New industrial policies in July 1991:
In order to solve economic problems of our
country, the government took several steps including control by the State of
certain industries, central planning and reduced importance of the private
sector. The main objectives of India’s development plans were:
a) Initiate
rapid economic growth to raise the standard of living, reduce unemployment and
poverty;
b) Become
self-reliant and set up a strong industrial base with emphasis on heavy and
basic industries;
c) Reduce
inequalities of income and wealth;
d) Adopt
a socialist pattern of development — based on equality and prevent exploitation
of man by man.
As a part of economic reforms, the Government
of India announced a new industrial policy in July 1991. The broad features of
this policy were as follows:
a) The
Government reduced the number of industries under compulsory licensing to six.
b) Disinvestment
was carried out in case of many public sector industrial enterprises.
c) Policy
towards foreign capital was liberalized. The share of foreign equity
participation was increased and in many activities 100 per cent Foreign Direct
Investment (FDI) was permitted.
d) Automatic
permission was now granted for technology agreements with foreign companies.
e) Foreign
Investment Promotion Board (FIPB) was set up to promote and channelise foreign
investment in India.
Liberalization:
The economic reforms that were introduced were aimed at
liberalizing the Indian business and industry from all unnecessary controls and
restrictions. They indicate the end of the license-permit-quota raj.
Liberalization of the Indian industry has taken place with respect to:
a) Abolishing
licensing requirement in most of the industries except a short list,
b) Freedom
in deciding the scale of business activities i.e., no restrictions on expansion
or contraction of business activities,
c) Removal
of restrictions on the movement of goods and services,
d) Freedom
in fixing the prices of goods services,
e) Reduction
in tax rates and lifting of unnecessary controls over the economy,
f) Simplifying
procedures for imports and experts, and
g) Making
it easier to attract foreign capital and technology to India.
Privatisation:
The new set of economic reforms aimed at
giving greater role to the private sector in the nation building process and a
reduced role to the public sector. To achieve this, the government redefined
the role of the public sector in the New Industrial Policy of 1991. The purpose of the sale, according to the government, was
mainly to improve financial discipline and facilitate modernization. It was
also observe that private capital and managerial capabilities could be
effectively utilized to improve the performance of the PSUs. The government has
also made attempts to improve the efficiency of PSUs by giving them autonomy in
taking managerial decisions.
Globalisation:
Globalizations are the outcome of the policies of
liberalisation and privatisation. Globalisation is generally understood to mean
integration of the economy of the country with the world economy, it is a
complex phenomenon. It is an outcome of the set of various policies that are
aimed at transforming the world towards greater interdependence and integration.
It involves creation of networks and activities transcending economic, social
and geographical boundaries.
Globalisation involves an increased level of
interaction and interdependence among the various nations of the global
economy. Physical geographical gap or
political boundaries no longer remain barriers for a business enterprise to
serve a customer in a distant geographical market.
Impact of Government Policy Changes on Business and Industry
1. Increasing
competition: As a result of changes in the rules of industrial licensing and
entry of foreign firms, competition for Indian firms has increased especially
in service industries like telecommunications, airlines, banking, insurance,
etc. which were earlier in the public sector.
2. More
demanding customers: Customers today have become more demanding because they
are well-informed. Increased competition in the market gives the customers
wider choice in purchasing better quality of goods and services.
3. Rapidly
changing technological environment: Increased competition forces the firms to
develop new ways to survive and grow in the market. New technologies make it
possible to improve machines, process, products and services. The rapidly
changing technological environment creates tough challenges before smaller
firms.
4. Necessity
for change: In a regulated environment of pre-1991 era, the firms could have
relatively stable policies and practices. After 1991, the market forces have
become turbulent as a result of which the enterprises have to continuously
modify their operations.
5. Threat
from MNC Massive entry of multi
nationals in Indian marker constitutes new challenge. The Indian subsidiaries
of multi-nationals gained strategic advantage. Many of these companies could
get limited support in technology from their foreign partners due to
restrictions in ownerships. Once these restrictions have been limited to
reasonable levels, there is increased technology transfer from the foreign
partners