1991 Economic Reforms & Industrial Policy part 9

 Okay, here are the notes summarizing the key points from the Telugu lecture on Indian economic reforms, focusing on Industrial Reforms of 1991, Foreign Technology, and Foreign Investment policies:

Context: 1991 Economic Reforms & Industrial Policy

1. Background: Continuation of discussion on 1991 economic reforms, specifically focusing on Industrial Reforms.

2. New Industrial Policy (NIP) 1991:

   • Announced on July 24, 1991.

   • A cornerstone of the 1991 industrial reforms.

   • Shift in Focus: Differed significantly from previous policies that prioritized the Public Sector. NIP 1991 emphasized and gave importance to the Private Sector.

   • Introduced principles of LPG (Liberalization, Privatization, Globalization) into the industrial framework.

3. Key Measures under NIP 1991 (Recap):

   • Abolition of Industrial Licensing (Licensing Raj).

   • Reforms/Restructuring of Public Sector Undertakings (PSUs).

   • Replacement of FERA (Foreign Exchange Regulation Act) with FEMA (Foreign Exchange Management Act).

   • Replacement of MRTP (Monopolies and Restrictive Trade Practices) Act with the Competition Act.

   • Initiation of the Privatization process.

Topic 1: Relaxations Regarding Foreign Technology (విదేశీ సాంకేతిక పరిజ్ఞానానికి సంబంధించిన సడలింపులు)

1. Definition: In this context, "Technology" primarily refers to Machinery and Equipment (యంత్రాలు). Foreign Technology means importing and using foreign machinery.

2. Pre-1991 Situation:

   • Public Sector Undertakings (PSUs) heavily relied on imported technology (e.g., Steel Plants - Rourkela from Germany, Bhilai/Bokaro from USSR, Durgapur from UK). The government facilitated these imports.

   • Private Sector faced strict restrictions. They needed prior government permission to import foreign technology/machinery.

   • Rationale for Restrictions: To protect small-scale industries and prevent market domination by large private companies using superior foreign technology (e.g., permission denied for advanced power looms to protect handloom weavers).

3. NIP 1991 Relaxation:

   • Rule Introduced: Automatic approval (no prior govt. permission needed) for importing foreign technology with a value up to ₹100 crore.

   • Condition: If the technology value exceeded ₹100 crore, prior government permission was still required.

   • Impact: Allowed Indian companies easier access to better machinery, leading to improved production quality and private sector growth. This was a key aspect of Liberalization.

4. Later Development (June 2016):

   • The Modi government removed the ₹100 crore ceiling.

   • Current Rule: Indian companies can import foreign technology of any value generally without prior government permission (automatic route).

5. Royalty: Companies using foreign technology often need to make royalty payments to the technology provider.

6. Example: Mahindra XUV700 using an engine based on German technology, imported and adapted. Showcases successful use of accessible foreign tech.

Topic 2: Foreign Direct Investment (FDI) Policy Changes

1. Pre-1991 Situation:

   • Foreign companies investing in India were limited to a maximum equity stake of 49%.

   • Minimum 51% stake had to be Indian.

   • This ensured Indian control over joint ventures.

2. Post-1991 Reforms:

   • Reflecting globalization commitments (e.g., to IMF).

   • FDI limits were liberalized. Foreign companies were allowed more than 49% stake.

   • Sector-Specific Caps: FDI limits became dependent on the sector, ranging from 51% up to 100%.

   • 100% FDI: Allowed in many sectors, enabling full foreign ownership.

3. Facilitation Bodies:

   • FIPB (Foreign Investment Promotion Board): Established in Feb 1992 to invite and facilitate FDI, streamlining approvals (later moved online).

   • FIPB Abolished (around 2017): Replaced by a system often involving DIPP (now DPIIT - Department for Promotion of Industry and Internal Trade), aiming for faster online approvals.

4. Sector-Specific FDI Limits (Examples Discussed):

   • Prohibited Sectors (Black List - No FDI): Lottery, Betting, Gambling, Casino, Chit Funds, Nidhi Companies, Atomic Energy, core Space & Defense activities.

   • 20% Cap: Public Sector Banks (PSBs).

   • 26% Cap: Print Media (Newspapers, Current Affairs), Digital Media (News, Current Affairs).

   • 49% Cap (Examples): Pension Sector, Power Exchanges, Broadcasting Content Services (DTH/Cable - cap varies), Stock Exchange Infrastructure, Airlines (Automatic route), Telecom (Automatic route - speaker's info, now largely 100%).

   • 51% Cap: Multi-Brand Retail Trading (Requires 49% Indian partner).

   • 74% Cap (Automatic Route Examples): Brownfield Pharma, Brownfield Biotechnology (requires 26% Indian stake). Insurance & Defense mentioned as having this cap before further liberalization.

   • 100% Cap (Examples - Large List): Greenfield Pharma/Biotech, Agriculture, Animal Husbandry, Hotels, Tourism, Infrastructure (Railways, Airports, Ports, Roads), Manufacturing (Chemicals, Motors, Electronics, Textiles, Automobiles), E-commerce (Marketplace), Renewable Energy, Leather Products, Food Processing, SEZs, Industrial Corridors, White Label ATMs, Single Brand Retail Trading (with conditions), Coal & Lignite Mining, Insurance (speaker says 100%, recent change), Defense (100% possible with Govt. approval).

5. Key Distinctions:

   • Brownfield vs. Greenfield: Brownfield (investing in existing company, often lower caps like 74% auto) vs. Greenfield (setting up new company, often higher caps like 100% auto).

   • Automatic vs. Approval Route: Many sectors allow FDI up to a certain limit automatically; higher stakes require specific government approval.

Examination Focus:

• Understanding the shift from pre-1991 restrictions to post-1991 liberalization.

• Knowing the key policy changes regarding foreign technology access and FDI.

• Being aware of sector-specific FDI limits, especially those with caps lower than 100% (e.g., 20%, 26%, 49%, 51%, 74%) and prohibited sectors.

• Understanding concepts like Royalty, FIPB, DIPP/DPIIT, Brownfield/Greenfield, Multi-Brand/Single-Brand retail.