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Industrial Policy
Announced on July 24th 1991. The Major Objectives : Maintain a Sustained Growth rate in Productivity and employment. Correct the weaknesses in the existing system Attain International Competitiveness Remove unnecessary bureaucratic control Remove restrictions on FDI.
Development of Import Industries was reserved for public sector A large number of articles was reserved for the small scale sector Public sector controlled major sectors of the economy. It had a monopoly on almost 9 major industries For Setting up certain industries that the gov wanted to be under direct control of the public sector, the license were not issued.
Large firms (assets more than Rs.100 crore) had to obtain clearance under the MRTP act besides obtaining a license. Foreign Capital was allowed to a limited extent. It did not exceed 40% of the equity base of the companies Operations of foreign companies in India and Indian Companies abroad was regulated by the Foreign Exchange Regulations Act (FERA) 1973.
Monetory Policy Fiscal Policy Price Policy Trade Policy Industrial Policy Foreign Investment Policy Public Sector Policy
Monetary Policy
In order to improve the balance of payments position, a restrictive monetory policy was introduced. There was increase in interest rates. A tight monetary policy reduces in credit supply in the economy, reduces demand for goods and services, reduces inflationary pressures and promotes balance of payments position.
Fiscal Policy
Fiscal policy is that part of gov policy which is concerned with raising revenue through taxation and other means and deciding on the level and patterns of expenditure.
It imposed restrictions on both central and state governments and tried to develop an efficient expenditure system.
Price Policy
The government allowed public enterprises the freedom to set prices for their products according to market forces. Most of the goods were freed from the administered prices (prices fixed by the gov) Gov administered prices of petroleum products, fertilizers, agricultural goods, railway and bus fares.
Trade Policy
The gov wanted to integrate the national economy with the international economy and therefore wanted its industrial sector to increase the exports. For this, it phased out an excessive protection to the industries, removed quantitative restrictions on almost all the items and promoted price based system.
In pre-liberalization era, foreign equity participation was 40%. Foreign investment in most of the industries did not need the approval of the gov or the RBI. FDI is allowed in almost all the industries ranging from 26% to 100% of the total equity.
The number of industries reserved for the public sector was reduced to 8 and then 2. The government equity was brought down to non strategic PSUs to 26% or lower. PSUs which could not be revised were closed down.