The 1991 Industrial Policy had far-reaching effects on the Indian economy, significantly benefiting corporate entities by abolishing the industrial licensing system, a long-sought reform. Additionally, the thresholds for establishments governed by the Monopolistic and Restrictive Trade Practices (MRTP) Act) were raised, reducing bureaucratic constraints on businesses.
One of the major reforms was the increase in foreign investment caps to 51%, which led to an influx of foreign industries into India. While this boosted capital inflows and modernization, it also challenged existing national industries and strained local resources, resulting in ongoing protests and agitation from affected groups.
Government-run industries, which accounted for only 3% of the total industrial sector, experienced declining profits, highlighting the need for privatization. The policy directed struggling public sector enterprises to the Board for Industrial and Financial Reconstruction (BIFR) for restructuring or closure. However, this led to workforce reductions and job losses, fueling criticism of the policy’s impact on employment.
A significant drawback of the policy was its role in exacerbating unemployment. The closure of several unprofitable industries resulted in large-scale layoffs, intensifying concerns about job security and the social impact of economic liberalization. While foreign investment increased, the policy did not provide an effective solution to unemployment, leading to mixed opinions on its long-term benefits.
Moreover, the surge in foreign capital investments raised concerns over national sovereignty. To accommodate these changes, the Foreign Exchange Regulation Act (FERA) of 1973 was amended. Later, in 1998, FERA was completely replaced by the Foreign Exchange Management Act (FEMA), which liberalized foreign exchange policies and further encouraged foreign investment, resulting in a substantial increase in foreign capital inflows into the Indian economy.