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Indian Economic Policy

Notes (i) To free the Indian industrial economy from the unnecessary bureaucratic procedures;
(ii) To liberalise the Indian economy in order to integrate it with the world economy;
(iii) To free the domestic entrepreneur from the restrictions of Monopolies and Restrictive Trade
Practices (MRTP) Act and attract direct foreign investment; and
(iv) Disinvestment of public sector enterprises which were incurring losses.
Liberalisation of the Economy
Removal of Industrial Licensing : Under liberalisation, all industrial licensing was abolished.
However, 18 industries sector were to continue under the reservation list which was related to security
and strategic concerns, social reasons, hazardous chemicals and over-riding environmental reasons
and items of elitist consumption industries reserved for the small scale. Now, only five industries
need industrial licensing.
Dereservation of SSI Items : Now, even the Small-Scale Industry (SSI) has been forced to face both
domestic and international competition. It is true to begin with the Government decided to continue
reservation of items under the SSI sector. Subsequently, it withdrew reservation in several SSI items
every year.
Withdrawing MRTP Restrictions : The process freed big business houses to undertake expansion
and establishment of new undertakings and to undertake mergers, amalgamations and takeovers.
The thrust of policy in future would be more on controlling unfair or restrictive business practices in
the country.
Privatisation of the Economy : There are two ways to view privatisation. Broadly, it means the
enlargement of the scope of the private sector in the growth of the economy. However, in a narrow
sense, it means the induction of private ownership in a public sector undertaking. After 1991, the
private sector is considered as the engine of growth. The new environment has assigned an increasing
role for the private sector and restricted role of public sector. The scope of the public sector will now
be narrowed down to providing infrastructure such railways, electricity, roads and in providing
social infrastructure in health and education. Privatisation in economic sphere may include the
following :
(a) Total Denationalisation : It means complete transfer of ownership of a public enterprise to
private hands.
(b) Joint Venture : It is the partial induction of private ownership from 25 to 50% or even more in
a public sector enterprise. There are three kinds of proposals as given below :
(i) The private sector to have 26% ownership and workers also to be included to the extent of
5% equity to be transferred to them.
(ii) 51% equity and sells with the Government and 49% equity to the private sector.
(iii) Private sector to be transferred 74% of the equity, while the Government to retain 26%
with Government veto power.
The main objective of the transfer of ownership is that it will enable the joint venture to improve
productivity of assets and convert them into profitable concerns. In the first variant, doubts
have been raised as if it will be able to achieve the desired results since the Government continues
its domination with 74% ownership. In the second variant, there is substantial transfer of
ownership (49%) of the share to the private sector. Here, the private sector, being a big partner,
is likely to acquire a significant role in the decision-making process. In the third variant, the
basic structure of enterprise gets transformed and transfers 74% ownership to the private sector
which means that decision-making power in all policy matters is transferred to the private
sector. At the same time, the Government has the veto power but it cannot use it frequently. It
is the private sector which will occupy a dominant position in the management and operation
of the enterprise under the third variant.
(c) Workers’ Cooperative : The transfer of ownership of a loss-making concern to the workers is
yet another form of privatisation. The reason for the proposal is that workers besides receiving
wages for work, would also be entitled to a share in ownership dividend. It is assumed that

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