New Industrial Policy 1991

New Industrial Policy 1991

This new policy deregulates the industrial economy in a substantial manner.

Major Features of NIP, 1991

Abolition of Industrial Licensing

• In a major move to liberalise the economy, the new industrial policy abolished all industrial licensing, irrespective of the level of investment, except for certain industries related to security and strategic concerns, social reasons, safety, environmental issues, hazardous products, and elitist consumption.

Entry of Foreign Investment and Technology Made Easier

• For the promotion of exports of Indian products in world markets, the government would encourage foreign trading companies to assist Indian exporters in export activities.

• Approval would be given for direct foreign investment up to 51% foreign equity in high-priority industries.

Public Sector's Role Diluted

The new industrial policy removed all (the number of industries reserved for the public sector since 1956 was 17) from the Reserved List. Industries that continue to be reserved for the public sector are:

1. Arms and ammunition, defence equipment, defence aircraft, and warships

2. Atomic energy

3. Mineral oils and minerals specified in the schedule to the Atomic Energy (Control of Production and Use) Order, 1953

4. Railways

MRTP Act

• Under the MRTP Act, all firms with assets above ₹100 crore (since 1985) were classified as MRTP firms. Such firms were permitted to enter selected industries only on a case-by-case approval basis.

• The new policy scrapped the threshold limit of assets in respect of 'MRTP' and dominant undertakings.

In 2002, the Competition Act replaced the MRTP Act. In place of the MRTP Commission, the Competition Commission started functioning.

Liberalisation of Industrial Location Policy

• The new industrial policy provided that in locations other than cities of more than one million population, there would be no requirement for industrial approvals from the centre, except for industries subject to compulsory licensing.

• In cities with more than one million, industries (other than non-polluting) must be located outside 25 km of the periphery.

Abolition of Phased Manufacturing Programmes for New Projects

• To force indigenisation in manufacturing, Phased Manufacturing Programmes had been in force in the engineering and electronic industries. The new policy abolished them.

Mandatory Convertibility Clause Removed

• Financial institutions had a practice of including a convertibility clause in their loans, allowing them to convert loans into equity.

• This was seen as a threat to private firms. The mandatory convertibility clause was abolished under the new policy.

Navratna Policy in the Public Sector

In the Union Budget of 1997-98, nine PSUs performing very well were given the name of 'Navratna' and made autonomous. These included: SAIL, IOC, BPCL, HPCL, BEL, HAL, ONGC, NTPC.

Later, more PSUs like GAIL (1984), MTNL, NMDC, PFC, PGCIL, REC, NALCO, SCI, and CIL were added. Navratna enterprises were given enhanced autonomy and powers to:

• Incur capital expenditure (without monetary ceiling)

• Enter into technology joint ventures

• Raise capital from domestic and international markets

• Establish financial joint ventures

• Create wholly owned subsidiaries

PSUs were further categorised as 'Maharatna', 'Navratna', and 'Miniratna' CPSEs.

List of Maharatna CPSEs (As on February 2022)

• Bharat Heavy Electricals Limited (BHEL)

• Bharat Petroleum Corporation Limited (BPCL)

• Coal India Limited (CIL)

• Gas Authority of India Limited (GAIL)

• Hindustan Petroleum Corporation Limited (HPCL)

• Indian Oil Corporation Limited (IOCL)

• National Thermal Power Corporation Limited (NTPC)

• Oil & Natural Gas Corporation Limited (ONGC)

• Power Grid Corporation of India Limited (PGCIL)

• Steel Authority of India Limited (SAIL)

• Power Finance Corporation Limited (PFCL)

List of Navratna CPSEs (As on February 2022)

• Bharat Electronics Limited (BEL)

• Container Corporation of India Limited (CCIL)

• Engineers India Limited (EIL)

• Hindustan Aeronautics Limited (HAL)

• Mahanagar Telephone Nigam Limited (MTNL)

• National Aluminium Company Limited (NALCO)

• National Building Construction Corporation (India) Limited (NBCC)

• National Mineral Development Corporation Limited (NMDC)

• NLC India Limited (Formerly Neyveli Lignite Corporation Limited)

• Oil India Limited (OIL)

• Rashtriya Ispat Nigam Limited (RINL)

• Rural Electrification Corporation Limited (RECL)

• Shipping Corporation of India Limited (SCIL)

[Source: DPE, MHIPE, GOI]

Note

• There are a total of 74 CPSEs under the Miniratna category I & II (62 + 12 = 74) as on February 2022.

Final Thoughts

India’s New Industrial Policy of 1991 marked a turning point in the country’s economic journey. It ended the old system of industrial licensing, opening doors for industries to grow with fewer restrictions. Foreign investment was encouraged, with approval for up to 51% equity in high-priority sectors, giving Indian products a chance to compete globally.

The policy also reduced the dominance of the public sector, keeping only a few critical areas like defence, atomic energy, mineral oils, and railways under state control. The scrapping of the MRTP Act asset threshold gave businesses more freedom, while rules on industrial locations were relaxed to promote balanced growth.

Another big step was empowering Public Sector Undertakings (PSUs). The creation of Navratna, Maharatna, and Miniratna categories gave top-performing PSUs greater autonomy in spending, partnerships, and raising funds. Today, names like SAIL, ONGC, IOCL, NTPC, and BEL continue to shape India’s economy under this framework.