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Difficulty: MediumEconomic Planning History, NITI Aayog, and Structural Reforms

With reference to the New Industrial Policy of 1991 introduced as part of structural economic reforms in India, consider the following statements:

1. It drastically reduced the number of industries reserved exclusively for the public sector from 17 to 8.
2. It abolished industrial licensing for all industries except a small list of specified strategic, safety, and environmental hazard-related industries.
3. It allowed automatic approval for Foreign Direct Investment (FDI) up to 51 percent in designated high-priority industries.

Which of the statements given above are correct?

  1. A
    1 and 2 only
  2. B
    2 and 3 only
  3. 1, 2 and 3Answer
  4. D
    1 and 3 only

Answer

All three statements (1, 2, and 3) are correct.
The Statement of Industrial Policy on July 24, 1991, laid the foundation for structural economic reforms. It reduced public sector reservation from 17 to 8 industries, deregulated licensing for almost all sectors except a short list of strategic/hazardous industries, and permitted automatic FDI approval up to 51 percent in priority areas.

Step-by-Step Solution

1
Evaluate Statement 1 regarding public sector reservation.
Under the Industrial Policy Statement of 1956, 17 industries were reserved for the public sector. The Statement of Industrial Policy 1991 reduced this reserved list to 8 industries (later further curtailed to 2: atomic energy and railway operations). Thus, Statement 1 is correct.
De-reservation was aimed at opening up key industrial sectors to private investment.
2
Evaluate Statement 2 regarding industrial licensing deregulation.
The 1991 policy abolished industrial licensing for all projects except 18 specified industries related to security, strategic concerns, social reasons, and environmental hazards. Thus, Statement 2 is correct.
Abolishing licensing ended the 'License-Permit Raj' for most manufacturing sectors.
3
Evaluate Statement 3 regarding FDI provisions.
To attract foreign capital and tech transfer, automatic approval was granted for direct foreign investment up to 51% equity in 34 high-priority industries. Thus, Statement 3 is correct.
This marked a major shift from restrictive foreign capital policies under FERA.

Key Concept

1991 New Industrial Policy and Structural Reform Pillars (LPG)
Estimated Time:1m 15s
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Topics

Economic Planning History, NITI Aayog, and Structural Reforms