6. (a) What are the causes of industrial backwardness in India? Critically evaluate the role of the New Industrial Policy, announced in July 1991, towards correcting such backwardness.

Causes of Industrial Backwardness in India

India's industrial backwardness can be attributed to a confluence of historical, structural, and policy-related factors:

• Colonial Legacy and Economic Drain: British colonial rule systematically stifled indigenous industries, transforming India into a supplier of raw materials and a market for finished British goods. The 'economic drain' significantly depleted capital that could have been invested in industrialization.
• Inadequate Capital Formation: A persistent shortage of capital and low rates of investment hampered modernization and expansion. Many industries struggled to secure adequate financing, leading to outdated machinery and production methods.
• Poor Infrastructure: Lack of robust infrastructure, including reliable power supply, efficient transportation networks, and modern communication systems, historically impeded industrial growth. Industries faced high operational costs and logistical challenges.
• Technological Obsolescence and Lack of R&D: Many Indian industries operated with outdated technology due to import restrictions and insufficient investment in research and development. This resulted in low productivity, poor quality products, and limited global competitiveness.
• Bureaucratic Hurdles and "License-Permit Raj": The pre-1991 regulatory framework, characterized by stringent industrial licensing, quotas, and multiple bureaucratic clearances, created significant entry barriers, fostered corruption, and stifled entrepreneurial initiative and innovation.
• Shortage of Skilled Labour and Managerial Expertise: Despite a large population, a shortage of adequately skilled labour and efficient managerial systems often constrained industrial productivity and growth.
• Weak Industrial Policies (Pre-1991): The emphasis on import substitution and public sector dominance, while aiming for self-reliance, often led to inefficiencies, lack of competition, and a protected market that discouraged innovation and quality improvement. The Monopolies and Restrictive Trade Practices (MRTP) Act also limited the growth of large domestic firms.
• Limited Market Access and Demand: A predominantly agrarian economy with low per capita income meant limited domestic demand for industrial goods. Export opportunities were also constrained by global trade barriers and lack of competitiveness.

Critically Evaluating the Role of the New Industrial Policy, 1991

The New Industrial Policy (NIP) of 1991, introduced as a response to a severe balance of payments crisis, aimed at liberalizing, privatizing, and globalizing the Indian economy. It sought to correct industrial backwardness by dismantling the "License-Permit Raj" and integrating India with the global economy.

Key Reforms Introduced by NIP 1991:

• Abolition of Industrial Licensing: Except for a few strategic industries (initially 18, later reduced), industrial licensing was abolished, significantly reducing entry barriers for new businesses and allowing existing ones to expand freely.
• Dilution of Public Sector Dominance: The number of industries reserved for the public sector was drastically reduced from 17 to 8 (and further to just 2 – atomic energy and railways). This opened up vast sectors for private investment.
• Foreign Investment Liberalization: Automatic approval for Foreign Direct Investment (FDI) up to 51% (later increased) in many sectors was introduced, along with the replacement of the Foreign Exchange Regulation Act (FERA) with the more liberal Foreign Exchange Management Act (FEMA). This aimed to attract foreign capital and technology.
• MRTP Act Amendment: The asset limits for companies under the MRTP Act were removed, promoting larger-scale production and competitiveness.
• Facilitation of Technology Imports: Restrictions on technology imports were eased, allowing Indian industries to access modern production techniques and machinery.

Impact and Critical Evaluation:

The NIP 1991 had a profound, albeit mixed, impact on correcting industrial backwardness:

Aspect	Positive Impact (Correction)	Negative Impact / Limitations
Industrial Growth & Output	Unleashed entrepreneurial energy, leading to higher industrial output and diversification. Average annual growth of industries (mining, manufacturing, electricity) averaged 6.7% between 1991-92 and 2011-12, compared to lower pre-reform rates. Increased competition led to better quality products and greater consumer choice.	Initial deceleration in industrial growth (e.g., -0.1% in 1991-92). Growth remained volatile; industrial growth rate in the post-reform period was sometimes lower than in the pre-reform period (e.g., 5% during Ninth Plan). Disproportionate growth in certain sectors (e.g., services) compared to manufacturing.
Foreign Investment & Technology	Significant increase in FDI inflows, bringing in much-needed capital and advanced technology. Enabled technological upgradation and modernization of Indian industries.	FDI often concentrated in consumer goods rather than core infrastructure or heavy industries initially. Concerns over the dominance of multinational corporations and potential harm to domestic small and medium enterprises (SMEs).
Efficiency & Competitiveness	Increased domestic and international competition forced industries to become more efficient and quality-conscious. Reduced bureaucratic delays improved the ease of doing business.	Many traditional and uncompetitive public sector units faced closure, leading to job losses and social dislocation without adequate safety nets (e.g., National Renewal Fund was insufficient). Slow pace of labor law reforms hindered the creation of a flexible labor market.
Employment Generation	New industries and expanded existing ones created employment opportunities. Increased demand for skilled labor.	Job displacement due to modernization and closure of unviable units. Growth often observed in capital-intensive sectors, limiting the direct impact on large-scale employment generation, especially in manufacturing.
Regional Disparities	Attracted investment to industrial hubs, fostering regional growth.	Tendency for new industries to concentrate in already developed regions, exacerbating regional imbalances in industrial development.

While the NIP 1991 successfully unshackled Indian industry from the "License-Permit Raj" and fostered an environment of greater competition and technological adoption, it also presented challenges. The manufacturing sector's share in GDP, despite initial hopes, has not seen a drastic increase (around 17% in FY 2024-25, similar to 2013-14 levels), indicating persistent structural issues. Subsequent policies like 'Make in India' (2014) and Production Linked Incentive (PLI) schemes (2020 onwards) continue to build on the NIP's foundation, addressing specific gaps and aiming to make India a global manufacturing hub. For instance, the PLI schemes have attracted investments of ₹1.46 lakh crore as of August 2024, boosting production and exports in key sectors like electronics and pharmaceuticals.