The year 1991 stands out as a watershed in the economic history of India. Suddenly things changed. The country that had remained for many years unexposed to any significant economic change, was thrown open to revolutionary changes almost overnight.

First, came the decision on devaluation of the rupee. Closely following the announcement on devaluation came the New Trade Policies. Before the nation could digest the meaning of the New Trade Policies, the announcements on the New Industrial Policies started bombarding the people. The Budget that followed, a path breaking one by all counts, continued the sequence. More changes followed throughout 1991 and 1992, touching each and every aspect of the economy of the country. All these measures together constitute the New Economic Policies (NEP).

Why these Changes

By mid 1991, the economy of India had hit an all-time low. It was an unprecedented crisis, which the country was facing in the days immediately preceding the introduction of the NEP. The Indian economy was facing a critical situation marked by a huge fiscal deficit, a serious balance of payments position, a double-digit inflation and stagnant industrial production.

Huge fiscal deficits

Over a period of time, the fiscal deficits of the Central Government had risen to a disturbing level. Rising interest repayment obligations, heavy outflow on subsidies mounting budgetary support to PSUs and larger outflow towards assistance to States had pushed the budgetary as well as fiscal deficits up. The budgetary deficit for 1990-91 stood at the alarming figure of Rs. 11,347 crore. Fiscal deficit had skyrocketed to Rs. 44,650 crore. The budgetary deficit for the five-year period 1985-86 to 1990-91, taken together, had exceeded Rs. 48,000 crore.

An ever-increasing internal debt had accentuated the effect of the fiscal deficit. The debt had risen to Rs. 1,51,037 crore in 1990-91. In fact, if the other liabilities were to be taken into account, the total debt came to Rs. 3,06,876 crore. Servicing of the borrowings by way of interest payment alone amounted to Rs. 26,750 crore which formed more than one third of the total non-plan expenditure of the Central Government.

Alarming BOP situation

The foreign exchange reserves of the country were dwindling steadily and had nose-dived to the rock bottom of Rs. 2400 crore ($1.1bn) by June 1991, which was barely enough to pay for two weeks imports. The situation was so serious that 67 tonnes of gold had to be shipped out of the country and mortgaged abroad to avoid default of international obligations. Trade deficits accumulated over the years was the main factor that led to the grave impoverishment of exchange reserves. In 1990-91 alone, the trade deficit was of the order of Rs. 10,800 crore. While imports were burgeoning, exports failed to catch up. Besides trade deficits, the external debt was also mounting up year by year. The debt servicing obligations became a major contributor to the external deficits, the eventual BOP’ crisis and the steep decline in foreign exchange reserves. By 1990-91, foreign debts had zoomed to Rs. 1,40,000 crore, excluding NRI deposits.

Economy reeling under high inflation

The economy was also reeling under high inflation and prices were continuously rising. Inflation rate had climbed to 13 per cent by June 1991.

Deficit financing and Bop crisis had together contributed greatly to inflation. Excess liquidity on account of fiscal deficits had increased price pressures and poor Bop precluded imports of essential goods and containment of inflation through short-term supply management.

Stagnant industrial production

There were two main problems:

(i)  Shortage of bank credit, and

(ii) Shortage of imported inputs due to the forex crisis.

The country was in the grip of draconian curbs on imports. Added to that, the banking system was on a tight leash. The Government had imposed severe restrictions on credit limits for industry. In respect of L/Cs for imports they had prescribed crippling cash margins. They had also brought in an erratic interest regime. These moves meant a double damage-curtailment of credit availability and enhancement of the cost of credit. As a result, industry became stagnant.

Crisis on all fronts

The other familiar ills of the economy also continued as in the past. The public sector did not generate the surplus it was supposed to generate. The Government had to continue providing budgetary support to many PSUs. Subsidies were also mounting and had an unsettling effect on Government’s finances. Non-plan expenditure of the Government on account of the overstaffed and under productive Government establishments was also rising continuously. There was also a reduction in revenues, on account of slowing of industrial production.

The Eighth Five Year Plan of the country was a nonstarter in 1990-91, which should have been the first year of the plan. And even the allocations for the plan for 1991-92 had not been made.

BOP Crisis Pulled the Trigger

While the country faced crises on all fronts all of them were pushing the Government inexorably towards drastic economy reforms, it was the Bop crisis that actually triggered off the whole process and ushered in the new economic programme of the country.

An understanding of the background relating to the Bop position is essential for appreciating how the Bop crisis actually precipitated matters and became the immediate cause of action for the course correction of the economy. And at the outset, it must be appreciated that there were two crises on the foreign exchange front and they together gave rise to the Bop crisis:

i.          A crisis of falling exchange reserves.

ii.         A crisis of confidence on the part of the international community regarding India’s ability to meet her foreign exchange obligations.

Falling foreign exchange reserves

For the Indian economy, foreign exchange had always remained scarce. In fact, the country had to find a quick and drastic solution. The Government felt that a hefty loan from the IMF alone could serve as the way out. In fact, the Government did not have any alternative. Even during the tenure of the previous Government, things had moved towards this end and negotiations had taken place with the IMF. Appreciating the gravity of the situation, the new Government without losing a day, activated the IMF loan proposal.

IMF conditionalities

The IMF has consistently been maintaining that for achieving a respectable economic break through, India must carry out radical economic reforms consisting of liberalisation, macro economic adjustments and structural reforms. Quite naturally, the IMF put forward a package of conditionalities to be fulfilled for India to become eligible for the large loan, as in its view such steps were essential for India to achieve the kind of breakthrough required. India’s independent assessment too revealed that by and large the kind of reforms indicated by the IMF were actually required at this juncture.

The IMF conditionalities covered such areas as fiscal reforms, especially fiscal deficit reduction, tax reforms, liberalisation of industrial and trade policies, removal of the archaic barriers to the integration of the country’s economy of Bop, public sector restructure including disinvestment, removal of subsidies, ushering in market related price environment in place of administered price system, monetary reforms, financial sector reforms, capital market reforms and exit policy.

The IMF conditions were not at all light. In the normal course, a country like India would have found these conditions difficult to accept and implement, and hence would have wavered. But now, India’s own judgment was that the predicament she was in called for such a remedy. There was a general recognition that things had gone too far, and it was time for the country to effect a major course correction. Under different circumstances, India would perhaps have opted for a softer alternative-a gradual process of course correction. But with the Bop position in such shambles and with inflation zooming as it did, there was no way the situation could be handled through a gradual process. The course correction had to be put through immediately. The IMF loan along with the conditionalities perhaps coincided with this general feeling getting formulated in the country. In short, the launching pad was set for India to embark on a massive programme of economic restructure.

AN OVERVIEW OF THE NEP

So far an attempt has been made to narrate the circumstances that led the country to the New Economic Policies. The remaining part of this chapter, presents a synopsis of the new policies.

Three Components of NEP

The policies and measures introduced under the new economic programme sought to serve three distinct purposes.

Some of them were aimed at freeing industry and trade from the vice like grip of control

Some others sought to reform the macro economy of the country and its economic institutions; and

Yet others had the objective of changing the structural infirmities, which had accumulated over the years and were retarding the economic progress.

In economic parlance, these are termed as liberalisation, economic reforms and structural adjustments, respectively.

Liberalisation includes changes in industrial and trade policies, aimed at freeing industry from the shackles of the licensing system and restrictions on imports and exports.

Economic reforms go beyond liberalisation. They include reforms of fiscal and monetary policies, besides liberalisation of trade and industrial policies. They also encompass reform of the economic institutions.

Structural adjustment is even larger in its sweep; it is an all-encompassing process, containing elements of liberalisation, elements of economic reforms and other elements having a bearing on employment and income distribution. Structural adjustment amounts to a drastic course correction and therefore a more painful process for an economy to go through. The role of external agencies by means of conditionalities is also substantive in the case of structural adjustment. As an economy moves from liberalisation to structural adjustment, the scope, direction and rate of change in the policy parameters also alter drastically.

It should, however, be made clear that liberalisation, economic reforms and structural adjustment should not be viewed as watertight and mutually exclusive compartments of the NEP. To a large extent they are overlapping. This division has been made here only because these three elements do represent the three basic dimensions of the changes to which the Indian economy has been subjected since June 1991. Such a three-fold division would facilitate a clearer understanding of the multifaceted shake up of the economy brought about by the package of policies and measures.

While the policies and measures launched in each of these groups are elaborately handled in chapters 2 to 5, a brief overview of all these measures is being provided here.

Liberalisation

One of the prime movers of the new economic policies was the sheer desire and compulsion of the Government to release industry and trade from the stifling Government controls. The effect was an all roundliberalisation, changing the very character of the country’s industry and foreign trade.

Liberalisation of industrial policy

The liberalisation exercises began with the introduction of major changes in the industrial policy, which amounted to a radical transformation of the entire industrial environment of India. A whole range of industries were liberated from the clutches of licensing and control. Besides, substantive changes were also introduced in other aspects of industrial policy like foreign investment, import of foreign technology, MRTP, FERA and the role of public sector. Together, they have come to be known as the New Industrial Policy (NIP).

Delicensing Of Industries and Removal of Restrictions on Foreign Investment

All industries, except eighteen industries specified by the Government, were delicensed in a bid to eliminate the main obstacles to industrial growth. Another major measure has been the abolition of existing registration schemes. A new broad-banding facility was also announced, giving more flexibility of operations to industries. In a bid to attract direct foreign investment, automatic clearance for foreign equity up to 51 per cent were allowed in 34 high priority industries. Automatic clearance has been given for import of capital goods where foreign exchange availability was ensured through foreign equity holding up to 51 per cent has been allowed for trading companies as well. Another important move was the creation of a specially empowered foreign investment board. An automatic permission scheme was introduced for foreign technology agreements and for royalty payments in specified high priority industries. For industries other than those covered in the above scheme too, automatic permission has been given provided no foreign exchange is required for any payments.

The above-mentioned liberalizations were only the starting point. In the next batch of moves, the Government further shortened the list of industries requiring licence, limiting it to a mere 14 times. As regards foreign investment too, the Government came up with a further dose of liberalisation. For example, it withdrew the restrictions on dividend repatriation by foreign investors. More importantly, the Government opened the power, hydrocarbon and electronics sectors for foreign investment in a big way.

Relaxation of FERA And MRTP

The new industrial policy brought about many changes in the Foreign Exchange Regulation Act (FERA) which had incorporated over the years a great deal of detailed administrative control over companies where the foreign equity exceeded 40 per cent. There were many other restrictions, which prevented Indian companies and Indian residents from entering into various types of commercial relations with companies abroad. Initially, the Reserve Bank of India liberalised the procedure by granting general exemption from several of these controls. In a later move, the Government amended comprehensively the Foreign Exchange Regulation Act and removed many of the restrictions.

Sweeping changes were made in respect of MRTP regulations as well. The MRTP Act was amended to altogether to do away with the threshold limit of the assets, which rendered a firm an MRTP company or a dominant undertaking. No MRTP clearance will now be required for investment applications. No approval is needed either for establishing new under takings, for implementing expansions, merges, amalgamations and takeovers. The existing restrictions on acquisition/transfer of shares also have been removed.

Curtailment of the Role of the Public Sector

The new policy also restricted public sector’s pre-eminent role. It now stands limited to eight core areas like arms and ammunition, atomic energy, railways, and mining and coal. Though reservation is retained for the public sector, there would be no bar against even these areas being opened up to the private sector. Another significant policy change is regarding disinvestment. According to the new policy, up to 49 per cent of Government’s share holding in public sector units can be disinvested. Chronically sick PSUs are to be referred to the Board for Industrial and Financial Reconstruction (BIFR) for rehabilitation.

Liberalisation of trade policy

The Government brought in radical changes in trade policy as well. At one stroke, most of the age old and unwarranted interventions in the export and import activities of the country were dismantled. The Government showed its determination to cast away the extreme caution that surrounded the trade policy and foreign investment policy all those years.

Liberalisation of Imports, Linking of Imports to Exports and Lowering Of Tariffs

According to the new dispensation, foreign trade became totally free, with all controls removed, subject only to a small non-permitted list of items; and imports were completely taken out of licensing hassles. The Government also decanalised most of the foreign trade. The canalisation agencies would henceforth act as any other trading house.

Exports and imports would be governed by a self-balancing system; imports will be made only with the forex earned and made available in the market by the exporters. Industrial units would enjoy all freedom to secure imports step up exports, generate foreign exchange resources for imports and thus continue the cycle.

The Government also brought about a general lowering of import tariffs. Over the years, a sharp cut in import duties had been thought of by successive governments so as to expose Indian industry to global competition, to make Indian products cost competitive internationally and to boost India’s exports. But the courage to act as lacking all these years.

Import of plant and machinery, which will result in exports, was given special concession in import duty. In general, the new policy chose to rely on tariffs and exchange rates rather than quantitative controls for controlling trade flow.

Convertibility/New Exchange Rate Systems

In the subsequent bouts of trade reforms, the Government came up with more innovative and daring change. Introduction of Partial Convertibility of the rupee/dual exchange rate system and Full Convertibility/unified exchange rate system were the most striking in this series. The dual rate system, which was termed Liberalised Exchange Rate Management System (LERMS) replaced the system of Exim Scrips and allowed all foreign exchange remittances into the country, through export earnings as well as remittances by expatriates, to be converted into rupee under a dual pricing mechanism by which 40 per cent of the amount would be surrendered to the RBI at rates determined officially and the remaining 60 per cent would be converted at market determined rates. The Government also decided in principle that as soon as possible, exchange controls, except on capital transactions, should be removed and the rupee made fully convertible so far as current account transactions were concerned. And in the budget of 93-94, the Government implemented the decision and made the rupee fully convertible on trade account.

Encouragement to exports, encouragement to foreign investment and integration of the country’s economy with the global economy

The Chief aims of the reforms were to boost India’s exports, to integrate India’s economy with the global economy and to attract foreign investment. In particular, the Government wanted foreign direct investment to flow India in ample measure, substituting India’s borrowings from abroad-from institutions as well as NRIs.

Pegging down India’s external debt and debt servicing obligations at a reasonable level was a major purpose of the new policies on the trade front. Since technology usually accompanies such investment, there was the powerful additional reason for wooing such funds. Measures specifically designed to bring in foreign investment formed a major part of the new policy. Appreciating that unless India carried out all round reforms, she would not attract foreign investments into the country, the Government employed a mix of trade reforms, industrial policy liberalisation and macro economic adjustments to attract foreign direct investment into the country.

The measures introduced through the ’94-94 budget in particular constituted a major leap towards integrating India’s economy with the global economy. Currency and trade barriers have been dismantled almost totally; import tariffs have been slashed drastically; liberation of even petro products from price/marketing control has been hinted at.

Along with the liberalisation measures aimed at increased freedom of operation for industry and trade, the Government introduced a series of reforms with long-term impact on the nation’s economy and its economic institutions. The reform package included fiscal reforms, monetary reforms, financial sector reforms, measures to contain inflation, measures to curb accumulation of public debt, measures aimed at effective Bop management and measures towards long term macro economic stabilization.

Fiscal and monetary reforms

The fiscal reforms centred around reduction of fiscal deficits, reforms of the tax system (direct and indirect tax system) and containment of public debt.

The Government brought down the fiscal deficit to 6.5 per cent of the GDP in ’91-92 from 8.5 per cent in ’90-91 and further down to 5 per cent and 4.5 per cent respectively in ’92-93 and ’93-94.

An overhauling of the tax system was also made, using the budgets for 1991-92, 1992-93 and 1993-94. The recommendations of the ChelliahCommittee on tax reform were partly implemented. Income tax rates were made moderate; maximum tax rate was limited to 40 per cent. The slabs also were rationalised. The income tax exemption limit was raised. Removal of some of the existing concessions and exemptions and a strengthening of tax existing concessions and exemptions and a strengthening of tax compliance were the other features of the direct tax reforms. Modification in the treatment of capital gains tax and wealth tax, changes in the assessment of partnership firms, and introduction of presumptive tax also formed a part of the reforms relating to the direct tax system. In the case of the indirect tax system, the changes included reduction in import duties including that on capital goods.

The Government also took firm steps for containing public debt. The firm steps for containing public debt. The steps centred around establishing strict discipline in Government borrowings, reduction of interest liability through premature retirement of public debt and use of the proceeds from disinvestment in PSUs and sale of Government real estate for buying back public debt. The Government also took steps for creating a public debt redemption fund.

The reforms in monetary and credit policy aimed at slowing down monetary expansion and arresting inflation. With this end in view, the Government jacked up the Bank rate with corresponding upward adjustments in the deposit rates and lending rates. It also introduced a stringent credit squeeze. Industry was told that they were free to raise their working capital through various financial instruments at higher interest rates. Credit control measures were extended to the state governments as well. RBI issued orders denying the state Governments overdrafts beyond one-week level.

Inflation Control

The Government introduced a series of measures to contain the mounting inflation, which had reached 17 per cent by August ’91. Pursuit of tight money policy including credit curbs and high interest rates, reduction of fiscal deficits, reduction of Government expenditure, reduction of subsidies, reduction in budgetary support to public sector undertakings and reduction in transfers and assistance to states were the measures adopted for containing inflation.

Financial sector reforms

The Government realised that the financial institutions of India, especially the banks, have not been functioning as viable commercial institutions. It appointed an expert committee under the chairmanship of M. Narasimham, former Governor of the RBI, to suggest the line of reforms required in the banking sector. And the committee’s report contained a whole gamut of suggestions for reforming the banking sector. The committee pointed out that the profitability of the banks is adversely affected mainly due to ‘directed investments’ and ‘directed credit’. To reduce directed investments, the committee recommended a substantial reduction of SLR, and opined that the SLR should be used only as a prudential requirement and not as a ready source of cheap finance to Government and the public sector. Regarding directed credit, the committee expressed the view that the pursuit of distributive justice should use the instrument of fiscal rather than the credit system and suggested that in any case there is no need for continuing to force the banks to lend at concessional rates to those who could stand on their own, whether in agriculture or in small industry.

A specific recommendation of the Narasimham committee has been to gradually phase out the directed credit programme, which at present takes away as much as 40 per cent of the total income generating activities of the entire banking sector.

The committee also recommended new norms of capital adequacy, income recognition, and loan loss provisions. Noting that the expenditure side had also contributed sizably to the erosion of profitability of the banks, the committee recommended a meaningful merger and amalgamation of the banks so as to eliminate the duplication and overlapping operations.

As the first step towards the implementation of the committee’s recommendations, the Government started a phased reduction of SLR and CRR and permitted a degree of flexibility to the banks in the matter of deposit interest rates. It also prescribed new norms of capital adequacy, income recognition, and loan loss provisions. In a more significant move, the Government allowed the public sector banks to go to the capital market and raise the required additional equity so as to strengthen their capital base and meet the new norms of capital adequacy. The Government also took the decision on partial disinvestment of the existing Government equity in the public sector banks. In fact, disinvestment up to 49 per cent of the total equity was permitted. And in a further move, the Government cleared the way for the setting up of new private sector banks in the country. How drastic this move was, could be easily understood if one noted the fact that for the past quarter century, ever since the bank nationalisation days, not a single private bank had been licensed in the country.

Clearly the Government was convinced that reform of the banking sector was absolutely necessary for not only facilitating the effective and productive deployment of the resources of individual banks but also to enable them to observe international norms and thereby meet international competition.

A series of innovative reforms were carried out in the capital markets. The private sector was allowed to set up natural funds; the ceiling on the acquisition of shares/debentures of India companies by non-resident Indians and overseas corporate bodies was raised under the portfolio investment scheme from 5 to 24 per cent; the Securities and Exchange Board of India (SEBI) has been made a statutory body; a scheme for the registration of sub brokers has been introduced to ensure investor protection; all restrictions on interest rates on debentures and public sector bonds other than tax free bonds, have been removed; interest rates on such instruments would be governed by market forces; guidelines on large issues-Rs. 500 crore and above-have been revised; and a new financial instrument, ‘stock invest’ has been introduced for payment of application money by investors. To cap it all, the office of Controller of Capital Issues (CCI) has been abolished, free pricing of shares has been allowed and bonus issues have been made more liberal. In fact, the capital markets of India have been allowed the liberalisation they have been clamouring for, all these years. Moreover, the package has been so designed as to attract the flow of public savings into the capital market and from there into industry.

The Government also opened up the capital markets of India to Foreign Institutional Investors (FIIs), by permitting FIIs such as pension funds, mutual funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers or their power of attorney holders to become players in the capital markets of India. A number of concessions were also extended to such investment. And by the beginning of 1993, investments by FIIs in Indian stock markets had become a reality, with a couple of FIIs actually putting in their money in some Indian scrips.

The liberalisation of industry and trade and the economic reforms were accompanied by programmes aimed at a structural adjustment of the economy. They were measures of course correction, and were supposed to demolish the very roots of some of the economic maladies faced by the country.

The structural adjustment measures consisted mainly of the elimination of subsidies and introduction of market driven price environment, pruning of Government establishment, restructure of the public sector undertakings, including disinvestment, and initiation of an exit policy for industry.

Axe on Subsidies and Introduction of A Market Driven Price Environment

Phasing out of subsidies and introduction of a market driven price environment for the products that were hitherto under the purview of administered prices, constituted the first package of structural adjustments. Subsidy on food, fertilizer and exports were the three major elements of subsidy by the Central Government. The adjustment process attacked all these subsidies. The Central committee on subsidies(CCS), which constituted the main element of export subsidy, was completely abolished. Food subsidy could not be handled with the same ease. The Government tried to contain it within limits. At a point of time, the Government was even considering limiting the food subsidy to the really vulnerable sections of the population, taking the relatively better off sections out of the public distribution system subsidized food supply programme. A little later the Government withdrew the subsidy on sugar and increased the price of ration sugar by as much as 20 per cent. It also decided in principle that sugar would no longer receive any subsidy.

As regards fertilizer subsidy, the Government applied the axe very decisively and took a number of steps towards reducing the subsidy. As the first step, it increased the fertilizer prices by 30 per cent across the board in July ’91. By this single decision, it brought down the fertilizer subsidy by Rs. 3,000 crore per annum. And more drastic measures followed. In August 1992, the Government totally decontrolled phosphatic, potassic and complex fertilisers. As a result, the retention price system (RPS) and the subsidies, which were in vogue in respect of these fertilisers for a decade and a half, were overnight dismantled. Only the nitrogenous fertilisers were left untouched; that too, as a matter of strategy. The withdrawal of subsides ushered in the era of market driven pricing in the fertilizer business after a 15 year regime of administered pricing and subsidies.

Next came the turn of petro products. The Government increased the prices of petroleum products by 18 per cent so as to reduce the subsidies on them substantially. The Government even considered the complete decontrol of prices of all petro products barring kerosene meant for domestic consumption. Such a decontrol was also to be applied to aspects other than pricing, such as refining and marketing. The Government also decided to open up the petro product sector for private/foreign equity participation. It was even considering granting of freedom to private/foreign companies to market petro products under their own brand names. These were moves towards making petro products eventually subsidy free and market driven. In fact, the entry of the private sector into kerosene and LPG, parallel marketing of the products at market determined prices and a dual price system had soon become a reality and the subsidies on these two products were brought down substantially.

Restructuring the public sector

Restructuring the public sector was the next major item on the adjustment agenda. Size reduction and efficiency improvement were the two main instruments employed by the Government for revamping the public sector. Size reduction was sought to be achieved through three different routes partial disinvestment of the Government equity in a number of PSUs cent percent privatisation of some units and closure of the unviable ones. Moreover, the very role of the public sector as a whole was redefined and its scope considerably truncated. The Government also decided that budgetary support would no longer be made to facilitate the capital expansion of any PSU. The PSUs would instead go to the market for expansion of their capital. The intention obviously was that the Government’s stake must be reduced through every possible route and thereby the size of the public sector component in the economy reduced.

By enacting the amended Sick Industrial Companies (special) provisions) Act, the Government made it mandatory that all sick and potentially sick companies in the public sector be referred to the Board for Industrial and Financial Reconstruction (BIFR) for rehabilitation suggestions, including amalgamation, lease outright sale and closure of the sick company. The most important feature of the new legislation is that the closure of a PSU is made possible by its provisions. Armed with the new legislation, the Government made it clear that it would close down patently unviable public sector out budgetary support to public sector units over a three-year period.

Disinvestment of Government equity in individual PSUs constituted the other major element of Government’s scheme on public sector restructure. The Government believed that disinvestment would bring about size reduction and efficiency improvement of the PSUs and also release the locked up funds for deployment for better purposes. The Government in fact, went on record that it sought to disinvest the Public Sector units so as to use the proceeds for providing for social services like education, health, water supply, rural development and so on.

It was becoming clear that the new policy would act as a prelude to the eventual privatisation of a large part of the Indian Public Sector.

Exit Policy

Recognition of the need to have an exit policy for industry was another important outcome of the new exercises. Though the Government could not straight away spell out an exit policy for industry, it recognised that the new industrial policy has to be taken to its logical conclusion and that the removal of entry barriers to industry must be accompanied by removal of exit barriers as well. Obviously, the Government needed more time to act. It decided to deal with this issue sector by sector. Tripartite committees were formed for taking a close examination of selected categories of industries. In the meantime, in a strategic step, the Government created the National Renewal Fund (NRF) for providing support to workers affected by industrial restructuring. This in effect meant that without spelling out an exit policy, the Government took the sequence wise second step of providing a cushion for the adverse effects an exit policy would ultimately cause. The NRF signified an acceptance of a situation where an exit policy was becoming a reality even without a pronouncement from the Government to that effect. And, the country was slowly getting prepared to receive the final pronouncement of a formal exit policy.