Liberalisation, Globalisation and Industrial Policy

What the official syllabus says

UPPCS Main Examination, General Studies III:

• Effects of liberalization and globalization on the economy, changes in industrial policy and their effects on industrial growth.

The line asks for the effects of the 1991 reforms on the economy and for the way industrial policy has changed, with its effect on industrial growth. A before-and-after comparison is the natural frame.

Topics in detail

Industrial policy before 1991

• Industrial Policy Resolutions of 1948 and 1956 (Schedules A, B and C)
• Industries (Development and Regulation) Act, 1951 and industrial licensing
• Monopolies and Restrictive Trade Practices Act, 1969; reservation for small-scale industry
• Industrial policy statements of 1977 and 1980; partial liberalisation in the 1980s
• Results: a diversified industrial base, but the 'licence raj', low competition and inefficiency

The reforms of 1991

• The balance of payments crisis of 1991
• New Industrial Policy (July 1991): abolition of licensing for most industries, fewer industries reserved for the public sector, removal of MRTP asset limits, automatic approval for foreign investment
• Liberalisation, privatisation and globalisation; disinvestment of public sector undertakings
• Trade reform: lower tariffs, removal of quantitative restrictions, current account convertibility of the rupee (1994)
• Financial sector reform (Narasimham Committee) and tax reform (Chelliah Committee)
• India and the World Trade Organization (1995)

Later changes in industrial policy

• Competition Act, 2002 and the Competition Commission of India
• Micro, Small and Medium Enterprises Development Act, 2006 and the revised MSME classification (2020)
• National Manufacturing Policy (2011), Make in India (2014), industrial corridors, Production Linked Incentive schemes (2020)
• Ease of doing business, single-window clearances, decriminalisation of minor offences
• Atmanirbhar Bharat and the debate on tariffs and import substitution

Effects on the economy and on industrial growth

• Higher growth after 1991, the rise of services, IT and software exports
• Growth of FDI and foreign portfolio investment; foreign exchange reserves
• Industrial growth: Index of Industrial Production, eight core industries, manufacturing's share of GDP
• Concerns: jobless growth, informalisation, slow manufacturing employment, agrarian distress, rising inequality
• Globalisation's wider effects: global value chains, outsourcing, exposure to external shocks such as the 2008 crisis
• Special Economic Zones (2005 Act) and export-led strategies

Public sector reform and disinvestment

• Role of public sector undertakings before and after 1991
• Navratna, Maharatna and Miniratna status and greater autonomy
• Disinvestment and strategic sale; the Department of Investment and Public Asset Management
• New Public Sector Enterprise Policy (2021): strategic and non-strategic sectors
• Asset monetisation in place of sale

Foreign investment policy

• Automatic and government routes for FDI; sectoral caps
• Foreign Exchange Management Act, 1999 replacing FERA, 1973
• Foreign portfolio investment and its volatility
• Debates: FDI in multi-brand retail, defence and insurance; screening of investment from neighbouring countries

Overlaps

• General Studies VI: trade, commerce and industries, investment, and power resources and industrial development in Uttar Pradesh.
• General Studies II: India's role in global and regional trade groupings.