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New industrial policies UPSC| New Economic Policies | Industry | Geography of India

 Table of Contents

  • Background
  • Economic Crisis 1991
  • New Industrial Policies
  • Stabilization Measures
  • Structural  Reforms
    • Liberalization
    • Privatization
    • Globalization
  • Evaluation of New Industrial Policies

Background of New Industrial Policies:

  • The financial crisis in 1991 happened; due to inefficient management of the Indian economy in the 1980s in the following sectors:
  • Taxation; high income and corporate tax lead to tax evasion
  • Running Public sector enterprises
  • Expenditure is more than income; government depends on a large share in social security and defense which did not give immediate results. Not focus to boost export.
  • The deficit from Bank, people, and international institutions
  • Growing Unemployment, poverty, and population exploitation

Economic crisis 1991:

The following are the main features of the economic crisis in 1991:

  • The Indian government was not able to pay loans borrowed abroad.
  • The foreign exchange reserve was depleted
  • Did not have sufficient reserve of petrol and important items 
  • Essential good prices roses
  • No international funding was willing to lend to India

India went to the world bank and IMF-Internation Monetary Fund for help and receive a 7$ billion loans IMF propose to liberalize and open the Indian Economy by removing private companies.

India New Economic Policy or New Industrial Policies:

It consists of economic reforms and it can be categorized into two groups:

  • Stabilization Measures
  • Structural  Reforms

Stabilization measures:

  • It is short terms measure and intended to correct the weakness of the economy such as:
  • Strengthen the balance of payments
  • Maintain sufficient foreign exchange
  • Inflation control

Structure reforms:

  • It is a long-term measure to improve the efficiency of the economy.
  • Increase competition by removing the barrier

It can be further categorized into three parts:

  • Liberalization
  • Privatization
  • Globalization


These policies were introduced to end the restriction. The following are major policies under liberalization:

  • Deregulation of Industrial Sectors
  • Financial Sector Reforms
  • Tax reforms
  • Foreign Exchanges reforms
  • Trade and Investment Policy reforms

Deregulation of Industrial Sectors:

The following were the old scenario:

  • The industrial licensing policy requires every entrepreneur to get permission from government officials to start the business, close the business, decide the amount of good produce.
  • Private sectors were not allowed to start a business in many sectors
  • Some goods were reserved for production only from small scale industries
  • Government has also control over price fixation

New reforms:

  • Abolished industrial licensing to all except alcohol, cigarettes, hazardous chemical, and pharma. chemical, aerospace
  • Only three sectors are reserved for public sectors that are defense equipment, atomic energy, and railways.
  • Dresser small scale industries product
  • The market allows fixing the price of goods

Financial Sector Reforms:

  • Reduce the role of RBI from regulated to facilitator of financial sectors. It leads to the establishment of private sector banks, from India as well as foreign.
  • Certain freedom is allowed without approval from RBI.

Tax reforms:

  • From 1991; individual income tax and corporate tax rate gradually reduce and now it is in a moderate position.
  • The introduction of GST also comes in Indirect tax reforms

Foreign exchange reforms:

  • Rupees were devalued against foreign currency leading to an increase in foreign currency
  • Now Market determines the exchange rate

Trade and Economic Policies reforms:

  • Reforms increase international competitiveness that leads to forced to adopt modern technology by local industries
  • To protect domestic industries; quantitative restriction was kept that gave time to local manufacturers to compete.
  • Export duties have been removed


  • Public enterprises are converted into private enterprises in two ways:
    • Through sharing down or disinvestment
    • Selling out


Globalization means the integration of the economy of the country with the world economy.

It is the outcome of various policies such as:

  • Creation of networks communication networks and ports
  • Transcending economic, social, and geographical boundaries
  • Globalization turned global into a borderless world.
  • Reflection of events caused in the USA can be observed and felt in India or other parts of the world.

Due to globalization, outsourcing of the supporting departmental works is being done to other companies. Some examples are:

  • Legal advice
  • Computer service outsourcing
  • Advertisement
  • Security

Evaluation of New Industrial Policies:

  • Growth in agriculture declined
  • Growth in manufacturing sectors fluctuates
  • Growth in the service sector has gone up
  • As of now, India is one of the major reservers of forex reserve
  • India is also an attractive destination for FDI
Try to solve the following questions:
  •  Explain the New Industrial Policies in India. (UPSC 2016, 200 words, 15 marks)

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