Industrial Policy Resolution, 1985 & 1986

The industrial policy resolutions announced by the governments in 1985 and 1986 were very much similar in nature and the latter tried to promote the initiative of the former. The main highlights of the policies are:

(i) Foreign investment was further simplified with more industrial areas being open for their entries. The dominant method of foreign investment remained as in the past, i.e., technology transfer, but now the equity holding of the MNCs in the Indian subsidiaries could be upto 49 per cent with the Indian partner holding the rest of the 51 per cent shares.

(ii) The ‘MRTP Limit’ was revised upward to Rs. 100 crore—promoting the idea of bigger companies.

(iii) The provision of industrial licencing was simplified. Compulsory licencing now remained for 64 industries only.19

(iv) High level attention on the sunrise industries such as telecommunication, computerisation and electronics.

(v) Modernisation and the profitability aspects of public sector undertakings were emphasised.

(vi) Industries based on imported raw materials got a boost.20

(vii) Under the overall regime of FERA, some relaxations concerning the use of foreign exchange was permitted so that essential technology could be assimilated into Indian industries and international standard could be achieved.

(viii) The agriculture sector was attended with a new scientific approach with many technology missions being launched by the government.

These industrial policies were mooted out by the government when the developed world was pushing for the formation of the WTO and a new world

economic order looked like a reality. Once the world had become one market, only bigger industrial firms could have managed to cater to such a big market. Side by side sorting out the historical hurdles to industrial expansion perpetuated by the past industrial policies, these new industrial policy resolutions were basically a preparation for the globalised future world.

These industrial provisions were attempted at liberalising the economy without any slogan of ‘economic reforms’. The government of the time had the mood and willingness of going for the kind of economic reforms which India pursued post-1991 but it lacked the required political support.21

The industrial policies conjoined with the overall micro-economic policy followed by the government had one major loophole that it was more dependent on foreign capital with a big part being costlier ones. Once the economy could not meet industrial performance, it became tough for India to service the external borrowings—the external events (the Gulf war, 1990–91) vitiated the situation, too. Finally, by the end of 1980s India was in the grip of a severe balance of payment crisis with higher rate of inflation (over 13 per cent) and higher fiscal deficit (over 8 per cent).22 The deep crisis put the economy in a financial crunch, which made India opt for a new way of economic management in the coming times.