Present an account of the New Industrial Policy of 1991 adopted by the Government of India. Do you think that the New Industrial Policy of 1991 is suitable for the present economic conditions faced by India?


  • Introduce with the background in which the New Industrial Policy of 1991 was adopted
  • Present the highlights of the New Industrial Policy of 1991
  • Discuss the factors warranting upgradation to a new Industrial policy
  • Conclude appropriately.
Model Answer :

The New Industrial Policy of 1991 was adopted in a background of rising oil prices, depleting forex reserves, double-digit inflation etc which required a slew of economic reforms including updation of the industrial policy.

The highlights of the New Industrial Policy of 1991:

  • De-reservation of Industries:The government removed the restriction for private sector participation in the majority of the industrial sectors. Barring Atomic Energy and Railways, at present nearly all the sectors are open for private sector participation.
  • De-Licensing: The requirement of obtaining a licence for setting up an industry were cut down to eighteen and which further went down to five at present.
  • Promotion of Foreign Investment: The policy sought to dilute the conservative FERA and boost the Foreign Investment. The FDI policy now is very liberal and many sectors are eligible for 100% FDI under the automatic route.
  • Location: Various restrictions regarding the location of Industries were removed and restriction categories of only Polluting and Non-polluting industries were kept.
  • Others:Key steps were the abolition of MRTP limits, the abolition of compulsion of phased production and policy of compulsory nationalisation of industries.

Need for Upgradation:

  • Presently Indian economy is in the sweet spot being the fastest growing major economy of the world with an expected growth rate of 7.4%.
  • India is not yet among the top fifty countries on the World Bank’s Ease of Doing Business Index. A greater focus on ease of doing business is needed in the industrial policy.
  • Reducing the cost of infrastructure such as power, logistics, easing compliance burden, and improving labour productivity etc are crucial to enhance competitiveness at present.
  • An updated industrial policy is must for harnessing the demographic dividend which is expected to continue for another 20-25 years for India.
  • Sustainable industrial growth is a new target and industry is a major contributor to carbon emission and also has substantial resource footprint. Clean energy and cleaner industrial technologies have to be taken together in the industrial policy.
  • India’s quest for becoming a knowledge economy by enhancing R&D framework, Industry-Academia linkages etc. also needs to be reflected in the Industrial policy.
  • With the Industrial Revolution 4.0 and emerging technologies creating new opportunities and industries for the future, the industrial policy crafted in the 20th century must be updated.

Thus, it is time to update the Industrial policy of India. A comprehensive, actionable, outcome-oriented industrial policy will enable Industry to deliver a larger role in the economy.