New Industrial Policy 1991

 New Industrial Policy 1991

PURA Model (Provision of Urban Amenities to Rural Areas) is an economic model that helps in the transformation and development of rural parts of India.


The New Industrial Policy 1991 specifies the significant roles of public, private, joint & co-operative sector, etc. This policy entails the government’s vision towards the industries, industrial establishment, their functioning, progress and management. This Industrial policy was designed to create a high wave of industries in the country with high productivity, foreign investments, and diversity in ownership.

Objectives of New Industrial Policy 1991

The New Industrial Policy, 1991 was implemented to liberate the industrial industry from the shackles of the licensing system which had no space for the role of the public sector. Moreover, the policy seeks to increase foreign investment in the country’s industrial development. The other main objectives of the new industrial policy 1991 are:  

  •     Relieving the country from regulations like licenses and controls.
  •     Providing support to the small scale sector.
  •     Increasing the competitive culture among the industries to benefit the public at large.
  •     Providing more incentives to the backward areas and their local people.
  •     To ensure a fast pace of industrial development to cope with the developed countries.
  •     In order to liberalize the economy from varied government restrictions.
  •     To liberate the private sector, to work independently.
  •     To ensure the increment in exports and liberalize imports.
  •     To increase employment opportunities
  •   To liberalize the economy

Reason to implement this Policy

After the varied policies like Industrial policy Resolution 1948, 1956, 1973, 1977, and 1980 all of which sought to increase the industrial development in the country. However, the need of the hour was increasing the foreign investment, liberalizing the industrial sector, increasing innovations and developing a competitive culture among the industries in India.

Salient Features of New Industrial Policy 1991

Localisation Policy

After this policy, if any industrialist seeks to implant industry in a city comprising less than 1 million population, then prior permission of the government is required. For the cities having a population of more than 1 million, other than pollution-free industries, all industries are supposed to establish their plants 25 km away from the boundary of the city.

Liberalization policy

This policy exempts all the industries except 18 industries, from the licensing procedures and system. Those exceptional 18 industries comprise Army & Defense, Forest Conservation, goods manufacturing Industries, etc.

Foreign Investment

This policy has provisions for favoring foreign investments. It is provided to invest up to 51 per cent by foreign companies in the equity shares of companies in India. This move and vision of the Indian government shall help to increase the flow of foreign capital into Indian markets.

Role of Public Sector

This policy will act as a backbone for those public sectors, which are at the edge of their downfall. Those public sectors that are not doing well in their sector, but have the potential to improve, shall be reconstituted. Various public sectors undergoing regular financial crises shall be kept under observation by the “Board of Industrial and Financial Reconstruction” or by any other Central Government Organisation.

Worker’s Participation in Management

This policy is worker-friendly, it has provisions that empower the worker to participate in the management discourse of the industrial unit. This has been done in order to manage sick units

Foreign Technology

With the foreign investment and foreign imports, this policy has created a positive impact by attracting foreign technology. Now, no such prior permission is required while importing any foreign tech machine worth up to One Crore rupees. Now, Indian companies are free to bargain and negotiate on their own terms without any prior permission from the government of India.

Other Important Provisions


The idea of liberalization relaxes the industrial sector from all the restrictions on domestic economic activities along with the trade relation with foreign countries, resulting in benefit to the economy of India. Liberalization releases the thread of the economy from bureaucracy and restrictions imposed by the state. This policy seeks to provide greater freedom to the businessman by reducing the governmental control instruments. Other important features of the policy are privatization of the public sector, Globalization and a market-friendly state.

The main features of liberalization are:

  •     Free from government control and freelance to private ownership.
  •     Capital markets are open for private businessmen.
  •     Reducing the traffic in licensing policy.
  •     Better opportunity for completion.
  •     Open gates to compete with foreign companies.
  •     Widened the scope of business and trade.
  •     Opportunity to purchase foreign funds at the market rate.


The policies for industries prior to these new industrial policies were enacted for aiming at the Industrial development of the country. However, this new policy deters various restrictions, which were earlier restricting the development of the industries within the country. New Industrial Policy 1991 has played an important role in encouraging foreign investment in the economy of the country and opened channels for domestic and international competition.