GOVERNMENT OF INDIA

MINISTRY OF INDUSTRY
STATEMENT ON INDUSTRIAL POLICY

New Delhi, July 24, 1991.

POLICY OBJECTIVES
Pandit Jawaharlal Nehru laid the foundations of modern India. His vision and determination have
left a lasting impression on every facet of national endeavour since Independence. It is due to his
initiative that India now has a strong and diversified industrial base and is a major industrial
nation of the world. The goals and objectives set out for the nation by Pandit Nehru on the eve of
Independence, namely, the rapid agricultural and industrial development of our country, rapid
expansion of opportunities for gainful employment, progressive reduction of social and
economic disparities, removal of poverty and attainment of self-reliance remain as valid today as
at the time Pandit Nehru first set them out before the nation. Any industrial policy must
contribute to the realisation of these goals and objectives at an accelerated pace. The present
statement of industrial policy is inspired by these very concerns, and represents a renewed
initiative towards consolidating the gains of national reconstruction at this crucial stage.
2. In 1948, immediately after Independence, Government introduced the Industrial Policy
Resolution. This outlined the approach to industrial growth and development. It emphasised the
importance to the economy of securing a continuous increase in production and ensuring its
equitable distribution. After the adoption of the Constitution and the socio-economic goals, the
Industrial Policy was comprehensively revised and adopted in 1956. To meet new challenges,
from time to time, it was modified through statements in 1973, 1977 and 1980.
3. The Industrial Policy Resolution of 1948 was followed by the Industrial Policy Resolution of
1956 which had as its objective the acceleration of the rate of economic growth and the speeding
up of industrialisation as a means of achieving a socialist pattern of society. In 1956, capital was
scarce and the base of entrepreneurship not strong enough. Hence, the 1956 Industrial Policy
Resolution gave primacy to the role of the State to assume a predominant and direct
responsibility for industrial development.
4. The Industrial Policy statement of 1973, inter alia, identified high-priority industries where
investment from large industrial houses and foreign companies would be permitted.
5. The Industrial Policy Statement of 1977 laid emphasis on decentralisation and on the role of
small-scale, tiny and cottage industries.
6. The Industrial Policy Statement of 1980 focussed attention on the need for promoting
competition in the domestic market, technological upgradation and modernisation. The policy
laid the foundation for an increasingly competitive export based and for encouraging foreign
investment in high-technology areas. This found expression in the Sixth Five Year Plan which
bore the distinct stamp of Smt. Indira Gandhi. It was Smt. Indira Gandhi who emphasised the
need for productivity to be the central concern in all economic and production activities.
7. These policies created a climate for rapid industrial growth in the country. Thus on the eve of
the Seventh Five Year Plan, a broad-based infrastructure had been built up. Basic industries had
been established. A high degree of self-reliance in a large number of items - raw materials,
intermediates, finished goods - had been achieved. New growth centres of industrial activity had
emerged, as had a new generation of entrepreneurs. A large number of engineers, technicians and
skilled workers had also been trained.
8. The Seventh Plan recognised the need to consolidate on these strengths and to take initiatives
to prepare Indian industry to respond effectively to the emerging challenges. A number of policy
and procedural changes were introduced in 1985 and 1986 under the leadership of Shri Rajiv
Gandhi aimed at increasing productivity, reducing costs and improving quality. The accent was
on opening the domestic market to increased competition and readying our industry to stand on
its own in the face of international competition. The public sector was freed from a number of
constraints and given a larger measure of autonomy. The technological and managerial
modernisation of industry was pursued as the key instrument for increasing productivity and
improving our competitiveness in the world. The net result of all these changes was that Indian
industry grew by an impressive average annual growth rate of 8.5% in the Seventh Plan period.
9. Government is pledged to launching a reinvigorated struggle for social and economic justice,
to end poverty and unemployment and to build a modern, democratic, socialist, prosperous and
forward-looking India. Such a society can be built if India grows as part of the world economy
and not in isolation.
10. While Government will continue to follow the policy of self-reliance, there would be greater
emphasis placed on building up our ability to pay for imports through our own foreign exchange
earnings. Government is also committed to development and utilisation of indigenous
capabilities in technology and manufacturing as well as its upgradation to world standards.
11. Government will continue to pursue a sound policy framework encompassing encouragement
of entrepreneurship, development of indigenous technology through investment in research and
development, bringing in new technology, dismantling of the regulatory system, development of
the capital markets and increasing competitiveness for the benefit of the common man. The
spread of industrialisation to backward areas of the country will be actively promoted through
appropriate incentives, institutions and infrastructure investments.
12. Government will provide enhanced support to the small-scale sector so that it flourishes in an
environment of economic efficiency and continuous technological upgradation.
13. Foreign investment and technology collaboration will be welcomed to obtain higher
technology, to increase exports and to expand the production base.
14. Government will endeavour to abolish the monopoly of any sector or any individual
enterprise in any field of manufacture, except on strategic or military considerations and open all
manufacturing activity to competition.
15. The Government will ensure that the public sector plays its rightful role in the evolving
socio-economic scenario of the country. Government will ensure that the public sector is run on
business lines as envisaged in the Industrial Policy Resolution of 1956 and would continue to
innovate and lead in strategic areas of national importance. In the 1950s and 1960s, the principal
instrument for controlling the commanding heights of the economy was investment in the capital
of key industries. Today, the State has other instruments of intervention, particularly fiscal and
monetary instruments. The State also commands the bulk of the nation's savings. Banks and
financial institutions are under State control. Where State intervention is necessary, these
instruments will prove more effective and decisive.
16. Government will fully protect the interests of labour, enhance their welfare and equip them in
all respects to deal with the inevitability of technological change. Government believes that no
small section of society can corner the gains of growth, leaving workers to bear its pains. Labour
will be made an equal partner in progress and prosperity. Workers' participation in management
will be promoted. Workers cooperatives will be encouraged to participate in packages designed
to turn around sick companies. Intensive training, skill development and upgradation
programmes will be launched.
17. Government will continue to visualise new horizons. The major objectives of the new
industrial policy package will be to build on the gains already made, correct the distortions or
weaknesses that may have crept in, maintain a sustained growth in productivity and gainful
employment and attain international competitiveness. The pursuit of these objectives will be
tempered by the need to preserve the environment and ensure the efficient use of available
resources. All sector of industry whether small, medium or large, belonging to the public, private
or cooperative sector will be encouraged to grow and improve on their past performance.
18. Government's policy will be continuity with change.
19. In pursuit of the above objectives, Government have decided to take a series of initiatives in
respect of the policies relating to the following areas.

A. Industrial Licensing.
B. Foreign Investment
C. Foreign Technology Agreements.
D. Public Sector Policy
E. MRTP Act.

A package for the Small and Tiny Sectors of industry is being announced separately.
A. INDUSTRIAL LICENSING POLICY
20. Industrial Licensing is governed by the Industries (Development & Regulation) Act, 1951.
The Industrial Policy Resolution of 1956 identified the following three categories of industries:
those that would be reserved for development in public sector, those that would be permitted for
development through private enterprise with or without State participation, and those in which
investment initiatives would ordinarily emanate from private entrepreneurs. Over the years,
keeping in view the changing industrial scene in the country, the policy has undergone
modifications. Industrial licensing policy and procedures have also been liberalised from time to
time. A full realisation of the industrial potential of the country calls for a continuation of this
process of change.
21. In order to achieve the objectives of the strategy for the industrial sector for the 1990s and
beyond it is necessary to make a number of changes in the system of industrial approvals. Major
policy initiatives and procedural reforms are called for in order to actively encourage and assist
Indian entrepreneurs to exploit and meet the emerging domestic and global opportunities and
challenges. The bedrock of any such package of measures must be to let the entrepreneurs make
investment decisions on the basis of their own commercial judgement. The attainment of
technological dynamism and international competitiveness requires that enterprises must be
enabled to swiftly respond to fast changing external conditions that have become characteristic
of today's industrial world. Government policy and procedures must be geared to assisting
entrepreneurs in their efforts. This can be done only if the role played by the government were to
be changed from that of only exercising control to one of providing help and guidance by making
essential procedures fully transparent and by eliminating delays.
22. The winds of change have been with us for some time. The industrial licensing system has
been gradually moving away from the concept of capacity licensing. The system of reservations
for public sector undertakings has been evolving towards an ethos of greater flexibility and
private sector enterprise has been gradually allowed to enter into many of these areas on a case
by case basis. Further impetus must be provided to these changes which alone can push this
country towards the attainment of its entrepreneurial and industrial potential. This calls for bold
and imaginative decisions designed to remove restraints on capacity creation, while at the same,
ensuring that over-riding national interests are not jeopardised.
23. In the above context, industrial licensing will henceforth be abolished for all industries,
except those specified, irrespective of levels of investment. These specified industries (Annex-
II), will continue to be subject to compulsory licensing for reasons related to security and
strategic concerns, social reasons, problems related to safety and over-riding environmental
issues, manufacture of products of hazardous nature and articles of elitist consumption. The
exemption from licensing will be particularly helpful to the many dynamic small and medium
entrepreneurs who have been unnecessarily hampered by the licensing system. As a whole the
Indian economy will benefit by becoming more competitive, more efficient and modern and will
take its rightful place in the world of industrial progress.
B. FOREIGN INVESTMENT
24. While freeing Indian industry from official controls, opportunities for promoting foreign
investments in India should also be fully exploited. In view of the significant development of
India's industrial economy in the last 40 years, the general resilience, size and level of
sophistication achieved, and the significant changes that have also taken place in the world
industrial economy, the relationship between domestic and foreign industry needs to be much
more dynamic than it has been in the past in terms of both technology and investment. Foreign
investment would bring attendant advantages of technology transfer, marketing expertise,
introduction of modern managerial techniques and new possibilities for promotion of exports.
This is particularly necessary in the changing global scenario of industrial and economic
cooperation marked by mobility of capital. The government will therefore welcome foreign
investment which is in the interest of the country's industrial development.
25. In order to invite foreign investment in high priority industries, requiring large investments
and advanced technology, it has been decided to provide approval for direct foreign investment
upto 51% foreign equity in such industries. There shall be no bottlenecks of any kind in this
process. This group of industries has generally been known as the "Appendix I Industries" and
are areas in which FERA companies have already been allowed to invest on a discretionary
basis. This change will go a long way in making Indian policy on foreign investment transparent.
Such a framework will make it attractive for companies abroad to invest in India.
26. Promotion of exports of Indian products calls for a systematic exploration of world markets
possible only through intensive and highly professional marketing activities. To the extent that
expertise of this nature is not well developed so far in India, Government will encourage foreign
trading companies to assist us in our export activities. Attraction of substantial investment and
access to high technology, often closely held, and to world markets, involves interaction with
some of the world's largest international manufacturing and marketing firms. The Government
will appoint a special board to negotiate with such firms so that we can engage in purposive
negotiation with such large firms, and provide the avenues for large investments in the
development of industries and technology in the national interest.
C. FOREIGN TECHNOLOGY AGREEMENT
27. There is a great need for promoting an industrial environment where the acquisition of
technological capability receives priority. In the fast changing world of technology the
relationship between the suppliers and users of technology must be a continuous one. Such a
relationship becomes difficult to achieve when the approval process includes unnecessary
governmental interference on a case to case basis involving endemic delays and fostering
uncertainty. The Indian entrepreneur has now come of age so that he no longer needs such
bureaucratic clearances of his commercial technology relationships with foreign technology
suppliers. Indian industry can scarcely be competitive with the rest of the world if it is to operate
within such a regulatory environment.
28. With a view to injecting the desired level of technological dynamism in Indian industry,
Government will provide automatic approval for technology agreement related to high priority
industries within specified parameters. Similar facilities will be available for other industries as
well if such agreements do not require the expenditure of free exchange. Indian companies will
be free to negotiate the terms of technology transfer with their foreign counterparts according to
their own commercial judgement. The predictability and independence of action that this
measure is providing to Indian industry will induce them to develop indigenous competence for
the efficient absorption of foreign technology. Greater competitive pressure will also induce our
industry to invest much more in research and development and they have been doing in the past.
In order to help this process, the hiring of foreign technicians and foreign testing of indigenously
developed technologies, will also not require prior clearance as prescribed so far, individually or
as a part of industrial or investment approvals.
D. PUBLIC SECTOR POLICY
29. The public sector has been central to our philosophy of development. In the pursuit of our
development objectives, public ownership and control in critical sector of the economy has
played an important role in preventing the concentration of economic power, reducing regional
disparities and ensuring that planned development serves the common good.
30. The Industrial Policy Resolution of 1956 gave the public sector a strategic role in the
economy. Massive investments have been made over the past four decades to build a public
sector which has a commanding role in the economy. Today key sectors of the economy are
dominated by mature public enterprises that have successfully expanded production, opened up
new areas of technology and built up a reserve of technical competence in a number of areas.
31. After the initial exuberance of the public sector entering new areas of industrial and technical
competence, a number of problems have begun to manifest themselves in many of the public
enterprises. Serious problems are observed in the insufficient growth in productivity, poor
project management, over-manning, lack of continuous technological upgradation, and
inadequate attention to R&D and human resource development. In addition, public enterprises
have shown a very low rate of return on the capital invested. This has inhibited their ability to re-
generate themselves in terms of new investments as well as in technology development. The
result is that many of the public enterprises have become a burden rather than being an asset to
the Government. The original concept of the public sector has also undergone considerable
dilution. The most striking example is the take over of sick units from the private sector. This
category of public sector units accounts for almost one third of the total losses of central public
enterprises. Another category of public enterprises, which does not fit into the original idea of
the public sector being at the commanding heights of the economy, is the plethora of public
enterprises which are in the consumer goods and services sectors.
32. It is time therefore that the Government adopt a new approach to public enterprises. There
must be a greater commitment to the support of public enterprises which are essential for the
operation of the industrial economy. Measures must be taken to make these enterprises more
growth oriented and technically dynamic. Units which may be faltering at present but are
potentially viable must be restructured and given a new lease of life. The priority areas for
growth of public enterprises in the future will be the following.
• Essential infrastructure goods and services.
• Exploration and exploitation of oil and mineral resources.
• Technology development and building of manufacturing capabilities in areas which are
crucial in the long term development of the economy and where private sector investment
is inadequate.
• Manufacture of products where strategic considerations predominate such as defence
equipment.
At the same time the public sector will not be barred from entering areas not specifically
reserved for it.
33. In view of these considerations, Government will review the existing portfolio of public
investments with greater realism. This review will be in respect of industries based on low
technology, small scale and non-strategic areas, inefficient and unproductive areas, areas with
low or nil social considerations or public purpose, and areas where the private sector has
developed sufficient expertise and resources.
34. Government will strengthen those public enterprises which fall in the reserved areas of
operation or are in high priority areas or are generating good or reasonable profits. Such
enterprises will be provided a much greater degree of management autonomy through the system
of memoranda of understanding. Competition will also be induced in these areas by inviting
private sector participation. In the case of selected enterprises, part of Government holdings in
the equity share capital of these enterprises will be disinvested in order to provide further market
discipline to the performance of public enterprises. There are a large number of chronically sick
public enterprises incurring heavy losses, operating in a competitive market and serve little or no
public purpose. These need to be attended to. The country must be proud of the public sector that
it owns and it must operate in the public interest.
E. MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT (MRTP ACT)
35. The principal objectives sought to be achieved through the MRTP Act are as follows:
i. Prevention of concentration of economic power to the common detriment, control of
monopolies, and
ii. Prohibition of monopolistic and restrictive and unfair trade practices.
36. The MRTP Act became effective in June 1970. With the emphasis placed on productivity in
the Sixth Plan, major amendments to the MRTP Act were carried out in 1982 and 1984 in order
to remove impediments to industrial growth and expansion. This process of change was given a
new momentum in 1985 by an increase of threshold limit of assets.
37. With the growing complexity of industrial structure and the need for achieving economies of
scale for ensuring high productivity and competitive advantage in the international market, the
interference of the Government through the MRTP Act in investment decisions of large
companies has become deleterious in its effects on Indian industrial growth. The pre-entry
scrutiny of investment decisions by so called MRTP companies will no longer be required.
Instead, emphasis will be on controlling and regulating monopolistic, restrictive and unfair trade
practices rather than making it necessary for the monopoly house to obtain prior approval of
Central Government for expansion, establishment of new undertakings, merger, amalgamation
and takeover and appointment of certain directors. The thrust of policy will be more on
controlling unfair or restrictive business practices. The MRTP Act will be restructured by
eliminating the legal requirement for prior governmental approval for expansion of present
undertakings and establishment of new undertakings. The provisions relating to merger,
amalgamation, and takeover will also be repealed. Similarly, the provisions regarding restrictions
on acquisition of and transfer of shares will be appropriately incorporated in the Companies Act.
38. Simultaneously, provisions of the MRTP Act will be strengthened in order to enable the
MRTP Commission to take appropriate action in respect of the monopolistic, restrictive and
unfair trade practices. The newly empowered MRTP Commission will be encouraged to require
investigation suo moto or on complaints received from individual consumers or classes of
consumers.
F. DECISIONS OF GOVERNMENT
39. In view of the considerations outlined above Government have decided to take a series of
measures to unshackle the Indian industrial economy from the cobwebs of unnecessary
bureaucratic control. These measures complement the other series of measures being taken by
Government in the areas of trade policy, exchange rate management, fiscal policy, financial
sector reform and overall macro economic management.
A. Industrial Licensing Policy
i. Industrial licensing will be abolished for all projects except for a short list of industries
related to security and strategic concerns, social reasons, hazardous chemicals and
overriding environmental reasons, and items of elitist consumption (list attached as
Annex II). Industries reserved for the small scale sector will continue to be so reserved.
ii. Areas where security and strategic concerns predominate, will continue to be reserved for
the public sector (list attached as Annex I).
iii. In projects where imported capital goods are required, automatic clearance will be given
a. in cases where foreign exchange availability is ensured through foreign equity
or
b. if the CIF value of imported capital goods required is less than 25% of total
value (net of taxes) of plant and equipment, upto a maximum value of Rs. 2 crore. In
view of the current difficult foreign exchange situation, this scheme (i.e. (iii) b) will come
into force from April, 1992.

In other cases, imports of capital goods will require clearance from the Secretariat for
Industrial Approvals (SIA) in the Department of Industrial Development according to
availability of foreign exchange resources.
iv. In locations other than cities of more than 1 million population, there will be no
requirement of obtaining industrial approvals from the Central Government except for
 industries subject to compulsory licensing. In respect of cities with population greater
than 1 million, industries other than those of a non polluting nature such as electronics,
computer software and printing will be located outside 25 kms. of the periphery, except
in prior designated industrial areas. A flexible location policy would be adopted in
respect of such cities (with population greater than 1 million) which require industrial re-
generation. Zoning and Land Use Regulation and Environmental Legislation will
continue to regulate industrial locations.
Appropriate incentives and the design of investments in infrastructure development will
be used to promote the dispersal of industry particularly to rural and backward areas and
to reduce congestion in cities.
v. The system of phased manufacturing programmes run on an administrative case by case
basis will be applicable to new projects. Existing projects with such programmes will
continue to be governed by them.
vi. Existing units will be provided a new broad banding facility to enable them to produce
any article without additional investment.
vii. The exemption from licensing will apply to all substantial expansions of existing units.
viii.The mandatory convertibility clause will no longer be applicable for term loans from the
financial institutions for new projects.
Procedural consequences
ix. All existing registration schemes (Delicensed Registration, Exempted Industries
Registration, DGTD registration) will be abolished.
x. Entrepreneurs will henceforth only be required to file an information memorandum on
new projects and substantial expansions.
xi. The lists at Annex II and Annex III will be notified in the Indian Trade Classification
(Harmonised System).
B. Foreign Investment
i. Approval will be given for direct foreign investment upto 51 percent foreign equity in
high priority industries (Annex III). There shall be no bottlenecks of any kind in this
process. Such clearance will be available if foreign equity covers the foreign exchange
requirement for imported capital goods. Consequential amendments to the Foreign
Exchange Regulation Act (1973) shall be carried out.
ii. While the import of components, raw materials and intermediate goods, and payment of
knowhow fees and royalties will be governed by the general policy applicable to other
domestic units, the payment of dividends would be monitored through the Reserve Bank
of India so as to ensure that outflows on account of dividend payments are balanced by
export earnings over a period of time.
iii. Other foreign equity proposals, including proposals involving 51% foreign equity which
do not meet the criteria under (I) above, will continue to need prior clearance. Foreign
equity proposals need not necessarily be accompanied by foreign technology agreements.
iv. To provide access to international markets, majority foreign equity holding upto 51%
equity will be allowed for trading companies primarily engaged in export activities.
While the thrust would be on export activities, such trading houses shall be at par with
domestic trading and export houses in accordance with the Import Export Policy.
 v. A special Empowered Board would be constituted to negotiate with a number of large
international firms and approve direct foreign investment in select areas. This would be a
special programme to attract substantial investment that would provide access to high
technology and world markets. The investment programmes of such firms would be
considered in totality, free from pre-determined parameters or procedures.
C. Foreign Technology Agreements
i. Automatic permission will be given for foreign technology agreements in high priority
industries (Annex III) upto a lumpsum payment of Rs. 1 crore, 5% royalty for domestic
sales and 8% for exports, subject to total payment of 8% of sales over a 10 year period
from date of agreement or 7 years from commencement of production.
The prescribed royalty rates are net of taxes
and will be calculated according to standard procedures.
ii. In respect of industries other than those in Annex III, automatic permission will be given
subject to the same guidelines as above if no free foreign exchange is required for any
payments.
iii. All other proposals will need specific approval under the general procedures in force.
iv. No permission will be necessary for hiring of foreign technicians, foreign testing of
indigenously developed technologies. Payment may be made from blanket permits or free
foreign exchange according to RBI guidelines.
D. Public Sector
i. Portfolio of public sector investments will be reviewed with a view to focus the public
sector on strategic, high-tech and essential infrastructure. Whereas some reservation for
the public sector is being retained there would be no bar for areas of exclusivity to be
opened up to the private sector selectively. Similarly the public sector will also be
allowed entry in areas not reserved for it.
ii. Public enterprises which are chronically sick and which are unlikely to be turned around
will, for the formulation of revival/rehabilitation schemes, be referred to the Board for
Industrial and Financial Reconstruction (BIFR), or other similar high level institutions
created for the purpose. A social security mechanism will be created to protect the
interests of workers likely to be affected by such rehabilitation packages.
iii. In order to raise resources and encourage wider public participation, a part of the
government's shareholding in the public sector would be offered to mutual funds,
financial institutions, general public and workers.
iv. Boards of public sector companies would be made more professional and given greater
powers.
v. There will be a greater thrust on performance improvement through the Memoranda of
understanding (MOU) systems through which managements would be granted greater
autonomy and will be held accountable. Technical expertise on the part of the
Government would be upgraded to make the MOU negotiations and implementation
more effective.
vi. To facilitate a fuller discussion on performance, the MOU signed between Government
and the public enterprise would be placed in Parliament. While focussing on major
management issues, this would also help place matters on day to day operations of public
enterprises in their correct perspective.
E. MRTP Act
i. The MRTP Act will be amended to remove the threshold limits of assets in respect of
MRTP companies and dominant undertakings. This eliminates the requirement of prior
approval of Central Government for establishment of new undertakings, expansion of
undertakings, merger, amalgamation and takeover and appointment of Directors under
certain circumstances.
ii. Emphasis will be placed on controlling and regulating monopolistic, restrictive and unfair
trade practices. Simultaneously, the newly empowered MRTP Commission will be
authorised to initiative investigations suo moto or on complaints received from individual
consumers or classes of consumers in regard to monopolistic, restrictive and unfair trade
practices.
iii. Necessary comprehensive amendments will be made in the MRTP Act in this regard and
for enabling the MRTP Commission to exercise punitive and compensatory powers.

ANNEX I
PROPOSED LIST OF INDUSTRIES TO BE RESERVED FOR THE
PUBLIC SECTOR

1. Arms and ammunition and allied items of defence equipment, Defence aircraft and
warships.
2. Atomic Energy.
3. Coal and lignite.
4. Mineral oils.
5. Mining if iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.
6. Mining of copper, lead, zinc, tin, molybdenum and wolfram.
7. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use)
Order, 1953.
8. Railway transport.

ANNEX II
LIST OF INDUSTRIES IN RESPECT OF WHICH INDUSTRIAL LICENSING WILL
BE COMPULSORY

1. Coal and Lignite.

2. Petroleum (other than crude) and its distillation products.
3. Distillation and brewing of alcoholic drinks.
4. Sugar.
5. Animal fats and oils.
 6. Cigars and cigarettes of tobacco and manufactured tobacco substitutes.
7. Asbestos and asbestos-based products.
8. Plywood, decorative veneers, and other wood based products such as particle board,
medium density fibre board, block board.
9. Raw hides and skins, leather, chamois leather and patent leather.
10. Tanned or dressed furskins.
11. Motor cars.
12. Paper and Newsprint except bagasse-based units.
13. Electronic aerospace and defence equipment; All types.
14. Industrial explosives, including detonating fuse, safety fuse, gun powder, nitrocellulose
and matches.
15. Hazardous chemicals.
16. Drugs and Pharmaceuticals (according to Drug Policy).
17. Entertainment electronics (VCRs, colour TVs, C.D. Players, Tape Recorders).
18. White Goods (Domestic Refrigerators, Domestic Dishwashing machines, Programmable
Domestic Washing Machines, Microwave ovens, Airconditioners).
Note: The compulsory licensing provisions would not apply in respect of the small-scale units
taking up the manufacture of any of the above items reserved for exclusive manufacture in small
scale sector.
ANNEX III
LIST OF INDUSTRIES FOR AUTOMATIC APPROVAL OF
FOREIGN TECHNOLOGY AGREEMENTS AND FOR
51% FOREIGN EQUITY APPROVALS

1. Metallurgical Industries
i. Ferro alloys.
ii. Castings and forgings.
iii. Non-ferrous metals and their alloys.
iv. Sponge iron and pelletisation.
v. Large diameter steel welded pipes of over 300 mm diameter and stainless steel pipes.
vi. Pig iron.
2. Boilers and Steam Generating Plants
3. Prime Movers (other than electrical generators)
i. Industrial turbines.
ii. Internal combustion engines.
iii. Alternate energy systems like solar wind etc. and equipment therefor.
iv. Gas/hydro/steam turbines upto 60 MW.
4. Electrical Equipment
i. Equipment for transmission and distribution of electricity including power and
distribution transformers, power relays, HT-switch gear synchronous condensers.
ii. Electrical motors.
iii. Electrical furnaces, industrial furnaces and induction heating equipment.
iv. X-ray equipment.
v. Electronic equipment, components including subscribers' end telecommunication
equipments.
vi. Component wires for manufacture of lead-in wires.
vii. Hydro/steam/gas generators/generating sets upto 60 MW.
viii.Generating sets and pumping sets based on internal combustion engines.
ix. Jelly-filled telecommunication cables.
x. Optic fibre.
xi. Energy efficient lamps and
xii. Midget carbon electrodes.
5. Transportation
i. Mechanised sailing vessels upto 10,000 DWT including fishing trawlers.
ii. Ship ancillaries.
iii. (a) Commercial vehicles, public transport vehicles including automotive commercial
three wheeler jeep type vehicles, industrial locomotives.
(b) Automotive two wheelers and three wheelers.
(c) Automotive components/spares and ancillaries.
iv. Shock absorbers for railway equipment and
v. Brake system for railway stock and locomotives.
6. Industrial Machinery
i. Industrial machinery and equipment.
7. i. Machine tools and industrial robots and their controls and accessories.
ii. Jigs, fixtures, tools and dies of specilised types and cross land
tooling, and
iii. Engineering production aids such as cutting and forming tools, patterns and dies and
tools.
8. Agricultural Machinery
i. Tractors.
ii. Self-propelled Harvestor Combines.
iii. Rice transplanters.
9. Earth Moving Machinery
i. Earth moving machinery and construction machinery and components thereof.
10. Industrial Instruments
i. Indicating, recording and regulating devices for pressures, temperatures, rate of flow
weights levels and the like.
11. Scientific and Electromedical Instruments and Laboratory Equipment.
12. Nitrogenous & Phosphatic Fertilizers falling under
i. Inorganic fertilizers under '18-Fertilizers' in the First Schedule to IDR Act, 1951.
13. Chemicals (other than fertilizers).
i. Heavy organic chemicals including petrochemicals.
ii. Heavy inorganic chemicals.
iii. Organic fine chemicals.
iv. Synthetic resins and plastics.
v. Man made fibres.
vi. Synthetic rubber.
vii. Industrial explosives.
viii.Technical grade insecticides, fungicides, weedicides, and the like.
ix. Synthetic detergents
x. Miscellaneous chemicals (for industrial use only)
a. Catalysts and catalyst supports.
b. Photographic chemicals.
c. Rubber chemicals.
d. Polyols.
e. Isocyanates, urethanes, etc.
f. Speciality chemicals for enhanced oil recovery.
g. Heating fluids.
h. Coal tar distillation and product therefrom.
i. Tonnage plants for the manufacture of industrial gases.
j. High altitude breathing oxygen/medical oxygen.
k. Nitrous oxide.
l. Refrigerant gases like liquid nitrogen, carbondioxide etc.in large volumes.
m. Argon and other rare gases.
n. Alkali/acid resisting cement compound
o. Leather chemicals and auxiliaries.
14. Drugs and Pharmaceuticals
According to Drug Policy.
15. i. Paper and pulp including paper products.
ii. Industrial laminates.
16. i. Automobile tyres and tubes.
ii. Rubberised heavy duty industrial beltings of all types.
iii. Rubberised conveyor beltings.
iv. Rubber reinforced and lined fire fighting hose pipes.
v. High pressure braided hoses.
vi. Engineering and industrial plastic products.
17. Plate Glass
i. Glass shells for television tubes.
ii. Float glass and plate glass.
iii. H.T. insulators.
iv. Glass fibres of all types.
18. Ceramics
i. Ceramics for industrial uses.
19. Cement Products
i. Portland cement.
ii. Gypsum boards, wall boards and the like.
20. High Technology Reproduction and Multiplication Equipment.
21. Carbon and Carbon Products
i. Graphite electrodes and anodes.
ii. Impervious graphite blocks and sheets.
22. Pretensioned High Pressure RCC Pipes.
23. Rubber Machinery
24. Printing Machinery.
i. Web-fed high speed off-set rotary printing machine having output of 30,000 or more
impressions per hour.
ii. Photo composing/type setting machines.
iii. Multi-colour sheet-fed off-set printing machines of sizes 18"x25" and above.
iv. High speed rotograture printing machines having output of 30,000 or more impressions
per hour.
25. Welding Electrodes other than those for Welding Mild Steel
26. Industrial Synthetic Diamonds.
27. i. Photosynthesis improvers.
ii. Genetically modified free living symbiotics nitrogen fixer.
iii. Pheromones.
iv. Bio-insecticides.
28. Extraction and Upgrading of Minor Oils
29. Pre-fabricated Building Material.
30. Soya Products
i. Soya texture proteins.
ii. Soya protein isolates.
iii. Soya protein concentrates.
iv. Other specialised products of soyabean.
v. Winterised and deodourised refined soyabean oil.
31. (a) Certified high yielding hybrid seeds and synthetic seeds and
(b) Certified high yielding plantlets developed through plant tissue culture.
32. All food processing industries other than milk food, malted foods, and flour, but
excluding the items reserved for small-scale sector.
33. All items of packaging for food processing industries excluding the items reserved for
small scale sector.
34. Hotels and tourism-related industry.

ARTICLE 2

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Lead Story
From liberation to liberalisation
News

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The process of reforms and liberalisation of the
PM Interview Indian economy, though started in mid-1980s,
 received a big push in 1991, says Shashikant
New Projects Hegde.
The liberalisation policy unveiled in July 1991,
Orders & Contracts initiated wide ranging policy and regulatory reforms.
Industry was freed from Licence Raj', public sector
Transport monopoly was removed from most of the sectors,
quantitative restrictions on imports were either
Power reduced or removed completely, upper cap on
sectoral FDI was raised considerably or removed
completely, the number of industries reserved for
Special Feature:
small scale sector was pruned considerably and
India Infrastructure
private investment was invited in sectors like
electricity, telecommunications, roadways, ports,
etc.
Sister Concern On the financial front, exchange rate was allowed to
be determined by market forces, financial markets
were liberalized, companies were allowed to tap the
Archives capital markets freely by abolishing the office of
Controller of Capital Issues.
Below an attempt is made to list out reform
measures taken in major sectors.
Food processing: Food processing industry was
one of the heavy beneficiaries of the liberalization.
The sector was dominated by small organization.
The dereservation of sectors identified for small
scale sector attracted increased investment by large
corporates and MNCs.
As per the new policy, industrial license not required
for setting up food & agro processing plants. FDI up
to 100 per cent is allowed under the automatic route
in the food parks, cold chain and warehousing and
under licensing in distilleries. Imports of capital
goods including second hand machines are exempt
from customs duties.
Sugar: Sugar was subject to a number of controls
regulating its production, supply and prices in the
pre-liberalisation period. The sector was delicensed
in September 1998. Sugar companies are now free
to set up new factories or expand their existing
capacities without requiring any license. The only
stipulation required is maintenance of radial
distance of 15 km between the existing sugar
factory and the new one.
Further, the compulsory levy on sugar was reduced
from 40 per cent of its production in 1991 to 10 per
cent in March 2002. Sugar Development Fund
(Amendment) Act, was passed in May 2002 to
extend finance from the Fund for co-generation
units and for production of anhydrous alcohol or
ethanol from alcohol.
Pharmaceutical: In 1991, the industrial licensing for
the manufacture of all drugs and pharmaceuticals
(except a few bulk drugs) was abolished. Further, in
February 1999, reservation on five drugs reserved
for public sector was also abolished.
Foreign investment through automatic route is
allowed up to 100 per cent. Further, automatic
approval for Foreign Technology Agreements is
being given in the case of all bulk drugs and
formulations, except a few. Rebate is also given on
in-house R&D expenses.
Today around 75 per cent of the drugs
manufactured by the pharma companies are
outside price control. The industry wants complete
freedom from price controls.
Textiles: Though licensing was abolished in 1991, a
separate National Textile Policy was formulated in
2000 with an object to facilitate the textiles sector to
attain and sustain global standing in the
manufacture and export of clothing. Technological
upgradation, productivity enhancement and
increased exports are the main thrust areas of the
policy.
The Indian textile industry suffers from severe
technological obsolescence and lack of economies
of scale. To assist textile companies to modernise,
Technology Upgradation Fund Scheme was made
operational from 1 April 1999. With effect from
January 1, 2002, the scheme was extended to the
small scale textile and jute mills.
Oil & hydrocarbons: As per the prevailing policy,
foreign companies can invest up to 100 per cent of
the equity in any venture in the petroleum sector
subject to approval of the government. New
Exploration Licensing Policy (NELP) was launched
in January 1999 by the government for accelerating
the pace of hydrocarbon exploration in the country.
So far 199 blocks have been awarded under six
rounds of NELP.
The success of this measure is yet to be seen as
the country's crude oil production has stagnated at
around 33,00 mtpa for the last 15 years.
The Government has opened up the refining sector
to private investment. FDI up to 100 per cent is
allowed. Private companies are also encouraged to
invest in the marketing of petroleum products. After
the initial hiccup, the sector has started attracting
Indian as well as foreign companies' attention off
late. The total refining capacity is expected to cross
220 million tonne mark by 2012.
Cement: Cement industry was one of the first
sectors to experience the benefits of liberalization.
In February 1982 partial decontrol was introduced in
cement and a liberal policy was adopted in respect
of price and distribution. MRTP/FERA companies
were allowed to set up projects.
Cement was decontrolled fully in March 1989 and
delicensed in July 1991. It has also been listed as a
priority industry in Schedule III of the Industry Policy
Statement making it eligible for automatic approval
for foreign investment up to 51 per cent.
The industry has responded very well to the
government policies and today is the second largest
producer of cement in the world. The total cement
manufacturing capacity is expected to increase from
170 million tonne to 250 million tonne by 2012.
Steel: The Indian iron and steel industry was
deregulated in January 1992. The erstwhile control
mechanism was dismantled paving the way for a
market-centric industry. As per the extant policy, no
license is required to setup steel mills. Further, the
industry has been removed from the list of
industries reserved for the public sector. Automatic
approval of foreign equity investment up to 100 per
cent is allowed. Price and distribution controls have
been removed from January, 1992. Restrictions on
external trade, both in import and export have also
been removed. Import duty rates have been
reduced drastically.
In the recent years, the country has seen huge
increase in project investment in this sector. Till
date, around 116 MoUs are signed to produce
around 180 million tonne of steel. The total steel
making capacity is expected to cross 120 million
tonne by 2012. Large Indian steel companies Tata,
Jindal and Essar are also expanding their overseas
capacities through acquisition route.
Automobiles: Auto industry is one of the
beneficiaries of the industrial reforms. The new auto
policy announced by the government in 2002
opened the automobile sector to 100 per cent
foreign direct investment and removed the minimum
capital investment norm for fresh entrants.
This led to a spate of investment intentions in the
passenger cars and commercial vehicles segment.
Today, almost every major international automobile
manufacturer has a presence in India. Besides
aiming to tap the growing domestic market,
multinationals intends to make India as an export
hub to cater to their global demands.
Power: The passage of the Electricity Act 2003 in
June 2003 is termed as an important landmark in
the liberalisation of the power sector. Following this,
the power generation was delicensed, captive
generation was set free from all controls, power
trading was recognized as an independent activity
and open access was granted on transmission and
distribution activities.
In addition to amending the Electricity Act twice, the
government also set up the Central Electricity
Regulatory Commission (CERC), the State
Electricity Regulatory Commissions (SERCs) to fix
and regulate tariffs from time to time.
Despite these measures, power sector grew at a
very slow pace. Though enough private proposals
are pending for setting up new capacities, delay in
clearance of projects and the poor financial
conditions of state electricity boards have prevented
them from committing huge investments.
Power distribution: To strengthen the power
distribution system in the country and to lessen the
transmission loss the government of India approved
a scheme called Accelerated Power Development
and Reforms Programme (APDRP) in March 2003.
Under this scheme the central government will fund
50 per cent of the project cost undertaken by state
governments. The scheme has also identified 63
distribution circles as ideal for distribution reforms.
Though 16 states have opted for the scheme the
pace of reforms is very slow.
Telecommunications: The phenomenal growth
recorded in the telecom sector shows what
economic reforms can achieve. Though the
government faltered in the beginning in privatising
the sector, the corrective measures taken through
the new National Telecom policy of 1999 ensured
enough competition in areas like basic and cellular
services, national long distance and Internet
services. The Telecom Regulatory Authority of India
(TRAI) was constituted in 1997 as an independent
regulator in this sector.
The growth of Indian telecom network has been
over 30 per cent consistently during the last five
years. The total number of telecom subscribers has
already crossed the 200 million landmark and is
expected to grow further.
The 'Broadband Policy' announced in October
2004, expects to achieve a target of 40 million
internet subscribers and 20 million broadband
subscribers by 2010.
Roads: For sustained economic growth existence of
well connected roadways network is a must. To
ensure this, the government established the
National Highways Authority of India. NHAI
announced National Highway Development
Programme to upgrade the national highways in
1995. Further, to strengthen the rural connectivity
the Pradhan Mantra Gramodaya Yojana (PMGY)
was launched in December 2000 to provide
connectivity to rural India.
NHAI was entrusted with the responsibility of
implementing a greatly expanded National
Highways Development Project spread over seven
phases with an estimated expenditure of
Rs.2,20,000 crore. NHAI intends to execute most
portion of the NHDP through public private
partnership. In all 24,000 km length national
highways will be created in the next 10 ten years.
Model concession code is being developed to
ensure higher participation from private parties.
The Central government has created a dedicated
fund called Central Road Fund (CRF) from
collection of cess on petrol and diesel. The fund is
utilised for development and maintenance of
national highways, state roads and rural roads.
Though private companies are willing to invest in
road building, they are currently wary of decent
returns on their investments. If government ensures
 this through a lucrative model concession
agreement, the response from private sector would
be phenomenal.
Shipping: India has 12 major ports and around 180
minor and intermediate ports. Barring a few no
other ports are of international standard. To attain
this heavy infusion of funds is required. This can be
achieved only with private participation.
The shipping ministry unveiled the Rs 100,400 crore
National Maritime Development Policy in December
2005. Around half of the proposed investment is
expected from the private sector. To ensure this the
government allowed private participation in
construction and operation of container terminals,
bulk and specialized cargo berths, warehousing ,
dry dock and ship repair facilities, etc. However, the
sector has managed to get only lukewarm reaction
from the private sector.
SEZ: It seems Indian government is in a hurry to set
up SEZs across the country. The Special Economic
Zone Act 2005 was enacted in February 2006. The
government expects investment of the order of Rs
100,000 crore over the next three years.
So far 234 applications have been cleared by the
Board of Approvals at the Union level and of which
100 SEZs have been notified at state levels.
Though private sector response was huge, the
wavering stands taken by the Union government in
the recent past has made private investors to adopt
a wait and watch policy before committing huge
investments.

[07 May 2007]

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ARTICLE 3
India was a latecomer to economic reforms, embarking on the process in earnest only in 1991,
in the wake of an exceptionally severe balance of payments crisis. The need for a policy shift
had become evident much earlier, as many countries in east Asia achieved high growth and
poverty reduction through policies which emphasized greater export orientation and
encouragement of the private sector. India took some steps in this direction in the 1980s, but it
was not until 1991 that the government signaled a systemic shift to a more open economy with
greater reliance upon market forces, a larger role for the private sector including foreign
investment, and a restructuring of the role of government.

India’s economic performance in the post-reforms period has many positive features. The
average growth rate in the ten year period from 1992-93 to 2001-02 was around 6.0 percent, as
shown in Table 1, which puts India among the fastest growing developing countries in the
1990s. This growth record is only slightly better than the annual average of 5.7 percent in the
1980s, but it can be argued that the 1980s growth was unsustainable, fuelled by a buildup of
external debt which culminated in the crisis of 1991. In sharp contrast, growth in the 1990s was
accompanied by remarkable external stability despite the east Asian crisis. Poverty also
declined significantly in the post-reform period, and at a faster rate than in the 1980s according
to some studies (as Ravallion and Datt discuss in this issue).

We review policy changes in five major areas covered by the reform program: fiscal deficit
reduction, industrial and trade policy, agricultural policy, infrastructure development and social
sector development

Reforms in Industrial and Trade Policy

Reforms in industrial and trade policy were a central focus of much of India’s reform effort in the
early stages. Industrial policy prior to the reforms was characterized by multiple controls over
private investment which limited the areas in which private investors were allowed to operate,
and often also determined the scale of operations, the location of new investment, and even the
technology to be used. The industrial structure that evolved under this regime was highly
inefficient and needed to be supported by a highly protective trade policy, often providing tailor-
made protection to each sector of industry. The costs imposed by these policies had been
extensively studied (for example, Bhagwati and Desai, 1965; Bhagwati and Srinivasan, 1971;
Ahluwalia, 1985) and by 1991 a broad consensus had emerged on the need for greater
liberalization and openness. A great deal has been achieved at the end of ten years of
gradualist reforms.

Industrial Policy
Industrial policy has seen the greatest change, with most central government industrial controls
being dismantled. The list of industries reserved solely for the public sector -- which used to
cover 18 industries, including iron and steel, heavy plant and machinery, telecommunications
and telecom equipment, minerals, oil, mining, air transport services and electricity generation
and distribution -- has been drastically reduced to three: defense aircrafts and warships, atomic
energy generation, and railway transport. Industrial licensing by the central government has
been almost abolished except for a few hazardous and environmentally sensitive industries. The
requirement that investments by large industrial houses needed a separate clearance under the
Monopolies and Restrictive Trade Practices Act to discourage the concentration of economic
power was abolished and the act itself is to be replaced by a new competition law which will
attempt to regulate anticompetitive behavior in other ways.
The main area where action has been inadequate relates to the long standing policy of
reserving production of certain items for the small-scale sector. About 800 items were covered
by this policy since the late 1970s, which meant that investment in plant and machinery in any
individual unit producing these items could not exceed $ 250,000. Many of the reserved items
such as garments, shoes, and toys had high export potential and the failure to permit
development of production units with more modern equipment and a larger scale of production
severely restricted India’s export competitiveness. The Report of the Committee on Small Scale
Enterprises (1997) and the Report of the Prime Minister’s Economic Advisory Council (2001)
had both pointed to the remarkable success of China in penetrating world markets in these
areas and stimulating rapid growth of employment in manufacturing. Both reports recommended
that the policy of reservation should be abolished and other measures adopted to help small-
scale industry. While such a radical change in policy was unacceptable, some policy changes
have been made very recently: fourteen items were removed from the reserved list in 2001 and
another 50 in 2002. The items include garments, shoes, toys and auto components, all of which
are potentially important for exports. In addition, the investment ceiling for certain items was
increased to $1 million. However, these changes are very recent and it will take some years
before they are reflected in economic performance.
Industrial liberalization by the central government needs to be accompanied by supporting
action by state governments. Private investors require many permissions from state
governments to start operations, like connections to electricity and water supply and
environmental clearances. They must also interact with the state bureaucracy in the course of
day-to-day operations because of laws governing pollution, sanitation, workers’ welfare and
safety, and such. Complaints of delays, corruption and harassment arising from these
interactions are common. Some states have taken initiatives to ease these interactions, but
much more needs to be done.

A recently completed joint study by the World Bank and the Confederation of Indian Industry
(Stern, 2001) found that the investment climate varies widely across states and these
differences are reflected in a disproportional share of investment, especially foreign investment,
being concentrated in what are seen as the more investor-friendly states (Maharashtra,
Gujarat, Karnataka, Andhra Pradesh and Tamil Nadu) to the disadvantage of other states (like
Uttar Pradesh, Bihar and West Bengal). Investors perceived a 30 percent cost advantage in
some states over others, on account of the availability of infrastructure and the quality of
governance. These differences across states have led to an increase in the variation in state
growth rates, with some of the less favored states actually decelerating compared to the 1980s
(Ahluwalia, 2002). Because liberalization has created a more competitive environment, the pay
off from pursuing good policies has increased, thereby increasing the importance of state level
action. Infrastructure deficiencies will take time and resources to remove but deficiencies in
governance could be handled more quickly with sufficient political will.

Foreign Direct Investment

Liberalizing foreign direct investment was another important part of India’s reforms, driven by
the belief that this would increase the total volume of investment in the economy, improve
production technology, and increase access to world markets. The policy now allows 100
percent foreign ownership in a large number of industries and majority ownership in all except
banks, insurance companies, telecommunications and airlines. Procedures for obtaining
permission were greatly simplified by listing industries that are eligible for automatic approval up
to specified levels of foreign equity (100 percent, 74 percent and 51 percent). Potential foreign
investors investing within these limits only need to register with the Reserve Bank of India. For
investments in other industries, or for a higher share of equity than is automatically permitted in
listed industries, applications are considered by a Foreign Investment Promotion Board that has
established a track record of speedy decisions. In 1993, foreign institutional investors were
allowed to purchase shares of listed Indian companies in the stock market, opening a window
for portfolio investment in existing companies.
These reforms have created a very different competitive environment for India’s industry than
existed in 1991, which has led to significant changes. Indian companies have upgraded their
technology and expanded to more efficient scales of production. They have also restructured
through mergers and acquisitions and refocused their activities to concentrate on areas of
competence. New dynamic firms have displaced older and less dynamic ones: of the top 100
companies ranked by market capitalization in 1991, about half are no longer in this group.
Foreign investment inflows increased from virtually nothing in 1991 to about 0.5 percent of GDP.
Although this figure remains much below the levels of foreign direct investment in many
emerging market countries (not to mention 4 percent of GDP in China), the change from the
pre-reform situation is impressive. The presence of foreign-owned firms and their products in
the domestic market is evident and has added greatly to the pressure to improve quality.
Privatization
The public sector accounts for about 35 percent of industrial value added in India, but although
privatization has been a prominent component of economic reforms in many countries, India
has been ambivalent on the subject until very recently. Initially, the government adopted a
limited approach of selling a minority stake in public sector enterprises while retaining
management control with the government, a policy described as “disinvestment” to distinguish it
from privatization. The principal motivation was to mobilize revenue for the budget, though there
was some expectation that private shareholders would increase the commercial orientation of
public sector enterprises. This policy had very limited success. Disinvestment receipts were
consistently below budget expectations and the average realization in the first five years was
less than 0.25 percent of GDP compared with an average of 1.7 percent in seventeen countries
reported in a recent study (see Davis et.al. 2000). There was clearly limited appetite for
purchasing shares in public sector companies in which government remained in control of
management.

In 1998, the government announced its willingness to reduce its shareholding to 26 percent and
to transfer management control to private stakeholders purchasing a substantial stake in all
central public sector enterprises except in strategic areas.1 The first such privatization occurred
in 1999, when 74 percent of the equity of Modern Foods India Ltd. (a public sector bread-
making company with 2000 employees), was sold with full management control to Hindustan
Lever, an Indian subsidiary of the Anglo-Dutch multinational Unilever. This was followed by
several similar sales with transfer of management: BALCO, an aluminium company; Hindustan
Zinc; Computer Maintenance Corporation; Lagan Jute Machinery Manufacturing Company;
several hotels; VSNL, which was until recently the monopoly service supplier for international
telecommunications; IPCL, a major petrochemicals unit and Maruti Udyog, India’s largest
automobile producer which was a joint venture with Suzuki Corporation which has now acquired
full managerial controls.
The privatization of Modern Foods and BALCO generated some controversy, not so much on
the principle of privatization, but on the transparency of the bidding process and the fairness of
the price realized. Subsequent sales have been much less problematic and although the policy
continues to be criticized by the unions, it appears to have been accepted by the public,
especially for public sector enterprises that are making losses or not doing well. However, there
is little public support for selling public sector enterprises that are making large profits such as
those in the petroleum and domestic telecommunications sectors, although these are precisely
the companies where privatization can generate large revenues. These companies are unlikely
to be privatized in the near future, but even so, there are several companies in the pipeline for
privatization which are likely to be sold and this will reduce resistance to privatizing profit-
making companies.2

An important recent innovation, which may increase public acceptance of privatization, is the
decision to earmark the proceeds of privatization to finance additional expenditure on social
sector development and for retirement of public debt. Privatization is clearly not a permanent
source of revenue, but it can help fill critical gaps in the next five to ten years while longer term
solutions to the fiscal problem are attempted. Many states have also started privatizing state
level public sector enterprises. These are mostly loss making enterprises and are unlikely to
yield significant receipts but privatization will eliminate the recurring burden of financing losses.
1