2.1.3. Assessment of Pre-1991 Industrial Policy

The pre-1991 industrial policies created a climate for rapid industrial growth in the country. It helped to create broad-based infrastructure and basic industries. A diverse industrial structure with self-reliance on a large number of items had been achieved. At the time of independence the consumer goods industry accounted for almost half of the industrial production. In 1991 such industries accounted for only about 20 percent. In contrast capital goods production was less than 4 percent of the total industrial production. In 1991 it had gone up to 24 percent.

Industrial investment took place in a large variety of new industries. Modern management techniques were introduced. An entirely new class of entrepreneurs came up with the support system from the Government, and a large number of new industrial centers were developed in most parts of the country. Over the years, the Government built the infrastructure required by the industry and made massive investments to provide the much-needed facilities of power, communications, roads etc. A good number of institutions were promoted to help entrepreneurship development, provide finance for industry and to facilitate development of a variety of skills required by the industry.

However, the implementation of industrial policy suffered from shortcomings. It is argued that the industrial licensing system promoted inefficiency and resulted in the high-cost economy. Licensing was supposed to ensure creation of capacities according to plan priorities and targets. However, due to considerable discretionary powers vested in the licensing authorities the system tended to promote corruption and rent-seeking. It resulted into pre-emption of entry of new enterprises and adversely affected the competition. The system, opposite to its rationale, favored large enterprises and discriminated against backward regions. The Government announced a number of liberalization measures in the industrial policy of 1970, 1973 and 1980. However, dramatic liberalization efforts were made in the industrial policy, 1991.