices.