New Industrial Policy 1991

With an aim of “continuity with change” the New Industrial Policy of 1991 was introduced. This policy aimed at correcting the distortion and weakness of the Industrial Structure of the country that had developed since Nehru Era. This policy was a comprehensive document which was divided into 5 parts:

  • Industrial Licensing Policy
  • Foreign Investment
  • Foreign Technology Agreements
  • Public Sector
  • MRTP Act

A. Industrial Licensing Policy

This policy abolished the Industrial licensing 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. So, for all industries except mentioned below, Industrial Licensing was abolished.

  1. Arms and ammunition and allied items of defense equipment, Defence aircraft and warships.
  2. Atomic Energy.
  3. Coal and Lignite.
  4. Mineral oils.
  5. Mining of 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.
  • Please note that in this policy, industries reserved for the small scale sector were continued to be so reserved.
  • A provision was made that in cases where imported capital goods are required, automatic clearance is given, provided there is foreign exchange availability is ensured through foreign equity.
  • The towns where the population was more than 10 Lakh (Metro Cities), there was now no need to seek a Government Approval except those which were placed under compulsory licensing or attracted local restrictions.
  • The definition of Tiny Unit was changed and now a tiny unit was having an investment limit of Less than ` 5 Lakh.
  • Please note that today, the units where investment in Plant & Machinery is up to ` 25 lakh is called a “Tiny Enterprise”, irrespective of the location of the unit. This change was based upon the recommendation of Abid Hussain Committee.

Except the following 18 Industries, all were delicensed from the B & C Schedules of the Industrial Policy of 1956:

  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, Air conditioners).

B. Investments:

34 Industries were placed under the automatic approval route for direct foreign investment up to 51 percent foreign equity. It was promised that there will be no bottlenecks of any kind in this process provided that foreign equity covers the foreign exchange requirement for imported capital goods. A promise to carry out some amendments in Foreign Exchange Regulation Act (1973) was also made.

  • In the Industrial Policy of 1991, the NRIs were allowed to 100% equity investments on non-repatriation basis in all activities except the negative list.

C. Foreign Technology Agreements

Automatic permission was given for foreign technology agreements in high priority industries upto a lump sum 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.

D. Public Sector

A promise was made to review the portfolio of public sector investments with a view to focus the public sector on strategic, high-tech and essential infrastructure. This indicated a disinvestment of the public sector. The PSUs which were chronically sick and which are unlikely to be turned around were to be referred to the Board for Industrial and Financial Reconstruction (BIFR). It was promised that Boards of public sector companies would be made more professional and given greater powers.


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.

  • The MRTP Limit for MRTP companies was made ` 100 Crore.

The above reforms were introductory in nature and the series of reforms continued and are continuing even today.



  • olivia

    this general knowledge was very helpful for my exams its very interesting to read too since it is all given point wise.

  • Shanaya sharma

    Nice explanation

  • Ashif

    The first 8 items mentioned are not licensed sectors (as mentioned) – they are govt. monopoly sectors – please correct.