Libralisation – IV

Measures undertaken for liberalization

1] Delicensing policy
The industrial licensing policy was removed/abolished for all industries except six strategic industries ie hazardous chemicals, cigarette, alcohol, defence products, drugs and pharmaceuticals and industrial explosives. As a result the other industries were made free from bureaucratic control. Producers are allowed to produce goods of their choice according to the market demand without government approval.

2] Encouragement of Foreign Direct Investment/Liberalisation of foreign investment policy
Liberalisation followed a liberal policy in respect of foreign capital, foreign direct investment and investment by Non resident Indians. Many restrictions and limitations have been removed.
With a view to attract foreign investment in Indian industry government sanctioned automatic approval for FDI upto 51% equity in case of high investment high, priority industries. It also approved 74% and even upto 100% equity in some specified industries.
In order to attract NRI deposits a special scheme of income tax was introduced.

3] Encouragement to foreign technology/opening of Indian market
To attract foreign technology and to bring about improvement in Indian industries, Industrial Policy Resolution 1991 further liberalized foreign technology agreements. Automatic approval is given to, for foreign technology upto Rs 1 crore in high priority industries.
Under the policy of liberalization foreign capital, foreign tecjnology and foreign companies are given free entry in the Indian market. No permission is required for hiring foreign technicians. This helps to reduce cost of production and make industries more competitive.
At the same time Indian industrialists are also allowed to raise capital from foreign market and they are given freedom to export their products without restrictions. They are also allowed to set up their projects abroad eg Asian African and middle east counties.
Such a liberalized policy will promote a healthy competition in the domestic as well as international market.

4] Abolition of the Monopoly and Restrictive Trade Practices Act
This means that investment/asset limit of monopoly firms and dominant undertakings which was set upto Rs 100 crores under the MRTP Act was abolished.
This enabled these companies to establish new undertakings, expand the existing ones, prepare plans for mergers, amalgamations, takeovers and appointment of directors without prior approval of the government.
The MRTP Act was replaced by the Competition Act in 2002.

5] Permission to private sector
Liberalisation permitted the entry of new private sector banks and foreign banks In India. It gave freedom of operation to all scheduled commercial banks.
Insurance sector is also opened for the private sector.

6] Ended state monopoly
Except for some strategic industries from the point of view national security, which was retained in the public sector, the remaining production units were thrown open to the private sector.
The state monopoly therefore ended in many areas by reserving only three industries for public sector ie Railways, Energy and mineral industries.

7] Foreign Exchange Management Act [FEMA] was enacted
Foreign Exchange Regulation Act [FERA] was replaced by Foreign Exchange Management Act [FEMA] to make possible free flow of funds and goods and services in the global market.

8] Liberal trade policy
a] Import duties and tariffs were reduced gradually and imports were encouraged.
Import duties on machines, intermediate goods and raw materials needed for production were either reduced or removed. New companies can now purchase necessary foreign exchange from the open market for import purpose without government permission.
b] Export promotion of capital goods scheme was liberalized.
Under liberalization several concessions were allowed to promote export units eg duty drawback, cash compensatory support, 100% income tax exemption, duty free imports of spare parts and raw materials subject to export obligation. Excise duties were reduced on a number of goods.

9] Gold import was freed. It means that by paying a nominal duty gold could be imported upto 5 kg.

10] Deregulated interest rates
Interest rates were deregulated. It means interest rates are allowed to be determined by market forces of demand and supply.

11] Security Exchange Board of India [SEBI] AND Foreign Institutional Investors [FII]
a] SEBI was formed to protect the interest of the investors.
b] FII [insurance companies, mutual funds etc] were allowed to invest in primary and secondary markets.

12] Growth Centres
Government decided to set up 100 growth centers all over the country with an objective to create infrastructure facilities in backward areas for industrial development with participation of private setor in infrastructure development.

13] Liberalisation of industrial location
According to NEP 1991 the industries located in areas other than cities, having more than one million population do not require approval from the government. In cities with more than one million population, industries should be located outsid 25 Kms. However approval is to be obtained for industries subject to compulsory licensing.

14] Investment limit of small scale industries was raised
The investment limit in small scale units was raised to Rs 5 crores to promote modernization.

15] Restrictions on mergers, acquisitions and takeovers of production units were removed. Joint ventures with foreign countries were also allowed.

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