Merits and demerits of new industrial policy
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The important strength of the new policy can be identified as follows.
i. The New Industrial Policy made a bonfire of the industrial licensing system through various provisions. There has been a move away from extensive physical controls and an increase in the role of financial incentives in channelling investments in the desired direction. This, plus the lowering of the tax rates combined with better administration of the revenue collection system, is expected to attract more economic enterprise and investment.
ii. There is considerable internal deregulation aimed at strengthening the more efficient domestic firms and encouraging them to invest and expand. This is expected to inject much more competition into the system, creating incentives for reducing costs
Major Weaknesses of New Industrial Policy, 1991:
The new industrial policy suffers from a number of weaknesses. Among these, the more important are as follows:
i. Absence of suitable policy for exports:
Today, the high-tech industries are receiving a similar emphasis as was granted to their basic industry counterparts in the past based on the infant industry argument. In the environment of limited export incentives and regulated labour markets there seems little reason to believe that today’s infants will provide an engine for growth consistent with the present targets.
ii. Distortions in industrial pattern owing to selective inflow of investments:
In the current phase of investment following liberalisation, while substantial investments have been flowing into a few industries, there is concern over the slow pace of investments in many basic and strategic industries such as engineering, power, machine tools, etc. This is mainly due to the low rate of return in these sectors, which is less than that in the new or ‘sunrise’ industries (e.g. IT sectors). Such distortions in the investment pattern need to be rectified for ensuring balanced growth of industries in the country.
i. The New Industrial Policy made a bonfire of the industrial licensing system through various provisions. There has been a move away from extensive physical controls and an increase in the role of financial incentives in channelling investments in the desired direction. This, plus the lowering of the tax rates combined with better administration of the revenue collection system, is expected to attract more economic enterprise and investment.
ii. There is considerable internal deregulation aimed at strengthening the more efficient domestic firms and encouraging them to invest and expand. This is expected to inject much more competition into the system, creating incentives for reducing costs
Major Weaknesses of New Industrial Policy, 1991:
The new industrial policy suffers from a number of weaknesses. Among these, the more important are as follows:
i. Absence of suitable policy for exports:
Today, the high-tech industries are receiving a similar emphasis as was granted to their basic industry counterparts in the past based on the infant industry argument. In the environment of limited export incentives and regulated labour markets there seems little reason to believe that today’s infants will provide an engine for growth consistent with the present targets.
ii. Distortions in industrial pattern owing to selective inflow of investments:
In the current phase of investment following liberalisation, while substantial investments have been flowing into a few industries, there is concern over the slow pace of investments in many basic and strategic industries such as engineering, power, machine tools, etc. This is mainly due to the low rate of return in these sectors, which is less than that in the new or ‘sunrise’ industries (e.g. IT sectors). Such distortions in the investment pattern need to be rectified for ensuring balanced growth of industries in the country.
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