Solution:

Industrial Licensing: July 1991 Changes

• The process of liberalization got a fillip with the announcement of the new industrial policy in July 1991.

• The major provisions relating to industrial licensing in this policy can be summarised as follows :

• (i) Industrial licensing will be abolished for all projects except for a short list of 18 industries related to security and strategic concerns, social reasons, hazardous chemicals, and overriding environmental reasons, and items of elitist consumption.

• (ii) In projects where imported capital goods are required, automatic clearance will be given in a case where foreign exchange available is ensured through foreign equity or where the CIF value of imported capital goods required is less than 25% of the total value of the plant and equipment, up to the maximum value of Rs. 2 crores.

• (iii) The system of phased manufacturing programs run on an administrative case-by-case basis will not apply to new projects. Existing projects with such programs will continue to be governed by them.

• (iv) Existing units will be provided a new broad banding facility to enable them to produce any article without any additional investment.

• (v) The exemption from licensing will apply to all substantial expansions of existing units.

• (vi) All existing registration schemes will be abolished.

• (vii) Entrepreneurs will henceforth be required to file an information memorandum on new projects and substantial expansions.

• (viii) The mandatory convertibility clause will no longer be applicable for term loans from the financial institutions for new projects.